##### Table of Contents





FORM 10-K
    UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
    Washington, D.C. 20549
 (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number
    0-17506
 UST Inc.
 (Exact name of registrant as
    specified in its charter)
 Delaware

06-1193986(State or other jurisdiction of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)6 High Ridge Park, Building A
    Stamford, Connecticut

06905(Address of principal executive offices)

(Zip Code)  (203) 817-3000
 (Registrants telephone
    number, including area code)
 Securities registered pursuant
    to Section 12(b) of the Act:
  Title of each class

Name of each exchange on
    which registeredCommon Stock  $.50 par value

New York Stock Exchange   Securities
    registered pursuant to Section 12(g) of the Act:
 None
 (Title of Class)
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 Large accelerated
    filer  þ

Accelerated
    filer  o

Non-accelerated
    filer  o

Smaller reporting
    company  o(Do not check if a smaller
    reporting company)   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
 Certain pages of the
    Registrants 2008 Notice of Annual Meeting and Proxy
    Statement       Part III




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##### 





FORM 10-K
  TABLE OF CONTENTS
  PagePART IItem 1.


Business

3Item 1A.


Risk Factors

9Item 1B.


Unresolved Staff Comments

14Item 2.


Properties

14Item 3.


Legal Proceedings

14Item 4.


Submission of Matters to a Vote of Security
    Holders

17PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

18Item 6.


Selected Financial Data

21Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations

22Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk

61Item 8.


Financial Statements and Supplementary Data

64Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure

107Item 9A.


Controls and Procedures

107Item 9B.


Other Information

107PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance

108Item 11.


Executive Compensation

109Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters

109Item 13.


Certain Relationships and Related Transactions,
    and Director Independence

110Item 14.


Principal Accountant Fees and Services

110PART IVItem 15.


Exhibits and Financial Statement Schedules

111Signatures

116EX-21: SUBSIDIARIESEX-23: CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATION     2




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##### Table of Contents



PART I
Item 1 
    Business  General
    Smokeless Tobacco Products
  Wine
  All Other Operations
  Available
    Information
  www.ustinc.com. Form 10-K, Form 10-Q, Form 8-K 1-800-SEC-0330. www.sec.gov
  Operating Segment
    Data
    SMOKELESS TOBACCO
    PRODUCTS
  Principal
    Products
    Moist: Copenhagen, Skoal, Red Seal,
    Husky
  Dry: Bruton, CC, Red
    Seal
   3




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##### Table of Contents



Overview
  Copenhagen Skoal Red Seal Husky
        Copenhagen
  Copenhagen Copenhagen Copenhagen Copenhagen Pouches.
    Copenhagen Cope Copenhagen Cope Smooth Hickory Straight Whiskey Blend Flavor
  Skoal
  Skoal Skoal Skoal Pouches Skoal
    Bandits
  Red
    Seal
  Red Seal
   4




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Husky
  Husky Husky
  Smokeless Tobacco
    Products and Health
        Legislation and
    Regulation
       5




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Raw
    Materials
          Working
    Capital
     6




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Customers
    Competitive
    Conditions
    WINE
  Principal
    Products
    Table
    (produced):
    Chateau Ste. Michelle, Columbia Crest, Conn Creek,
    Villa Mt. Eden, Northstar, Red Diamond,
    Distant Bay, Spring Valley, 14 Hands,
    Snoqualmie, Erath, Stags Leap Wine Cellars, Cask
    23, Fay, S.L.V., Arcadia,
    Artemis, Karia and Hawk Crest  Table (imported):
    Tignanello, Solaia,
    Tormaresca, Villa Antinoriand Peppoli  Sparkling (produced):
    Domaine Ste. Michelle  Overview
    Chateau Ste. Michelle, Columbia Crest Domaine Ste. Michelle Villa
    Mt. Eden Conn Creek Cask 23 Fay
   7




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##### Table of Contents



S.L.V Arcadia Artemis Karia Hawk Crest Erath Tignanello Solaia Tormaresca Villa Antinori Peppoli.
  Working
    Capital
    Customers
    Legislation and
    Regulation
    Raw
    Materials
    Competitive
    Conditions
    ALL OTHER
    OPERATIONS
     8




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##### Table of Contents



ADDITIONAL
    BUSINESS INFORMATION
  Environmental
    Regulations
    Number of
    Employees
    Trademarks and
    Patents
    Seasonal
    Business
    Backlog of
    Orders
   Item 1A 
    Risk Factors  Form 10-K.
  
    The Companys product sales and results of operations
    are subject to economic conditions and other factors beyond the
    Companys control.    
    Anticipated cost savings related to Project Momentum may
    not be achieved.     9




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##### Table of Contents




    Fire, violent weather conditions and other disasters may
    adversely affect the Companys operations.    
    Company product sales are subject to customer
    concentration risk.    
    Ingredient or product adulteration could harm the
    integrity and quality of the Companys products, which
    could negatively impact consumer perception of the
    Companys brands and have an adverse effect on the sale of
    the Companys products.    
    The Company may not realize the anticipated benefits from
    acquisitions.    
    The smokeless tobacco category is highly competitive and
    the Companys volumes and profitability may be adversely
    affected by consumer down-trading from premium brands to
    price-value brands or by new entrants into the
    marketplace.     10




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
    Fluctuations in the price and availability of tobacco leaf
    could adversely affect the Companys results of
    operations.    
    The Companys continuing ability to hire and retain
    qualified employees is important to the future success of the
    Company.    
    The tobacco industry is subject to governmental regulation
    and other restrictions. In particular, restrictions on tobacco
    marketing and advertising limit the options available to the
    Company to market smokeless tobacco products.     11




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##### Table of Contents



warning notices, a ban or further
    restriction on advertising and promotion, ingredients and
    constituent disclosure requirements, restrictions on the use of
    flavorings, adult sampling bans or restrictions, tax stamping,
    increasing the minimum purchase age and the disallowance of
    advertising and promotion expenses as deductions under federal
    tax law. The regulatory environment in which the Company
    operates can also be affected by general social and political
    factors.
      and/or
  
    The excise taxes on smokeless tobacco products could
    affect consumer preferences and have an adverse effect on the
    sale of the Companys products.  ad
    valorem price-value ad valorem
  
    The Company has ongoing payment obligations under the
    Tobacco Reform Act and other state settlement agreements.     12




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##### Table of Contents



The Company is subject, from time to
    time, to smokeless tobacco and health litigation, which, if
    adversely determined, could subject the Company to substantial
    charges and liabilities.
    The Company could be subject to
    additional charges and liabilities as it seeks to resolve the
    remaining antitrust related lawsuits.
    
    The Companys wine business is subject to significant
    competition, including from many large, well-established
    national and international organizations.    
    The Companys wine business may be adversely affected
    by its ability to grow
    and/or
    acquire enough high quality grapes for its wines, which could
    result in a supply shortage. Conversely, the Companys wine
    business may also be adversely impacted by grape and bulk wine
    oversupply.   13




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##### Table of Contents



and/or
    
    The Companys wine business may be negatively
    impacted by an increase in excise taxes or governmental
    regulations related to alcohol beverages.   Item 1B 
    Unresolved Staff Comments   Item 2 
    Properties    Smokeless Tobacco
    Products
    Wine
   Item 3 
    Legal Proceedings     14




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##### Table of Contents



de minimis
  Smokeless
    Tobacco Litigation
    Matthew Vassallo v. United States Tobacco Company, et
    al. 02-28397
  Kelly June Hill, Executrix and Fiduciary of the Estate of
    Bobby Dean Hill, et al. v. U.S. Smokeless Tobacco
    Company, No. FST-X05-CV-05-4003788-S)
    Antitrust
    Litigation
  and/or
  Form 10-Q
   15




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##### Table of Contents



the period ended
    September 30, 2007 for additional information). In January
    2008, the Company entered into Settlement Agreements to resolve
    the New Hampshire action and Massachusetts class action, as
    discussed further below.
  James Joseph LaChance, et al. v. United States Tobacco
    Company, et al. (No. 03-C-279), In re
    Massachusetts Smokeless Tobacco Litigation (No. 03-5038
      Jason Feuerabend, et al. v. United States Tobacco Company,
    et al. (No. 02-CV-007124),
  Marvin D. Chance, Jr. and Thomas K. Osborn, on behalf
    of themselves and all others similarly situated v. United
    States Tobacco Company, et al. No. 02-C-12), agreed-upon
  Robert A. Martin, et al. v. Gordon Ball, et al. (No. 5:06-CV-85), Philip Edward Davis, et al. v. United States
    Tobacco Company, et al. Martin Davis
   16




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##### Table of Contents



Davis
   Item 4 
    Submission of Matters to a Vote of Security Holders     17




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##### Table of Contents



PART II Item 5 
    Market for Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities  Market for
    Registrants Common Equity
  UST
  2007

2006High

Low

Dividends

High

Low

DividendsFirst Quarter

$
61.17


$
54.55


$
0.60


$
43.14


$
37.96


$
0.57Second Quarter


60.58



51.25



0.60



45.78



41.10



0.57Third Quarter


55.86



47.40



0.60



55.06



44.61



0.57Fourth Quarter


59.95



48.34



0.60



59.49



52.34



0.57Year

$
61.17


$
47.40


$
2.40


$
59.49


$
37.96


$
2.28
    18




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##### Table of Contents



Performance
    Graph
    COMPARISON OF 5
    YEAR CUMULATIVE TOTAL RETURN Amoung
    UST Inc., The S&P 500 Index
    And The S&P Tobacco Index
  
  December 31,2002

2003

2004

2005

2006

2007UST Inc.

$
100.00


$
113.31


$
161.10


$
143.69


$
214.87


$
211.59S & P 500


100.00



128.68



142.69



149.70



173.34



182.87S & P Tobacco


100.00



141.28



169.29



211.93



258.90



310.29    19




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##### Table of Contents



Issuer
    Purchases of Equity Securities
    Total Number of

Maximum Number ofShares Purchased

Shares that May YetTotal Number

Average Price

as Part of the

Be Purchased Underof Shares

Paid Per

Repurchase

the RepurchasePurchased(1)

Share(2)

Programs(3)

Programs(3)October 1  31, 2007


386,628


$
50.94



351,900



7,873,060November 1  30, 2007


2,683,127


$
53.91



2,683,127



5,189,933December 1  31, 2007


3,260,174


$
56.79



3,260,174



21,929,759Total


6,329,929


$
55.24



6,295,201
   (1)
  (2)
  (3)
   20




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##### Table of Contents



Item 6 
    Selected Financial Data  CONSOLIDATED
    SELECTED FINANCIAL DATA  FIVE YEARS (Dollars
    in thousands, except per share amounts)
  2007

2006

2005

2004

2003Summary of Operations For the Year Ended December 31Net Sales

$
1,950,779


$
1,850,911


$
1,851,885


$
1,838,238


$
1,731,862Cost of products sold (includes excise taxes)


524,575



466,088



443,131



412,641



384,487Selling, advertising and administrative expenses


529,795



525,990



518,797



513,570



470,740Restructuring charges


10,804



21,997



-



-



-Antitrust litigation


137,111



2,025



11,762



(582
)


280,000Total costs and expenses


1,202,285



1,016,100



973,690



925,629



1,135,227Gain on sale of corporate headquarters


105,143



-



-



-



-Operating income


853,637



834,811



878,195



912,609



596,635Interest, net


40,600



41,785



50,578



75,019



76,905Earnings from continuing operations before income taxes


813,037



793,026



827,617



837,590



519,730Income tax expense


292,764



291,060



293,349



299,538



197,681Earnings from continuing operations


520,273



501,966



534,268



538,052



322,049Income (loss) from discontinued operations (including income tax
    effect)


-



3,890



-



(7,215
)


(3,260
)Net earnings

$
520,273


$
505,856


$
534,268


$
530,837


$
318,789Per Share DataNet earnings per basic share:Earnings from continuing operations

$
3.30


$
3.13


$
3.26


$
3.26


$
1.93Income (loss) from discontinued operations


-



0.02



-



(0.05
)


(0.02
)Net earnings per basic share


3.30



3.15



3.26



3.21



1.91Net earnings per diluted share:Earnings from continuing operations


3.27



3.10



3.23



3.23



1.92Income (loss) from discontinued operations


-



0.02



-



(0.04
)


(0.02
)Net earnings per diluted share

$
3.27


$
3.12


$
3.23


$
3.19


$
1.90Dividends per share

$
2.40


$
2.28


$
2.20


$
2.08


$
2.00Market price per share:High


61.17



59.49



56.90



48.97



37.79Low

$
47.40


$
37.96


$
37.59


$
34.00


$
26.73Financial Condition at December 31Cash and cash equivalents

$
73,697


$
254,393


$
202,025


$
450,202


$
433,040Current assets


846,274



998,110



889,554



1,173,133



1,247,966Current liabilities


400,174



300,077



258,778



618,873



521,093Working capital

$
446,100


$
698,033


$
630,776


$
554,260


$
726,873Ratio of current assets to current liabilities


2.1:1



3.3:1



3.4:1



1.9:1



2.4:1Total assets

$
1,487,078


$
1,440,348


$
1,366,983


$
1,659,483


$
1,726,494Long-term
    debt(1)


1,090,000



840,000



840,000



840,000



1,140,000Total debt


1,090,000



840,000



840,000



1,140,000



1,140,000Stockholders (deficit) equity

$
(320,202
)

$
65,826


$
75,098


$
9,565


$
(115,187
)Other DataStock repurchased

$
597,738


$
200,003


$
200,038


$
200,031


$
150,095Dividends paid

$
378,325


$
367,499


$
361,208


$
344,128


$
332,986Dividends paid as a percentage of net earnings


72.7%



72.6%



67.6%



64.8%



104.5%Return on net sales


26.7%



27.3%



28.8%



28.9%



18.4%Return on average assets


35.5%



36.0%



35.3%



31.4%



14.2%Average number of shares (in thousands)  basic


157,854



160,772



163,949



165,164



166,572Average number of shares (in thousands)  diluted


159,295



162,280



165,497



166,622



167,376
   (1)
  See Managements
    Discussion and Analysis and Notes to Consolidated Financial
    Statements.
   21




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##### Table of Contents



Item 7 
    Managements Discussion and Analysis of Financial Condition
    and Results of Operations  UST
    INC.
  MANAGEMENTS
    DISCUSSION AND ANALYSIS (MD&A)
  The following discussion and analysis of the Companys
    consolidated results of operations and financial condition
    should be read in conjunction with the consolidated financial
    statements and notes thereto, included in Part II,
    Item 8 of this
    Form 10-K.
    Herein, the Company makes forward-looking statements that
    involve risks, uncertainties, and assumptions. Actual results
    may differ materially from those anticipated in these
    forward-looking statements as a result of various factors,
    including, but not limited to, those presented under the
    Cautionary Statement Regarding Forward-Looking
    Information section presented at the end of MD&A. In
    addition, the Company has presented certain risk factors
    relevant to the Companys business in Item 1A in
    Part I of this
    Form 10-K.
  INTRODUCTION
    OVERVIEW
  RESULTS OF OPERATIONS
  OUTLOOK
  LIQUIDITY AND CAPITAL RESOURCES
  OFF-BALANCE SHEET ARRANGEMENTS
  CRITICAL ACCOUNTING POLICIES AND
    ESTIMATES
  NEW ACCOUNTING STANDARDS
   22




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##### Table of Contents



OVERVIEW
  BUSINESS
  Copenhagen Skoal Red Seal Husky
  Chateau Ste. Michelle Columbia Crest Conn
    Creek Villa Mt. Eden Red Diamond Distant
    Bay 14 Hands Snoqualmie Erath Cask 23 Fay S.L.V Arcadia Artemis Karia Hawk
    Crest Domaine Ste. Michelle Tignanello Solaia Tormaresca Villa Antinori Peppoli
    Consolidated Results - Restructuring Charges Results of Operations
     23




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##### Table of Contents



SMOKELESS TOBACCO
    SEGMENT
    Category
    Growth
    one-on-one
  Competing
    Effectively
  Smokeless Tobacco Segment  Net Sales Results of Operations
  Premium Brand Loyalty 
   24




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##### Table of Contents



Smokeless Tobacco Segment  Net Sales Results of Operations
  Price-Value Initiatives Husky Red Seal
  WINE
    SEGMENT
    Erath Antinori
    Outlook
   25




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##### Table of Contents



RESULTS OF
    OPERATIONS (In
    thousands, except per share amounts or where otherwise
    noted)
  CONSOLIDATED
    RESULTS
  2007 compared
    with 2006
  Year Ended December 31,

Increase/(Decrease)2007

2006

Amount

%Net sales

$
1,950,779


$
1,850,911


$
99,868



5.4Net earnings


520,273



505,856



14,417



2.9Basic earnings per share


3.30



3.15



0.15



4.8Diluted earnings per share


3.27



3.12



0.15



4.8Gain on sale of corporate headquarters


105,143



-



105,143



-Antitrust litigation charges


137,111



2,025



135,086



-Restructuring charges


10,804



21,997



(11,193
)


(50.9
)
   Net
    Earnings
      Restructuring Charges
  Smokeless Tobacco Segment  2007 compared with 2006
       26




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##### Table of Contents



Net
    Sales
  Year Ended December 31,


Increase/(Decrease)2007


2006


Amount


%Net Sales by Segment:Smokeless Tobacco


$1,546,638



$1,522,686



$23,952



1.6Wine


354,001



282,403



71,598



25.4All Other Operations


50,140



45,822



4,318



9.4Consolidated Net Sales


$1,950,779



$1,850,911



$99,868



5.4
         Segment Net
    Sales as a Percentage of Consolidated Net Sales
  2007

2006(PIE CHART)

(PIE CHART)   *Smokeless Tobacco
   27




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##### Table of Contents



Gross
    Margin
  Year Ended December 31,

Increase/(Decrease)2007

2006

Amount

%Gross Margin by Segment:Smokeless Tobacco

$
1,269,174


$
1,256,156


$
13,018



1.0Wine


125,202



99,418



25,784



25.9All Other Operations


31,828



29,249



2,579



8.8Consolidated Gross Margin

$
1,426,204


$
1,384,823


$
41,381



3.0
     Year Ended December 31,

Increase/2007

2006

(Decrease)Gross Margin as a % of Net Sales by Segment:Smokeless Tobacco


82.1
%


82.5
%


(0.4
)Wine


35.4
%


35.2
%


0.2All Other Operations


63.5
%


63.8
%


(0.3
)Consolidated


73.1
%


74.8
%


(1.7
)
     Restructuring
    Charges
    RestructuringCharges Incurred

Cumulative Charges

Total Chargesfor The Year Ended

Incurred as of

Expected toDecember 31, 2007

December 31, 2007

be Incurred
    (1)One-time termination benefits

$
3,184


$
18,809


$
19,700 - $21,200Contract termination costs


102



492



400 - 500Other restructuring costs


7,518



13,500



13,400 - 13,800Total

$
10,804


$
32,801


$
33,500 - $35,500
   (1)
   28




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##### Table of Contents



expected to be incurred related to
    the aforementioned $150 million in savings are appropriate
    and reasonable based upon the information available, actual
    results could differ from such estimates. Total restructuring
    charges expected to be incurred currently represent the
    Companys best estimates of the ranges of such charges;
    although there may be additional charges recognized as
    additional actions are identified and finalized. As any
    additional actions are approved and finalized and costs or
    charges are determined, the Company will file a Current Report
    on
    Form 8-K
    under Item 2.05 or report such costs or charges in its
    periodic reports, as appropriate.
    2006 compared
    with 2005
  Year Ended December 31,

Increase/(Decrease)2006

2005

Amount

%Net sales

$
1,850,911


$
1,851,885


$
(974
)


(0.1
)Net earnings


505,856



534,268



(28,412
)


(5.3
)Basic earnings per share


3.15



3.26



(0.11
)


(3.4
)Diluted earnings per share


3.12



3.23



(0.11
)


(3.4
)
   Net
    Earnings
    
    Lower net revenue realization per premium can in the Smokeless
    Tobacco segment;
    Increased costs of products sold in the Wine segment, mainly
    related to increased case volume;
    The impact of $22 million in restructuring charges incurred
    in connection with Project Momentum (see Restructuring
    Chargessection below), which adversely impacted the
    operating margin percentage by approximately 1.2 percentage
    points; and
    Increased SA&A expenses.    
    Increased case and net can volume in the Wine and Smokeless
    Tobacco segments, respectively;
    Cost savings realized in connection with Project Momentum, along
    with the intended ancillary benefit derived from an enhanced
    focus on cost containment in other areas; and
    Lower charges related to certain states indirect purchaser
    antitrust actions.     29




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##### Table of Contents



operations. The reversal was due
    to a change in facts and circumstances in connection with the
    then anticipated sale of the Companys corporate
    headquarters.
    Net
    Sales
  Year Ended December 31,

Increase/(Decrease)2006

2005

$

%Net Sales by Segment:Smokeless Tobacco

$
1,522,686


$
1,561,667


$
(38,981
)


(2.5
)Wine


282,403



248,342



34,061



13.7All Other Operations


45,822



41,876



3,946



9.4Consolidated Net Sales

$
1,850,911


$
1,851,885


$
(974
)


(0.1
)
     
    Lower net revenue realization per premium can in the Smokeless
    Tobacco segment;
    Increased net can volume for moist smokeless tobacco products,
    including a slight increase in premium net can volume;
    Improved case volume for premium wine; and
    Increased international sales of moist smokeless tobacco
    products.  Segment Net
    Sales as a Percentage of Consolidated Net Sales
  2006

2005(PIE CHART)

(PIE CHART)   *Smokeless Tobacco
  Gross
    Margin
  Year Ended December 31,

Increase/(Decrease)2006

2005

Amount

%Gross Margin by Segment:Smokeless Tobacco

$
1,256,156


$
1,289,212


$
(33,056
)


(2.6
)Wine


99,418



92,618



6,800



7.3All Other Operations


29,249



26,924



2,325



8.6Consolidated Gross Margin

$
1,384,823


$
1,408,754


$
(23,931
)


(1.7
)
    30




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##### Table of Contents



Year Ended December 31,


Increase/2006


2005


(Decrease)Gross Margin as a % of Net Sales by Segment:Smokeless Tobacco


82.5
%


82.6
%


(0.1
)Wine


35.2
%


37.3
%


(2.1
)All Other Operations


63.8
%


64.3
%


(0.5
)Consolidated


74.8
%


76.1
%


(1.3
)
            Restructuring
    Charges
  Restructuring Charges 2007
    compared with 2006
  SMOKELESS TOBACCO
    SEGMENT
  2007 compared
    with 2006
  Year Ended December 31,


Increase/(Decrease)2007


2006


Amount


%Net sales


$1,546,638


$
1,522,686


$
23,952



1.6Restructuring charges


8,230



19,542



(11,312
)


(57.9
)Antitrust litigation


137,111



2,025



135,086



-Operating profit


715,699



805,130



(89,431
)


(11.1
)
   Net
    Sales
    
    The Companys continued category growth efforts aimed at
    converting adult smokers to moist smokeless tobacco products;
    Its promotional spending and other price-focused initiatives
    related to its premium brand loyalty plan and price-value
    efforts; and
    The presence of an extra billing day in the fourth quarter, as
    compared to the prior year, as discussed below.    
    An unfavorable shift in overall product mix, with price-value
    products comprising a larger percentage of total net can volume;   31




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##### Table of Contents




    An unfavorable shift in premium product mix, with lower net can
    volume for straight stock premium products more than offset by
    an increase in net can volume for value pack and promotional
    premium products, the nature of which are described below in
    further detail; and
    Increased sales incentives, primarily retail buydowns.    Percentage of
    Smokeless Tobacco Segment Net Sales by Product
    Category
  2007

2006(PIE CHART)

(PIE CHART)   * Moist smokeless tobacco products
  ** Includes dry snuff and tobacco
    seeds
    MSTP Net Can
    Volume
  Year Ended December 31,


Increase/(Decrease)2007


2006


Amount


%Net Can Volume (in thousands):Premium


556,909



541,387



15,522



2.9Price-Value


102,124



91,298



10,826



11.9Total


659,033



632,685



26,348



4.2
    32




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##### Table of Contents



Percentage of
    Total Moist Smokeless Tobacco Products Net Can Volume by
    Category Segment
  2007

2006(PIE CHART)

(PIE CHART)   Copenhagen Skoal
  
    Continued spending on category growth initiatives; and
    Continued execution of the Companys premium brand loyalty
    plan, which, to a varying extent, has narrowed the price gaps
    between premium and price-value products on a
    state-by-state
    basis.  Red Seal Husky Red Seal Red
    Seal Husky Husky Huskys Red Seal Husky
  Skoal Citrus Blend Cope Copenhagen
   33




---



##### Table of Contents



  Three varieties of Skoal Long Cut*

  Copenhagen Long Cut Straight**  Three varieties of Skoal Pouches*

  Two varieties of Husky Fine Cut  Skoal Bandits(new and improved)**

  Various varieties of Husky Long Cut  Three varieties of Cope Long Cut***   * Includes Citrus Blendvariety, which was introduced during 2007.
  ** Product introduced during 2006;
    Copenhagen Long Cut Straightwas re-branded as Cope
    Straightin 2007.
  *** Copewas introduced in
    September 2007 and is available in Straight, Smooth
    Hickoryand Whiskey Blend.
  Copenhagen Pouches Skoal Pouches Skoal Bandits
  Skoal Dry
    Can-Volume %



Percentage PointChange from Prior



Increase/(Decrease)Year Period

%

from Prior YearShare

PeriodTotal Category Data:Total Moist Smokeless Category


7.1
%


N/A



N/ATotal Premium Segment


1.5
%


55.5
%*


(3.1
)Total Value Segments


15.2
%


44.3
%*


3.1Company Data:Total Moist Smokeless Category


3.3
%


60.4
%


(2.3
)Total Premium Segment


2.1
%


90.9
%


0.5Total Value Segments


10.0
%


22.2
%


(1.0
)
   * Amounts reported do not add to
    100 percent, as this table does not reflect the herbal
    segment of the total moist smokeless category.
     34




---



##### Table of Contents



growth primarily due to the
    comparatively faster growth of the price-value segment and the
    Companys implementation of price-focused initiatives under
    its premium brand loyalty plan.
      Cost of
    Products Sold
    Gross
    Margin
  Year Ended December 31,

Increase/(Decrease)2007

2006

Amount

%Gross Margin

$
1,269,174


$
1,256,156


$
13,018



1.0Gross Margin as % of Net Sales


82.1
%


82.5
%
      35




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##### Table of Contents



SA&A
    Expenses
        Skoal Skoal
    Bandits
      one-on-one
       Antitrust
    Litigation
         36




---



##### Table of Contents



charge reflects costs attributable
    to coupons, which will be distributed to consumers, and will be
    redeemable, over the next several years, on future purchases of
    the Companys moist smokeless tobacco products. Also
    reflected in this charge are plaintiffs attorneys
    fees and other administrative costs of the settlement. The terms
    of the Wisconsin settlement were approved by the court in
    December 2007.
       Restructuring
    Charges
  Consolidated Results
  2006 compared
    with 2005
  Year Ended December 31,

Increase/(Decrease)2006

2005

Amount

%Net sales

$
1,522,686


$
1,561,667


$
(38,981
)


(2.5
)Restructuring charges


19,542



-



19,542



-Antitrust litigation


2,025



11,762



(9,737
)


(82.8
)Operating profit


805,130



852,478



(47,348
)


(5.6
)
   Net
    Sales
         37




---



##### Table of Contents



Percentage of
    Smokeless Tobacco Segment Net Sales by Product
    Category
  2006

2005(PIE CHART)

(PIE CHART)    *
    
    Moist smokeless tobacco products**
    
    Includes dry snuff and tobacco seeds  MSTP Net Can
    Volume
  Year Ended December 31,

Increase/(Decrease)2006

2005

Amount

%Net Can Volume (in thousands):Premium


541,387



540,968



419



0.1Price-Value


91,298



84,384



6,914



8.2Total


632,685



625,352



7,333



1.2
   Percentage of
    Total Moist Smokeless Tobacco Products Net Can Volume by
    Category Segment
  2006

2005(PIE CHART)

(PIE CHART)
      38




---



##### Table of Contents



sequential improvement in premium
    net can volume trends, indicative of the Companys
    increased focus on category growth and premium brand loyalty
    throughout 2006.
    Red Seal Husky
  Copenhagen
    Pouches Skoal Pouches Skoal
    Bandits
    Percentage PointCan-Volume %



Increase/(Decrease)Change from Prior

%

from Prior YearYear Period

Share

PeriodTotal Category Data:Total Moist Smokeless Category


6.3
%


N/A



N/ATotal Premium Segment


(0.7
)%


58.6
%*


(4.1
)Total Value Segments


18.2
%


41.2
%*


4.1Company Data:Total Moist Smokeless Category


1.2
%


62.6
%


(3.2
)Total Premium Segment


(0.1
)%


90.4
%


0.5Total Value Segments


8.9
%


23.2
%


(2.0
)
   *Amounts reported do not add to
    100 percent, as this table does not reflect the herbal
    segment of the total moist smokeless category.
      Cost of
    Products Sold
     39




---



##### Table of Contents



to certain manufacturing
    equipment, lower charges recorded in connection with the tobacco
    quota buyout legislation, and lower charges for inventory
    obsolescence. The decreased moist smokeless tobacco can costs
    were primarily due to lower leaf tobacco and other costs,
    partially offset by higher labor and overhead.
  Gross
    Margin
  Year Ended December 31,

Increase/(Decrease)2006

2005

Amount

%Gross Margin

$
1,256,156


$
1,289,212


$
(33,056
)


(2.6
)Gross Margin as % of Net Sales


82.5%



82.6%
     SA&A
    Expenses
    one-on-one
                    40




---



##### Table of Contents



Antitrust
    Litigation
    Restructuring
    Charges
  Consolidated Results
  WINE
    SEGMENT
  2007 compared
    with 2006
  Year Ended December 31,

Increase/(Decrease)2007

2006

Amount

%Net sales

$
354,001


$
282,403


$
71,598



25.4Restructuring charges


-



322



(322
)


-Operating profit


59,883



44,080



15,803



35.9
   Net
    Sales
    Chateau Ste. Michelle
 Antinori Erath Stags Leap Wine Cellars
  Columbia
    Crest Grand Estates , Antinoris Tignanello, Erath Estate Selection Dundee Hills Wine Spectators Top 100 Wines of the
    Year
  Case
    Volume
  Percentage of
    Total Case Volume by Brand
  2007

2006(PIE CHART)

(PIE CHART)   *Includes Stags Leap Wine
    Cellars, which was acquired in September 2007.
   41




---



##### Table of Contents



Chateau Ste. Michelle Columbia Crest
    Chateau Ste. Michelle
 Columbia Crest Grand Estates Two Vines Two Vines Grand Estates
 Antinori Erath
 Red Diamond 14 Hands
 Stags Leap Wine Cellars Stags Leap
    Wine Cellars
 Domaine
    Ste. Michelle
  Cost of
    Products Sold
  Antinori
  Gross
    Margin
  Year Ended December 31,

Increase/(Decrease)2007

2006

Amount

%Gross Margin

$
125,202


$
99,418


$
25,784



25.9Gross Margin as % of Net Sales


35.4%



35.2%
   Stags Leap Wine Cellars Erath Antinori
  SA&A
    Expenses
       Antinori
   42




---



##### Table of Contents



2006 compared
    with 2005
  Year Ended December 31,

Increase/(Decrease)2006

2005

Amount

%Net sales

$
282,403


$
248,342


$
34,061



13.7Restructuring charges


322



-



322



-Operating profit


44,080



37,764



6,316



16.7
   Net
    Sales
    Wine Spectator Top 100
    Wines of 2006
  Antinori Erath
 Chateau Ste. Michelles Indian
    Wells Orphelin Chateau Ste. Michelle Columbia Crest
  Case
    Volume
  Percentage of
    Total Case Volume by Brand
  2006

2005(PIE CHART)

(PIE CHART)   Chateau Ste. Michelle Columbia Crest
    Chateau
    Ste. Michelle Indian Wells
   43




---



##### Table of Contents



Columbia Crest Two Vines Grand Estates Grand Estates Grand Estates
 Antinori Erath
 Red Diamond 14 Hands
 Domaine
    Ste. Michelle
  Cost of
    Products Sold
  Antinori
  Gross
    Margin
  Year Ended December 31,

Increase/(Decrease)2006

2005

Amount

%Gross Margin

$
99,418


$
92,618


$
6,800



7.3Gross Margin as % of Net Sales


35.2%



37.3%
   Antinori
  SA&A
    Expenses
     Chateau Ste. Michelle Columbia Crest Red Diamond
      Antinori
    44




---



##### Table of Contents



ALL OTHER
    OPERATIONS
  2007 compared
    with 2006
  Year Ended December 31,


Increase/(Decrease)2007


2006


Amount


%Net sales

$
50,140


$
45,822


$
4,318



9.4Restructuring charges


838



151



687



-Operating profit


17,860



15,952



1,908



12.0
     2006 compared
    with 2005
  Year Ended December 31,


Increase/(Decrease)2006


2005


Amount


%Net sales

$
45,822


$
41,876


$
3,946



9.4Restructuring charges


151



-



151



-Operating profit


15,952



14,338



1,614



11.3
     UNALLOCATED
    CORPORATE
  2007 compared
    with 2006
  Administrative
    Expenses
          45




---



##### Table of Contents



Restructuring
    Charges
    Interest
    Expense
    Income Tax
    Expense
    2006 compared
    with 2005
  Administrative
    Expenses
    Restructuring
    Charges
    Interest
    Expense
     46




---



##### Table of Contents



Income Tax
    Expense
    OUTLOOK
  SMOKELESS TOBACCO
    SEGMENT
  Category
    Growth
  one-on-one
  Competing
    Effectively
  Red Seal Husky
  State Excise
    Taxes
     47




---



##### Table of Contents



Project
    Momentum Cost Savings Initiative
    Antitrust
    Litigation
    WINE
    SEGMENT
  Stags
    Leap Wine Cellars
  CONSOLIDATED
     48




---



##### Table of Contents



LIQUIDITY AND
    CAPITAL RESOURCES (In
    thousands, except per share amounts or where otherwise
    noted)
  SUMMARY
  2007

2006

2005Cash and cash equivalents

$
73,697


$
254,393


$
202,025Short-term investments


-



20,000



10,000Working capital


446,100



698,033



630,776Total debt


1,090,000



840,000



840,000
     35-day
  CASH
    FLOWS
  Year Ended December 31,2007

2006

2005Net cash provided by (used in):Operating activities

$
571,638


$
596,856


$
560,699Investing activities


(93,323
)


(55,063
)


(17,005
)Financing activities


(659,011
)


(489,425
)


(791,871
)(Decrease) increase in cash and cash equivalents

$
(180,696
)

$
52,368


$
(248,177
)
   Operating
    Activities
                49




---



##### Table of Contents



Investing
    Activities
                                    Financing
    Activities
     50




---



##### Table of Contents



SOURCES OF
    LIQUIDITY
    Aggregate
    Contractual Obligations
   51




---



##### Table of Contents



Working
    Capital
    Short-term
    Credit Agreement
  Revolving Credit Facility
  Revolving
    Credit Facility
     52




---



##### Table of Contents



Credit Ratings
  Rating Agency

Rating

OutlookMoodys

A3

StableStandard & Poors

A

StableFitch

A

Negative
     Form 10-K.
  CAPITAL
    EXPENDITURES
      Smokeless Tobacco segment
         Wine segment
       53




---



##### Table of Contents



2005  2007
    Average Capital Expenditures
  
    DEBT
          SHARE REPURCHASES
    AND DIVIDENDS
     54




---



##### Table of Contents



55




---



##### Table of Contents



AGGREGATE
    CONTRACTUAL OBLIGATIONS AS OF DECEMBER 31, 2007
  Payments Due by PeriodLess





MoreThan

1 to 3

3 to 5

ThanTotal

1 Year

Years

Years

5 YearsContractual ObligationsLong-term
    debt(1)

$
1,090,000


$
-


$
240,000


$
850,000


$
-Interest on long-term
    debt(2)


286,051



70,751



115,400



99,900



-Operating leases


105,401



11,018



18,641



11,582



64,160Open purchase
    orders(3)


52,292



52,292



-



-



-Unconditional purchase
    obligations(4)


490,302



151,934



145,780



99,232



93,356$
2,024,046


$
285,995


$
519,821


$
1,060,714


$
157,516
   (1)
  (2) Managements
    Discussion and Analysis, Sources of Liquidity.
  (3)
  (4)
      OFF-BALANCE
    SHEET ARRANGEMENTS
     56




---



##### Table of Contents



Redeemable
    Preferred Stocks No. D-98, Classification and Measurement of Redeemable Securities 12-month
    CRITICAL
    ACCOUNTING POLICIES AND ESTIMATES
  Estimates and
    Assumptions
        Inventory
     57




---



##### Table of Contents



Pension
    Plans
  Employers
    Accounting for Pensions Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans, an
    amendment of FASB Statements No. 87, 88, 106 and 132(R)
      Other
    Postretirement Benefit Plans
     58




---



##### Table of Contents



Employers Accounting for
    Postretirement Benefits Other Than Pensions
  Sales
    Returns
    Contingencies
    Income
    Taxes
     59




---



##### Table of Contents



Accounting for Uncertainty in Income
    Taxes  an interpretation of FASB Statement
    No. 109 Accounting for Contingencies
      NEW ACCOUNTING
    STANDARDS
  Form 10-K,
  CAUTIONARY
    STATEMENT REGARDING FORWARD-LOOKING INFORMATION
       60




---



##### Table of Contents



Form 10-K;
         Form 10-K, Form 10-Q Form 8-K
  Form 10-K, Form 10-Q, Form 8-K
 Item 7A 
    Quantitative and Qualitative Disclosures About Market
    Risk  Interest Rate
    Risk
       61




---



##### Table of Contents



Foreign Currency
    Risk
     62




---



##### Table of Contents



Concentration of
    Credit Risk
    35-day
  Commodity Price
    Risk
  Aggregate
    Contractual Obligations
   63




---



##### Table of Contents



Item 8 
    Financial Statements and Supplementary Data  REPORT OF
    MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
    REPORTING
  Rules 13a-15(f) 15d-15(f).
  Internal Control  Integrated
    Framework
    UST Inc.
  Stamford, Connecticut
 February 21, 2008
   64




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the Board of
    Directors and Stockholders of UST Inc.:
          Internal Control  Integrated Framework
  
  Ernst & Young LLP
  Stamford, Connecticut
 February 21, 2008
   65




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the Board of
    Directors and Stockholders of UST Inc.:
  Internal Control  Integrated
    Framework Report of
    Management on Internal Control Over Financial Reporting
            
  Ernst & Young LLP
  Stamford, Connecticut
 February 21, 2008
   66




---



##### Table of Contents



UST
    INC.
 CONSOLIDATED STATEMENT OF OPERATIONS
 (In thousands, except per share
    amounts)
  Year Ended December 312007

2006

2005Net sales

$
1,950,779


$
1,850,911


$
1,851,885Costs and expenses:Cost of products sold


466,967



412,971



392,670Excise taxes


57,608



53,117



50,461Selling, advertising and administrative


529,795



525,990



518,797Restructuring charges


10,804



21,997



-Antitrust litigation


137,111



2,025



11,762Total costs and expenses


1,202,285



1,016,100



973,690Gain on sale of corporate headquarters


105,143



-



-Operating income


853,637



834,811



878,195Interest, net


40,600



41,785



50,578Earnings from continuing operations before income taxes


813,037



793,026



827,617Income tax expense


292,764



291,060



293,349Earnings from continuing operations


520,273



501,966



534,268Income from discontinued operations, including income tax
    effect


-



3,890



-Net earnings

$
520,273


$
505,856


$
534,268Net earnings per basic share:Earnings from continuing operations

$
3.30


$
3.13


$
3.26Income from discontinued operations


-



0.02



-Net earnings per basic share:

$
3.30


$
3.15


$
3.26Net earnings per diluted share:Earnings from continuing operations

$
3.27


$
3.10


$
3.23Income from discontinued operations


-



0.02



-Net earnings per diluted share:

$
3.27


$
3.12


$
3.23Dividends per share

$
2.40


$
2.28


$
2.20Average number of shares:Basic


157,854



160,772



163,949Diluted


159,295



162,280



165,497
   The accompanying notes are
    integral to the Consolidated Financial Statements.
   67




---



##### Table of Contents



UST
    INC.
 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
 (In thousands)
  December 312007

2006Assets:Current assets:Cash and cash equivalents

$
73,697


$
254,393Short-term investments


-



20,000Accounts receivable


60,318



52,501Inventories


646,563



601,258Deferred income taxes


26,737



11,370Income taxes receivable


8,663



-Assets held for sale


-



31,452Prepaid expenses and other current assets


30,296



27,136Total current assets


846,274



998,110Property, plant and equipment, net


505,101



389,810Deferred income taxes


35,972



26,239Goodwill


28,304



6,547Intangible assets, net


56,221



4,723Other assets


15,206



14,919Total assets

$
1,487,078


$
1,440,348Liabilities and stockholders (deficit) equity:Current liabilities:Accounts payable and accrued expenses

$
324,814


$
268,254Income taxes payable


-



18,896Litigation liability


75,360



12,927Total current liabilities


400,174



300,077Long-term debt


1,090,000



840,000Postretirement benefits other than pensions


81,668



86,413Pensions


150,318



142,424Income taxes payable


38,510



-Other liabilities


18,610



5,608Total liabilities


1,779,280



1,374,522Contingencies (see Note 21)Minority interest and put arrangement


28,000



-Stockholders (deficit) equity:Capital
    stock(1)


105,635



104,956Additional paid-in capital


1,096,923



1,036,237Retained earnings


773,829



635,272Accumulated other comprehensive loss


(45,083
)


(56,871
)1,931,304



1,719,594Less treasury
    stock(2)


2,251,506



1,653,768Total stockholders (deficit) equity


(320,202
)


65,826Total liabilities and stockholders (deficit) equity

$
1,487,078


$
1,440,348   (1)
  (2)
  The accompanying notes are
    integral to the Consolidated Financial Statements.
   68




---



##### Table of Contents



UST
    INC.
 CONSOLIDATED STATEMENT OF CASH FLOWS
 (In thousands)
  Year Ended December 312007

2006

2005Operating Activities:Net earnings

$
520,273


$
505,856


$
534,268Adjustments to reconcile net earnings to net cash provided by
    operating activities:Depreciation and amortization


46,622



45,839



46,438Share-based compensation expense


11,784



10,403



5,976Excess tax benefits from share-based compensation


(9,756
)


(9,863
)


-Goodwill and intangible impairment


-



-



3,313Gain on sale of corporate headquarters


(105,143
)


-



-Loss (gain) on disposition of property, plant and equipment


576



(327
)


8,911Amortization of imputed rent on corporate headquarters


6,740



-



-Deferred income taxes


(16,146
)


(16,922
)


19,167Changes in operating assets and liabilities:Accounts receivable


(2,153
)


1,685



(12,724
)Inventories


(5,517
)


(15,780
)


(16,247
)Prepaid expenses and other assets


(2,975
)


14,703



16,255Accounts payable, accrued expenses, pensions and other
    liabilities


60,255



40,541



6,757Income taxes


4,645



22,945



(39,977
)Litigation liability


62,433



(2,224
)


(11,438
)Net cash provided by operating activities


571,638



596,856



560,699Investing Activities:Short-term investments, net


20,000



(10,000
)


50,000Purchases of property, plant and equipment


(88,426
)


(37,044
)


(89,947
)Proceeds from dispositions of property, plant and equipment


130,725



6,179



22,942Acquisition of business


(155,197
)


(10,578
)


-Loan to minority interest holder


(27,096
)


-



-Repayment of loan by minority interest holder


27,096



-



-Investment in joint venture


(425
)


(3,620
)


-Net cash used in investing activities


(93,323
)


(55,063
)


(17,005
)Financing Activities:Repayment of debt


(7,095
)


-



(300,000
)Proceeds from revolving credit facility borrowings


250,000



-



-Change in book cash overdraft


26,536



-



-Excess tax benefits from share-based compensation


9,756



9,863



-Proceeds from the issuance of stock


37,855



68,214



69,375Dividends paid


(378,325
)


(367,499
)


(361,208
)Stock repurchased


(597,738
)


(200,003
)


(200,038
)Net cash used in financing activities


(659,011
)


(489,425
)


(791,871
)(Decrease) increase in cash and cash equivalents


(180,696
)


52,368



(248,177
)Cash and cash equivalents at beginning of year


254,393



202,025



450,202Cash and cash equivalents at end of the period

$
73,697


$
254,393


$
202,025Supplemental disclosure of cash flow information:Cash paid during the period for:Income taxes

$
305,094


$
283,618


$
314,735Interest

$
57,910


$
57,151


$
70,351
   The accompanying notes are
    integral to the Consolidated Financial Statements.
   69




---



##### Table of Contents



UST
    INC.
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS
    (DEFICIT) EQUITY
 (Dollars in thousands, except per
    share amounts)
  AccumulatedAdditional



Other



TotalCommon

Paid-In

Retained

Comprehensive

Treasury

Stockholders

ComprehensiveStock

Capital

Earnings

Loss

Stock

(Deficit) Equity

IncomeBalance at December 31, 2004

$
105,777


$
885,049


$
492,800


$
(19,911
)

$
(1,454,150
)

$
9,565Comprehensive income:Net earnings


-



-



534,268



-



-



534,268


$
534,268Other comprehensive income (loss), net of tax:Net deferred gain on cash flow hedges


-



-



-



1,400



-



1,400



1,400Foreign currency translation adjustment


-



-



-



1,161



-



1,161



1,161Minimum pension liability adjustment


-



-



-



(452
)


-



(452
)


(452
)Other comprehensive income


























2,109Comprehensive income

























$
536,377Cash dividends  $2.20 per share


-



-



(361,208
)


-



-



(361,208
)Exercise of stock options  2,179,000 shares;
    issuance of stock and restricted stock 
    199,409 shares; issuance of stock upon conversion of
    restricted stock units  24,359 shares


1,202



69,779



-



-



-



70,981Income tax benefits and decrease in receivables from exercise of
    stock options


-



19,421



-



-



-



19,421Stock repurchased  4,438,642 shares


-



-



-



-



(200,038
)


(200,038
)Retirement of treasury stock  6,337,275 shares


(3,169
)


(28,783
)


(168,471
)


-



200,423



-Balance at December 31, 2005


103,810



945,466



497,389



(17,802
)


(1,453,765
)


75,098Comprehensive income:Net earnings


-



-



505,856



-



-



505,856


$
505,856Other comprehensive income (loss), net of tax:Net deferred loss on cash flow hedges


-



-



-



(1,417
)


-



(1,417
)


(1,417
)Foreign currency translation adjustment


-



-



-



639



-



639



639Minimum pension liability adjustment


-



-



-



924



-



924



924Other comprehensive income


























146Comprehensive income

























$
506,002Adjustment to initially apply SFAS No. 158, net of tax


-



-



-



(39,215
)


-



(39,215
)Cash dividends  $2.28 per share


-



-



(367,499
)


-



-



(367,499
)Dividend equivalents on share-based awards


-



-



(474
)


-



-



(474
)Exercise of stock options  2,112,200 shares


1,056



65,670



-



-



-



66,726Share-based compensation expense  14,033 shares


7



10,511



-



-



-



10,518RSUs issued, including net impact of tax
    withholding  21,322 shares


11



(598
)


-



-



-



(587
)Restricted Stock, including net impact of tax
    withholding  144,516 shares


72



(433
)


-



-



-



(361
)Income tax benefits and decrease in receivables from exercise of
    stock options


-



15,621



-



-



-



15,621Stock repurchased  4,270,295 shares


-



-



-



-



(200,003
)


(200,003
)Balance at December 31, 2006


104,956



1,036,237



635,272



(56,871
)


(1,653,768
)


65,826Comprehensive income:Net earnings


-



-



520,273



-



-



520,273


$
520,273Other comprehensive income (loss), net of tax:Net deferred loss on cash flow hedges


-



-



-



(2,105
)


-



(2,105
)


(2,105
)Foreign currency translation adjustment


-



-



-



1,750



-



1,750



1,750Defined benefit pension and other postretirement benefit plans
    adjustment


-



-



-



12,143



-



12,143



12,143Other comprehensive income


























11,788Comprehensive income

























$
532,061Adjustment to initially apply FIN No. 48


-



-



(2,770
)


-



-



(2,770
)Cash dividends  $2.40 per share


-



-



(378,325
)


-



-



(378,325
)Dividend equivalents on share-based awards


-



-



(621
)


-



-



(621
)Exercise of stock options  1,259,800 shares


630



39,084



-



-



-



39,714Share-based compensation expense  14,598 shares


7



11,850



-



-



-



11,857RSUs issued, including net impact of tax
    withholding  21,454 shares


11



(994
)


-



-



-



(983
)Restricted Stock, including net impact of tax
    withholding  61,260 shares


31



(2,478
)


-



-



-



(2,447
)Income tax benefits and decrease in receivables from exercise of
    stock options


-



13,224



-



-



-



13,224Stock repurchased  11,013,293 shares


-



-



-



-



(597,738
)


(597,738
)Balance at December 31, 2007

$
105,635


$
1,096,923


$
773,829


$
(45,083
)

$
(2,251,506
)

$
(320,202
)   The accompanying notes are
    integral to the Consolidated Financial Statements.
   70




---



##### Table of Contents



UST
    INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands, except per share amounts or where
    otherwise noted)
  1 
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Nature of
    Operations
    Basis of
    Presentation
    Property, Plant and Equipment
    Revenue
    Recognition
       71




---



##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Cash and Cash
    Equivalents
    Short-Term
    Investments
  35-day
  Inventories
  last-in, first-in,
  Property,
    Plant and Equipment
  Capitalization of Interest Costs
  Impairment of
    Long-Lived Assets
  Accounting for the
    Impairment or Disposal of Long-Lived Assets
  Assets Held
    for Sale
     72




---



##### Table of Contents



Income Taxes
    Accounting for Contingencies
    Advertising
    Costs
    Goodwill and
    Other Intangible Assets
  Goodwill and Other Intangible Assets, 3-20 years.
   73




---



##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Share-Based
    Compensation
  Share-based
    Payment, Accounting for Stock Based Compensation
  Accounting for Stock Issued to Employees
  Foreign
    Currency Translation
    Net Earnings
    Per Share
  Earnings per
    Share
  Excise
    Taxes
     74




---



##### Table of Contents



2 
    RECENT ACCOUNTING PRONOUNCEMENTS
  Business
    Combinations Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
  Fair Value Option for Financial Assets and Financial
    Liabilities-Including an Amendment of FASB Statement
    No. 115
  Fair Value Measurements
     75




---



##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3 
    INVENTORIES
    December 312007


2006Leaf tobacco

$
202,137


$
201,035Products in process*


258,814



233,741Finished goods*


163,247



145,820Other materials and supplies*


22,365



20,662$
646,563


$
601,258
       4 
    ASSETS HELD FOR SALE
    Accounting for the Impairment or
    Disposal of Long-Lived Assets.
       76




---



##### Table of Contents



5 
    PROPERTY, PLANT AND EQUIPMENT, NET
    December 31Lives (Years)

2007


2006Land

-

$
53,443


$
15,100Buildings and building improvements

1 - 40*


247,847



195,522Vineyards

25


27,839



23,739Machinery and equipment

3 - 20


571,484



531,525900,613



765,886Less accumulated depreciation




395,512



376,076$
505,101


$
389,810
       6 
    COMMITMENTS
  Purchase
    Agreements
        2008


2009


2010


2011


2012


Thereafter


TotalGrape commitments

$
73,623


$
73,067


$
72,713


$
62,490


$
36,742


$
93,356


$
411,991
      77




---



##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Operating
    Leases
    2008


2009


2010


2011


2012


Thereafter


TotalLease commitments

$
10,681


$
10,400


$
8,241


$
6,392


$
5,190


$
64,160


$
105,064
     7 
    GOODWILL AND OTHER INTANGIBLE ASSETS
  Goodwill
    TotalGoodwill as of January 1, 2006

$
2,649Acquisitions


3,898Goodwill as of December 31, 2006


6,547Acquisitions


21,166Translation adjustments


591Goodwill as of December 31, 2007

$
28,304
     Nonamortizable
    Intangible Assets Other than Goodwill
     78




---



##### Table of Contents



These nonamortizable intangible
    assets relate to acquired trademarks, with $39.2 million
    related to the acquisition of Stags Leap Wine Cellars in
    2007 (see Note 22, Other Matters, for
    additional information) and $2.7 million related to the
    acquisition of Erath in 2006. There were no impairment charges
    recorded relating to these assets for the years ended
    December 31, 2007 and 2006.
  Amortizable Intangible Assets
    WeightedAmortizable


December 31Life (Years)


2007


2006Customer Relationships


20


$
11,560


$
560Customer Lists


6



1,698



198Intellectual Property


15



1,200



1,200Other


15



1,239



899Total amortizable intangible assets


18



15,697



2,857Less: Accumulated amortization






1,363



821Amortizable intangible assets  net





$
14,334


$
2,036
       2008


2009


2010


2011


2012Amortization Expense

$
1,104


$
1,046


$
1,012


$
925


$
913
   8 
    ACCOUNTS PAYABLE AND ACCRUED EXPENSES
    December 312007


2006Trade accounts payable

$
87,856


$
93,729Employee compensation and benefits


73,402



73,742Interest payable on debt


20,175



19,669Smokeless tobacco settlement-related charges


22,564



20,433Returned goods accrual


18,273



17,631Restructuring(1)


1,721



4,593Book cash overdrafts


26,536



-Treasury stock purchased, not yet settled


26,655



2,420Other accrued expenses


47,632



36,037$
324,814


$
268,254
   (1)
    
    For additional information
    regarding restructuring activities see Note 20,
    Restructuring.   79




---



##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   9 
    BORROWING ARRANGEMENTS
    December 31,2007


2006Carrying


Fair


Carrying


FairValue


Value(1)


Value


Value(1)7.25% Senior notes, due June 1, 2009

$
240,000


$
245,600


$
240,000


$
248,4006.625% Senior notes, due July 15, 2012


600,000



640,900



600,000



633,000Revolving credit facility
    borrowings(2)


250,000



250,000



-



-$
1,090,000


$
1,136,500


$
840,000


$
881,400
   (1)
  (2)
  Short-term
    Credit Agreement
  Revolving Credit Facility
    Revolving
    Credit Facility
     80




---



##### Table of Contents



Senior
    Notes
      10 
    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
         81




---



##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for Derivative Instruments
    and Hedging Activities
        11 
    CAPITAL STOCK
     82




---



##### Table of Contents



12 
    SHARE-BASED COMPENSATION
    Accounting for Stock Issued to Employees
     83




---



##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005Net earnings:As reported

$
534,268Add: Total share-based employee compensation expense included in
    reported net income,
    net of related tax effect


3,884Less: Total share-based employee compensation expense determined
    under the fair value method for all awards, net of related tax
    effect


(8,948
)Pro forma

$
529,204Basic earnings per share:As reported

$
3.26Pro forma

$
3.23Diluted earnings per share:As reported

$
3.23Pro forma

$
3.20
     Year Ended December 31,2007

2006

2005Selling, advertising and administrative
    expense(1)

$
11,161


$
9,440


$
5,976Cost of products sold


525



486



-Restructuring
    charges(2)


98



477



-Total pre-tax share-based compensation expense

$
11,784


$
10,403


$
5,976Income tax benefit

$
4,287


$
3,774


$
2,092Capitalized as inventory

$
113


$
115


$
-
   (1)
  (2)
     84




---



##### Table of Contents



and/or
  Stock
    Options
     85




---



##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31, 2007Weighted-AverageWeighted-

Remaining

AggregateNumber of

Average

Contractual

IntrinsicOptions

Exercise Price

Term

ValueOutstanding at January 1, 2007


4,914.0


$
33.25Granted


60.0


$
53.60Exercised


(1,259.8
)

$
31.52Forfeited


(7.7
)

$
33.25Expired


(7.3
)

$
30.44Outstanding at December 31, 2007


3,699.2


$
34.17



4.60 years


$
76.3 millionExercisable at December 31, 2007


3,439.2


$
32.93



4.28 years


$
75.2 million
       2007

2006

2005Expected dividend yield


4.0%



4.4%



4.9%Risk-free interest rate


4.1%



4.6%



4.5%Expected volatility


20.0%



20.2%



24.2%Expected life of the option


6.5 years



6.5 years



7.3 years
     2007

2006

2005Weighted-average grant date fair value per option

$
8.41


$
8.35


$
6.86Total intrinsic value of options exercised

$
31,313


$
38,239


$
43,234Tax benefit realized for deduction from stock option exercises

$
11,766


$
14,215


$
15,860Cash received from option exercises

$
37,855


$
68,214


$
69,375
      86




---



##### Table of Contents



Restricted Stock/Restricted Stock Units/Common
    Stock
    Restricted Stock


Restricted Stock UnitsWeighted-average





Weighted-averageNumber of


grant-date fair


Number of


grant-date fairShares


value per share


Shares


value per shareNonvested at January 1, 2007


460,438


$
41.17



230,475


$
41.23Granted


126,300


$
59.83



36,749


$
56.33Forfeited


(25,399
)

$
55.12



(13,916
)

$
42.96Vested


(174,699
)

$
44.19



(30,860
)

$
39.39Nonvested at December 31, 2007


386,640


$
46.56



222,448


$
43.87
     and/or
       87




---



##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  13 
    ACCUMULATED OTHER COMPREHENSIVE LOSS
    DefinedBenefitPension and



TotalForeign

Minimum

Other

Fair Value of

AccumulatedCurrency

Pension

Postretirement

Derivative

OtherTranslation

Liability

Benefit Plans

Instruments

ComprehensiveAdjustment

Adjustment

Adjustment

Adjustment

(Loss) IncomeBalance at December 31, 2004

$
(1,050
)

$
(15,978
)

$
-


$
(2,883
)

$
(19,911
)Net change for the year


1,161



(452
)


-



1,400



2,109Balance at December 31, 2005


111



(16,430
)


-



(1,483
)


(17,802
)Net change for the year


639



924



-



(1,417
)


146Impact of adoption of SFAS No. 158


-



15,506



(54,721
)


-



(39,215
)Balance at December 31, 2006


750



-



(54,721
)


(2,900
)


(56,871
)Net change for the year


1,750



-



12,143



(2,105
)


11,788Balance at December 31, 2007

$
2,500


$
-


$
(42,578
)

$
(5,005
)

$
(45,083
)     2007

2006

2005Foreign currency translation adjustment

$
(942
)

$
(344
)

$
(625
)Minimum pension liability adjustment


-



(498
)


244Adjustment to initially apply SFAS No. 158


-



21,116



-Defined benefit pension and other postretirement benefit plans
    adjustment


(6,538
)


-



-Fair value of derivative instruments adjustment


1,133



763



(754
)$
(6,347
)

$
21,037


$
(1,135
)
   14 
    EMPLOYEE BENEFIT AND COMPENSATION PLANS
       88




---



##### Table of Contents



deductibles, co-insurance and in
    some cases flat dollar contributions which vary by plan, age and
    service at retirement. All life insurance coverage is
    noncontributory.
      PostretirementBenefitsPension Plans


Other than Pensions2007


2006


2007


2006Change in Benefit ObligationBenefit obligation at beginning of year

$
555,143


$
534,704


$
92,590


$
84,984Service cost


18,914



18,940



4,423



5,346Interest cost


33,086



30,436



4,858



4,928Plan participants contributions


-



-



484



393Plan amendments


20



202



(5,498
)


(774
)Plan curtailment


(552
)


(4,607
)


-



2,290Actuarial gain


(10,896
)


(6,008
)


(4,814
)


(2,216
)Special termination benefits


1,974



4,035



-



2,576Benefits paid


(25,959
)


(22,559
)


(4,626
)


(4,937
)Benefit obligation at end of year

$
571,730


$
555,143


$
87,417


$
92,590Change in Plan AssetsFair value of plan assets at beginning of year

$
406,837


$
370,036


$
-


$
-Actual return on plan assets


27,328



54,020



-



-Employer contributions


7,472



6,343



-



-Benefits paid


(25,959
)


(22,559
)


-



-Administrative expenses


(987
)


(1,003
)


-



-Fair value of plan assets at end of year

$
414,691


$
406,837


$
-


$
-Funded Status at end of year

$
(157,039
)

$
(148,306
)

$
(87,417
)

$
(92,590
)Amounts Recognized in the Consolidated Statement of Financial
    PositionNoncurrent assets

$
788


$
1,138


$
-


$
-Current liabilities


(7,509
)


(7,020
)


(5,749
)


(6,177
)Noncurrent liabilities


(150,318
)


(142,424
)


(81,668
)


(86,413
)Net amount recognized

$
(157,039
)

$
(148,306
)

$
(87,417
)

$
(92,590
)Amounts Recognized in Accumulated Other Comprehensive LossNet actuarial loss

$
68,734


$
81,682


$
14,876


$
20,113Prior service cost (credit)


157



213



(18,263
)


(17,813
)Unrecognized transition asset


-



(9
)


-



-Total, before taxes

$
68,891


$
81,886


$
(3,387
)

$
2,300
    89




---



##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    PostretirementBenefits OtherPension Plans

than PensionsNet actuarial loss

$
2,138


$
681Prior service cost (credit)


90



(4,167
)$
2,228


$
(3,486
)
   Assumptions
  PostretirementBenefitsPension Plans

Other than Pensions2007

2006

2007

2006The weighted-average assumptions used to determine benefit
    obligationsDiscount rate


6.25
%


6.00
%


6.00
%


6.00
%Rate of compensation increase


4.80
%


4.80
%


-



-The weighted-average assumptions used to determine net
    periodic benefit costDiscount rate


6.00
%


5.75
%


6.00
%


5.75
%Expected return on plan assets


7.50
%


7.50
%


-



-Rate of compensation increase


4.80
%


4.80
%


-



-
       PostretirementBenefitsPension Plans

Other than Pensions2007

2006

2005

2007

2006

2005Service cost

$
18,914


$
18,940


$
18,332


$
4,423


$
5,346


$
5,659Interest cost


33,086



30,436



28,744



4,858



4,928



5,340Expected return on plan assets


(28,726
)


(26,136
)


(25,100
)


-



-



-Amortization of unrecognized transition asset


(9
)


(8
)


(8
)


-



-



-Amortization of prior service cost (credit)


75



18



(1
)


(5,150
)


(5,456
)


(3,153
)Recognized actuarial loss


3,885



6,388



5,620



335



1,406



1,120Curtailment and special termination benefits


1,974



4,042



-



-



2,789



-Net periodic benefit cost

$
29,199


$
33,680


$
27,587


$
4,466


$
9,013


$
8,966
    90




---



##### Table of Contents



PostretirementBenefitsPension Plans

Other than PensionsNet actuarial gain

$
(9,064
)

$
(5,004
)Recognized actuarial loss


(3,885
)


(335
)Prior service cost (credit)


20



(5,498
)Recognized prior service (cost) credit


(75
)


5,150Recognized transition asset


9



-Total recognized in other comprehensive income

$
(12,995
)

$
(5,687
)Net recognized in net periodic benefit cost and other
    comprehensive income

$
16,204


$
(1,221
)
         2007

2006Plans in Which

Plans in Which

Plans in Which

Plans in WhichAssets Exceed

Accumulated

Assets Exceed

AccumulatedAccumulated

Benefits Exceed

Accumulated

Benefits ExceedBenefits

Assets

Benefits

AssetsAccumulated benefit obligation

$
309,019


$
196,485


$
295,068


$
192,427Projected benefit obligation


366,250



205,480



352,618



202,525Fair value of plan assets


324,606



90,086



316,709



90,128
        91




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##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Weighted-Average
    Asset Allocations by Asset Category
  Pension Plans Allocation of Plan Assets atTarget


December 31Asset Category

Allocation


2007


2006Equity securities


55-70
%


71%



68%Debt securities


25-40
%


29%



32%Other


0-5
%


0%



0%100%



100%
          92




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##### Table of Contents



Cash
    Flows
        2008


2009


2010


2011


2012


2013 - 2017Pension plans

$
28,728


$
30,137


$
31,319


$
32,333


$
33,793


$
190,859Postretirement benefits other than pensions

$
5,919


$
6,166


$
6,428


$
6,632


$
6,740


$
34,523
   Additional
    Information
  Change in Benefit
    Obligation
  No. 106-2, Accounting and Disclosure Requirements Related to the
    Medicare Prescription Drug, Improvement and Modernization Act of
    2003
       93




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##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  15 
    INCOME TAXES
    2007

2006

2005Current:Federal

$
279,665


$
276,967


$
251,001State and local


27,971



31,015



23,181Total current


307,636



307,982



274,182Deferred:Federal


(14,582
)


(12,049
)


10,618State and local


(290
)


(4,873
)


8,549Total deferred


(14,872
)


(16,922
)


19,167$
292,764


$
291,060


$
293,349
           2007

2006Deferred tax assets:Postretirement benefits other than pensions

$
31,683


$
31,382Accrued pension liabilities


53,937



52,240Antitrust litigation


8,106



5,011Other accrued liabilities


24,766



23,105Net operating loss, tax credit and capital loss carryforwards


17,500



19,745Inventory-related adjustments


3,011



-All other, net


-



786139,003



132,269Valuation allowance


13,283



15,915Total deferred tax assets


125,720



116,354Deferred tax liabilities:Depreciation


61,365



67,610Prepaid pension asset


241



802Capitalized debt costs


215



74Inventory-related adjustments


-



10,259All other, net


1,190



-Total deferred tax liabilities


63,011



78,745Net deferred tax assets

$
(62,709
)

$
(37,609
)
    94




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##### Table of Contents



Balance at January 1, 2007

$
38,180Additions based on tax position related to current year


3,073Reductions based on tax position related to current year


-Additions based on tax position related to prior year


111Reductions based on tax position related to prior year


(402
)Settlements


(796
)Reductions resulting from lapse in statute of limitations


(1,001
)Balance at December 31, 2007

$
39,165
          95




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##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2007


2006


2005U.S. federal statutory income tax rate


35.0
%


35.0
%


35.0
%State and local taxes, net of federal tax benefit


2.4



2.7



2.8Manufacturing deduction


(1.8
)


(1.0
)


(1.0
)Reversals of income tax accruals


(0.2
)


(0.6
)


(2.2
)Other, net


0.6



0.6



0.836.0
%


36.7
%


35.4
%
         16 
    SEGMENT INFORMATION
           96




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##### Table of Contents



Year Ended December 312007

2006

2005Net Sales to Unaffiliated CustomersSmokeless Tobacco

$
1,546,638


$
1,522,686


$
1,561,667Wine(3)


354,001



282,403



248,342All Other


50,140



45,822



41,876Net sales

$
1,950,779


$
1,850,911


$
1,851,885Operating
    Profit(1)Smokeless
    Tobacco(2)

$
715,699


$
805,130


$
852,478Wine(3)


59,883



44,080



37,764All Other


17,860



15,952



14,338Operating profit


793,442



865,162



904,580Gain on sale of corporate headquarters building


105,143



-



-Unallocated corporate
    expenses(1)


(44,948
)


(30,351
)


(26,385
)Interest, net


(40,600
)


(41,785
)


(50,578
)Earnings from continuing operations before income taxes

$
813,037


$
793,026


$
827,617Identifiable Assets at December 31Smokeless Tobacco

$
620,391


$
587,490


$
632,438Wine(3)


745,967



527,310



494,320All Other


15,288



10,126



31,283Corporate


105,432



315,422



208,942Total assets

$
1,487,078


$
1,440,348


$
1,366,983Capital ExpendituresSmokeless Tobacco

$
57,643


$
18,456


$
76,825Wine


29,536



17,547



12,207All Other


363



93



193Corporate


884



948



722Capital expenditures

$
88,426


$
37,044


$
89,947DepreciationSmokeless Tobacco

$
28,355


$
30,005


$
31,302Wine


15,802



13,840



13,103All Other


161



194



175Corporate


768



721



761Depreciation

$
45,086


$
44,760


$
45,341
   (1) For
    2007 and 2006, each reportable segments operating profit,
    as well as unallocated corporate expenses reflect the impact of
    restructuring charges, as applicable. See Note 20,
    Restructuring, for additional information.
  (2) Smokeless
    Tobacco segment operating profit includes antitrust litigation
    charges of $137.1 million, $2.0 million and
    $11.8 million for the years ended December 31, 2007,
    2006 and 2005, respectively. See Note 21,
    Contingencies, for additional information.
  (3) Amounts
    reported for the Wine segment reflect the 2007 acquisition of
    Stags Leap Wine Cellars. Wine segment net sales and
    operating profit include the results of Stags Leap Wine
    Cellars since the September 11, 2007 acquisition date. See
    Note 22, Other Matters, for additional
    information.
   97




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##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  17 
    INTEREST, NET
    2007

2006

2005Interest expense on debt

$
57,977


$
57,484


$
62,984Interest income from cash equivalents


(16,670
)


(15,363
)


(10,558
)Capitalized interest


(707
)


(336
)


(1,848
)$
40,600


$
41,785


$
50,578
   18 
    NET EARNINGS PER SHARE
    2007

2006

2005Numerator:Earnings from continuing operations

$
520,273


$
501,966


$
534,268Income from discontinued operations, net


-



3,890



-Net earnings

$
520,273


$
505,856


$
534,268Denominator:Denominator for basic earnings per share - weighted-average
    shares


157,854



160,772



163,949Dilutive effect of potential common shares


1,441



1,508



1,548Denominator for diluted earnings per share


159,295



162,280



165,497Net earnings per basic share:Earnings from continuing operations

$
3.30


$
3.13


$
3.26Income from discontinued operations


-



0.02



-Net earnings per basic share

$
3.30


$
3.15


$
3.26Net earnings per diluted share:Earnings from continuing operations

$
3.27


$
3.10


$
3.23Income from discontinued operations


-



0.02



-Net earnings per diluted share

$
3.27


$
3.12


$
3.23
      98




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##### Table of Contents



and, therefore, would be
    antidilutive. At December 31, 2006, all options outstanding
    were dilutive as their exercise prices were lower than the
    average market price of Company common shares.
  19 
    DISCONTINUED OPERATIONS
      20 
    RESTRUCTURING
    Accounting for Costs Associated with
    Exit or Disposal
  Restructuring

CumulativeCharges Incurred

Charges Incurred

Total Chargesfor The Year Ended

for The Year Ended

Expected toDecember 31, 2007

December 31, 2007

be
    Incurred(1)One-time termination benefits

$
3,184


$
18,809


$
19,700-$21,200Contract termination costs


102



492



400-500Other restructuring costs


7,518



13,500



13,400-13,800Total

$
10,804


$
32,801


$
33,500-$35,500
   (1)
     99




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##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  individuals. Contract termination
    costs primarily relate to the termination of operating leases in
    conjunction with the consolidation and relocation of facilities.
    Other restructuring costs are mainly comprised of other costs
    directly related to the implementation of Project Momentum,
    primarily professional fees, as well as asset impairment charges
    and costs incurred in connection with the relocation of the
    Companys headquarters.
    Restructuring

CumulativeCharges Incurred

Charges Incurred

Total Chargesfor The Year Ended

for The Year Ended

Expected to beDecember 31, 2007

December 31, 2007

IncurredSmokeless Tobacco

$
8,230


$
27,772


$
28,400-$30,100Wine


-



322



400-500All Other Operations


838



989



1,000-1,100Total  reportable segments


9,068



29,083


$
29,800-$31,700Corporate (unallocated)


1,736



3,718



3,700-3,800Total

$
10,804


$
32,801


$
33,500-$35,500
     One-Time

Contract

OtherTermination

Termination

RestructuringBenefits

Costs

Costs

TotalBalance as of January 1, 2007

$
4,349


$
192


$
52


$
4,593Add: restructuring charges incurred


3,184



102



7,518



10,804Less: payments


(5,794
)


(216
)


(6,857
)


(12,867
)Less: reclassified
    liabilities(1)


(96
)


-



(713
)


(809
)Balance as of December 31, 2007

$
1,643


$
78


$
-


$
1,721
   (1)
  21 
    CONTINGENCIES
     100




---



##### Table of Contents



Smokeless
    Tobacco Litigation
          Antitrust
    Litigation
  and/or
     101




---



##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Form 10-Q
             102




---



##### Table of Contents



agreed-upon
          22 
    OTHER MATTERS
  Tobacco Reform
    Act
     103




---



##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Smokeless
    Tobacco Master Settlement Agreement
  10-year
  Acquisition
  Cask 23 Fay and S.L.V., Arcadia, Artemis, Karia Hawk Crest
         104




---



##### Table of Contents



determination of such amounts.
    Refinements from the previously reported allocation of the
    purchase price include increases in the values assigned to
    current assets and property, plant and equipment with a
    corresponding decrease to goodwill. The allocated purchase price
    includes direct acquisition costs of $1.9 million.
  Current assets

$
46,812Property, plant and equipment


73,398Intangible assets


52,040Goodwill


21,166Other assets


319Total assets acquired


193,735Current liabilities


11,150Total liabilities assumed


11,150Net assets acquired

$
182,585
   (20-year
  Redeemable Preferred Stocks No. D-98, Classification and Measurement of Redeemable Securities 12-month
   105




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##### Table of Contents



UST INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  23 
    QUARTERLY FINANCIAL DATA (Unaudited)
  First


Second


Third


Fourth


Year2007Net sales

$
447,018


$
491,254


$
479,612


$
532,895


$
1,950,779Gross profit


331,365



364,405



353,143



377,291



1,426,204Gain on sale of corporate headquarters


105,143



-



-



-



105,143Antitrust litigation


122,100



-



3,158



11,853



137,111Restructuring charges


3,520



3,908



1,677



1,699



10,804Net earnings


107,513



139,971



133,600



139,189



520,273Basic earnings per share*


0.67



0.88



0.85



0.90



3.30Diluted earnings per share*


0.67



0.87



0.84



0.89



3.272006Net sales

$
433,641


$
472,900


$
458,649


$
485,721


$
1,850,911Gross profit


329,431



360,486



342,794



352,112



1,384,823Antitrust litigation


1,350



-



-



675



2,025Restructuring charges


-



-



17,495



4,502



21,997Net earnings


115,913



134,655



118,085



137,203



505,856Basic earnings per share*


0.72



0.84



0.74



0.86



3.15Diluted earnings per share*


0.71



0.83



0.73



0.85



3.12    * Quarterly earnings per share
    amounts are based on average shares outstanding during each
    quarter and, therefore, may not equal the total calculated for
    the full year.
       106




---



##### Table of Contents



Item 9 
    Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure   Item 9A 
    Controls and Procedures  Evaluation of
    Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
  Report of
    Management on Internal Control over Financial
    Reporting
    Attestation
    Report of Independent Registered Public Accounting
    Firm
    Changes in
    Internal Control over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
 Item 9B 
    Other Information     107




---



##### Table of Contents



PART III Item 10 
    Directors, Executive Officers and Corporate Governance  Regulation S-K
    Executive
    Officers of the Registrant
    Name

Current Position

AgeMurray S. Kessler

Chairman of the Board, Chief Executive Officer and President


48Raymond P. Silcock

Senior Vice President and Chief Financial Officer


57Richard A. Kohlberger

Senior Vice President, General Counsel, Secretary and
    Chief  Administrative Officer


62Theodor P. Baseler

President  International Wine & Spirits Ltd.


53Daniel W. Butler

President  U.S. Smokeless Tobacco Company


48
                108




---



##### Table of Contents



Code of
    Ethics
  Form 8-K.
  Director
    Nomination Procedures
    Audit Committee
    Matters
   Item 11 
    Executive Compensation   Item 12 
    Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters       109




---



##### Table of Contents



EQUITY
    COMPENSATION PLAN INFORMATION
    Number ofSecuritiesRemainingNumber of

Weighted-

Available forSecurities to be

Average

Future IssuanceIssued Upon

Exercise

Under EquityExercise of

Price of

CompensationOutstanding

Outstanding

Plans (ExcludingOptions,

Options,

SecuritiesWarrants and

Warrants and

Reflected inRights

Rights

Column (a))Plan Category

(a)

(b)(3)

(c)Equity compensation plans approved by security holders


4,479,647
(1)

$
36.47



9,030,518Equity compensation plans not approved by security
    holders(2)


3,440


$
50.91



-Total


4,483,087


$
36.48



9,030,518
    (1) Consists
    of 310,000 shares issuable upon exercise of outstanding
    stock options, 409,525 shares issuable upon vesting of
    outstanding restricted stock, 222,448 shares issuable upon
    conversion of outstanding restricted stock units and
    32,979 shares issuable upon conversion of outstanding
    deferred stock under the UST Inc. 2005 Long-Term Incentive Plan
    (2005 LTIP). In addition, 1,318,300 shares
    issuable upon exercise of outstanding stock options and
    115,500 shares issuable upon vesting of outstanding
    restricted stock under the UST Inc. Amended and Restated Stock
    Incentive Plan (formerly the UST Inc. 2001 Stock Option Plan)
    are included in the above total. Also included in the total are
    2,026,400 shares and 44,495 shares issuable upon
    exercise of outstanding stock options under the 1992 Stock
    Option Plan and the Nonemployee Directors Stock Option
    Plan, respectively.
  (2) Includes
    the Nonemployee Directors Restricted Stock Award Plan.
  (3) Represents
    the weighted-average grant date fair value of restricted stock
    and restricted stock units and the weighted-average exercise
    price of options outstanding at December 31, 2007.
 Item 13 
    Certain Relationships and Related Transactions, and Director
    Independence     Item 14 
    Principal Accountant Fees and Services     110




---



##### Table of Contents



PART IV
Item 15 
    Exhibits and Financial Statement Schedules      (Dollars in thousands)
  Balance at





Balance atBeginning





Endof Period

Additions

Deductions

of PeriodYear ended December 31, 2007:Deducted from accounts receivable:Allowance for doubtful accounts

$
99


$
59


$
(34
)

$
124Deducted from inventories:Reserve for inventory obsolescence


2,730



2,255



(1,124
)


3,861Year ended December 31, 2006:Deducted from accounts receivable:Allowance for doubtful accounts


79



26



(6
)


99Deducted from inventories:Reserve for inventory obsolescence


2,995



2,053



(2,318
)


2,730Year ended December 31, 2005:Deducted from accounts receivable:Allowance for doubtful accounts


513



236



(670
)


79Deducted from inventories:Reserve for inventory obsolescence


2,424



3,567



(2,996
)


2,995
     Regulation S-K:
  Form 10-Q
  Form 10-Q
  Form 8-K
  Form 10-Q
  Form S-4
   111




---



##### Table of Contents



Form S-4
  Form S-4
  Form S-4
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
    Form 10-K
   112




---



##### Table of Contents



Form 10-Q
        Form 10-K
  Form 10-K
  Form 10-K
  Form 10-K
    Form 10-K
  Form 10-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
   113




---



##### Table of Contents



Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 10-K
  Form 10-Q
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K
     114




---



##### Table of Contents



Rule 13a-14(a) Rule 15d-14(a)
  Rule 13a-14(a) Rule 15d-14(a)
     * Management contract or
    compensatory plan or arrangement required to be filed as an
    exhibit pursuant to Item 15(b) of the rules governing the
    preparation of this Report.
   115




---



##### Table of Contents



SIGNATURES        By:
    /s/  MURRAY
    S. KESSLER      February 22, 2008

Director, Chairman of the Board,
    Chief Executive Officer and President
    (Principal Executive Officer)

/s/  MURRAY
    S. KESSLERMurray
    S. KesslerFebruary 22, 2008

Senior Vice President
    and Chief Financial Officer
    (Principal Financial Officer)

/s/  RAYMOND
    P. SILCOCKRaymond
    P. SilcockFebruary 22, 2008

Vice President and Controller
    (Principal Accounting Officer)

/s/  JAMES
    D.
    PATRACUOLLAJames
    D. PatracuollaFebruary 22, 2008

Director

/s/  JOHN
    D. BARRJohn
    D. BarrFebruary 22, 2008

Director

/s/  JOHN
    P. CLANCEYJohn
    P. ClanceyFebruary 22, 2008

Director

/s/  PATRICIA
    DIAZ DENNISPatricia
    Diaz DennisFebruary 22, 2008

Director

/s/  JOSEPH
    E. HEIDJoseph
    E. HeidFebruary 22, 2008

Director

/s/  PETER
    J. NEFFPeter
    J. NeffFebruary 22, 2008

Director

/s/  ANDREW
    J. PARSONSAndrew
    J. ParsonsFebruary 22, 2008

Director

/s/  RONALD
    J. ROSSIRonald
    J. RossiFebruary 22, 2008

Director

/s/  LAWRENCE
    J. RUISILawrence
    J. Ruisi    116