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UST inc

UST inc Tobacco is a plant that grows in a wide range of soil and climate conditions. Its non-edible leaf is dried and used to produce cigarettes, pipe tobacco, cigars, chewing tobacco and snuff. Companies that manufacture and market cigarettes, snuff, cigars, chewing tobacco, and other tobacco products, UST Inc., through its subsidiaries, operates predominantly in the tobacco industry as a manufacturer and marketer of moist smokeless tobacco products, and also produces and markets premium wines. The Company operates primarily in the United States. The Company's principal smokeless tobacco products and brand names are divided into moist and dry categories. Under the moist classification, the Company's brands include Copenhagen, Skoal Long Cut, Skoal, Copenhagen Long Cut, Red Seal, Skoal Bandits and Rooster. The Company's products under its dry category include the brands Bruton, Cc and Red Seal. The Company markets its moist smokeless tobacco products throughout the United States, principally to chain stores and tobacco and grocery wholesalers. Approximately 35% of the Company's gross sales of tobacco products are made to five customers, one of which, McLane Co. Inc., a national distributor, accounts for 19.7% of the Company's consolidated revenue. The Company is a producer of premium varietal and blended wines. Chateau Ste. Michelle and Columbia Crest Varietal Table Wines and Domaine Ste. Michelle sparkling wine are produced by the Company in the state of Washington and marketed throughout the United States. UST Inc. also produces and markets two California premium wines under the labels of Villa Mt. Eden and Conn Creek. Approximately 60% of the Company's wine sales are made to 10 distributors, none of which accounts for more than 26% of total wine sales. Substantially all wines are sold through state- licensed distributors with whom the Company maintains satisfactory relationships. The Company's other operations include the international operation, which markets moist smokeless tobacco in select markets, and the cigar operation, which manufactures and markets the premium cigar brands Don Tomas, Astral and Habano Primero. Today we are leaders on the smokeless tobacco market; one of our products is marketed to ‘‘smokers who can’t smoke’’. Our goal to increase operating efficiency and provide you best service through our Sales Tracing and Reporting System (STARS) . We also take care about your health, prohibit our seller to sell our product to not adult people. This statement does not clarify what technology they use, concerns for survival, growth and profitability and self-consept. External Factor Evaluation Matrix for UST, Inc. Key External Factors Weight Rating Weighted Score Opportunities 3. Technological Development 0.20 2 0.4 4.Increased demand due to public banning of smoking 0.05 3 0.15 5. More social pressure to quit smoking, thus leading users to switch to alternatives 0.10 3 0.3 1. Legislation against the tobacco industry 0.15 2 0.3 2. Increasing competition 0.10 3 0.30 3. Bad media exposure from FDA 0.10 2 0.20 4. Environmental protection laws 0.05 1 0.05 5. Smokeless tobacco market is concentrated in one region 0.05 2 0.10 The EFE Matrix for UST Inc., illustrates that at least two main factors affecting industry, as indicated by the weight of 0.15(Global Expansion) and 0.2(Technological Development). UST was not pursuing strategies that effectively capitalize on this opportunity, as indicated by the rating of 1 and 2 respectively. The total weighted score of 2.00 indicates that UST is below average in its effort to pursue strategies that capitalize on external opportunities and avoid threats. Financial Ratios UST Industry average *from appendix Quick ratio= current asset/current liabilities 441,844/166,519 = 2.65 0.87 Quick Ratio =(current assets- inventory)/ current liabilities (441,844-319,666)/166,519 = 0.74 0.15 Debt-to-total- assets ratio=total debt/total assets 388,783/826,714 = 0.47 - Debt –to- Equity Ratio = total debt/total stockholders’ equity 388783/437931 =0.89 1.28 Long-term debt-to-equity ratio =long-term debt/ total stockholders’ equity 100000/437931 =0.29 1.26 Times –Interest – Earned Ratio = profits before interest and taxes/total interest charges (702857-7451)/7451 =93.46 - Inventory turnover = sales/inventory of finished goods 1401718/265193 =5.28 - Fixed asset turnover = sales/ fixed assets 1401718/326709 =4.29 - Total assets turnover = Sales/total assets 1401718/826718 =1.69 - Cross profit margin =(sales– cost of good sold)/sales (703857-7415 )/1401718 =0.4976 - Operating profit margin = earnings before interest and taxes/ sales 439138/1401718 =0.3132(31.32) 11.01 Net profit margin = net income/ sales 439138/826714 =0.53 - Return on total assets = net income/ total assets 439138/437931 =1.00 - Earnings per share = net income/number of shares of common stock outstanding 439138/183931 =2.39 - Internal Factor Evaluation Matrix for UST Inc. Key internal factors Weight Rating Weighted score 1. Great sales tacking and responding system(STARS) 0.10 4 0.40 3.Leader in the smokeless tobacco market 0.05 4 0.20 4.Highest profit margin and return on asstets 0.10 4 0.40 5.Introducing new products 0.10 4 0.40 7. Good image (discourage the use of its products by minors) 0.05 3 0.15 2. Most properties located in one area 0.05 2 0.10 3. Decreasing net earnings 0.10 1 0.10 The firm’s major strengths are STAR, introduction of a new produce, highest profit margin and return on assets, leader in the smokeless tobacco market as indicating be rating 4. The major weaknesses are location and earnings. The total weighted score of 3.00 indicates that the firm is above average in its overall internal strength. Critical Success Factors Weight Rating Score Rating Score Rating Score Advertising 0.20 4 0.80 4 0.80 3 0.60 Product Quality 0.15 3 0.45 3 0.45 3 0.45 Price Competition 0.10 3 0.30 3 0.30 4 0.40 Management 0.10 3 0.30 3 0.30 3 0.30 Financial Position 0.10 3 0.30 3 0.30 3 0.30 Customer Loyalty 0.10 2 0.20 1 0.20 1 0.0 Global Expansion 0.20 1 0.20 1 0.20 1 0.20 Market Share 0.05 4 0.20 3 0.15 2 0.10 The current ration 2.65 is higher than required, and than total industry average(0.87) 4.0 The leverage ratio is low the required and than in industry (UST 0.89 Industry 1.28) 1.0 The UST net earnings was 439,138 down to 5,6% 2.0 Financial stabilityCapital intensity 4.0 High barriers to entry into market -5.0 ES Average is –15/3=-5 IS Average is + 11/3=3.6 CA Average is –6/2=-3 FS Average is +9/4= 2.25 Directional vector Coordinates: x-axis: -3 + (+3.6)=0.6 y-axis: -5 +(+2.25) = -2.75 The UST should pursue Competitive Strategies. Competitive strategies include backward, forward, and horizontal integration; market penetration; market development; product development; and joint venture. Critical Success Factors Strategic Alternatives Market development Product Development Joint venture 1. Increasing differentiation of the products 0.10 4 0.40 4 0.40 4 0.40 2. Increasing demand of the products 0.15 4 0.60 4 0.60 4 0.60 3. Increasing area of tobacco growth 0.10 4 0.40 4 0.40 4 0.40 1. Tobacco control 0.15 2 0.30 2 0.30 1 0.15 2. Possible stock of the product 0.10 1 0.10 1 0.10 1 0.10 3. Unstable partners 0.05 1 0.05 - - 1 0.05 4. New unknown market 0.10 2 0.20 - - 1 0.10 5. Low value of the dollar 0.10 1 0.10 1 0.10 4 0.40 6. New unfamiliar for customers product 0.15 - - 2 0.30 - - 1. Profit rose 10% 0.15 4 0.60 4 0.60 4 0.60 2. New divisions 0.10 4 0.40 4 0.40 4 0.40 3. New product 0.15 4 - 4 0.60 4 0.60 4.Increasing Capacity utilization 0.10 4 0.40 - - 3 0.30 5. Attracting new customers 0.15 4 0.60 4 0.60 4 0.40 1. The company is slow in globalization 0.15 - - - - 1 0.15 2. Increasing taxes 0.10 1 0.10 1 0.10 1 0.10 3.Increasing number of workers 0.10 1 0.10 2 0.20 1 0.10 Sum Total Attractiveness Score 1.00 4.35 4.7 4.87 AS= attractiveness Score; TAS= Total Attractiveness score Attractiveness Score: 1=not acceptable;2=possibly acceptable; 3=probably acceptable;4=most acceptable The most attractive strategies for the UST are product development and joint venture. A Pro Forma Income Statement and Balance Sheet for the UST Inc. Pro Forma Income Statement Prior Year 1997 Projected Year 1998 Remarks Sales 1,401,718 1,611,976 15% increase Cost of Goods Sold 265,193 312,927 18% increase Selling And administrative expenses 398,468 483,592 30% of sales, Earnings before interest and taxes 738,057 815,456 Earnings before taxes 703,857 808,005 Accounts Receivable 67,702 135404 Prepaid expenses and other current assets 31,753 45,965 Total Current Assets 426,048 751,759 Property, plant and equipment net 326,709 300,709 Add 2new plant $20 million each Shot-term obligation 10,000 20,000 Accounts payable and accrued expenses 119,345 169,174 Total Current Liabilities 166,519 234174 Long-term Debt 100,000 140,000 Borrowed $40 million Postretirement benefits other than pensions 73,868 76,868 Bibliography:

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