<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, 1995
-------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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
----- -----
Number of Common shares ($.50 par value) outstanding at June 30, 1995.
195,248,236
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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 -
June 30, 1995 and December 31, 1994 2
Condensed Consolidated Statement of Earnings -
Three and six months ended June 30, 1995 and 1994 3
Condensed Consolidated Statement of Cash Flows -
Six months ended June 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>
June 30, December 31,
1995 1994
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ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 40,334 $ 50,718
Accounts receivable 71,449 65,883
Inventories:
Leaf tobacco 133,742 104,313
Products in process and finished goods 110,554 115,261
Other materials and supplies 19,388 18,146
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263,684 237,720
Prepaid expenses and other current assets 34,841 27,616
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Total current assets 410,308 381,937
Property, plant and equipment, net 301,348 305,885
Other assets 52,885 53,414
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$764,541 $741,236
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 86,901 $104,558
Income taxes 49,734 56,197
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Total current liabilities 136,635 160,755
Long-term debt 125,000 125,000
Deferred income taxes 2,380 5,065
Postretirement benefits other than pensions 63,554 61,286
Other liabilities 35,871 27,461
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Total liabilities 363,440 379,567
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 201,571,436 shares in 1995,
and 200,343,636 shares in 1994. 100,786 100,172
Additional paid-in capital 365,217 343,390
Retained earnings 113,235 33,713
-------- --------
579,238 477,275
Less cost of shares in treasury - 6,323,200
shares in 1995 and 4,233,200 shares in 1994 178,137 115,606
-------- --------
Total stockholders' equity 401,101 361,669
-------- --------
$764,541 $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 Six months ended
June 30, June 30,
------------------------- -------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $340,181 $310,203 $646,278 $590,582
Costs and expenses
Cost of products sold 67,292 63,400 123,898 117,801
Selling, advertising and administrative 91,682 82,270 177,547 161,617
Interest, net 1,057 41 1,997 28
-------- -------- -------- --------
Total costs and expenses
160,031 145,711 303,442 279,446
-------- -------- -------- --------
Earnings before income taxes 180,150 164,492 342,836 311,136
Income taxes 70,280 65,006 133,733 122,892
-------- -------- -------- --------
Net earnings $109,870 $ 99,486 $209,103 $188,244
======== ======== ======== ========
Net earnings per share:
Primary $.55 $.48 $1.04 $.90
Fully diluted $.55 $.48 $1.04 $.90
Cash dividends per common share
$.32 1/2 $.28 $ .65 $.56
Average number of common and common
equivalent shares outstanding:
Primary 200,360 208,511 200,788 209,432
Fully diluted 200,383 208,727 201,077 209,540
</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,
---------------------------------
1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
--------------------
Net cash provided by operating activities $ 168,150 $ 183,110
INVESTING ACTIVITIES
--------------------
Purchases of property, plant and equipment, net (11,209) (9,953)
Net proceeds received from sales of businesses - 1,043
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Net cash used in investing activities (11,209) (8,910)
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FINANCING ACTIVITIES
--------------------
Proceeds from long-term debt - 10,000
Proceeds from the issuance of common stock 22,441 16,150
Dividends paid (127,235) (113,921)
Common stock repurchased (62,531) (82,214)
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Net cash used in financing activities (167,325) (169,985)
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(Decrease) increase in cash and cash equivalents (10,384) 4,215
Cash and cash equivalents at beginning of year 50,718 25,327
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Cash and cash equivalents at end of period $ 40,334 $ 29,542
========= =========
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Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes $ 134,996 $ 121,212
Interest 3,211 1,669
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(4)
<PAGE> 6
UST Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 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
six month periods ended June 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 June 30, 1995, an additional 2.1 million shares costing $62.5
million were repurchased.
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
Second quarter and six months of 1995 compared
with the same periods of 1994
Net sales for the second quarter and six months increased 10 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 second
quarter and six-month period while sales for the Other segment remained stable
in the second quarter but were higher for the six-month period. 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
increased 0.4 percent in the second quarter and 0.1 percent for the six-month
period. Wine segment sales were higher in both periods due to an increase in
case volume for premium wine. Other segment sales increased in the six month
period primarily due to the entertainment business.
Cost of products sold increased for both the second quarter and six-month
period. Both periods included increased costs due to volume gains for wine and
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 in the Tobacco and
Wine segments were for the promotion and support of moist smokeless tobacco and
wine products, respectively. The cost increases in the Other segment were to
support new products and markets. Administrative and other expenses increased
in both periods 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. Higher spending in other
areas also contributed to the increase in administrative expenses.
Registrant incurred net interest expense in both periods as interest expense on
borrowings exceeded income from cash equivalent investments.
Net earnings for the second quarter and six-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 the second quarter and 16
percent for the six-month period.
The Food and Drug Administration (FDA) has submitted to the White House a
proposal to regulate tobacco products. The nature of the proposed regulations
reportedly range from initiatives against youth access to tobacco to FDA
regulation of the tobacco industry. Registrant firmly believes that efforts by
the FDA to exercise jurisdiction over tobacco products exceed its regulatory
authority and would be challenged by Congress and in the courts. Registrant is
not able to predict the outcome of the proposed regulations, or assess the
future effect that any such regulations 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 and an
increase in leaf tobacco inventories. A primary use of cash in operations was
for purchases of leaf tobacco of $57.9 million, which were higher than amounts
expended in the corresponding period of the prior year. Registrant anticipates
that the total purchases of leaf tobacco in 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 six-month period was for the
purchase of property plant and equipment. Registrant expects the 1995 capital
program to approximate $50 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 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 Castano, et al. v. The American Tobacco Company, Inc., et al.
(Case No. 94-1044 "B" (3)), on May 15, 1995, the court granted the
motion of certain defendants, including Registrant, to certify for
interlocutory review by the United States Court of Appeals, Fifth
Circuit, the court's February 17, 1995 Class Certification Order.
The court also granted the defendants' motion to stay the action
pending review by the Fifth Circuit, and denied the motion of the
defendants to certify for review the court's September 22, 1994 and
November 14, 1994 preemption rulings.
On May 25, 1995, the defendants filed with the Fifth Circuit their
petition for permission to appeal the court's February 17, 1995
Class Certification Order. On July 26, 1995, the Fifth Circuit
granted the petition. The Fifth Circuit has not yet set a schedule
for the filing of briefs.
Registrant has been informed that it, among others, has been named
as a defendant in an action filed on July 24, 1995 in the United
States District Court for the District of Kansas, entitled Hammers,
et al. v. United States Tobacco Company, et al. (Case No. 95-1335
MLB). This action is brought by three named plaintiffs and purports
to state a class action claim on behalf of "[a]ll Kansas residents
who purchased smokeless tobacco products, manufactured, marketed,
promoted and/or sold by defendants, and suffered an injury or
injuries proximately caused by smokeless tobacco use." Plaintiffs
seek unspecified compensatory and punitive damages for pain,
suffering, disability, disfigurement, medical expenses, frustration,
humiliation and other unspecified injuries and damages allegedly
resulting from the "use of [and/or] addiction to" defendants'
smokeless tobacco products. The action is brought against five
manufacturers of smokeless tobacco, including Registrant, and
certain other organizations.
To date, Registrant has not been served with the summons and
complaint in this action.
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 June
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.
----------------------
(Registrant)
Date August 10, 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
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Exhibit No. Description Page No.
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EX-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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 40,334
<SECURITIES> 0
<RECEIVABLES> 71,449
<ALLOWANCES> 0
<INVENTORY> 263,684
<CURRENT-ASSETS> 410,308
<PP&E> 496,489
<DEPRECIATION> 195,141
<TOTAL-ASSETS> 764,541
<CURRENT-LIABILITIES> 136,635
<BONDS> 125,000
<COMMON> 100,786
0
0
<OTHER-SE> 300,315
<TOTAL-LIABILITY-AND-EQUITY> 764,541
<SALES> 646,278
<TOTAL-REVENUES> 646,278
<CGS> 123,898
<TOTAL-COSTS> 123,898
<OTHER-EXPENSES> 177,547
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,997
<INCOME-PRETAX> 342,836
<INCOME-TAX> 133,733
<INCOME-CONTINUING> 209,103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 209,103
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
</TABLE>
