<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, 1996
-------------------------------
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, CT 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
--- ---
<TABLE>
<S> <C>
Number of Common shares ($.50 par value) outstanding at March 31, 1996 188,117,436
-----------
</TABLE>
<PAGE> 2
UST Inc.
(Registrant)
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information:
Condensed Consolidated Statement of Financial Position -
March 31, 1996 and December 31, 1995 2
Condensed Consolidated Statement of Earnings -
Three months ended March 31, 1996 and 1995 3
Condensed Consolidated Statement of Cash Flows -
Three months ended March 31, 1996 and 1995 4
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Operations and
Financial Condition 6
Part II. Other Information:
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,
1996 1995
(Unaudited) (Note)
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 16,551 $ 69,403
Accounts receivable 69,200 69,598
Inventories:
Leaf tobacco 157,908 122,748
Products in process and finished goods 110,019 117,102
Other materials and supplies 16,819 16,251
-------- --------
284,746 256,101
Prepaid expenses and other current assets 31,250 30,453
-------- --------
Total current assets 401,747 425,555
Property, plant and equipment, net 294,759 294,806
Deferred income taxes 8,654 9,042
Other assets 54,909 55,349
-------- --------
Total assets $760,069 $784,752
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term obligations $ 75,000 $100,000
Accounts payable and accrued expenses 76,905 111,767
Income taxes 111,229 68,956
-------- --------
Total current liabilities 263,134 280,723
Long-term debt 100,000 100,000
Postretirement benefits other than pensions 66,560 65,292
Other liabilities 45,706 45,180
-------- --------
Total liabilities 475,400 491,195
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 202,825,436 shares in 1996,
and 202,079,236 shares in 1995 101,413 101,040
Additional paid-in capital 387,783 373,935
Retained earnings 240,329 203,659
-------- --------
729,525 678,634
Less cost of shares in treasury - 14,708,000
shares in 1996 and 12,893,200 shares in 1995 444,856 385,077
-------- --------
Total stockholders' equity 284,669 293,557
-------- --------
Total liabilities and stockholders' equity $760,069 $784,752
======== ========
</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 March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Net sales $327,791 $306,097
Costs and expenses
Cost of products sold 63,525 56,606
Selling, advertising and administrative 89,266 85,865
Interest, net 1,332 940
-------- --------
Total costs and expenses 154,123 143,411
-------- --------
Earnings before income taxes 173,668 162,686
Income taxes 66,872 63,453
-------- --------
Net earnings $106,796 $ 99,233
======== ========
Net earnings per share:
Primary $ .55 $ .49
Fully diluted $ .55 $ .49
Cash dividends per common share $ .37 $.32 1/2
Average number of common and common
equivalent shares outstanding:
Primary 194,638 201,219
Fully diluted 194,638 201,774
</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,
----------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities $ 94,907 $ 90,029
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (7,421) (5,179)
--------- --------
Net cash used in investing activities (7,421) (5,179)
--------- --------
FINANCING ACTIVITIES
Repayment of borrowings (25,000) --
Proceeds from the issuance of common stock 14,567 10,508
Dividends paid (70,126) (63,680)
Common stock repurchased (59,779) (32,229)
--------- --------
Net cash used in financing activities (140,338) (85,401)
--------- --------
Decrease in cash and cash equivalents (52,852) (551)
Cash and cash equivalents at beginning of year 69,403 50,718
--------- --------
Cash and cash equivalents at end of period $ 16,551 $ 50,167
========= ========
- -----------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes $ 20,826 $ 12,095
Interest 1,677 1,758
- -----------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(4)
<PAGE> 6
UST Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 month period ended March 31, 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 March 31, 1996 an
additional 1.8 million shares costing $59.8 million were repurchased.
CONTINGENCIES
Registrant has been named in certain litigation against the major domestic
cigarette companies and others seeking damages alleged to be related to the
usage of cigarettes and, in certain of the complaints, "tobacco products," some
of which contain several allegations relating 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.
In addition, in December 1995, Registrant was named in an action brought by an
individual plaintiff and his wife 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 his use of
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED)
Results of Operations
First quarter 1996 compared
with the first quarter of 1995
Net sales for the first quarter were $327.8 million, a 7 percent increase over
the corresponding period in the prior year. The Tobacco and Wine segments posted
sales gains for the first quarter while Other segment sales were lower. Volume
gains and higher selling prices for moist smokeless tobacco were the primary
reasons for the increase in consolidated net sales. Domestic unit volume for
moist smokeless tobacco increased 3.3 percent for the first quarter as compared
with the similar 1995 period. Registrant believes that the domestic moist unit
volume comparison for the first quarter to the similar period in 1995 was
favorably affected by distributor inventory build-up in December, 1994. Wine
segment sales were higher due to an increase in case volume of premium wine
while Other segment sales decreased primarily due to volume declines for the
entertainment business.
Cost of products sold increased for the first quarter due to volume gains for
wine and higher unit costs and unit volume gains for domestic moist smokeless
tobacco, partially offset by volume declines for the entertainment business. The
overall gross profit percentage decreased slightly in the first quarter as
favorable results for domestic moist smokeless tobacco were offset by increased
sales for lower margin products.
Selling, advertising and administrative expenses increased for the Tobacco and
Wine segments and decreased for the Other segment. Increased selling and
advertising expenses in the Tobacco segment were for the advertising and support
of moist smokeless tobacco products, while costs in the Wine segment increased
in support of premium wine products. The decrease in Other segment expenses was
primarily due to a reduction in advertising costs for the entertainment
business. Administrative and other expenses increased slightly for the first
quarter due to higher professional fees associated with addressing legal and
regulatory issues and higher salaries and related costs.
Registrant incurred net interest expense as interest expense on borrowings
exceeded income from cash equivalent investments.
Net earnings and primary earnings per share increased 8 percent and 12 percent,
respectively, over the corresponding period in the prior year.
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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
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 income, partially offset by a reduction in accounts payable and
accrued expenses. A primary use of cash in operations was for purchases of leaf
tobacco of $49.1 million, which were slightly lower than amounts expended in the
corresponding period in the prior year. In 1996, projected leaf tobacco
purchases will approximate the amounts expended in 1995, as Registrant continues
its plan to maintain higher levels of leaf tobacco.
Net cash used in investing activities for the first quarter of 1996 was for the
purchase of property, plant and equipment. Registrant expects the 1996 capital
program to approximate $70 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 any additional borrowings, Registrant
expects that total funds allocated to the stock repurchase program in 1996 will
be significantly 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.
(7)
<PAGE> 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1996 Annual Meeting of Stockholders was held on
May 7, 1996.
(c) Matters voted upon at the meeting:
<TABLE>
<CAPTION>
Affirmative Negative Broker
Votes Votes Abstentions Non-Votes
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Ratification 171,122,893 400,378 391,680 N/A
and Approval
of Independent
Auditors
(Proposal No. 2)
Stockholder 5,995,770 140,337,852 10,039,314 15,542,016
Proposal
(Proposal No. 3)
Stockholder 10,412,647 137,719,435 8,240,855 15,542,015
Proposal
(Proposal No. 4)
</TABLE>
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, 1996.
(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 10, 1996 /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
Senior Vice President and Controller
(Principal Accounting Officer)
(9)
<PAGE> 11
EXHIBIT INDEX
- -------------
Exhibit No. Description
- ---------- -----------
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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 16,551
<SECURITIES> 0
<RECEIVABLES> 69,200
<ALLOWANCES> 0
<INVENTORY> 284,746
<CURRENT-ASSETS> 401,747
<PP&E> 498,836
<DEPRECIATION> 204,077
<TOTAL-ASSETS> 760,069
<CURRENT-LIABILITIES> 263,134
<BONDS> 100,000
0
0
<COMMON> 101,413
<OTHER-SE> 183,256
<TOTAL-LIABILITY-AND-EQUITY> 760,069
<SALES> 327,791
<TOTAL-REVENUES> 327,791
<CGS> 63,525
<TOTAL-COSTS> 63,525
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,332
<INCOME-PRETAX> 173,668
<INCOME-TAX> 66,872
<INCOME-CONTINUING> 106,796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,796
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
