UST Inc. News

UST Reports Second Quarter 2008 Results; Reaffirms Earnings Guidance for the Year

STAMFORD, Conn., July 24 PRNewswire-FirstCall — UST Inc. (NYSE: UST) today reported second quarter and six-month 2008 results slightly ahead of its expectations.

"Despite a challenging U.S. economy, a significant mid-quarter spike in gasoline prices and a meaningful increase in smokeless tobacco competitive activity, UST exceeded its earnings expectations for the quarter," said Murray S. Kessler, chairman and chief executive officer. "We remain on track to deliver a 10 percent shareholder return for the year, despite the fact that the company is increasing promotional support in the second half to address premium smokeless tobacco volume trends in specific areas of the country most impacted by current economic headwinds and competitive activity."

Consolidated Results

For the second quarter ended June 30, 2008, net sales increased 3 percent to $506.2 million, operating income increased 4.4 percent to $237.7 million, net earnings declined 0.2 percent to $139.7 million and diluted earnings per share increased 8 percent to $.94 versus the prior year period. During the quarter, the company repurchased 1.3 million shares at a cost of $66.8 million.

Second quarter 2008 results include antitrust litigation and Project Momentum related restructuring charges totaling $2.7 million before income taxes, or $.01 per diluted share. Second quarter 2007 results include Project Momentum related restructuring charges and lease charges recorded in connection with the sale of the company's headquarters totaling $6.8 million before income taxes, or $.03 per diluted share.

Adjusting for these items in each year, underlying second quarter 2008 operating income increased 2.5 percent to $240.5 million, net earnings decreased 1.9 percent to $141.4 million and diluted earnings per share increased 5.6 percent to $.95, as indicated on the attached reconciliation table, which provides a reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures.

The 5.6 percent increase in adjusted diluted earnings per share slightly exceeded the company's previous guidance of approximately 4 percent. This was driven by continued strong sales and operating profit for the company's wine operations, cost and spending favorability across all operations due to Project Momentum, and a reduction in shares outstanding, partially offset by increased interest expense related to increased borrowings incurred to enhance share repurchases.

For the six-month period ended June 30, 2008, net sales increased 4.3 percent to $978.9 million, operating income increased 11 percent to $450.6 million, net earnings increased 7.1 percent to $265 million and diluted earnings per share increased 15.7 percent to $1.77. For the six-month period, the company repurchased 3.7 million shares at a cost of $198.7 million.

As indicated on the attached table reconciling GAAP to non-GAAP financial measures, the six-month 2008 and 2007 periods include antitrust litigation settlement and restructuring charges. In addition, the 2007 period includes a net gain on the sale of the company's headquarters. Adjusted for these items, underlying operating income increased 4.5 percent to $453.7 million, net earnings increased 0.7 percent to $267 million and diluted earnings per share increased 9.1 percent to $1.79 versus the prior year period.

Smokeless Tobacco Segment

Smokeless Tobacco segment second quarter 2008 net sales decreased 1.3 percent to $393.7 million and operating profit increased 1.1 percent to $226.2 million, versus the prior year period. On an adjusted basis, operating profit increased 0.8 percent to $228.9 million (see table).

In the quarter, total moist smokeless tobacco net can volume increased 1.3 percent to 172 million, with premium decreasing 0.3 percent to 143.2 million and price value increasing 9.7 percent to 28.8 million, versus the prior year period.

"Our sustained investments continue to drive strong moist smokeless tobacco category growth and overall can volume growth for the company," said Daniel W. Butler, president, U.S. Smokeless Tobacco Company (USSTC). "However, our premium volume trend softened in June, primarily in one region of the country. We attribute this to increased competitive activity, our own promotional timing and higher gasoline prices. Plans have been adjusted to address these issues in order to return USSTC's premium volume to growth as the year progresses."

USSTC's Retail Account Data Share & Volume Tracking System (RAD-SVT) for the 26-week period ended June 14, 2008, indicates continued strong category growth trends. USSTC's total shipments increased 1.7 percent versus year ago, in a category that increased 7.6 percent. USSTC's premium brands grew 0.3 percent, slightly less than the premium segment which grew 0.6 percent, resulting in a 90.7 percent share of the premium segment. USSTC's price value shipments increased 8.6 percent, while the total price value segment increased 16.5 percent, resulting in a 21.4 percent share of the price value segment. USSTC's total share of 57.9 percent declined 3.4 percentage points versus the prior year period. (See supplemental schedule for information about RAD-SVT data).

Smokeless Tobacco segment six-month 2008 net sales increased 0.1 percent to $767.3 million versus the prior year period. Total moist smokeless tobacco net can sales increased 2.1 percent to 331.9 million, with premium net can sales up 0.9 percent to 277.6 million and price value net can sales up 8.6 percent to 54.3 million.

Operating profit for the segment, including antitrust litigation settlement charges and its share of restructuring charges in 2008 and 2007, increased 45.8 percent to $429.8 million. Excluding these items, underlying operating profit increased 2.2 percent to $432.6 million.

Wine Segment

In the second quarter 2008, net sales for the Wine segment increased 24.7 percent to $99.1 million, as total premium case sales increased 20 percent to 1.5 million. Strong growth was realized across the product portfolio, including the recently acquired Stag's Leap Wine Cellars, and was driven by strong acclaim for several recently released wines, a new advertising campaign for Columbia Crest and improved distribution as a result of an expanded sales force. Among the company's fastest growing brands in the quarter was Columbia Crest, with its current Chardonnay release garnering strong critical acclaim and contributing to the more than thirty five 90-plus ratings received for Ste. Michelle Wine Estates in the period. Strong sales growth, combined with increased productivity led to a 29.5 percent increase in operating profit to $14.8 million.

"Ste. Michelle Wine Estates remained the fastest growing top-10 winery in the United States," said Theodor P. Baseler, president, Ste. Michelle Wine Estates. "Outstanding growth continues to be driven by our dedication to producing world-class quality wines at a great value, combined with significant investments to expand our sales force and our brand portfolio."

For the six-month 2008 period, Wine segment net sales increased 25.0 percent to $185.3 million on a 17.9 percent increase in premium case sales versus the corresponding 2007 period. Operating profit advanced 17.5 percent to $26.7 million.

Outlook

For the year, the company remains on track to deliver its previously released adjusted non-GAAP diluted earnings per share target of $3.65, with a range of $3.60 to $3.70, inclusive of plans to increase smokeless tobacco promotional support to address increased competitive activity and the current economic environment. 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.

Consolidated diluted E.P.S. Full Year 2008 2007 % Estimate Actual Change GAAP diluted E.P.S. $3.63 $3.27 11.0 Other items (net of taxes): Antitrust litigation .01 .54 - Restructuring charges .01 .04 - Impact of sale of corporate headquarters, net - (.39) - Adj. non-GAAP diluted E.P.S. $3.65 $3.46 5.5

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) 286-8010 or (617) 801-6888, code #49334112 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.

UST CONSOLIDATED SALES AND EARNINGS (In thousands, except per share amounts) (Unaudited) Second Quarter 2008 2007 % Change Net sales $506,171 $491,254 +3.0 Costs and expenses Cost of products sold 140,299 126,849 +10.6 Selling, advertising and administrative 125,400 132,674 -5.5 Restructuring charges 1,206 3,908 - 69.1 Antitrust litigation 1,525 - - Total costs and expenses 268,430 263,431 +1.9 Operating income 237,741 227,823 +4.4 Interest, net 18,854 8,555 - Earnings before income taxes, minority interest and equity earnings 218,887 219,268 -0.2 Income tax expense 79,039 79,072 - Earnings before minority interest and equity earnings 139,848 140,196 -0.2 Minority interest expense 399 246 + 62.2 Income from equity method investees 211 21 - Net earnings $139,660 $139,971 -0.2 Net earnings per share: Basic $.95 $.88 +8.0 Diluted $.94 $.87 +8.0 Dividends per share $.63 $.60 +5.0 Average number of shares: Basic 147,298 159,557 Diluted 148,577 161,104 UST CONSOLIDATED SALES AND EARNINGS (In thousands, except per share amounts) (Unaudited) Six months ended June 30, 2008 2007 % Change Net sales $978,885 $938,272 +4.3 Costs and expenses Cost of products sold 271,655 242,502 +12.0 Selling, advertising and administrative 253,504 265,618 -4.6 Restructuring charges 1,618 7,428 - Antitrust litigation 1,525 122,100 - Total costs and expenses 528,302 637,648 -17.1 Gain on sale of corporate headquarters - 105,143 - Operating income 450,583 405,767 +11.0 Interest, net 36,531 18,130 - Earnings before income taxes, minority interest and equity earnings 414,052 387,637 +6.8 Income tax expense 148,334 139,812 +6.1 Earnings before minority interest and equity earnings 265,718 247,825 +7.2 Minority interest expense 988 385 - Income from equity method investees 264 44 - Net earnings $264,994 $247,484 +7.1 Net earnings per share: Basic $1.79 $1.55 + 15.5 Diluted $1.77 $1.53 + 15.7 Dividends per share $1.26 $1.20 +5.0 Average number of shares: Basic 148,188 159,762 Diluted 149,481 161,340 UST CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Dollars in thousands) June 30, December 31, 2008 2007 (Unaudited) Assets Current assets: Cash and cash equivalents $47,532 $73,697 Accounts receivable 74,777 60,318 Inventories: Leaf tobacco 176,937 202,137 Products in process 219,485 258,814 Finished goods 177,001 163,247 Other materials and supplies 24,367 22,365 Total inventories 597,790 646,563 Deferred income taxes 21,946 26,737 Income taxes receivable 922 8,663 Prepaid expenses and other current assets 26,866 30,296 Total current assets 769,833 846,274 Property, plant and equipment, net 505,118 505,101 Deferred income taxes 39,615 35,972 Goodwill 28,211 28,304 Intangible assets, net 55,655 56,221 Other assets 18,473 15,206 Total assets $1,416,905 $1,487,078 Liabilities and stockholders' deficit: Current liabilities: Short term borrowings $140,000 $- Current portion of long term debt 240,000 - Accounts payable and accrued expenses 191,107 321,256 Income taxes payable 9,224 - Litigation liability 24,772 75,360 Total current liabilities 605,103 396,616 Long-term debt 900,000 1,090,000 Postretirement benefits other than pensions 84,486 81,668 Pensions 159,369 150,318 Income taxes payable 38,940 38,510 Other liabilities 22,562 20,162 Total liabilities 1,810,460 1,777,274 Contingencies Minority interest and put arrangement 29,996 30,006 Stockholders' deficit: Capital stock(1) 105,779 105,635 Additional paid-in capital 1,114,267 1,096,923 Retained earnings 851,583 773,829 Accumulated other comprehensive loss (44,945) (45,083) 2,026,684 1,931,304 Less treasury stock - 64,016,506 shares in 2008 and 60,332,966 shares in 2007 2,450,235 2,251,506 Total stockholders' deficit (423,551) (320,202) Total liabilities and stockholders' deficit $1,416,905 $1,487,078 (1) Common Stock par value $.50 per share: Authorized — 600 million shares; issued — 211,558,289 shares in 2008 and 211,269,622 shares in 2007. Preferred Stock par value $.10 per share: Authorized — 10 million shares; Issued — None. UST CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) (Unaudited) Six Months Ended June 30, 2008 2007 Operating Activities: Net earnings $264,994 $247,484 Adjustment to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 26,782 22,545 Share-based compensation expense 5,559 7,001 Excess tax benefits from share-based compensation (2,020) (6,619) Minority interest expense 988 385 Income from equity method investees (264) (44) Gain on sale of corporate headquarters - (105,143) Gain on disposition of property, plant and equipment (1,281) (629) Amortization of imputed rent on corporate headquarters building - 3,851 Deferred income taxes 1,075 (6,622) Changes in operating assets and liabilities: Accounts receivable (14,459) (6,216) Inventories 48,773 33,877 Prepaid expenses and other assets 5,378 (3,476) Accounts payable, accrued expenses, pensions and other liabilities (100,604) (53,758) Income taxes 19,192 (8,412) Litigation liability (50,588) 118,008 Net cash provided by operating activities 203,525 242,232 Investing Activities: Short-term investments, net - (20,000) Purchases of property, plant and equipment (27,309) (22,582) Proceeds from dispositions of property, plant and equipment 1,515 130,456 Investment in joint venture (42) (328) Net cash (used in) provided by investing activities (25,836) 87,546 Financing Activities: Revolving credit facility repayments, net (110,000) - Proceeds from the issuance of debt 296,307 - Change in book cash overdraft (16,693) - Excess tax benefits from share-based compensation 2,020 6,619 Proceeds from the issuance of stock 10,149 26,122 Dividends paid (186,908) (192,255) Stock repurchased (198,729) (120,070) Net cash used in financing activities (203,854) (279,584) (Decrease) increase in cash and cash equivalents (26,165) 50,194 Cash and cash equivalents at beginning of year 73,697 254,393 Cash and cash equivalents at end of period $47,532 $304,587

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)

Second Quarter Consolidated Operating Income Second Quarter 2008 2007 % Change GAAP operating income $237,741 $227,823 4.4 Other items: Antitrust litigation 1,525 - - Restructuring charges 1,206 3,908 - Impact of sale of corporate headquarters, net - 2,888 - Adj. non-GAAP operating income $240,472 $234,619 2.5 Consolidated Net Earnings Second Quarter 2008 2007 % Change GAAP net earnings $139,660 $139,971 -0.2 Other items (net of taxes): Antitrust litigation 974 - - Restructuring charges 770 2,500 - Impact of sale of corporate headquarters, net - 1,742 - Adj. non-GAAP net earnings $141,404 $144,213 -1.9 Consolidated diluted E.P.S. Second Quarter 2008 2007 % Change GAAP diluted E.P.S. $.94 $.87 8.0 Other items (net of taxes): Antitrust litigation .01 - - Restructuring charges - .02 - Impact of sale of corporate headquarters, net - .01 - Adj. non-GAAP diluted E.P.S. $.95 $.90 5.6 Smokeless Tobacco Segment Operating Profit Second Quarter 2008 2007 % Change GAAP operating profit $226,198 $223,758 1.1 Other items: Antitrust litigation 1,525 - - Restructuring charges 1,173 3,253 - Adj. non-GAAP operating profit $228,896 $227,011 0.8

Reconciliation of GAAP Financial Measures to non-GAAP Financial Measures (Unaudited)

Six Months Consolidated Operating Income Six months ended June 30, 2008 2007 % Change GAAP operating income $450,583 $405,767 11.0 Other items: Antitrust litigation 1,525 122,100 - Restructuring charges 1,618 7,428 - Impact of sale of corporate headquarters, net - (101,292) - Adj. non-GAAP operating income $453,726 $434,003 4.5 Consolidated Net Earnings Six months ended June 30, 2008 2007 % Change GAAP net earnings $264,994 $247,484 7.1 Other items (net of taxes): Antitrust litigation 974 77,752 - Restructuring charges 1,035 4,746 - Impact of sale of corporate headquarters, net - (64,725) - Adj. non-GAAP net earnings $267,003 $265,257 0.7 Consolidated diluted E.P.S. Six months ended June 30, 2008 2007 % Change GAAP diluted E.P.S. $1.77 $1.53 15.7 Other items (net of taxes): Antitrust litigation .01 .48 - Restructuring charges .01 .03 - Impact of sale of corporate headquarters, net - (.40) - Adj. non-GAAP diluted E.P.S. $1.79 $1.64 9.1 Smokeless Tobacco Segment Operating Profit Six months ended June 30, 2008 2007 % Change GAAP operating profit $429,800 $294,748 45.8 Other items: Antitrust litigation 1,525 122,100 - Restructuring charges 1,322 6,486 - Adj. non-GAAP operating profit $432,647 $423,334 2.2 UST SUPPLEMENTAL SCHEDULE (Unaudited) Second Quarter Six months ended June 30, Smokeless Tobacco 2008 2007 % Chg. 2008 2007 % Chg. Net Sales (mil) $393.70 $399.00 -1.3 $767.30 $766.50 0.1 Adj. Non-GAAP Oper. Profit (mil) $228.90 $227.00 0.8 $432.60 $423.30 2.2 MST Net Can Sales Premium (mil) 143.2 143.6 -0.3 277.6 275 0.9 Price Value (mil) 28.8 26.2 9.7 54.3 50 8.6 Total (mil) 172 169.8 1.3 331.9 325 2.1 Volume% Point MST Share Data Chg. vs. Chg. vs. RAD-SVT 26 wks ended 6/14/08(1) YAGO Share YAGO Total Category +7.6% Total Premium Segment +0.6% 52.7% -3.6 pts Total Value Segments +16.5% 47.2% +3.6 pts USSTC Share of Total Category + 1.7% 57.9% -3.4 pts USSTC Share of Premium Segment +0.3% 90.7% -0.3 pts USSTC Share of Value Segments +8.6% 21.4% -1.6 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. Second Quarter Six months ended June 30, Wine 2008 2007 % Chg. 2008 2007 % Chg. Net Sales (mil) $99.10 $79.50 24.7 $185.30 $148.30 25 Operating Profit (mil) $14.80 $11.50 29.5 $26.70 $22.70 17.5 Premium Case Sales (thou) 1,461 1,217 20 2,732 2,317 17.9 Other Net Sales (mil) $13.40 $12.70 5.2 $26.30 $23.50 11.9 Operating Profit (mil) $4.10 $4.90 -16.9 $8.80 $8.90 -1.5

SOURCE UST, Inc.

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