<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, 1996
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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
UST Inc.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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, CT 06830
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(Address of principal executive offices) (Zip Code)
</TABLE>
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 June 30, 1996
187,909,336
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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, 1996 and December 31, 1995 2
Condensed Consolidated Statement of Earnings -
Three and six months ended June 30, 1996 and 1995 3
Condensed Consolidated Statement of Cash Flows -
Six months ended June 30, 1996 and 1995 4
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Operations and
Financial Condition 7
Part II. Other Information:
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
27. Financial Data Schedule
Signatures 10
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(1)
<PAGE> 3
UST Inc.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
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<S> <C> <C>
ASSETS (Unaudited) (Note)
Current assets
Cash and cash equivalents $ 11,992 $ 69,403
Accounts receivable 66,893 69,598
Inventories:
Leaf tobacco 145,523 122,748
Products in process and finished goods 105,854 117,102
Other materials and supplies 17,671 16,251
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269,048 256,101
Prepaid expenses and other current assets 39,401 30,453
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Total current assets 387,334 425,555
Property, plant and equipment, net 292,385 294,806
Deferred income taxes 8,914 9,042
Other assets 54,218 55,349
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Total assets $742,851 $784,752
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term obligations $ 75,000 $100,000
Accounts payable and accrued expenses 84,247 111,767
Income taxes 51,564 68,956
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Total current liabilities 210,811 280,723
Long-term debt 100,000 100,000
Postretirement benefits other than pensions 67,556 65,292
Other liabilities 47,199 45,180
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Total liabilities 425,566 491,195
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 203,418,336 shares in 1996,
and 202,079,236 shares in 1995 101,709 101,040
Additional paid-in capital 398,767 373,935
Retained earnings 288,384 203,659
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788,860 678,634
Less cost of shares in treasury - 15,509,000
shares in 1996 and 12,893,200 shares in 1995 471,575 385,077
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Total stockholders' equity 317,285 293,557
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Total liabilities and stockholders' equity $742,851 $784,752
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</TABLE>
Note: The statement of financial position at December 31, 1995 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,
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net sales $350,542 $340,181 $678,333 $646,278
Costs and expenses
Cost of products sold 67,048 67,292 130,573 123,898
Selling, advertising and administrative 88,229 91,682 177,495 177,547
Interest, net 1,749 1,057 3,081 1,997
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Total costs and expenses 157,026 160,031 311,149 303,442
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Earnings before income taxes 193,516 180,150 367,184 342,836
Income taxes 74,439 70,280 141,311 133,733
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Net earnings $119,077 $109,870 $225,873 $209,103
======= ======= ======= =======
Net earnings per share:
Primary $.62 $.55 $1.17 $1.04
Fully diluted $.62 $.55 $1.16 $1.04
Cash dividends per common share $.37 $.32 1/2 $.74 $.65
Average number of common and common
equivalent shares outstanding:
Primary 192,803 200,360 193,721 200,788
Fully diluted 193,242 200,383 193,984 201,077
</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,
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1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
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Net cash provided by operating activities $180,476 $168,150
INVESTING ACTIVITIES
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Purchases of property, plant and equipment, net (12,284) (11,209)
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Net cash used in investing activities (12,284) (11,209)
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FINANCING ACTIVITIES
- --------------------
Repayment of borrowings (25,000) -
Proceeds from the issuance of common stock 25,651 22,441
Dividends paid (139,756) (127,235)
Common stock repurchased (86,498) (62,531)
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Net cash used in financing activities (225,603) (167,325)
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Decrease in cash and cash equivalents (57,411) (10,384)
Cash and cash equivalents at beginning of year 69,403 50,718
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Cash and cash equivalents at end of period $ 11,992 $ 40,334
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- ---------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes $150,364 $134,996
Interest 3,753 3,211
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(4)
<PAGE> 6
UST Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(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, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996. 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, 1995.
REPURCHASE OF COMMON STOCK
During 1996, 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, 1995, 13.1 million shares were repurchased under the current
program of which 200,000 shares were retired. Through June 30, 1996, an
additional 2.6 million shares costing $86.5 million were repurchased.
CONTINGENCIES
Registrant has been named in certain litigation against the major domestic
cigarette companies and others seeking damages and other relief. The
complaints in these cases on their face predominately relate to the usage of
cigarettes; within that context, certain complaints contain a few allegations
relating specifically to smokeless tobacco products. Each of these actions is
in varying stages of pretrial activities.
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 has been named in three actions brought by individual
plaintiffs, all of which are represented by the same Louisiana attorney,
against a number of smokeless tobacco manufacturers and certain other
organizations seeking damages and other relief in connection with injuries
allegedly sustained as a result of tobacco usage, including smokeless tobacco
products.
Registrant believes, and has been so advised by counsel handling these cases,
that it has a number of meritorious defenses to all such pending litigation.
All such cases are, and will continue to be, vigorously defended, and
Registrant believes that the ultimate outcome of all such pending litigation
will not have a material adverse effect on the consolidated financial
statements of Registrant.
(5)
<PAGE> 7
UST Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
OTHER MATTERS
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 its products. The initial comment period for this
proposal expired on January 2, 1996, on which date Registrant filed written
comments with the FDA, challenging the agency's jurisdiction to regulate
Registrant's smokeless tobacco products. Also, in the fall of 1995, United
States Tobacco Company, a subsidiary of Registrant, filed suit in Federal
District Court in Greensboro, North Carolina, seeking judicial confirmation
that the FDA lacks jurisdiction to regulate Registrant's 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.
(6)
<PAGE> 8
UST Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED)
Results of Operations
Second quarter and six months of 1996 compared
with the corresponding periods of 1995
Net sales for the second quarter and six months increased 3 percent and 5
percent, respectively, as compared with the corresponding periods in the prior
year. The Tobacco segment posted increased sales for the second quarter while
sales for the Wine segment were lower and Other segment sales were stable. For
the first six months, sales for the Tobacco and Wine segments increased while
sales for the Other segment were lower. Higher selling prices and volume gains
for moist smokeless tobacco products were the primary reasons for the increase
in consolidated net sales in both periods. Domestic unit volume for moist
smokeless tobacco increased 0.5 percent in the second quarter and 1.8 percent
for the six-month period. Registrant believes that the domestic moist unit
volume comparison for the second quarter to the similar period in 1995 was
unfavorably affected by the shipping pattern resulting from the July 4th
holiday. Adjusting for the effects of the holiday shipping pattern Registrant
estimates that unit volume would have increased approximately 1.5 percent for
the second quarter. Wine segment sales decreased in the second quarter
primarily due to lower bulk wine sales while higher premium wine case volume
accounted for the increase in the six-month period. Sales for the Other
segment were lower in the six-month period primarily due to volume declines for
the entertainment business, partially offset by favorable results for the
international operations.
Cost of products sold were flat for the second quarter and increased for the
six-month period. Both the second quarter and six- month period included
higher unit costs for domestic moist smokeless tobacco products, partially
offset by volume declines for the entertainment business and lower bulk wine
sales. The six-month period also included increased costs due to volume gains
for domestic moist smokeless tobacco products and wine. The overall gross
profit percentage increased in the second quarter and remained stable for the
six-month period.
Total selling, advertising and administrative expenses decreased for the second
quarter and remained stable for the six-month period. For both periods,
expenses for the Tobacco and Wine segments increased while expenses for the
Other segment were lower. Increased selling and advertising expenses in the
Tobacco segment were for the promotion and support of moist smokeless tobacco
products, while costs in the Wine segment increased in support of premium wine
brands. The decrease in Other segment expenses was primarily due to lower
advertising costs for the entertainment business. Administrative and other
expenses decreased in both periods primarily due to the absence of a 1995
charge relating to an employment contract with a former officer. Both periods
also included higher professional fees, associated with addressing legal and
regulatory issues, and higher salaries and related costs, offset by lower
spending in other areas.
(7)
<PAGE> 9
UST Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
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 8 percent
over the corresponding periods in the prior year. Primary earnings per share
increased 13 percent for both the second quarter and six-month period.
Liquidity and Sources of Capital
Changes in Financial Condition Since December 31, 1995
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 increase in net cash provided
by operating activities as compared to the similar period in the prior year was
primarily due to higher net earnings and a smaller increase in inventories than
in 1995, partially offset by a reduction in income taxes payable and accounts
payable and accrued expenses. A primary use of cash in operations was for
purchases of leaf tobacco of $51.8 million, which were lower than amounts
expended in the corresponding period in the prior year. Registrant anticipates
that total purchases of leaf tobacco in 1996 will be lower than those amounts
purchased in 1995.
Net cash used in investing activities was for the purchase of property, plant
and equipment. Registrant expects the 1996 capital program to approximate $66
million.
Net cash used in financing activities were amounts expended for dividends, the
stock repurchase program and the reduction of borrowings. Amounts expended for
the stock repurchase program were significantly higher than the corresponding
period in the prior year. However, absent of any additional borrowings,
Registrant expects that total funds allocated to the stock repurchase program
in 1996 will be lower than amounts expended in 1995. 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 1996, primarily for dividends, the stock repurchase program and
capital spending. Registrant expects to meet these requirements with
internally generated funds augmented by borrowings when necessary.
(8)
<PAGE> 10
UST Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In Castano, et al. v. The American Tobacco Company, Inc., et
al. (Case No. 94-1044 "C" (5)), on May 23, 1996, the United
States Court of Appeals, Fifth Circuit, reversed the district
court's February 17, 1995 Class Certification Order. The
Fifth Circuit ordered the case remanded and the class action
allegations dismissed.
On June 11, 1996, certain defendants, including Registrant,
filed motions for summary judgment with respect to the claims
of the two individual plaintiffs (the former proposed class
representatives). The court has not yet ruled on these
motions.
On May 11, 1996, Registrant was served with a Summons and
Petition in an action in the 33rd Judicial District Court,
Parish of Allen, State of Louisiana entitled Guidry v. United
States Tobacco Company, et al. (Docket No. 96- 323). This
action is brought by an individual plaintiff and his wife
against three smokeless tobacco manufacturers, three cigarette
manufacturers and certain other organizations seeking damages
and other relief in connection with injuries allegedly
sustained as a result of his use of tobacco products.
Registrant intends to defend this action vigorously.
On May 14, 1996, Registrant was served with a Summons and
Petition in an action in the 14th Judicial District Court,
Parish of Calcasieu, State of Louisiana entitled Herbert v.
United States Tobacco Company, et al. (Docket No. 96-2281).
This action is brought by an individual plaintiff and his wife
against five cigarette manufacturers, Registrant and certain
other organizations seeking damages and other relief in
connection with injuries allegedly sustained as a result of
his use of tobacco products. Registrant intends to defend
this action vigorously.
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, 1996.
(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 8, 1996 /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
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Robert T. D'Alessandro
Senior Vice President and Controller
(Principal Accounting Officer)
(10)
<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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,992
<SECURITIES> 0
<RECEIVABLES> 66,893
<ALLOWANCES> 0
<INVENTORY> 269,048
<CURRENT-ASSETS> 387,334
<PP&E> 500,713
<DEPRECIATION> 208,328
<TOTAL-ASSETS> 742,851
<CURRENT-LIABILITIES> 210,811
<BONDS> 100,000
0
0
<COMMON> 101,709
<OTHER-SE> 215,576
<TOTAL-LIABILITY-AND-EQUITY> 742,851
<SALES> 678,333
<TOTAL-REVENUES> 678,333
<CGS> 130,573
<TOTAL-COSTS> 130,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,081
<INCOME-PRETAX> 367,184
<INCOME-TAX> 141,311
<INCOME-CONTINUING> 225,873
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225,873
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.16
</TABLE>
