<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 September 30, 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
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UST Inc.
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(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
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NONE
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(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
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Number of Common shares ($.50 par value) outstanding at
September 30, 1995. 193,299,736
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<PAGE> 2
UST Inc.
(Registrant)
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
Part I. Financial Information:
Condensed Consolidated Statement of Financial Position -
September 30, 1995 and December 31, 1994 2
Condensed Consolidated Statement of Earnings -
Three and nine months ended September 30, 1995 and 1994 3
Condensed Consolidated Statement of Cash Flows -
Nine months ended September 30, 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 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>
September 30, December 31,
1995 1994
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ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 54,706 $ 50,718
Accounts receivable 71,525 65,883
Inventories:
Leaf tobacco 123,122 104,313
Products in process and finished goods 105,494 115,261
Other materials and supplies 19,429 18,146
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248,045 237,720
Prepaid expenses and other current assets 43,774 27,616
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Total current assets 418,050 381,937
Property, plant and equipment, net 303,407 305,885
Other assets 53,393 53,414
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$774,850 $741,236
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $105,428 $104,558
Income taxes 50,507 56,197
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Total current liabilities 155,935 160,755
Long-term debt 125,000 125,000
Deferred income taxes 785 5,065
Postretirement benefits other than pensions 64,393 61,286
Other liabilities 35,976 27,461
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Total liabilities 382,089 379,567
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 201,832,936 shares in 1995,
and 200,343,636 shares in 1994. 100,916 100,172
Additional paid-in capital 372,119 343,390
Retained earnings 160,181 33,713
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633,216 477,275
Less cost of shares in treasury - 8,533,200
shares in 1995 and 4,233,200 shares in 1994 240,455 115,606
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Total stockholders' equity 392,761 361,669
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$774,850 $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 Nine months ended
September 30, September 30,
------------------------- ------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $334,268 $310,366 $980,546 $900,948
Costs and expenses
Cost of products sold 66,902 63,983 190,800 181,784
Selling, advertising and administrative 86,624 80,588 264,171 242,205
Interest expense (income), net 591 (142) 2,588 (114)
------- ------- ------- -------
Total costs and expenses 154,117 144,429 457,559 423,875
------- ------- ------- -------
Earnings before income taxes 180,151 165,937 522,987 477,073
Income taxes 70,196 65,607 203,929 188,499
------- ------- ------- -------
Net earnings $109,955 $100,330 $319,058 $288,574
======= ======= ======= =======
Net earnings per share:
Primary $.55 $.48 $1.59 $1.38
Fully diluted $.55 $.48 $1.59 $1.38
Cash dividends per common share $.32 1/2 $.28 $.97 1/2 $.84
Average number of common and common
equivalent shares outstanding:
Primary 198,579 207,786 200,046 208,878
Fully diluted 198,625 207,786 200,254 209,078
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(3)
<PAGE> 5
UST Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net cash provided by operating activities $310,015 $313,861
INVESTING ACTIVITIES
- --------------------
Purchases of property, plant and equipment, net (20,407) (16,056)
Net proceeds received from sales of businesses - 1,043
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Net cash used in investing activities (20,407) (15,013)
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FINANCING ACTIVITIES
- --------------------
Proceeds from long-term debt - 20,000
Proceeds from the issuance of common stock 29,473 29,975
Dividends paid (190,244) (170,418)
Common stock repurchased (124,849) (165,041)
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Net cash used in financing activities (285,620) (285,484)
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Increase in cash and cash equivalents 3,988 13,364
Cash and cash equivalents at beginning of year 50,718 25,327
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Cash and cash equivalents at end of period $54,706 $ 38,691
====== =======
- -------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes $204,203 $177,691
Interest 3,790 2,774
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(4)
<PAGE> 6
UST Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 and
nine month periods ended September 30, 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 September 30, 1995, an additional 4.3 million shares costing
$124.8 million were repurchased. Registrant intends, subject to market
conditions, to utilize the remaining $75 million available under its $200
million revolving credit facility to augment its share repurchase program in
the fourth quarter.
CONTINGENCIES
Registrant has been informed that it, among others, has been named in a
purported class action filed on July 24, 1995 seeking unspecified damages on
behalf of Kansas residents who were allegedly injured by the use of smokeless
tobacco products, including claims regarding nicotine addiction among others.
Registrant, as of the date of this filing, has not been served with the
complaint in this action. Based on the advice of counsel, Registrant believes
that there are a number of significant impediments that plaintiffs must
overcome before establishing any substantial liability on the part of
Registrant. As is the case with other tobacco-related litigation, Registrant
further believes that the numerous substantial issues in this action, including
but not limited to the class certification issue, will take years to resolve.
In addition, 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 cannot predict the eventual outcome of these actions. Based on
information currently available, including the advice of counsel, management
does not believe that the pending litigation will have a material adverse
effect on the financial position of Registrant. 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
Third quarter and nine months of 1995 compared
with the same periods of 1994
Net sales for the third quarter and nine months increased 8 percent and 9
percent, respectively, as compared with the corresponding periods in the prior
year. The Tobacco and Wine segments posted sales gains for both the third
quarter and nine-month period while sales for the Other segment were lower for
both periods. Higher selling prices for domestic moist smokeless tobacco was
the primary reason for the increase in consolidated net sales. Domestic unit
volume for moist smokeless tobacco increased 1.5 percent in the third quarter
and 0.5 percent for the nine-month period. Wine segment sales were
significantly higher in both periods due to an increase in case volume for
premium wine and bulk wine sales. Part of the increase in premium wine case
sales is attributable to early shipments to certain wholesalers of fourth
quarter holiday orders due to the lack of warehouse space. Other segment sales
decreased in both periods primarily due to volume declines for the
entertainment business.
Cost of products sold increased for both the third quarter and nine-month
period. Both periods included increased costs due to volume gains for wine
partially offset by volume declines for the entertainment business. The
nine-month period also included higher unit costs for domestic moist smokeless
tobacco. The overall gross margin percentage increased in both periods mainly
due to higher selling prices for domestic moist smokeless tobacco.
Selling, advertising and administrative expenses increased in both periods for
all segments. Increased selling and advertising expenses for the Tobacco
segment were directed at supporting and expanding consumer awareness of our
moist smokeless tobacco products through increased spending on print
advertising and consumer promotions, which included spending for a new
smokeless tobacco product introduction. Increased spending in the Wine segment
was for the promotion and support of our premium wine products, while cost
increases in the Other segment were to support new products and markets.
Administrative and other expenses increased in the nine-month period primarily
due to a charge resulting from recording the present value of future payments
due to the former president of United States Tobacco Company under the terms of
his employment contract. Increased spending for salaries and related costs and
professional fees also contributed to the increase in administrative expenses
for both periods.
Registrant incurred net interest expense in both periods as interest expense on
borrowings exceeded income from cash equivalent investments.
Net earnings for the third quarter and nine-month period increased 10 percent
and 11 percent, respectively, over the corresponding periods in the prior year.
Primary earnings per share increased 15 percent for both the third quarter and
nine-month period.
(6)
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
The Food and Drug Administration (FDA) has published in the Federal Register a
proposal to regulate tobacco products. The contents of the proposal include
unprecedented jurisdiction over the tobacco industry's ability to market,
promote and advertise their products. U.S. Tobacco Company, a subsidiary of
Registrant, filed suit in Federal District Court in Greensboro, North Carolina,
seeking a judicial declaration that the FDA and its commissioner, Dr. David
Kessler, lack jurisdiction to regulate smokeless tobacco products. Registrant
is not able to predict the outcome of the FDA's proposal, or assess the
future effect that this proposal may have on its tobacco business.
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 and
income taxes payable, partially offset by an increase in net earnings. A
primary use of cash in operations was for purchases of leaf tobacco of $61.3
million, which were higher than amounts expended in the corresponding period of
the prior year, reflecting Registrant's plan to maintain a higher level of leaf
tobacco inventory. Registrant anticipates that additional purchases of leaf
tobacco will not be significant for the remainder of 1995.
Net cash used in investing activities for the nine-month period was for the
purchase of property, plant and equipment. Registrant expects the 1995 capital
program to approximate $39 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 lower than the corresponding period in the prior year. Registrant
expects that total funds allocated to the stock repurchase program in 1995 will
be lower than amounts expended in 1994. Registrant intends to utilize the
remaining $75 million available under its $200 million revolving credit
facility to augment its share repurchase program in the fourth quarter.
Availability of funds and market conditions will determine the number of shares
actually repurchased.
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 the proceeds from the revolving credit and term loan agreement and
short-term borrowings when necessary.
(7)
<PAGE> 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In Castano, et al. v. The American Tobacco Company, Inc., et al. (Case
No. 94-1044 "B" (3)), on October 17, 1995, certain defendants,
including Registrant, filed with the United States Court of Appeals,
Fifth Circuit, a joint brief in support of the appeal from the
district court's February 17, 1995 Class Certification Order.
Pursuant to the district court's June 23, 1995 Order, limited
discovery is continuing.
In McGraw v. American Tobacco Company et al. (Civil Action No.
94-C-1707), on October 20, 1995, following a hearing, the court
granted defendants' motion to prohibit prosecution of this action by
private law firms pursuant to an unlawful contingent fee agreement.
The court also granted plaintiff's motion to have certified for
appellate review the court's May 3, 1995 decision granting
defendants' motion to dismiss counts one through six, nine and ten.
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
September 30, 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.
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(Registrant)
Date November 9, 1995 /s/ John J. Bucchignano
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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 No. Description
- ----------- -----------
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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 54,706
<SECURITIES> 0
<RECEIVABLES> 71,525
<ALLOWANCES> 0
<INVENTORY> 248,045
<CURRENT-ASSETS> 418,050
<PP&E> 504,649
<DEPRECIATION> 201,242
<TOTAL-ASSETS> 774,850
<CURRENT-LIABILITIES> 155,935
<BONDS> 125,000
<COMMON> 100,916
0
0
<OTHER-SE> 291,845
<TOTAL-LIABILITY-AND-EQUITY> 774,850
<SALES> 980,546
<TOTAL-REVENUES> 980,546
<CGS> 190,800
<TOTAL-COSTS> 190,800
<OTHER-EXPENSES> 264,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,588
<INCOME-PRETAX> 522,987
<INCOME-TAX> 203,929
<INCOME-CONTINUING> 319,058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 319,058
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
</TABLE>
