Smokeless Tobacco Brands (1998 Dollar Share)

Copenhagen Fine Cut (UST)

Skoal Fine Cut Wintergreen (UST)
Kodiak Wintergreen (Conwood)
Skoal Long Cut Wintergreen (UST)
Copenhagen Long Cut (UST)
Skoal Long Cut Straight (UST)
Skoal Long Cut Mint (UST)
Skoal Long Cut Cherry (UST)
Skoal Bandits Wintergreen (UST)
Skoal Long Cut Classic (UST)
Skoal Long Cut Spearmint (UST)
Skoal Fine Cut Straight (UST)

29.90%
11.80%
9.50%
9.40%
7.20%
5.90%
4.40%
2.90%
2.20%
2.00%
1.80%
1.30%

Brands

Copenhagen

Category

Intruduction

Full Price

1822

Skoal Fine Cut Full Price

1935

Skoal Fine Cut Full Price

Skoal Bandits

Full price

1998
Average
Retail
% 1998 Cost per
Sales
Can
Description

1984
National
Introduction
1983

48%

Top Selling brand in the industry. Straight- Timberwolf (Swedish match) and Redwood
flavored, Copenhagen has a "made-date"
on bottom of its container so consumers
recognize that it is fresh. Both fine and
long cut varietiles. Long cut variety
$3.13 intruduced in the first quarter of 1997
(Swisher)

18%

Second largest selling brand in the

industry. Wintergreen and straight$2.98 flavored.
Kodiak (Conwood)

29%

Available in six varieties: wintergreen, Kodiak (Conwood). Timberwolf (Swedish

straight, mint, cherry, classic and
$3.11 spearmint.
match) and Silver Creek (Helme)

3%

Skoal packed in "tea bags" that are

individual portion packs that make it easy
$3.10 to use and dispose.
Renegades (Swedish match)

1%

Available in wintergreen and straight- Timberwolf (Swedish Match), Cougar,

Redwood (Swisher) and Silver Creek
$1.29 flavors. Introduced in a 1.2 oz package.
(Helme)

in

Third Qtr 1997

Red Seal

Rooster

Price Value

Full Price

Competition

Test marketed in
Fourth Qtr 1997;
National
Introduction
in
<1%
1998

Long-cut
wintergreen
and
straightflavored.
Priced
competitively
to
Copenhagen and skoal but is packaged in
a 1.5 oz can, offering consumers 25%
$2.44 more tobacco for their money.
Kodiak (Conwood)

Exhibit 2: market share information for UST Inc.

Industry
Premium Market Share %
Price Value Market Share %
UST
Total Market Share %
Increase/(Decrease)%
Premium Market Share %
Price Value Market Share %
Conwood
Total Market Share %
Increase /(Decrease)%
Premium Market Share %
Price Value Market Share %
Swedish Match
Total Market Share %
Increase/(Decrease)%
Primium Market Share %
Price Value Market Share %
Swisher
Total Market Share %
Increase/(Decrease)%
Primium Market Share %
Price Value Market Share %
Other Manufactures
Total Market Share %
Increase/(Decrease)%
Primium Market Share %
Price Value Market Share %

1991

1992

1993

1994

1995

1996

1997

1998

99.00%
1.00%

97.90%
2.10%

97.20%
2.80%

96.30%
3.70%

94.90%
5.10%

92.70%
7.30%

90.90%
9.10%

89.20%
10.80%

-1.50%
40.50%

86.20%

84.60%
-1.90%
84.60%
0.00%

85.10%
0.60%
85.10%
0.00%

83.80%
-1.50%
83.80%
0.00%

81.70%
-2.50%
81.70%
0.00%

79.50%
-2.70%
79.50%
0.00%

78.20%
-1.60%
78.20%
0.00%

77.20%
-1.30%
76.60%
0.60%

-1.60%

11.30%
11.90%
11.30%
0.00%

10.80%
-4.40%
10.80%
0.00%

11.10%
2.80%
11.10%
0.00%

11.90%
7.20%
11.90%
0.00%

12.80%
7.60%
12.20%
0.60%

13.10%
2.30%
11.80%
1.30%

13.20%
0.80%
11.60%
1.60%

3.90%

2.00%
11.10%
2.00%
0.00%

1.00%
-50.00%
1.00%
0.00%

1.10%
10.00%
1.00%
0.10%

1.40%
27.30%
0.80%
0.60%

2.30%
64.30%
0.50%
1.80%

3.00%
30.40%
0.30%
2.70%

4.60%
53.30%
0.30%
4.30%

2.10%
110.00%
0.00%
2.10%

2.80%
33.30%
0.00%
2.80%

3.60%
28.60%
0.00%
3.60%

4.50%
25.00%
0.00%
4.50%

4.90%
8.90%
0.00%
4.90%

5.10%
4.10%
0.00%
5.10%

3.80%
-25.50%
0.00%
3.80%

21.00%

0.00%
0.30%
-100.00% NM
0.90%
0.00%
0.30%
0.00%
0.00%
0.00%

0.40%
33.30%
0.40%
0.00%

0.50%
25.00%
0.50%
0.00%

0.50%
0.00%
0.50%
0.00%

0.60%
20.00%
0.60%
0.00%

1.20%
100.00%
0.70%
0.50%

4.20%

86.20%
0.00%

10.10%
10.10%
0.00%

1.80%
1.80%
0.00%

1.00%
0.00%
1.00%

0.90%

7 Yr. CAGR

-1.70%
-

2.00%
-

14.30%
-22.60%
-

21.00%

-3.50%
-

Exhibit 3: Summary financial information for UST Inc. (in millions, except per-share data and ratios)
1988
Summary Operarting Dataa
Net Sales
Gross Profit
EBITDA
EBIT
Interest Expense (Income)
Pretax Earnings
Net Income
Free Operating Cash Flow
Special Charges/Non-Recuring Items
(Gains)b
Basic Earnings per Share
Diluted Earnings per Share
Dividend per Share
Dividend Payout Ratio
Balance Sheet and Cash Flow Data
Cash and Cash Equivalents
Total Assets
Long-Term Debt
Total Debt
Shareholders' Equity
Average Basic Shares Outstanding
Working Capital
Capital Expendituresc
Dividends paid
Share Repurchases
Stock Price Data
High
Low
Year End
Price/Earnings Ratiod
Market Equitye
Selected Growth Rates and Ratios
Sales Growth
Net income Growth
Dividend Growth
Gross Profit Margin
EBITDA Margin
EBIT Margin
Net Margin
Return on Average Equity
Return on Average Assets
Long-Term Debt/Capitalization
Total Debt/Capitalization

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

5-Yr CAGR 10-Yr CAGR

$611.90
437.3
277.9
260.2
-1.1
261.3
162.2

$673.90
488.4
315
298.4
-3.2
301.6
190.5

$756.40
564.6
368.6
349
-3.2
352.2
223.3

$898.40 $1,032.20 $1,097.50 $1,204.00 $1,305.80 $1,371.70 $1,401.70 $1,423.20

670.9
775.4
851.1
952
1043.6
1098.9
1109.8
1139.7
446.4
525.2
591.4
668.9
736.9
779.2
749.8
785
423.8
500.8
564.8
640.7
707.8
750.9
719.3
753.3
-2.3
-1.9
-2
0.1
3.2
6.4
7.5
-2.2
426.1
502.6
566.8
640.6
704.6
744.5
703.9
755.5
265.9
312.6
347.9
387.5
429.8
464
443.9
467.9

5.33%

8.81%

5.83%
5.93%

10.94%
11.22%

6.11%

11.18%

$135.20

$195.10

$217.80

$247.30

4.74%

12.25%

8.58%
8.93%
11.03%

13.04%
13.41%
15.91%

4.68%

13.03%

79.70%
55.50%
53.30%
32.70%
122.80%
55.30%
22.70%
30.20%

77.30%
52.70%
50.40%
31.30%
89.10%
48.20%
12.40%
16.30%

$0.74
$0.71
$0.37
50%

$0.87
$0.83
$0.46
53%

$1.04
$0.99
$0.55
53%

$72.70
$598.00
$21.80
$30.80
$453.30
220.6
$221.10
$20.80
$81.70
$67.40

$54.60
$630.20
$6.80
$14.50
$482.30
219.8
$209.30
$23.70
$101.20
$97.50

$46.60
$622.60
$3.10
$4.80
$473.90
215.2
$197.20
$37.20
$118.30
$151.30

$1.26
$1.20
$0.66
52%

$267.90

$1.49
$1.43
$0.80
54%

$41.50
$656.50

$36.40
$674.00

$1.30
$482.90
211.6
$210.00
$28.40
$139.70
$184.40

$516.60
209.8
$249.00
$30.10
$168.00
$212.60

$340.70

$399.20

$521.20

$456.40

$287.40

$429.50

($35.00)
$1.67
$1.63
$0.96
58%

$1.92
$1.88
$1.12
58%

$2.21
$2.17
$1.30
59%

$2.48
$2.44
$1.48
60%

$8.00
$2.41
$2.39
$1.62
67%

$21.00
$2.52
$2.50
$1.62
64%

$25.30
$706.20
$40.00
$40.00
$463.00
208.5
$228.40
$54.50
$199.70
$236.70

$50.70
$741.20
$125.00
$125.00
$361.70
202
$221.20
$23.70
$225.70
$298.80

$69.40
$784.00
$100.00
$200.00
$292.80
194.4
$144.80
$14.00
$252.40
$274.80

$54.50
$806.60
$100.00
$250.00
$281.20
187.4
$144.00
$36.70
$277.30
$237.80

$6.90
$826.40
$100.00
$110.00
$436.80
183.9
$275.30
$55.80
$298.10
$45.70

$33.20
$913.30
$100.00
$100.00
$468.30
185.5
$309.90
$35.50
$301.10
$151.60

$10.50
$15.38
$18.25
$33.88
$35.38
$32.75
$31.50
$36.00
$35.88
$36.94
$36.88
$6.00
$9.63
$12.38
$16.38
$25.38
$24.38
$23.63
$26.63
$28.25
$25.50
$24.56
$10.25
$15.31
$18.25
$32.75
$32.00
$27.75
$27.88
$33.38
$32.38
$36.94
$34.88
13.9x
17.6x
17.5x
26.0x
21.5x
16.6x
14.5x
15.1x
13.1x
15.3x
13.8x
$2,260.60 $3,366.00 $3,926.60 $6,930.00 $6,713.70 $5,785.00 $5,630.60 $6,487.20 $6,066.60 $6,794.00 $6,470.80
7.20%
23.90%
23.30%
71.50%
45.40%
42.50%
26.50%
38.00%
28.30%
4.60%
6.40%

10.10%
17.50%
24.30%
72.50%
46.70%
44.30%
28.30%
40.70%
31.00%
1.40%
2.90%

12.30%
17.20%
19.60%
74.60%
48.70%
46.10%
29.50%
46.70%
35.60%
0.60%
1.00%

18.80%
19.10%
20.00%
74.70%
49.70%
47.20%
29.60%
55.60%
41.60%
0.00%
0.30%

14.90%
17.50%
21.20%
75.10%
50.90%
48.50%
30.30%
62.50%
47.00%
0.00%
0.00%

6.30%
11.30%
20.00%
77.50%
53.90%
51.50%
31.70%
71.00%
50.40%
8.00%
8.00%

9.70%
11.40%
16.70%
79.10%
55.60%
53.20%
32.20%
94.00%
53.50%
25.70%
25.70%

8.50%
10.90%
16.10%
79.90%
56.40%
54.20%
32.90%
131.30%
56.40%
25.50%
40.60%

5.00%
8.00%
13.80%
80.10%
56.80%
54.70%
33.80%
161.70%
58.30%
26.20%
47.10%

2.20%
-4.30%
9.50%
79.20%
53.50%
51.30%
31.70%
123.70%
54.40%
18.60%
20.10%

1.50%
5.40%
0.00%
80.10%
55.20%
52.90%
32.90%
103.40%
53.80%
17.60%
17.60%

Source: Company annual report for fiscal year ended December 31, 1998 and author's adjustments and calculations.
Before the cumulative effect of accounting changes. Excludes settlement charges and other special charges or nonrecurring items. All net income adjustments apply a 40% tax rate.
b
Author's estimates of pretax settlement charges and other special charges or nonrecurring item. Does not include effect of accounting changes.
c
Additions for property, plant and equipment net of dispositions.
d
Based upon year-end stock price and basic earnings per share.
e
Based upon average basic shares outstanding and year-end stock price.
a

Exhibti 4: Summary financial information (segment data) for UST Inc. (in millions)
1996
Net Sales (unaffiliated customers)
Tobacco
Wine
Other
Total Net Sales
Operating Profit
Tobacco
Wine
Other
Total Operating Profit
Operating Profit Margin
Tobacco
Wine
Other
Identifiable Assets at December 31
Tobacco
Wine
Other
Corporate
Total Identifiable Assets

$1,167.50
122.5
81.7

$745.60
17.9
0.1
$763.50

% Total

1997

% Total

1998

% Total

85.10% $1,181.80
8.90%
145
6.00%
74.9

84.30% $1,245.60
10.30%
148.5
5.30%
29.2

87.50%
10.40%
2.10%

97.60%
2.30%
0.00%

96.30%
3.90%
-0.20%

96.80%
3.00%
0.20%

$63.90
14.60%
0.10%

$700.40
28.2
-1.3
$727.30
$59.30
19.40%
-1.70%

$720.60
22.1
1.7
$744.40
57.90%
14.90%
5.90%

$458.20
194.9
91.6
61.9
$806.60

56.80%
24.20%
11.40%
7.70%

$468.00
230.9
102.2
25.3
$826.40

56.60%
27.90%
12.40%
3.10%

$497.60
277.2
87.2
51.3
$913.30

54.50%
30.40%
9.50%
5.60%

Capital Expenditures (Gross)

Tobacco
Wine
Other
Corporate
Total Capital Expenditures

$29.20
12
2.7
0.8
$44.70

65.30%
26.90%
6.00%
1.80%

$29.40
20.1
6.1
2.5
$58.20

50.60%
34.60%
10.50%
4.30%

$27.70
25.6
2.5
0.5
$56.30

49.20%
45.60%
4.40%
0.80%

Depreciation
Tobacco
Wine
Other
Corporate
Total Depreciation

$15.80
8.9
1.8
1.6
$28.10

56.20%
31.70%
6.40%
5.80%

$16.30
10.4
1.8
1.6
$30.10

54
34.60%
6.10%
5.30%

$16.10
12
1.7
1.7
$31.40

51.30%
38.10%
5.30%
5.30%

Exhibit 5: summayr financial information for UST Inc. (in millions, except per share data and)
Tobacco Product Manufactures
UST Inc.

Summary Operating Dataa

Fiscal Year End
31-Dec-98
Net Sales
$1,423.20
Gross Profit
1139.7
EBITDAb
785
b
EBIT
753.3
Interest Expense (Income)
-2.2
Pretax Earnings
755.5
Net Income
467.9
Free Operating Cash Flow
$429.50
Special Charges/Non-Recurring Items (Gains)c$21.00
Basic Earnings per Share
$2.52
Diluted Earnings per Share
$2.50
Dividend per Share (Common)
$1.62
Dividend payout Ratio
64%
Balance Sheet and Cash Flow Data
Cash and Cash Equivalents
Total Assets
long-Term Debt
Total Debt
Preferred Stock & Minority Interest
Shareholders' Equity
Average Basic Shares Outstanding
Workding Capital
Capital Expendituresd
Stock Price Data
Fiscal year End
Price/Earnings Ratioe
Market Equityf
Selected Growth Rates and Ratios
Sales Growth
Gross profit Margin
EBITDA Margin
EBIT Margin
Net Margin

$33.20
$913.30
$100.00
$100.00

Philip Morris

31-Dec-98
$74,391.00
30993
15501
13811
890
12921
7672.4
$6,076.40
$3,834.00
$3.16
$3.14
$1.68
53%
$4,081.00
$59,920.00
$12,615.00
$14,662.00

$468.30
$16,197.00
185.50
2,429.00
$309.90
$3,851.00
$35.50 $18.4.0
$34.88
13.8x
$6,470.80

$53.50
16.9x
$129,951.50

Tobacco Leaf Merchants

North
RJR Nabisco
Atlantic
DiMon Inc.
Holdings
Trading Co.

31-Dec-98
$93.10
60.9
36.3
29.1
24.9
4.2
1
$14.50

Standard
Universal
Commercial
Corp

0%

31-Dec-98
$20,563.00
9493
3602
2467
880
1455
718
$2,016.00
$2,069.00
$2.22
$2.22
$2.05
92%

30-Jun-98
$2,171.80
266.9
200.2
156.7
83.8
72.9
52
$52.50
$16.90
$1.17
$1.16
$0.66
56%

31-Mar-98 30-Jun-98
$1,492.80 $4,287.20
145
613.6
85.8
329.5
65.3
278.4
37.8 64.0s
37.1
231.3
26.9
130.4
($61.30) $110.20
($16.70)
$2.18
$3.71
$2.05
$3.68
$1.11
0%
30%

$2.80
$260.00
$202.60
$215.60
$39.30
($15.40)
528.20
$42.00
$0.50

$300.00
$28,892.00
$9,982.00
$10,467.00
$957.00
$7,809.00
323.90
($259.00)
$576.00

$18.70
$1,797.50
$797.00
$1,079.50
$0.50
$421.90
44.50
$706.40
$36.60

$34.10
$79.80
$839.50 $2,056.70
$197.10
$263.10
$469.90
$849.60
$30.30
$31.70
$149.60
$547.90
12.40
35.20
$219.10
$328.80
$9.70
$90.00

$11.25
9.6x
$500.30

$15.94
$37.38
7.3x
10.1x
$197.30 $1,315.20

($7.09)
($7.09)

Nah
Nah
Nah

$29.69
13.4x
$9,614.40

Median
(excl.UST)
1.50%
80.10%
55.20%
52.90%
32.90%

3.20%
41.70%
20.80%
18.60%
10.30%

10.20%
65.40%
39.00%
31.30%
1.10%

-0.50%
46.20%
17.50%
12.00%
3.50%

2.20%
12.30%
9.20%
7.20%
2.40%

10.20%
9.70%
5.70%
4.40%
1.80%

4.20%
14.30%
7.70%
6.50%
3.00%

28.00%
13.40%
9.60%
2.70%

Return on Average Equity

Return on Average Assets
Long-Term Debt/Capitalization
Total Debt/Capitalization

103.40%
53.80%
17.60%
17.60%

49.30%
13.20%
43.80%
47.50%

NM
0.40%
89.40%
90.00%

8.40%
2.40%
53.20%
54.40%

12.50%
2.70%
65.40%
71.90%

22.50%
3.40%
52.30%
72.30%

25.60%
6.50%
31.20%
59.40%

22.50%
3.10%
52.80%
65.70%

Source: Company financial statements and author's calculations and adjustments.

Before the cumulative effect of accounting changes and discountinued operations. Excludes settlement charges, special charges,and nonrecurring items. Net income
adjustments generally apply a 40% tax rate.
b
Excludes Other income and Expense.
c
Author's estimates of pretax settlement charges and other special charges or nonrecurring items. Does not include discontinued operations or effect of accounting
changes.
d
Additions of property, plant and equipment net of dispositions.
a

Mean (excl.
UST)
31.60%
16.70%
13.30%
3.70%

23.70%
4.80%
55.90%
65.90%

ems. Net income

of accounting

Exhibit 6: Key financial ratios for tobacco companies

Tobacco Product Manufacturers
Philip
Morris
Three-Years (1996-1998)
Corporate Credit Rating
Outlook
EBIT interest coverage (x)
EBITDA interest coverage (x)
Fund flow/total debt (%)
Free operating cash flow/total debt (%)
Return on capital (%)
Operating income/sales (%)
Total debt/capital (including ST debt) (%)

North
RJR Nabisco
Atlantic
DiMon Inc.
Holdings
a
Trading Co.

Standard
Commercial

Universal Corp

A
Stable

B+
Stable

BBBStable

BB+
Negative

BBPositive

AStable

11.2
12.7
56.3
41.8
38.4
26
49.3

1.3
1.6
6.8
5.6
11.8
38.1
90.6

2.5
3.7
14.5
6.8
10.3
15.6
55.1

2.6
3.3
12.3
10.1
13.4
16.4
67.8

3.3
5.4
6.7
-2.6
6.6
3.6
77.5

3.5
4.4
18.5
2.9
16.9
7.6
65.8

Source: Data provided by Standard & Poor's to the casewriter.

Data for 1997-1998
b
Excludes UST Inc.
a

Tobacco Leaf merchants

Tobacco
Companies UST Inc.
Medianb

3
4.1
13.4
6.2
12.6
16
66.8

101.5
105.6
364
296.5
140.6
55.7
28.2