UST 8-K Ust Reports Diluted Earnings Per Share of $3.23 for 2005

Michael G. Bazinet	Mark A. Rozelle
Media Relations	Investor Relations
(203) 622-3549	(203) 622-3520

UST REPORTS DILUTED EARNINGS PER SHARE OF $3.23 FOR 2005

GREENWICH, Conn., Jan. 26, 2006 — UST Inc. (NYSE: UST) today announced that for the year ended Dec. 31, 2005, record results were achieved in net sales, net earnings and diluted earnings per share. Net sales for the twelve-month 2005 period increased 0.7 percent to $1.852 billion, net earnings increased 0.6 percent to $534.3 million and diluted earnings per share increased 1.3 percent to $3.23.

“Despite record results for the year, deteriorating premium can sale trends in our smokeless tobacco business were unacceptable,” said Vincent A. Gierer, Jr., UST chairman and chief executive officer. “With 2005 behind us, we are eagerly executing the strategic plan announced in December that calls for an $80 million incremental investment in price initiatives aimed at improving loyalty for our premium smokeless tobacco brands as well as an additional $11 million investment to further enhance moist smokeless tobacco category growth by attracting adult smokers. I remain confident that once fully implemented, these plans will put our company back on a long-term growth track.”

Consolidated Twelve-Month 2005 Results

The net sales increase of 0.7 percent for the year 2005 versus the year-ago period was primarily due to higher selling prices for moist smokeless tobacco, increased premium wine case sales and increased revenue from other operations, partially offset by lower net premium can sales and an unfavorable shift in product mix for moist smokeless tobacco.

The gross margin for the year 2005 declined 1.2 percent or $16.8 million. The Smokeless Tobacco segment gross margin declined 2.1 percent or $28.1 million primarily due to lower premium net can sales and higher unit costs, significantly offset by higher selling prices. The Wine segment and other operations combined generated an $11.3 million increase in gross margin.

Selling, advertising and administrative expenses for the year 2005 increased 1.0 percent, primarily due to higher indirect selling, marketing and legal and related costs in the Smokeless Tobacco segment, as well as higher costs in the Wine segment related to the expanded sales force. Corporate expenses decreased versus the prior year period due to lower administrative spending.

Twelve-month 2005 results benefited from a $24.4 million reduction in interest expense primarily due to the repayment of $300 million of senior notes upon maturity in March.

The year 2005 results also included the impact of a net reversal of $18 million ($.11 per diluted share) of income tax accruals, net of federal benefit. This was partially offset by a net pretax charge of $11.8 million ($.04 per diluted share), recorded in connection with the settlement of certain states’ indirect and direct purchaser antitrust actions.

Results for the year 2004 included a reduced effective tax rate due to the net reversal of $20 million ($.12 per diluted share) of income tax accruals, net of federal benefit, partially offset by a loss of $7.2 million ($.04 per diluted share) from discontinued operations associated with the transfer of the company’s cigar business.

In 2005, the company repurchased 4.4 million shares at a cost of $200 million.

Consolidated Fourth Quarter 2005 Results

For the fourth quarter 2005, net sales decreased 0.8 percent to $474.4 million, while net earnings increased 12.1 percent to $143.7 million and diluted earnings per share increased 14.3 percent to $.88.

The fourth quarter 2005 net sales decline of 0.8 percent versus the year-ago period primarily resulted from lower net premium can sales for moist smokeless tobacco and, to a lesser extent, lower premium wine case sales, partially offset by higher moist smokeless tobacco selling prices and increased revenue from other operations.

The fourth quarter 2005 gross margin declined 2.8 percent or $10 million. The Smokeless Tobacco segment gross margin declined 2.6 percent or $8.6 million primarily due to lower premium net can sales and higher unit costs, significantly offset by higher selling prices. The gross margin for the Wine segment and other operations combined declined $1.4 million.

Selling, advertising and administrative expenses in the fourth quarter 2005 declined 8.3 percent compared to the year-ago quarter. The decline was primarily driven by lower administrative spending, including lower compensation and related costs and legal expenses, as well as lower selling and advertising expenses due to timing of initiatives versus the prior period.

Fourth quarter 2005 results include a decline in interest expense of $6.5 million primarily due to the repayment of $300 million of senior notes upon maturity in March. Fourth quarter 2005 results also include the impact of a reversal of $9.3 million ($.06 per diluted share) of income tax accruals, net of federal benefit.

The company repurchased 1.2 million shares at a cost of $50 million during the fourth quarter 2005.

Smokeless Tobacco Segment

For the twelve-month 2005 period, Smokeless Tobacco segment net sales decreased 0.9 percent to $1.562 billion. For the year, total net can sales decreased 2.5 percent to 625.4 million, premium net can sales declined 5.1 percent to 541.0 million and price value net can sales increased 18.5 percent to 84.4 million. Operating profit declined 5.1 percent to $852.5 million, which included a net pretax charge of $11.8 million recorded in connection with the settlement of certain states’ indirect and direct purchaser antitrust actions.

Smokeless Tobacco segment fourth quarter 2005 net sales decreased 1.0 percent to $388.6 million compared to the year-ago period. Operating profit for the segment was stable at $216.4 million. Total moist smokeless tobacco net can sales decreased 3.3 percent to 153.5 million. Premium net can sales declined 6.4 percent to 131.8 million and price value net can sales increased 21.1 percent to 21.7 million. The company estimates that approximately 3.7 million net premium cans were shifted from the first quarter 2005 to the fourth quarter 2004 as wholesale and retail customers increased inventories in advance of the January 1, 2005 price increase. Adjusted for the inventory shift in the prior year period, total fourth quarter net can sales decreased 1.0 percent and premium net can sales declined 3.9 percent.

“Our enhanced premium loyalty spending program is currently being executed with excellence on a state by state basis and is receiving strong wholesale and retail support as expected,” said Murray S. Kessler, UST president and chief operating officer. “I am confident that the loyalty program, combined with continued investments in category growth, will result in significantly improved premium unit volume trends early in 2006.”

U.S. Smokeless Tobacco Company’s Retail Activity Data Share & Volume Tracking System (RAD-SVT) measuring shipments to retail for the 26-week period ended Nov. 26, 2005, on a can-volume basis, indicates total category shipments increased 4.5 percent and USSTC’s shipments decreased 2.1 percent versus the year-ago period, resulting in a 4.3 percentage point decline in volume share to 64.5 percent. The total premium segment declined 5.9 percent, with USSTC’s premium shipments down 5.4 percent. USSTC’s share of the premium segment increased 0.6 points to 90.0 percent. The value segments, including price value and sub-price value increased 26.3 percent, with USSTC’s price value shipments up 21.3 percent during the same period. USSTC’s share of total price value declined 1.0 point to 24.9 percent.

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. Because RAD-SVT records shipments from wholesale to retail, the data can vary significantly from the company’s actual results which are reported as net shipments to wholesale. Other factors that may result in variation include differences in time periods measured and new product introductions and promotions.

Wine Segment

For the twelve-month 2005 period, Wine segment net sales increased 9.6 percent to a record $248.3 million on an 8.8 percent increase in premium case sales to 4.1 million. Operating profit increased 16.6 percent to a record $37.8 million versus the corresponding 2004 period.

As expected, Wine segment fourth quarter 2005 net sales decreased 1.9 percent to $74.9 million on a 4.3 percent decline in premium case sales. Operating profit declined 6.6 percent to $13.2 million versus the corresponding 2004 period. The fourth quarter comparisons were negatively impacted by exceptionally strong premium case sales in the prior year period associated with the company’s national introduction of Red Diamond and a significant increase in demand for selected Columbia Crest varieties driven by positive critical acclaim.

Outlook

For the year 2006, the company anticipates diluted earnings per share in the range of $3.00 to $3.14, with a target of $3.05. The earnings decline versus 2005 is primarily the result of the incremental $91 million investment being made to stabilize premium moist smokeless tobacco volume. Premium unit volume in the first half of 2006, adjusted for the inventory shift in 2005 in advance of the price increase, is anticipated to be lower, but reflects a significant improvement in trend versus the prior year period. The trend in the second half of 2006 is anticipated to be stronger than the first half of the year.

A conference call is scheduled for 11 a.m. Eastern time today to discuss these results. To listen to the call, please visitwww.ustinc.com. A 14-day playback is available by calling (888) 286-8010 or (617) 801-6888, code #65955167 or by visiting the website.

UST Inc. is a holding company for its principal subsidiaries: U.S. Smokeless Tobacco Company and International Wine & Spirits Ltd. U.S. Smokeless Tobacco Company is the leading producer and marketer of moist smokeless tobacco products including Copenhagen, Skoal, Red Seal and Husky. International Wine & Spirits Ltd. produces and markets premium wines sold nationally through the Chateau Ste. Michelle, Columbia Crest, and Villa Mt. Eden wineries, as well as sparkling wine produced under the Domaine Ste. Michelle label.

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 products liability, antitrust and other matters and legal and other regulatory initiatives; 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; 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, 2004. 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.

(CONSOLIDATED UNAUDITED RESULTS ARE ATTACHED)
# # #

UST
CONSOLIDATED SALES AND EARNINGS
(In thousands, except per share amounts)
(Unaudited)

	Year ended December 31,
						%
	2005		2004			Change
Net sales	$	1,851,885	$	1,838,238			+   0.7
Costs and expenses
Cost of products sold		443,131		412,641			+   7.4
Selling, advertising and administrative		518,797		513,570			+   1.0
Antitrust litigation		11,762		(582	)		—
Total costs and expenses		973,690		925,629			+   5.2
Operating income		878,195		912,609			-   3.8
Interest, net		50,578		75,019			- 32.6
Earnings from continuing operations before income taxes		827,617		837,590			-   1.2
Income taxes		293,349		299,538			-   2.1
Earnings from continuing operations		534,268		538,052			-   0.7
Loss from discontinued operations, including income tax effect		—		(7,215	)		—
Net earnings	$	534,268	$	530,837			+   0.6
Net earnings per basic share:
Earnings from continuing operations	$	3.26	$	3.26			—
Loss from discontinued operations		—		(.05	)		—
Net earnings per basic share	$	3.26	$	3.21			+   1.6
Net earnings per diluted share:
Earnings from continuing operations	$	3.23	$	3.23			—
Loss from discontinued operations		—		(.04	)		—
Net earnings per diluted share	$	3.23	$	3.19			+   1.3
Dividends per share	$	2.20	$	2.08			+   5.8
Average number of shares:
Basic		163,949		165,164
Diluted		165,497		166,622

UST
CONSOLIDATED SALES AND EARNINGS
(In thousands, except per share amounts)
(Unaudited)

	Fourth Quarter
							%
	2005			2004			Change
Net sales	$	474,412		$	478,246			-   0.8
Costs and expenses
Cost of products sold		122,190			116,042			+    5.3
Selling, advertising and administrative		126,678			138,072			-    8.3
Antitrust litigation		(767	)		(582	)		—
Total costs and expenses		248,101			253,532			-    2.1
Operating income		226,311			224,714			+    0.7
Interest, net		10,995			17,458			-  37.0
Earnings before income taxes		215,316			207,256			+    3.9
Income taxes		71,639			79,053			-    9.4
Net earnings	$	143,677		$	128,203			+  12.1
Net earnings per share:
Basic	$	.88		$	.78			+  12.8
Diluted	$	.88		$	.77			+  14.3
Dividends per share	$	.55		$	.52			+    5.8
Average number of shares:
Basic		162,725			164,929
Diluted		163,736			166,785

UST
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)

	December 31,			December 31,
	2005			2004
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	202,025		$	450,202
Short-term investments		10,000			60,000
Accounts receivable		54,186			41,462
Inventories
Leaf tobacco		202,553			205,646
Products in process		203,396			208,935
Finished goods		156,343			134,662
Other materials and supplies		21,115			17,917
		583,407			567,160
Deferred income taxes		11,622			29,597
Income taxes receivable		2,400			—
Assets held for sale		3,433			—
Prepaid expenses and other current assets		22,481			24,712
Total current assets		889,554			1,173,133
Property, plant and equipment, net		431,168			421,848
Other assets		46,261			64,502
Total assets	$	1,366,983		$	1,659,483
Liabilities and stockholders’ equity:
Current liabilities:
Current portion of long term debt	$	—		$	300,000
Accounts payable and accrued expenses		231,061			226,281
Income taxes payable		12,566			66,003
Litigation liability		15,151			26,589
Total current liabilities		258,778			618,873
Long-term debt		840,000			840,000
Postretirement benefits other than pensions		85,819			81,874
Pensions		92,159			95,052
Deferred income taxes		11,972			9,645
Other liabilities		3,157			4,474
Contingencies		—			—
Total liabilities		1,291,885			1,649,918
Stockholders’ equity:
Capital stock(1)		103,810			105,777
Additional paid-in capital		945,466			885,049
Retained earnings		497,389			492,800
Accumulated other comprehensive loss		(17,802	)		(19,911	)
		1,528,863			1,463,715
Less treasury stock – 45,049,378 shares in 2005 and 46,948,011 shares in 2004		1,453,765			1,454,150
Total stockholders’ equity		75,098			9,565
Total liabilities and stockholders’ equity	$	1,366,983		$	1,659,483

NOTE:	Certain prior year amounts have been reclassified to conform to the 2005 presentation.
(1)	Common Stock par value $.50 per share: Authorized – 600 million shares; issued – 207,620,439 shares in 2005 and 211,554,946 shares in 2004. Preferred Stock par value $.10 per share: Authorized – 10 million shares; Issued – None.

UST
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)

	Year Ended December 31,
	2005			2004
	(Unaudited)
Operating Activities:
Net earnings	$	534,268		$	530,837
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		46,438			47,647
Stock-based compensation expense		5,976			3,181
Goodwill and intangible asset impairment		3,313			—
Loss on disposition of property, plant and equipment, net		8,911			2,946
Deferred income taxes		19,167			100,767
Changes in operating assets and liabilities:
Accounts receivable		(12,724	)		25,951
Inventories		(16,247	)		(22,780	)
Prepaid expenses and other assets		16,255			13,573
Accounts payable, accrued expenses, pensions and other liabilities		6,757			51,172
Tax benefits from the exercise of stock options		15,860			17,070
Income taxes		(55,837	)		10,848
Litigation liability		(11,438	)		(215,797	)
Net cash provided by operating activities		560,699			565,415
Investing Activities:
Short-term investments, net		50,000			(55,000	)
Purchases of property, plant and equipment		(89,947	)		(70,326	)
Dispositions of property, plant and equipment		22,942			6,956
Net cash used in investing activities		(17,005	)		(118,370	)
Financing Activities:
Repayment of debt		(300,000	)		—
Proceeds from the issuance of stock		69,375			114,276
Dividends paid		(361,208	)		(344,128	)
Stock repurchased		(200,038	)		(200,031	)
Net cash used in financing activities		(791,871	)		(429,883	)
(Decrease)/increase in cash and cash equivalents		(248,177	)		17,162
Cash and cash equivalents at beginning of year		450,202			433,040
Cash and cash equivalents at end of year	$	202,025		$	450,202

NOTE: Certain prior year amounts have been reclassified to conform to the 2005 presentation.

UST Inc.

SUPPLEMENTAL SCHEDULE
(Unaudited)

	Fourth Quarter							Twelve Months Ended Dec.31,
	2005		2004		%			2005		2004		%
Consolidated Results
Net Sales (mil)	$	474.4	$	478.2		-0.8	%	$	1,851.9	$	1,838.2		0.7	%
Operating Income (mil)	$	226.3	$	224.7		0.7	%	$	878.2	$	912.6		-3.8	%
Net Earnings (mil)	$	143.7	$	128.2		12.1	%	$	534.3	$	530.8		0.6	%
Diluted EPS	$	.88	$	.77		14.3	%	$	3.23	$	3.19		1.3	%
Smokeless Tobacco
Net Sales (mil)	$	388.6	$	392.5		-1.0	%	$	1,561.7	$	1,575.3		-0.9	%
Operating Profit (mil)	$	216.4	$	216.8		-0.2	%	$	852.5	$	898.0		-5.1	%
MST Net Can Sales
Premium (mil)		131.8		140.9		-6.4	%		541.0		570.1		-5.1	%
Price Value (mil)		21.7		17.9		21.1	%		84.4		71.2		18.5	%
Total (mil)		153.5		158.8		-3.3	%		625.4		641.3		-2.5	%
Wine
Net Sales (mil)	$	74.9	$	76.3		-1.9	%	$	248.3	$	226.7		9.6	%
Operating Profit (mil)	$	13.2	$	14.1		-6.6	%	$	37.8	$	32.4		16.6	%
Premium Case Sales (thou)		1,224		1,279		-4.3	%		4,096		3,763		8.8	%

	Volume %						Point
	Chg. vs.						Chg. vs.
RAD-SVT 26 wks ended 11/26/05(1)	YAGO			Share			YAGO
Total Category		4.5	%
Total Premium Segment		-5.9	%		60.8	%	-6.7 pts
Total Value Segments		26.3	%		39.0	%	6.7 pts
USSTC Share of Total Category		-2.1	%		64.5	%	-4.3 pts
USSTC Share of Premium		-5.4	%		90.0	%	0.6 pts
USSTC Share of Value Segments		21.3	%		24.9	%	-1.0 pts

(1) RAD-SVT – Retail Activity 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.