Ust Debt Policy

Memo

Subject: UST Debt Policy

In the tobacco industry, UST has been a leading and dominant producer of moist smokeless tobacco products. UST has been increasing the price of its product on regular basis but the demand for its product is constant and it still has continuous positive growth. Overall moist smokeless tobacco demand is expected to grow continuously at an annual rate of 1-3%. UST has dominant market position, premium product and strong brand name, pricing flexibility, good asset tangibility, continuous growth of smokeless tobacco and limited new competitors due to tobacco advertising restrictions. . In addition, UST has positive cash flow and a steady demand for its product. For above mentioned reasons, UST has relatively low business risk and it can proceed with its business strategy and recapitalization.

The demand for UST is been constant; one of the business risks is price elasticity of its product. Instead of continuous price increase the demand curve for UST product, smokeless tobacco, is comparatively steep and it shows that this industry has price inelastic consumer demand. Another risk is product diversification risk. Smokeless tobacco is UST’s core product and company also produces and markets wine and premium cigar. And, UST has introduces these product in price-value segment. UST has diversified into other market but still its core product contributed most of its revenue and new products contributed minimal. UST also has litigation risk because of lawsuits. Lately the smokeless tobacco industry experienced increased number of lawsuits because of ongoing health concerns and it will always face potential lawsuit for the same reasons. UST has positive cash flow and a steady demand for smokeless tobacco product that makes it

In past five year the growth is positive but rate is much slower. There has been increased competition in the smokeless tobacco market Exhibit 2 shows that UST’s market share is decreasing slowly and it is losing...