EX-99.1 2 y55501exv99w1.htm EX-99.1: PRESS RELEASE EX-99.1

Exhibit 99.1
Thomas J. Fitzgerald
  Mark A. Rozelle
Media Relations
  Investor Relations
(203) 817-3549
  (203) 817-3520
    Net sales $472.7 million, +5.7% vs. year ago
    Diluted earnings per share $.83, +23.9% vs. year ago
    Adjusted diluted earnings per share $.84, +12.0% vs. year ago (see table)
    Total Moist Smokeless Tobacco net can volume +3.0% and premium +2.1% vs. year ago
    Moist Smokeless Tobacco category +7.1% vs. year ago (26 weeks ended Feb. 23, 2008)
    Ste. Michelle Wine Estates net sales +25.3% vs. year ago
STAMFORD, Conn., Apr. 24, 2008 — UST Inc. (NYSE: UST) today reported first quarter 2008 results.
“Net sales growth of almost six percent combined with an improved operating margin and the positive impact of our share repurchase program contributed to double-digit diluted earnings per share growth in the quarter,” said Murray S. Kessler, chairman and chief executive officer. “We are pleased with another strong quarter, especially in the face of a weakening economy and a substantial increase in gasoline prices. We remain confident in delivering on our previously released earnings guidance for the year.”
Consolidated Results
For the first quarter ended March 31, 2008, net sales increased 5.7 percent to $472.7 million, operating income increased 19.4 percent to $212.3 million, net earnings increased 16.6 percent to $125.3 million, and diluted earnings per share increased 23.9 percent to $.83 versus the prior year period.
First quarter 2008 and 2007 results included restructuring charges related to Project Momentum. In addition, the 2007 period included antitrust litigation settlement charges, partially offset by a gain on the



sale of the company’s headquarters. These items totaled $0.4 million before income taxes in 2008 and $21.4 million in 2007, and adversely impacted diluted earnings per share by $.01 and $.08, respectively.
Adjusting for these items in each year, underlying first quarter 2008 operating income increased 6.7 percent to $212.7 million, net earnings increased 3.8 percent to $125.6 million and diluted earnings per share increased 12.0 percent to $.84, as indicated in the attached reconciliation table, which provides a reconciliation of such Non-GAAP financial measures to the most directly comparable GAAP measures.
The 12.0 percent increase in first quarter 2008 adjusted diluted earnings per share, versus the prior year period, was driven by net sales growth in all operations, Project Momentum cost savings, a lower effective tax rate and a reduction in shares outstanding as a result of the company’s share repurchase program. These were partially offset by increased interest expense related to increased borrowings to fund share repurchases.
During the quarter the company repurchased 2.4 million shares at a cost of $131.9 million.
Smokeless Tobacco Segment
First quarter 2008 net sales increased 1.7 percent, versus first quarter 2007, to $373.6 million and operating profit was $203.6 million. On an adjusted basis, operating profit increased 3.8 percent to $203.8 million (see table).
In the quarter, total moist smokeless tobacco net can volume increased 3.0 percent to 159.9 million, with premium increasing 2.1 percent to 134.7 million and price value increasing 8.0 percent to 25.2 million, versus the prior year period.
The company attributes continued strong can volume growth to ongoing initiatives to grow the category by converting adult smokers to smokeless tobacco, investment in premium brand-building programs, more effective participation in the price value segment and continued successful new product offerings including the March 2008 introduction of new Skoal Edge Wintergreen.
“This marked the seventh consecutive quarter of premium volume growth,” said Daniel W. Butler, president, U.S. Smokeless Tobacco Company (USSTC). “I am especially pleased to see that despite a challenging economy and new price value entrants, premium volume trends remain strong and there has not been an acceleration in the price value segment.”



USSTC’s Retail Account Data Share & Volume Tracking System (RAD-SVT) for the 26-week period ended Feb. 23, 2008, indicates strong and consistent category trends. USSTC total shipments increased 3.1 percent versus year ago, in a category that increased 7.1 percent. USSTC’s premium brands grew 1.8 percent, slightly outpacing the premium segment which continued to grow 1.7 percent, resulting in a 90.7 percent share of the premium segment. USSTC’s price value shipments increased 10.4 percent, while the total price value segment growth rate slowed to 14.3 percent, resulting in a 21.6 percent share of the price value segment. USSTC’s total share of 59.0 percent declined 2.2 percentage points versus the prior year period. (See supplemental schedule for information about RAD-SVT data).
Wine Segment
In the first quarter 2008, net sales for Ste. Michelle Wine Estates increased 25.3 percent to $86.2 million as total premium case volume increased 15.5 percent to 1.3 million. Strong growth was primarily driven by Chateau Ste. Michelle, Columbia Crest, Antinori, Red Diamond, Erath and the recently acquired Stag’s Leap Wine Cellars. While the gross margin percentage remained stable, adverse one-time selling, advertising and administrative expense comparisons that benefited the prior year period, including the sale of real estate, led to an operating profit increase of 1.7 percent to $11.3 million.
“Ste Michelle Wine Estates gained market share in the fast growing super and ultra premium categories and maintained its position as the fastest growing top-10 wine company in the U.S.,” said Theodor P. Baseler, president, Ste. Michelle Wine Estates. “Despite unfavorable cost comparisons this quarter, we are confident that we will deliver our planned operating profit for the year.”
For the year, the company remains on track to deliver its previously released diluted earnings per share target of $3.65, with a range of $3.60 to $3.70. Guidance for 2008 excludes any additional restructuring charges associated with Project Momentum to be incurred, as management is not able to make a determination of the estimated amounts or range of amounts of such charges.
The 2008 guidance is consistent with the company’s long-term goal of providing an average annual shareholder return of 10 percent, including adjusted diluted earnings per share growth and a strong dividend. Strong fundamentals in both the Smokeless Tobacco and Wine segments, coupled with the Project Momentum cost savings initiative, provide confidence that this goal can be achieved, while at the



same time allowing for investment to continue enhancing the company’s performance in vibrant and growing categories.
A conference call is scheduled for 9 a.m. Eastern Time today to discuss these results. To listen to the call, please visit www.ustinc.com. A 14-day playback is available by calling (888) 713-4216 or (617) 213-4868, code #60612377 or by visiting the website.
UST Inc. is a holding company for its principal subsidiaries: U.S. Smokeless Tobacco Company and Ste. Michelle Wine Estates. U.S. Smokeless Tobacco Company is the leading producer and marketer of moist smokeless tobacco products including Copenhagen, Skoal, Red Seal and Husky. Ste. Michelle Wine Estates produces and markets premium wines sold nationally under 20 different labels including Chateau Ste. Michelle, Columbia Crest, Stag’s Leap Wine Cellars and Erath, as well as exclusively distributes and markets Antinori products in the United States.
All statements included in this press release that are not historical in nature are forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements regarding the company’s future performance and financial results are subject to a variety of risks and uncertainties that could cause actual results and outcomes to differ materially from those described in any forward-looking statement made by the company. These risks and uncertainties include uncertainties associated with ongoing and future litigation relating to product liability, antitrust and other matters and legal and other regulatory initiatives; the company’s ability to execute strategic actions, including acquisitions and the integration of acquired businesses; federal and state legislation, including actual and potential excise tax increases, and marketing restrictions relating to matters such as adult sampling, minimum age of purchase, self service displays and flavors; competition from other companies, including any new entrants in the marketplace; wholesaler ordering patterns; consumer preferences, including those relating to premium and price value brands and receptiveness to new product introductions and marketing and other promotional programs; the cost of tobacco leaf and other raw materials; conditions in capital markets, including the market price per share of the company’s common stock and its impact on the number of shares repurchased; and other factors described in this press release and in the company’s Annual Report on Form 10-K for the year ended December 31, 2007. Forward-looking statements made by the company are based on its knowledge of its businesses and the environment in which it operates as of the date on which the statements were made. Due to these risks and uncertainties, as well as matters beyond the control of the company which can affect forward-looking statements, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The company undertakes no duty to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
# # #



(In thousands, except per share amounts)
    First Quarter  
    2008     2007     % Change  
Net sales
  $ 472,714     $ 447,018       + 5.7  
Costs and expenses
Cost of products sold
    131,356       115,653       + 13.6  
Selling, advertising and administrative
    128,640       133,060       - 3.3  
Restructuring charges
    412       3,520        
Antitrust litigation
Total costs and expenses
    260,408       374,333       + 30.4  
Gain on sale of corporate headquarters
Operating income
    212,306       177,828       + 19.4  
Interest, net
    17,677       9,575        
Earnings before income taxes
    194,629       168,253       + 15.7  
Income tax expense
    69,295       60,740       + 14.1  
Net earnings
  $ 125,334     $ 107,513       + 16.6  
Net earnings per share:
  $ .84     $ .67       + 25.4  
  $ .83     $ .67       + 23.9  
Dividends per share
  $ .63     $ .60       + 5.0  
Average number of shares:
    149,078       159,970          
    150,385       161,578          



(Dollars in thousands)
    March 31,     December 31,  
    2008     2007  
Current assets:
Cash and cash equivalents
  $ 50,460     $ 73,697  
Accounts receivable
    59,880       60,318  
Leaf tobacco
    194,368       202,137  
Products in process
    255,695       258,814  
Finished goods
    150,446       163,247  
Other materials and supplies
    24,691       22,365  
Total inventories
    625,200       646,563  
Deferred income taxes
    24,695       26,737  
Income taxes receivable
Prepaid expenses and other current assets
    28,552       30,296  
Total current assets
    788,787       846,274  
Property, plant and equipment, net
    504,647       505,101  
Deferred income taxes
    39,513       35,972  
    28,184       28,304  
Intangible assets
    55,941       56,221  
Other assets
    18,711       15,206  
Total assets
  $ 1,435,783     $ 1,487,078  
Liabilities and Stockholders’ deficit:
Current liabilities:
Short term borrowings
  $ 110,000     $  
Accounts payable and accrued expenses
    189,453       324,814  
Income taxes payable
Litigation liability
    26,363       75,360  
Total current liabilities
    383,612       400,174  
Long-term debt
    1,140,000       1,090,000  
Postretirement benefits other than pensions
    83,354       81,668  
    154,847       150,318  
Income taxes payable
    38,480       38,510  
Other liabilities
    26,579       18,610  
Total liabilities
    1,826,872       1,779,280  
Minority interest and put arrangement
    28,207       28,000  
Stockholders’ deficit:
Capital stock(1)
    105,674       105,635  
Additional paid-in capital
    1,102,004       1,096,923  
Retained earnings
    805,173       773,829  
Accumulated other comprehensive loss
    (48,701 )     (45,083 )
    1,964,150       1,931,304  
Less treasury stock — 62,759,096 shares in 2008 and 60,332,966 shares in 2007
    2,383,446       2,251,506  
Total stockholders’ deficit
    (419,296 )     (320,202 )
Total liabilities and stockholders’ deficit
  $ 1,435,783     $ 1,487,078  
(1)   Common Stock par value $.50 per share: Authorized — 600 million shares; issued — 211,347,172 shares in 2008 and 211,269,622 shares in 2007. Preferred Stock par value $.10 per share: Authorized — 10 million shares; Issued — None.



(Dollars in thousands)
    Three Months ended March 31,  
    2008     2007  
Operating Activities:
Net earnings
  $ 125,334     $ 107,513  
Adjustment to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
    13,124       11,321  
Share-based compensation expense
    2,253       2,104  
Excess tax benefits from share-based compensation
    (593 )     (5,527 )
Gain on sale of corporate headquarters building
          (105,143 )
Gain on disposition of property, plant and equipment
    (1,308 )     (1,528 )
Amortization of imputed rent on corporate headquarters building
Deferred income taxes
    449       (3,546 )
Changes in operating assets and liabilities:
Accounts receivable
    438       1,066  
    21,363       8,394  
Prepaid expenses and other assets
    3,439       (1,905 )
Accounts payable, accrued expenses, pensions and other liabilities
    (109,299 )     (90,070 )
Income taxes
    66,581       57,132  
Litigation liability
    (48,997 )     119,664  
Net cash provided by operating activities
    72,784       100,438  
Investing Activities:
Short-term investments, net
          (8,200 )
Purchases of property, plant and equipment
    (12,646 )     (4,650 )
Proceeds from dispositions of property, plant and equipment
    463       130,187  
Investment in joint venture
    (13 )     39  
Net cash (used in) provided by investing activities
    (12,196 )     117,376  
Financing Activities:
Revolving credit facility repayments, net
    (140,000 )      
Proceeds from the issuance of debt
Change in book cash overdraft
    (17,674 )      
Excess tax benefits from share-based compensation
    593       5,527  
Proceeds from the issuance of stock
    2,723       20,932  
Dividends paid
    (93,834 )     (96,315 )
Stock repurchased
    (131,940 )     (50,029 )
Net cash used in financing activities
    (83,825 )     (119,885 )
(Decrease) increase in cash and cash equivalents
    (23,237 )     97,929  
Cash and cash equivalents at beginning of year
    73,697       254,393  
Cash and cash equivalents at end of period
  $ 50,460     $ 352,322  



Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures (Unaudited)
The adjusted non-GAAP financial measures used in this press release exclude the impact of the net gain on the sale of the company’s corporate headquarters, restructuring charges associated with the Project Momentum cost savings initiative and antitrust litigation charges. The “gain on the sale of corporate headquarters, net” reflects the net impact of the gain recorded on the sale and the amortization of the short-term imputed rent on the property, which was recognized through Sept. 2007 when the company relocated its headquarters. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The company believes that these non-GAAP financial measures are helpful in assessing ongoing and forecasted operating results. In addition, these non-GAAP financial measures facilitate the company’s internal comparisons to historical operating results and comparisons to competitors’ operating results. The company has included these non-GAAP financial measures in this press release because it believes such measures allow for greater transparency related to supplemental information used by management in its financial and operational analysis. Investors are encouraged to review the reconciliations of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measures as provided on the following pages.



Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures (Unaudited)
    First Quarter  
    2008     2007     % Change  
Consolidated Operating Income
GAAP operating income
  $ 212,306     $ 177,828       +19.4  
Other items:
Antitrust litigation
Restructuring charges
    412       3,520        
Impact of sale of corporate headquarters, net
          (104,180 )      
Adj. non-GAAP operating income
  $ 212,718     $ 199,268       +6.7  
    First Quarter  
    2008     2007     % Change  
Consolidated Net Earnings
GAAP net earnings
  $ 125,334     $ 107,513       +16.6  
Other items (net of taxes):
Antitrust litigation
Restructuring charges
    265       2,246        
Impact of sale of corporate headquarters, net
          (66,467 )      
Adj. non-GAAP net earnings
  $ 125,599     $ 121,044       +3.8  
    First Quarter  
    2008     2007     % Change  
Consolidated Diluted E.P.S.
GAAP diluted E.P.S.
  $ .83     $ .67       +23.9  
Other items (net of taxes):
Antitrust litigation
Restructuring charges
    .01       .01        
Impact of sale of corporate headquarters, net
          (.41 )      
Adj. non-GAAP diluted E.P.S.
  $ .84     $ .75       +12.0  
    First Quarter  
    2008     2007     % Change  
Smokeless Tobacco Segment Operating Profit
GAAP operating profit
  $ 203,602     $ 70,990        
Other items:
Antitrust litigation
Restructuring charges
    149       3,233        
Adj. non-GAAP operating profit
  $ 203,751     $ 196,323       +3.8  



    First Quarter
Smokeless Tobacco   2008   2007   % Chg.
Net Sales (mil)
  $ 373.6     $ 367.4       +1.7  
Adj. Non-GAAP Oper. Profit (mil)
  $ 203.8     $ 196.3       +3.8  
MST Net Can Sales                        
Premium (mil)
    134.7       131.8       +2.1  
Price Value (mil)
    25.2       23.4       +8.0  
Total (mil)
    159.9       155.2       +3.0  
    Volume %           Point
MST Share Data   Chg. vs.           Chg. vs.
RAD-SVT 26 wks ended 2/23/08(1)   YAGO   Share   YAGO
Total Category
    +7.1 %                
Total Premium Segment
    +1.7 %     54.2 %   -2.9 pts
Total Value Segments
    +14.3 %     45.7 %   +2.9 pts
USSTC Share of Total Category
    + 3.1 %     59.0 %   -2.2 pts
USSTC Share of Premium Segment
    +1.8 %     90.7 %   +0.1 pts
USSTC Share of Value Segments
    +10.4 %     21.6 %   -0.8 pts
(1)   RAD-SVT — Retail Account Data Share & Volume Tracking System. RAD-SVT information is being provided as an indication of current domestic moist smokeless tobacco industry trends from wholesale to retail and is not intended as a basis for measuring the company’s financial performance. This information can vary significantly from the company’s actual results due to the fact that the company reports net shipments to wholesale, while RAD-SVT measures shipments from wholesale to retail, the difference in time periods measured, as well as new product introductions and promotions.
    First Quarter
    2008   2007   % Chg.
Net Sales (mil)
  $ 86.2     $ 68.8       +25.3  
Operating Profit (mil)
  $ 11.3     $ 11.1       + 1.7  
Premium Case Sales (thou)
    1,271       1,100       +15.5  
Net Sales (mil)
  $ 13.0     $ 10.8       +19.9  
Operating Profit (mil)
  $ 4.7     $ 4.0       +17.5