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%

Long cut variety $3.Timberwolf (Swedish match) and Redwood flavored. Renegades (Swedish match) 1% Available in wintergreen and straight.2 oz package. classic and $3. Wintergreen and straight$2. Introduced in a 1.5 oz can.11 spearmint. Kodiak (Conwood) 29% Available in six varieties: wintergreen. Straight.29 flavors. Priced competitively to Copenhagen and skoal but is packaged in a 1. National Introduction in <1% 1998 Long-cut wintergreen and straightflavored. (Helme) in Third Qtr 1997 Red Seal Rooster Price Value Full Price Competition Test marketed in Fourth Qtr 1997. mint. Cougar. Kodiak (Conwood). Redwood (Swisher) and Silver Creek $1. cherry. Copenhagen has a "made-date" on bottom of its container so consumers recognize that it is fresh. Kodiak (Conwood) .98 flavored. Both fine and long cut varietiles.13 intruduced in the first quarter of 1997 (Swisher) 18% Second largest selling brand in the industry.Timberwolf (Swedish Match).44 more tobacco for their money. match) and Silver Creek (Helme) 3% Skoal packed in "tea bags" that are individual portion packs that make it easy $3. offering consumers 25% $2.10 to use and dispose. Timberwolf (Swedish straight.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.

30% 13.20% 0.20% -1.00% 78.00% 0.00% 3.50% 86.00% 0.00% 81.70% 94.20% 0.70% -2.50% -2.30% 0.60% 2.20% 86.00% 2.10% 0.50% - .50% 4.00% - 14.70% 0.00% 0.60% 1.30% -100.00% 4.00% NM 0.00% 5.60% 28.00% 0.00% 0.10% 2.10% 89.80% -25.00% 0.10% 2.80% 11.80% 11.50% 0.00% 1.00% 3.80% 0.60% 0.00% -50.40% 10.10% 110.60% -1.00% 0.10% 3.00% 0.90% 9.20% 0.00% 0.80% -1.60% 3.60% 0.00% 0.70% 4.70% 79.10% 2.00% 85.20% -1.90% 0.80% 0.50% 0.40% 33.00% 0.00% 30.00% 79.60% 11.50% 25. 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 99.90% 8.50% 25.60% - 21.10% 2.10% 0.10% 92.70% - 2.Exhibit 2: market share information for UST Inc.00% 97.00% 0.10% 10.10% 97.50% 0.50% 4.00% 11.00% 83.50% 83.30% 3.30% 11.80% 0.90% 5.60% 20.40% 0.80% 7.90% 7.60% 85.40% 0.60% 13.30% 0.60% -1.20% 2.20% 11.00% 1.10% 1.30% 0.00% 1.90% 2.00% 0.80% 1.80% 0.30% 0.00% 1.10% 0.60% 53.20% 84.30% 4.30% 90.00% 77.90% 7 Yr.00% -3.90% 84.30% 64.00% 1.30% 76.00% 1.30% 0.90% 0.30% 0. CAGR -1.50% 0.30% -22.30% 11.90% 2.80% 33.00% 11.00% 1.00% 0.40% 27.00% 1.30% 2.90% 0.60% 12.90% 5.10% 0.00% 2.50% 1.90% 11.10% 4.60% 0.30% 0.60% 78.80% 21.00% 4.00% 0.50% 81.10% 0.00% 0.00% 0.80% 96.80% -1.00% 0.80% 1.70% 0.10% 10.80% -4.60% 4.00% 1.80% 3.00% 11.20% 0.00% 10.50% 0.20% 10.00% 12.50% 40.00% 0.00% 10.60% 0.00% 0.70% 7.20% 100.80% 3.30% 2.

30 $151.60% 0.30 4.50 ($35.90 $826.38 $32.30 59% $2.00 $28.20 $195.17 $1.33% 8.20 187.00 $125.50 $656.00% 1.30% 14.50% 25.30% 71.00 $361.5 -2.88 13.8 $209.00) $1.30% 40.60 $6.6 744.40 $784.93% 11.00 $292.260.20 $118.99 $0.25 $32.10 $168.94% 11.00 208.20 670.00% 9.00% 8.3 277.18% $135.90 211.8 640.49 $1.40 $54.31 $18.80 $14.80 54% $41.9 312.9 -2 0.1 502.4 668.00 $281.00% 18.20 $6.50 $46.926.38 $16.46 53% $1.40 $139.40 $429.90 488.6 349 -3.60 $630.00% 50.8 $249.50% 51.50% 24.4 7.20 $0.50 $199.305.50% 30.40 $1.50% 38.3x 13.00 $35. 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 $611.2 591.90% 32.83 $0.60 $3.20% 12.3 -1.30 $706.50% 10.2 $673.04% 13.00% 0.48 60% $8.6 704.90 $35.00 $1.7 707.70 $741.30 $55.80 7.4 $144.60% 41.00 $36.5 265.60% 6.00 $436.10 $217.30% 32.10% 48.63 $12.43 $0.25% 8.88 $35.20 $37.62 67% $21.70 $399.10 $45.25 $33.00 $100.50 $36.930.00 $3.50 $15.70 $5.9 $275.10% 55.10% 20.00% 77.70 $184.90 437.96 58% $1.80 $69.066.90% 48.00 $252.70 $298.8x $2.4 -3.50 $24.80 $247.75 $32.80% 80.30 $100.60% .38 $24.90% 12.74 $0.10 $151.48 $2.00% 80.1x 13.2 352.50 $1.38 $25.83% 5.40% 16.60% 74.68% 13.87 $0.10 $4.38 $18.26 $1.00% 53.6 347.80 $1.5 $309.70 $101.20% 32.8 564.70% 54.75 $27.20% 32.60% 48.10% 56.5x 15.70 202 $221.40 564.80% 161.8 640.50 $1.60 $6.5 $228.5x 26.38 $23.90% 131.00 $463.40% 53.5 703.20 $97.30% 26.713.80 194.25 $15.21 $2.70% 33.6 566.60 $6.00 $9.9 5.40% 42.30 $23.00% 0.4 $144.00% 8.00 $212.92 $1.70% 31.9 736.630.80 $6.1 261.40 $516.60 $622.423.9 260.30% $0.50% 46.8 464 443.50 $806.70% 71.10% 17.74% 12.60% 5.30% 52.00 $1.2 6.50 $36.3 162.70% 46.70 $225.20% 29.88 $33.50 $482.30% 56.44 $1.50% 31.60 209.60% 17.88 $6.00 $5.00 $40.032.70% 123.40 $674.70 $236.30% 4.6 $210.20% 75.80 $473.30 $482.40% 25.371.62 64% $25.6 $221.2 749.20% 94.00% 6.70% 58.70% 44.70% 79.30% 28.10% 79.470.20 $1. (in millions.50% 26.2 -1.22% 6.6x 17.00 $2.40% 54.93% 10.2 301.8 500.66 52% $267.63 $28.90% 17.60% 1.90 215.70 $1.9 387.30% 62.70% 122.90% 103.70% 49.11% 11.12 58% $2.80% 19.50% 5.50% 53.4 851.50% 47.80 $54.8 1139.00 $27.8 785 423.04 $0.3 $898.0x 21.80 183.88 $1.20 $456.58% 8.30 219.03% 79.70% 50.10 $20.10% 1.70% 8.50% 53.70% 30.90% 51.20 $6.41% 15.80 $14.00 $100.37 50% $0.00 $468.5x 16.401.9 467.50% 21.30% 9.94 $34.40 $287.20% 19.30% 31.30% 22.30 $1.00% 74.70 $50.2 223.20 $913.20% 52.00 $250.70 $33.40% 10.097.90% 23.1 952 1043.6x 14.20% 23.6 368.91% 4.794.3 -2.39 $1.785.9 1109.00% 0.9 775.60% 0.25 $25.10% 29.00 $6.7 446.00% 13.88 $36.00 $110.00 $30.30% 89.70 $277.40% 2.81% 5.1x 15.30% 72.41 $2.5 $756.80 $453.6 1098.50% 45.75 $31.20% 53.20% 77.40 $274.40% 0.6 190.70 $67.60 $3.1 3.50% 40.80 $298.40 $54.63 $26.2 $197.56 $10.70% 55.60% 20.38 $36.20 $40.4 315 298.9 755.60 $100.60 $340.63 $0.50% 79.38 $32.80% 17.00 $2.9 719.94 $36.03% 13.70% 35.00 $21.50% 46.80 $81.70% 47.00 $200.487.20 $521.70 $1.204.70% 11.90% 56.20% -4.20% 47.55 53% $72.50 $301.00 $6.366.8 750.40% 8.10% 55.80% 54.30% 11.5 429.10% 2.30 185.70% 25.30 220.00% 28.30% 17.Exhibit 3: Summary financial information for UST Inc.70 $598.90% 16.40% 16.80% 55.52 $2.9x 17.4 525.40% 31.60% 55.30% 20.3 753.40 $100.60 $10.67 $1.40% 18.60% 53.9 779.2 426.71 $0.20 $125.80 $30.10% 50.90 $1.30 $237.20 $23.

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

20% $63.8 $44.20 194.60% 27.60% 4.10% $497.5 81.5 $58.60% 2.80% 3.00 230.30 54.7 $31.30 $59.40 51.10% 5.60 22.40% 7.30% 38.6 2.70% $720.40% 5.7 $744.60 56.80% 24.50 % Total 1997 % Total 1998 % Total 85.5 $56.3 $913.2 87.30% 148.8 1.30% 0.20% 31.90% 145 6.30 49.90% 14.8 1.30% 29.40% 9.40 57.20 50.40 20.2 25.00% 0.30 19.60% 34.90% -0.10% $700.70 25.60% Capital Expenditures (Gross) Tobacco Wine Other Corporate Total Capital Expenditures $29.20% 96.30% $16.70% $468.6 $28.20 12 2.3 $826.30 10. (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 $1.10 12 1.40% 2.2 -1.60 17.30% 26.4 1.80% $16.80 8.30% $1.60% 6.50% 30.00% 96.10 56.90% 5.40% 0.90 14.80% Depreciation Tobacco Wine Other Corporate Total Depreciation $15.1 6.70 65.1 1.7 0.80 8.80% $29.9 0.9 1.10 54 34.5 5.40% 3.20% 45.60% 0.167.40 28.9 84.9 102.7 1.2 51.10% 5.60 10.30% 3.60 277.10% $1.50% 5.20% 11.50% 4.1 $763.7 $745.40 56.5 0.50% 10.30% 5.00% 74.30% $27.1 2.3 $727.9 $806.00% 1.90% 6.181.10% 97.40% -1.6 61.50 122.70% 6.60% 10.2 87.90% $458.30% .Exhibti 4: Summary financial information (segment data) for UST Inc.6 $30.245.90% 12.9 91.

50 $797.834.50 $18.40% 9.16 $3.90 $3.056.60 $30.287.081.60 $34.90 44.94 $37.10 $469.30% 7.00 $28.80 $839.11 0% 30% $2.20% 41.40% 10. Summary Operating Dataa Fiscal Year End 31-Dec-98 Net Sales $1.52 Diluted Earnings per Share $2.20 ($7.20 $219.197.10 $328.20 Gross Profit 1139.30 ($15.079.18 $3.2 156.920.3 Interest Expense (Income) -2.80 $260.892.50 Tobacco Leaf Merchants North RJR Nabisco Atlantic DiMon Inc.6 85.00 $0.4 ($61.80% 4.68 53% $4.50% 12.66 56% 31-Mar-98 30-Jun-98 $1.30 $1.80 266.30% 1.00 323.20 $42.09) Nah Nah Nah $29.3 26. Holdings Trading Co.429.60% 2.00 $35.Exhibit 5: summayr financial information for UST Inc.60 $547.09) ($7. 31-Dec-98 $93.315.50 16.0s 37.00 $12.50 $0.00% 31.40) 528.90 $1.30 $31.20% 14.5 Net Income 467.70% 4.88 13.50 2.70 $90.9 52 $52.40% 39.614.00 $10.0 $34.4.171.492.00 $14.30% 10.9 200.10% -0.70% 6.20% 65.00) $576.60 $215.38 7.10% 55.00% 28.40 Median (excl.40 $3.05 $3.70% 5.20% 52.40% 1.00 $202.22 $2.20 $913.20% 17.50% 2.00 $18.467.50 $300.00 Philip Morris 31-Dec-98 $74.00 $468.1x $197.50 Special Charges/Non-Recurring Items (Gains)c$21.UST) 1.20 ($16.22 $2.797.00 $2.70 $149.2 1 $14.00 30993 15501 13811 890 12921 7672.7 EBITDAb 785 b EBIT 753.70 $197.50 $16.8x $6.00% 3.70% 20.3 29.4x $9.17 $1.00 9493 3602 2467 880 1455 718 $2.1 231.50 Dividend per Share (Common) $1.10 60.70 $1.00 $59.20 145 613.00 $11.40 $36.5 65.62 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 $33.423.00 $1.4 $6.391.80% 18.9x $129.951.3 278.069.1 24. except per share data and…) Tobacco Product Manufactures UST Inc.70) $2.90% 3.30% 9.20% 7.9 130.2 Pretax Earnings 755.00 $309.25 9.851. (in millions.40 35.30) $110.80 $53.8 64.30 $100.20% 2.016.00 $100.6x $500.076.00 Basic Earnings per Share $2.4 37.00 $3.10 $79.615.00 $9.71 $2.16 $0.7 83.982.20% 12.14 $1.50% 46.60 $39.563.8 72.90 $849.470.05 92% 30-Jun-98 $2.50 Standard Universal Commercial Corp 0% 31-Dec-98 $20.9 36.809.50 $2.90 ($259.20% 9.8 329.00 185.00 $7.50% 3.80 $4.10 $263.69 13.50% 80.50 $706.3x 10.00% 13.60% 10.30 $16.662.50 $421.80 $9.9 Free Operating Cash Flow $429.30 $15.90% 32.9 4.70% .90 12.68 $1.00 $957.00 $2.

d Additions of property.60% 17. c Author's estimates of pretax settlement charges and other special charges or nonrecurring items.40% 71.50% 3. b Excludes Other income and Expense.30% 25. a .00% 8.20% 43.40% 89.30% 72.and nonrecurring items. special charges. Net income adjustments generally apply a 40% tax rate.60% 6.80% 17.40% 53.10% 52.80% 65.60% 49.90% 22.40% 90. Before the cumulative effect of accounting changes and discountinued operations. plant and equipment net of dispositions. Excludes settlement charges. Does not include discontinued operations or effect of accounting changes.50% 31.40% 22.80% 47.20% 59.70% 65.Return on Average Equity Return on Average Assets Long-Term Debt/Capitalization Total Debt/Capitalization 103.70% Source: Company financial statements and author's calculations and adjustments.50% NM 0.40% 52.20% 54.40% 2.40% 53.40% 12.50% 2.50% 3.30% 13.

70% 13. UST) 31.30% 3.60% 16.Mean (excl.70% .

80% 55.90% ems.70% 4. Net income of accounting .90% 65.23.

5 3.8 101.4 18.3 1.7 14.6 364 296.8 10.3 41.9 16.5 4.5 3.2 12.3 12.1 13.5 140.5 6. Standard Commercial Universal Corp A Stable B+ Stable BBBStable BB+ Negative BBPositive AStable 11. Data for 1997-1998 b Excludes UST Inc.4 6.6 77.1 90. a Tobacco Leaf merchants Tobacco Companies UST Inc.6 65. Medianb 3 4.6 16 66.4 26 49. Holdings a Trading Co.7 -2.6 6.6 3.2 12.8 Source: Data provided by Standard & Poor's to the casewriter.2 .3 1.6 6.5 2.3 15.1 13.4 67.5 105.4 16.4 6.6 2.1 2.3 10.8 38.7 56.3 5.8 5.6 55.6 55.8 38.6 3.6 11.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.8 3.9 7.7 28.

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