-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RRUKSVSZjzz+x/nHS1E4ZKkew8jrrs0I6mGEK3mVVHNfZvMwMEq1Z6d3zYBLkSHT qR/ZuROksPypt/xaojdi1Q== 0001068800-07-000566.txt : 20070309 0001068800-07-000566.hdr.sgml : 20070309 20070301104301 ACCESSION NUMBER: 0001068800-07-000566 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 31 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070301 DATE AS OF CHANGE: 20070301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANHEUSER-BUSCH COMPANIES, INC. CENTRAL INDEX KEY: 0000310569 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] IRS NUMBER: 431162835 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07823 FILM NUMBER: 07660945 BUSINESS ADDRESS: STREET 1: ONE BUSCH PL CITY: ST LOUIS STATE: MO ZIP: 63118-1852 BUSINESS PHONE: 3145772000 MAIL ADDRESS: STREET 1: ONE BUSCH PL CITY: ST LOUIS STATE: MO ZIP: 63118-1852 FORMER COMPANY: FORMER CONFORMED NAME: ANHEUSER BUSCH COMPANIES INC DATE OF NAME CHANGE: 19920703 10-K 1 ab10k.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

  x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
    For the Fiscal Year Ended December 31, 2006
     
  o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
    For the transition period from                     to                    

Commission File Number 1-7823

ANHEUSER-BUSCH COMPANIES, INC.
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE   43-1162835
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)
 
ONE BUSCH PLACE, ST. LOUIS, MISSOURI   63118
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code: 314-577-2000


Securities registered pursuant to Section 12(b) of the Act:

  Title of Each Class                                                          Name of Each Exchange on Which Registered
  Common Stock—$1 par value                                                          New York Stock Exchange
  6½% Debentures Due January 1, 2028                                                          New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None


      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ü No     

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes      No ü

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ü No     

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

      Large Accelerated Filer x                        Accelerated Filer o                        Non-Accelerated Filer o

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes      No ü

      As of June 30, 2006, the aggregate market value of the voting stock held by non-affiliates of the registrant was $34,813,079,586.

      Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

$1 Par Value Common Stock 762,886,140 shares as of February 15, 2007

DOCUMENTS INCORPORATED BY REFERENCE

   Portions of Annual Report to Shareholders for the Year Ended December 31, 2006            PART I and PART II
   Portions of Definitive Proxy Statement for Annual Meeting of Stockholders on April 25, 2007            PART III

      Available on the Web at www.anheuser-busch.com


ANHEUSER-BUSCH COMPANIES, INC.

TABLE OF CONTENTS

  Page
   PART I       2
   Item 1. Business       2
       Domestic Beer       2
       Domestic Beer Operations       5
       International Beer       6
       Packaging       7
       Family Entertainment       8
       Other       8
       Sources and Availability of Raw Materials       8
       Energy Matters       9
       Brand Names and Trademarks       9
       Research and Development       9
       Environmental Protection       9
       Environmental Packaging Laws and Regulations       9
       Number of Employees       9
       Available Information       10
   Item 1A. Risk Factors       10
   Item 1B. Unresolved Staff Comments       13
   Item 2. Properties       13
   Item 3. Legal Proceedings       14
   Item 4. Submission of Matters to a Vote of Security Holders       14
                 Executive Officers of the Registrant       15
   PART II       16
   Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities       16
   Item 6. Selected Financial Data       17
   Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations       17
   Item 7A. Quantitative and Qualitative Disclosures About Market Risk       17
   Item 8. Financial Statements and Supplementary Data       17
   Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure       17
   Item 9A. Controls and Procedures       18
   Item 9B. Other Information       18
   PART III       18
   Item 10. Directors and Executive Officers of the Registrant       18
   Item 11. Executive Compensation       18
   Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters       18
   Item 13. Certain Relationships and Related Transactions, and Director Independence       19
   Item 14. Principal Accountant Fees and Services       19
   PART IV       19
   Item 15. Exhibits and Financial Statement Schedules       19
       15(a)(1) Financial Statements       19
       15(a)(2) Financial Statement Schedule       19
       15(a)(3) Exhibits       19
    Signatures       23

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PART  I

Item 1.  Business

      Anheuser-Busch Companies, Inc. (the “Company” or “Anheuser-Busch”) is a Delaware corporation that was organized in 1979 as the holding company of Anheuser-Busch, Incorporated (“ABI”), a Missouri corporation whose origins date back to 1875. In addition to ABI, which is the nation’s leading brewer of beer, the Company also has subsidiaries that conduct various other business operations. The Company’s operations are comprised of the following principal business segments: domestic beer, international beer, packaging, and entertainment. In 2006, domestic beer contributed 74.7% and 66.4%, international beer contributed 6.6% and 24.5%, packaging contributed 10.9% and 3.5%, and entertainment contributed 7.8% and 5.6% to net sales and net income, respectively. For this calculation, net sales and expenses exclude corporate items as detailed in the Company’s business segments disclosure. The Company believes this measure is the most appropriate as it allows the business segments contributions to add to 100%. Approximately 93% of the Company’s net sales and 76% of net income is generated in the United States. Financial information with respect to the Company’s business segments appears in Note 13, “Business Segments,” on pages 62-63 of the 2006 Annual Report to Shareholders, which Note hereby is incorporated by reference.

      Domestic beer volume was 102.3 million barrels in 2006 as compared with 101.1 million barrels in 2005. Domestic volume represents Anheuser-Busch brands produced and shipped within the United States including Puerto Rico and the Caribbean. Worldwide sales of the Company’s beer brands aggregated 125.0 million barrels in 2006 as compared with 121.9 million barrels in 2005. Worldwide beer volume is comprised of domestic and international volume. International volume represents Anheuser-Busch brands produced overseas by Company-owned breweries and under license and contract brewing agreements, plus exports from the Company’s U.S. breweries. Total brands volume includes worldwide Anheuser-Busch brand volume combined with the Company’s ownership percentage share of the volume of its international equity partners. Total brands volume was 156.6 million barrels and 148.3 million barrels in 2006 and 2005, respectively.

Domestic Beer

      The Company’s principal product is beer, produced and distributed by its subsidiary, ABI, in a variety of containers primarily under the brand names described below. During 2006, ABI discontinued BISTRO, Peels Pear Lemon, 9th Street Lime Cactus, 9th Street Pomegranate Raspberry, 9th Street Tuscan Orange Grapefruit, Blue Stone, Blue Horizon and ZiegenBock Light.

Budweiser Family

      Budweiser, Budweiser Select, Bud Light and Bud Ice are distributed and sold on a nationwide basis. Bud Ice Light and Bud Dry are sold in 44 states.

      Budweiser, Budweiser Select, Bud Light, and Bud Ice are sold in both draught and packaged form. Bud Ice Light and Bud Dry are sold in packaged form.

Michelob Family

      Michelob, Michelob Light, Michelob ULTRA, Michelob ULTRA Amber and Michelob Amber Bock are distributed and sold on a nationwide basis. Michelob Marzen, Michelob Pale Ale, Michelob Porter and Michelob Bavarian-Style Wheat are sold in 49 states, Michelob Honey Lager in 44 states, and Michelob Golden Draft and Michelob Golden Draft Light in 8 states.

      Michelob, Michelob Light, Michelob ULTRA, Michelob ULTRA Amber, Michelob Golden Draft, Michelob Golden Draft Light and Michelob Amber Bock are sold in both draught and packaged form. Michelob Honey Lager is sold only in packaged form. Michelob Marzen, Michelob Pale Ale, Michelob Porter and Michelob Bavarian-Style Wheat are sold in sampler packs only.

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Busch Family

      Busch and Busch Light are sold in 49 states. Busch Ice is sold in 37 states.

      Busch and Busch Light are sold in both draught and packaged form. Busch Ice is sold only in packaged form.

Natural Family

      Natural Light and Natural Ice are distributed and sold on a nationwide basis in both draught and packaged form. Natty Up is sold in 4 states only in packaged form.

Specialty Beers

      Bud Extra (formerly known as BE) is distributed and available for sale on a nationwide basis only in packaged form.

      Anheuser World Lager is available in 46 states in both draught and packaged form.

      Bare Knuckle Stout is distributed and available for sale on a nationwide basis in both draught and packaged form.

      American Red is sold in 22 states only in draught form under a variety of custom names.

      ZiegenBock Amber is sold in one state in both draught and packaged form.

      Land Shark Lager (introduced in 2006) is sold in 2 states only in packaged form.

      Redbridge (introduced in 2006) is sold in 47 states only in packaged form.

      Wild Hop Lager and Stone Mill Pale Ale (both introduced in 2006) are distributed and sold on a nationwide basis in both draught and packaged form.

      The Company acquired the Rolling Rock brands in 2006. Rolling Rock and Rock Green Light are distributed and sold on a nationwide basis in both draught and packaged form.

      The Company periodically develops holiday, seasonal, occasional and local beers.

Nonalcohol Brews

      O’Doul’s and O’Doul’s Amber are distributed and sold on a nationwide basis. Busch NA is sold in 47 states.

      O’Doul’s and O’Doul’s Amber are sold in both draught and packaged form. Busch NA is sold only in packaged form.

Malt Liquors

      King Cobra is sold in 45 states, Hurricane High Gravity in 46 states, Hurricane Malt in 34 states and Hurricane Ice in 3 states.

      King Cobra, Hurricane High Gravity, Hurricane Malt and Hurricane Ice are sold only in packaged form.

Specialty Malt Beverages

      BACARDI Silver, BACARDI Silver Watermelon, BACARDI Silver Big Apple, BACARDI Silver Strawberry, BACARDI Silver Raz, BACARDI Silver O3 and Tilt are distributed and sold on a nationwide basis. Peels Blueberry Pomegranate, Peels Cranberry Peach, and Peels Strawberry are also distributed and sold on a nationwide basis. Tequiza and BACARDI Silver Peach (introduced in 2006) are sold in 49 states. BACARDI Silver is sold in 46 states. Peels Spiced Apple (introduced in 2006) is sold in 44 states and Tilt Green (also introduced in 2006) is sold in 41 states. Wild Blue is sold in 3 states.

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      BACARDI Silver Raz, BACARDI Silver O3, BACARDI Silver Watermelon and Wild Blue are sold in both draught and packaged form. BACARDI Silver, BACARDI Silver Big Apple, BACARDI Silver Strawberry, BACARDI Silver Peach, Tilt, Tilt Green, Tequiza, Peels Blueberry Pomegranate, Peels Cranberry Peach, Peels Strawberry and Peels Spiced Apple are sold only in packaged form.

      The Company also has a malt-based product, Spykes, which contains caffeine, gingseng and guarana and is available in packaged form. Spykes Spicy Lime and Spykes Hot Melons are sold in 32 states. Spykes Spicy Mango and Spykes Hot Chocolate are sold in 30 states.

Alliance Partner Products

      Redhook Ale

      ABI owns a 33.7% equity interest in Seattle-based Redhook Ale Brewery, Inc. Through this alliance, Redhook products are distributed exclusively by ABI wholesalers in all U.S. markets.

      Widmer Brothers

      ABI owns a 39.5% interest in Portland-based Widmer Brothers Brewing Company. Widmer products are distributed exclusively by ABI wholesalers in 49 states. Widmer has ownership interests in Kona Brewing Company and Goose Island Brewing Company and their products Kona and Goose Island, respectively, are distributed exclusively by ABI wholesalers in 19 and 15 states, respectively.

Joint Venture Agreements

      Kirin

      The Company brews, markets and sells Kirin-Ichiban and Kirin Light through a license agreement with Kirin Brewing Company, Ltd. of Japan for sale in the United States.

      Kirin-Ichiban is sold in 48 states and Kirin Light in 38 states.

      Kirin-Ichiban is sold in both draught and packaged form. Kirin Light is sold only in packaged form.

Energy Drinks

      The Company has energy drinks, “180” and “180 X3” and “180 Blue” (introduced in 2006) in the energy drink category. 180 is sold on a nationwide basis, 180 Blue is sold in 49 states and 180 X3 is sold in 44 states. 180, 180 X3 and 180 Blue are available in packaged form. The Company also has an enhanced water beverage drink, “180 Sport,” in the energy drink category. 180 Sport is distributed and sold in two flavors in 10 states and is available in packaged form.

      The Company signed an agreement with Hansen Natural Corporation in 2006 whereby many of the Company’s wholesalers have been appointed distributors of Hansen’s energy drinks.

Other

      The Company’s subsidiary, Long Tail Libations Inc., currently has a liqueur product, Jekyll & Hyde, in 56 test markets available in packaged form.

      The Company began distributing Icelandic Glacial Spring Water (owned by Icelandic Water Holdings) in 16 test markets in packaged form in 2006.

      The Company began distributing Ku Soju (a Korean liquor manufactured by Ku Soju, Inc.) in 7 test markets in packaged form in 2006.

Imports

      In April 2006, the Company, through an import alliance with Royal Grolsch N.V., became the U.S. importer for certain of the Grolsch traditional European brands. Grolsch Lager is sold in 49 states, Grolsch

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Amber in 38 states, Grolsch Light in 37 states and Grolsch Blonde in 33 states. Grolsch Lager is sold in both draught and packaged form. Grolsch Amber, Grolsch Light and Grolsch Blonde are sold only in packaged form.

      The Company began importing Harbin Lager (manufactured by the Company in China), Tiger Lager (flagship brand of Asia Pacific Breweries) and Kingsbrucke (manufactured by the Company’s Stag brewery) into the U.S. in 2006. Harbin Lager is sold in 48 states only in packaged form. Tiger Lager is sold in 49 states only in packaged form. Kingsbrucke is sold in 3 test markets only in draught form.

      In early 2007, the Company became the U.S. importer of Czechvar Premium Czech Lager brewed by Budejovicky Budvar (BBNP) in Ceske Budejovice, Czech Republic.

      The Company became the exclusive U.S. importer of a number of InBev nv/sa’s (a Belgian brewery company) premium European brands, including Stella Artois®, Beck’s®, Bass Pale Ale®, Hoegaarden®, Leffe® and other select InBev brands, effective February 1, 2007.

Domestic Beer Operations

      ABI has developed a system of twelve breweries, strategically located across the country, to economically serve its distribution system. (See Item 2 of Part I—Properties.) Ongoing modernization programs at the Company’s breweries are part of ABI’s overall strategic initiatives.

      During 2006, approximately 94% of the beer sold by ABI, measured in barrels, reached retail channels through more than 600 independent wholesalers. The Company has a formal, written distribution agreement (the Equity Agreement) with each of its wholesalers. Each Equity Agreement generally specifies the territory in which the wholesaler is permitted to sell the Company’s products, the brands that the wholesaler is permitted to sell, performance standards applicable to the wholesaler, procedures to be followed by the wholesaler in connection with the sale of the distribution rights, and circumstances upon which the distribution rights may be terminated. By wholesaler use of controlled environment warehouses and stringent inventory monitoring policies, the quality and freshness of the product are protected, thus providing ABI a significant competitive advantage. ABI utilizes its regional vice-presidents, sales directors, key account and regional sales managers, as well as certain other sales personnel, to provide strategic sales planning and merchandising assistance to its wholesalers. In addition, ABI provides national and local media advertising, point-of-sale advertising, and sales promotion programs to promote its brands, and complements national brand strategies with geographic marketing teams focused on delivering relevant programming addressing local interests and opportunities. The remainder of ABI’s domestic beer sales in 2006 were made through 13 branches that perform similar sales, merchandising, and delivery services as the independent wholesalers in their respective areas; these branches are owned and operated by the Company or direct or indirect subsidiaries of the Company. ABI’s peak selling periods are the second and third quarters.

      Another wholly-owned subsidiary, Wholesaler Equity Development Corporation, shares equity positions with qualified partners in independent beer wholesalerships and is currently invested in 3 wholesalerships.

      There are more than 100 companies engaged in the highly competitive brewing industry in the United States. ABI’s domestic beers are distributed and sold in competition with other nationally distributed beers, with locally and regionally distributed beers, and with imported beers. Although the methods of competition in the industry vary widely, in part due to differences in applicable state laws, the principal methods of competition are product quality, taste and freshness, packaging, price, advertising (including television, radio, sponsorships, billboards, stadium signs, and print media), point-of-sale materials, and service to retail customers. ABI’s beers compete in different price categories. Although all brands compete against the total market, the Company’s Budweiser family of beers along with Michelob Golden Draft and Michelob Golden Draft Light compete primarily with premium priced beers. The Company’s Busch and Natural family of beers compete with the value priced beers. The Company’s malt liquor products compete against other brands in the malt liquor segment. Michelob, Michelob Light, Michelob Amber Bock, Michelob Honey Lager, Michelob ULTRA, Michelob ULTRA Amber, Michelob Marzen, Michelob Pale Ale, Kirin Light, Kirin-Ichiban, Tequiza, ZiegenBock Amber, the BACARDI Silver products, American Red, Anheuser World Lager, Bare Knuckle Stout, Bud

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Extra, Land Shark Lager, Redbridge, Wild Hop Lager, Stone Mill Pale Ale, and the Peels, Tilt, Rolling Rock, Wild Blue, Redhook and Widmer products as well as the Company’s beer import products compete primarily in the above-premium-priced beer segment of the malt beverage market. O’Doul’s and O’Doul’s Amber (premium priced) and Busch NA (value priced) compete in the non-alcohol malt beverage category. Since 1957, ABI has led the United States brewing industry in total sales volume. In 2006, its sales exceeded those of its nearest competitor by more than 60 million barrels. ABI’s domestic market share (excluding exports) for 2006 was approximately 48.4%. Major competitors in the United States brewing industry during 2006 included SABMiller, Molson Coors Brewing Company, Grupo Modelo, S.A.B. de C.V., and Heineken. In addition to competing with the other brewers’ brands, the Company’s beer brands must also compete in the marketplace w ith other types of alcohol beverage choices available to consumers.

International Beer

      International beer volume was 22.7 million barrels in 2006, compared with 20.8 million barrels in 2005. Anheuser-Busch International, Inc. (“ABII”), a wholly-owned subsidiary of the Company, oversees the marketing and sale of Budweiser and other brands outside the U.S., operates breweries in the United Kingdom (U.K.) and China, negotiates and administers license and contract brewing agreements on behalf of ABI with various foreign brewers, and negotiates and manages equity investments in foreign brewing partners.

      Through Anheuser-Busch Europe Limited (“ABEL”), an indirect, wholly-owned subsidiary of the Company, certain ABI beer brands are marketed, distributed, and sold in more than thirty countries. In the U.K., ABEL sells Budweiser, Bud Ice, Bud Silver, Michelob, and Michelob ULTRA brands to selected on-premise accounts, brewers, wholesalers, and directly to off-premise accounts. Budweiser, Bud Ice, Bud Silver, Michelob, and Michelob ULTRA are brewed and packaged at the Stag Brewery near London, England which is managed and operated by ABEL. Harbin 1900 is imported into the U.K. by ABEL.

      In China, the Company has a 97% equity interest in the Budweiser Wuhan International Brewing Company Limited (BWIB), a joint venture that owns and operates a brewery in Wuhan. The Company also operates the Budweiser (China) Sales Company, Ltd., an indirect wholly-owned subsidiary (“China Sales Co.”). BWIB and China Sales Co. are responsible for the marketing and distribution of the Company’s products in China. In China, BWIB and China Sales Co. currently produce and sell Budweiser, Bud Ice, Bud Ultra, Bud Genuine Draft, Harbin Ice and Harbin 1900. China Sales Co. also distributes other Harbin brands and will begin importing Grupo Modelo’s Corona brand in 2007.

      The Company owns 100% of Harbin Brewery Group Limited. Harbin Brewery Group has thirteen breweries in northeast China. Harbin Brewery Group owns 100% of the entities operating nine of the breweries and a majority interest in the remaining four breweries. (See Item 2 of Part I—Properties.) The Harbin breweries sell beer under the Harbin and various other brand names.

      In Canada, Budweiser, Bud Light, Busch and Busch Light are brewed and sold through a license agreement with Labatt Brewing Co. In Japan, Budweiser is brewed and sold through a license agreement with Kirin Brewery Company, Limited. A licensing agreement allows Guinness Ireland Limited to brew and sell Budweiser in the Republic of Ireland and Northern Ireland and Bud Light in the Republic of Ireland. Budweiser is also brewed under license and sold by brewers in Italy (Heineken Italia SpA), Spain (Sociedad Anonima Damm), Korea (Oriental Brewery Co., Ltd.) and Russia (Heineken). The Company had an agreement with Brasseries Kronenbourg for sale and distribution of Bud in France that terminated at the end of 2006. The Company owns a 7.9% stake in a subsidiary in Argentina of Compañía Cervecerías Unidas S.A. (‘‘CCU’’), the leading Chilean brewer, that brews and distributes Budweiser under license in Ar gentina and distributes Budweiser in Chile and Uruguay.

      In Mexico, Budweiser, Bud Light, O’Doul’s and the 180 energy drink are imported and distributed by a wholly-owned subsidiary of Grupo Modelo (Cervezas Internacionales).

      The Company also sells in over 60 other countries by exporting various brands including Budweiser and Bud Light from Company breweries in the U.S., U.K. and China and from its license partners’ breweries in Argentina, Italy and Spain.

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      The Company has a strategic investment agreement with Tsingtao Brewery Company Limited, the second largest brewer in China, and producer of the Tsingtao brand. Under the agreement, in 2003 and 2004, the Company invested $182 million in three Tsingtao convertible bonds. The investment in the bonds, combined with an existing 4.5% stake in Tsingtao common stock, brought Anheuser-Busch’s total investment to $211 million. In 2003, the Company converted the first bond, which increased the Company’s economic and voting stake in Tsingtao from 4.5% to 9.9%. In April 2005, the Company converted its two remaining Tsingtao convertible bonds into Series H common shares, thereby increasing the Company’s economic stake in Tsingtao from 9.9% to 27%, and its voting stake from 9.9% to 20%.

      The Company owns a 35.12% direct interest in Grupo Modelo, S.A.B. de C.V., Mexico’s largest brewer, and a 23.25% direct interest in Diblo S.A. de C.V., Grupo Modelo’s operating subsidiary, providing the Company with, directly and indirectly, a 50.2% interest in Diblo. However, the Company does not have voting or other control of either Grupo Modelo or Diblo. Additional information is contained in Note 2, “International Equity Investments,” on page 50 of the 2006 Annual Report to Shareholders, which note is hereby incorporated by reference.

      Competition for international beer operations differs significantly depending upon the specific country involved. For 2006, no single foreign country or region accounted for more than 3.2% of consolidated revenues or 2.4% of consolidated income before income taxes. The Company’s primary foreign markets for beer sales are China, the United Kingdom, Canada, Mexico and Ireland. In each international market, the Company competes against a mix of national, regional, local, and imported beer brands. In China, competition is primarily from numerous national and regional brands. There is no dominant competitor in China. In the United Kingdom, the top four competitors—Scottish & Newcastle, Molson Coors Brewers, InBev UK, and Carlsberg UK—have combined market share of nearly 77%, with Scottish & Newcastle having a share of approximately 25%. The Company’s share is 3%. In Ireland, the market leader is the Company’ s license brewing partner, Guinness Ireland, with a market share of 59% including a share of 13% related to the Company’s products. In Canada, the top two competitors, of similar size, are the Molson Coors Brewing Company and the Company’s license brewing partner, Labatt Brewing. Their combined market share is more than 80%, including a share of 15% related to the Company’s products.

      Net income for the International Beer Segment also includes the Company’s ownership percentage of the net income of Grupo Modelo. Modelo’s principal competitor in Mexico is FEMSA S.A. de C.V., with the two companies having respective market shares of 56% and 44%. Although Anheuser-Busch does not significantly compete in the Mexican beer market, a significant change in Modelo’s business could have a material effect on the Company’s reported net income and earnings per share.

Packaging

      The Company’s packaging operations are handled through the following wholly-owned subsidiaries of the Company: Metal Container Corporation (MCC), which manufactures beverage cans at eight plants and beverage can lids at three plants for sale to ABI and U.S. soft drink customers (See Item 2 of Part 1—Properties); Anheuser-Busch Recycling Corporation, which buys and sells used aluminum beverage containers from its corporate office in Sunset Hills, Missouri and recycles aluminum and plastic containers at its plant in Hayward, California; Precision Printing and Packaging, Inc., which manufactures pressure sensitive, metalized, plastic and paper labels at its plant in Clarksville, Tennessee; and Eagle Packaging, Inc., which manufactures crown and closure liner materials for ABI at its plant in Bridgeton, Missouri.

      Through a wholly-owned limited partnership, Longhorn Glass Manufacturing, L.P., the Company owns and operates a glass manufacturing plant in Jacinto City, Texas, which manufactures glass bottles for the Company’s nearby Houston brewery.

      The packaging industry is highly competitive. MCC’s share of the U.S. aluminum beverage can market for 2006 was approximately 25%. MCC’s competitors include Ball Corporation, Rexam Corporation, and Crown Holdings. In addition, the can industry faces competition from other beverage containers, such as glass and plastic bottles.

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Family Entertainment

      The Company is active in the family entertainment industry, primarily through its wholly-owned subsidiary, Busch Entertainment Corporation (“BEC”), which currently owns, directly and through subsidiaries, nine theme parks.

      BEC operates Busch Gardens theme parks in Tampa, Florida and Williamsburg, Virginia, and SeaWorld theme parks in Orlando, Florida, San Antonio, Texas, and San Diego, California. BEC operates water park attractions in Tampa, Florida (Adventure Island) and Williamsburg, Virginia (Water Country, U.S.A.), and Langhorne, Pennsylvania (Sesame Place), as well as Discovery Cove in Orlando, Florida, a reservations-only attraction offering interaction with marine animals. Due to the seasonality of the theme park business, BEC experiences higher revenues in the second and third quarters than in the first and fourth quarters.

      The Company is the fourth largest theme park operator in the United States. It faces competition in the family entertainment industry from other theme and amusement parks, public zoos, public parks, and other family entertainment events and attractions. Major competitors in the theme park industry during 2006 include Walt Disney Co., Six Flags Parks, Cedar Fair Parks, and Universal Studios Theme Parks. No reliable national market share information is available for the theme park industry.

Other

      Through its wholly-owned subsidiary, Busch Properties, Inc. (“BPI”), the Company is engaged in the business of real estate development. BPI also owns and operates The Kingsmill Resort and Conference Center in Williamsburg, Virginia.

      Through its wholly-owned subsidiary, Manufacturers Railway Co., the Company owns and operates a transportation service business.

Sources and Availability of Raw Materials

      The Company’s wholly-owned subsidiary, Busch Agricultural Resources, Inc. (“BARI”), operates rice milling facilities in Jonesboro, Arkansas and Woodland, California; eight grain elevators in the western and midwestern United States; barley seed processing plants in Fairfield, Montana, Idaho Falls, Idaho, and Powell, Wyoming; and a barley research facility in Ft. Collins, Colorado. BARI also owns and operates malt plants in Manitowoc, Wisconsin, Moorhead, Minnesota, and Idaho Falls, Idaho. Through wholly-owned subsidiaries, BARI operates land application farms in Jacksonville, Florida and Fort Collins, Colorado; hop farms in Bonners Ferry, Idaho and Huell, Germany; and a barley purchasing office in Winnipeg, Canada.

      The products manufactured by the Company require a large volume of various agricultural products, including hops, barley malt, rice, and corn grits for beer, and rice and barley for the rice milling and malting operations of Busch Agricultural Resources, Inc. The Company fulfills its commodities requirements through purchases from various sources, including purchases from its subsidiaries, through contractual arrangements and on the open market. The Company believes that adequate supplies of the aforementioned agricultural products are available at the present time, but cannot predict future availability or market prices of such products and materials. The above referenced commodities have experienced and will continue to experience price fluctuations. The price and supply of raw materials will be determined by, among other factors, the level of crop production both in the U.S. and around the world, weather conditions, export demand, a nd government regulations and legislation affecting agriculture and trade.

      The Company uses water in brewing its beer. The Company generally satisfies its requirements for water from municipal water systems and privately owned wells.

      The Company also requires aluminum cansheet for the manufacture of cans and lids. The cansheet market experiences price volatility due to the supply and demand balance for both aluminum ingot and sheet fabrication. The Company manages its aluminum supply and cost using various methods including long-term purchase contracts and hedging techniques. The Company believes that an adequate supply of aluminum is available at the present time, but cannot predict future availability or market prices.

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Energy Matters

      The Company uses natural gas, fuel oil, and coal as its primary fuel materials. The Company believes that adequate supplies of fuel and electricity are available at the present time, but cannot predict future availability or market prices. Where economically feasible, the Company has alternate fuel capability which helps ensure continued operation of essential processes.

      The energy commodity markets have experienced and, the Company expects, will continue to experience significant price volatility. The Company manages its energy costs using various methods including supply contracts, hedging techniques, and fuel switching.

Brand Names and Trademarks

      Some of the Company’s major brand names used in its principal business segments are mentioned in the discussion above. The Company regards consumer recognition of and loyalty to all of its brand names and trademarks as extremely important to the long-term success of its principal business segments. The Company owns rights to its principal brand names and trademarks in perpetuity.

Research and Development

      The Company is involved in a number of research activities relating to the development of new products or services or the improvement of existing products or services. The dollar amounts expended by the Company during the past three years on such research activities and the number of employees engaged full time therein during such period, however, are not considered to be material in relation to the total business of the Company.

Environmental Protection

      All of the Company’s facilities are subject to federal, state, and local environmental protection laws and regulations, and the Company is operating within existing laws and regulations or is taking action aimed at assuring compliance therewith. Various proactive strategies are utilized to help assure this compliance. Compliance with such laws and regulations is not expected to materially affect the Company’s capital expenditures, earnings, or competitive position. The Company has devoted considerable effort to research, development, and engineering of innovative and cost effective systems to minimize effects on the environment from its operating facilities.

      These projects, coupled with the Company’s Environmental Management System and an overall Company emphasis on pollution prevention and resource conservation initiatives, are improving efficiencies and creating saleable by-products from residuals. They have generally facilitated lower cost operating systems while reducing the impact to air, water, and land.

Environmental Packaging Laws and Regulations

      The states of California, Connecticut, Delaware, Hawaii, Iowa, Maine, Massachusetts, Michigan, New York, Oregon, and Vermont have adopted certain restrictive packaging laws and regulations for beverages that require deposits on packages. ABI continues to do business in these states. While such laws have not had a significant effect on ABI’s market share, they have resulted in significantly higher beer prices over and above the cost of the deposit in those states that have adopted container deposit laws as well as had an adverse impact on beer industry growth in those states. The Company considers deposit laws to be inflationary, costly, and inefficient for recycling packaging materials. Congress and a number of additional states continue to consider similar legislation, the adoption of which might require the Company to incur significant capital expenditures to comply as some proposed container deposit laws would require th e use of returnable, reusable bottles. As a result, the Company would be required to acquire equipment to receive, sort, inspect and clean bottles.

Number of Employees

      As of December 31, 2006, the Company had approximately 30,183 full-time employees worldwide. Within the United States approximately 8,214 employees were represented by the International Brotherhood of

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Teamsters. The labor agreement between ABI and the Teamsters, which represents the majority of the domestic brewery workers, expires February 28, 2009. Approximately 7,788 international employees of the Company are members of other worker organizations (the vast majority of which are not subject to collective bargaining agreements).

      The Company considers its employee relations to be good.

Available Information

      The Company maintains a website on the World Wide Web at www.anheuser-busch.com. The Company makes available, free of charge, on its website its annual reports on Forms 10-K, quarterly reports on Forms 10-Q, current reports on Forms 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. The Company’s reports filed with, or furnished to, the SEC are also available on the SEC’s website at www.sec.gov.

Item 1A.  Risk Factors

      Anheuser-Busch makes forward-looking statements in its filings with the Securities and Exchange Commission and in other oral or written communications. Forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from those indicated (both favorably and unfavorably). These risks and uncertainties include (but are not limited to) the risks described below. Anheuser-Busch undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Increased competitive pressures may reduce revenues or increase costs.

      Anheuser-Busch faces competition in each business from alternative providers of the products we offer. For example:

  • The domestic beer business competes with other domestic and international brewers as well as with producers of other types of alcohol beverages;
  • The international beer business competes with a mix of national, regional, local and international brewers, depending on the country;
  • The packaging business competes with other producers of beverage cans and beverage lids as well as producers of other types of beverage containers;
  • The family entertainment business competes with the operators of other theme and amusement parks, public zoos, public parks and other family events and attractions.

      Competition may divert consumers and customers from the Anheuser-Busch products. In order to respond to competition, Anheuser-Busch may need to change the prices of products or incur additional costs to introduce new packages or products. Innovation faces inherent risks, and the new products we introduce may not be successful.

Changes in consumer tastes and preferences could reduce demand for the Anheuser-Busch products.

      The success of Anheuser-Busch depends on satisfying consumer tastes and preferences with our beverage products, our container products and our theme park offerings. Consumer preferences can change in unpredictable ways, and consumers may begin to prefer the products of competitors or may generally reduce their demand for products in the category. In order to respond to changes in consumer preferences, Anheuser-Busch may need to increase and enhance the marketing of existing products, change the pricing of existing products or introduce new products and services. Each response might affect financial results.

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Increases in raw material and commodity prices could increase operating costs.

      The Anheuser-Busch malt beverage products require various agricultural products. Anheuser-Busch also uses aluminum cansheet to manufacture beverage cans and lids, glass bottles as containers for malt beverages and natural gas, fuel oil and coal as primary fuel materials. Raw materials and commodities are subject to price volatility caused by market fluctuations, including the quality and availability of supply, weather, currency fluctuations, trade agreements among producing and consuming nations, consumer demand and changes in governmental programs. To some extent, derivative financial instruments and supply agreements can protect against increases in materials and commodities costs, but they do not provide complete protection over the longer term. Anheuser-Busch might be able to raise prices to offset increases in costs, but price increases can reduce sales volumes. If Anheuser-Busch is not able to increase prices to offset co st increases or if price increases reduce sales volumes, financial results would be adversely affected.

Anheuser-Busch is subject to risks associated with international operations.

      Anheuser-Busch has significant international operations and the profitable expansion of the international business is a long term goal. Anheuser-Busch has equity investments in brewers in China and Mexico, owns breweries in China and the United Kingdom and sells malt beverages globally. Although Anheuser-Busch does not significantly compete in the Mexican beer market, a significant change in Modelo’s business could have a material effect on the Company’s reported net income and earnings per share.

      The international operations are subject to the inherent risks of international business, such as:

  • Political and economic changes;
  • Changes in the relations between the United States and foreign countries;
  • Actions of foreign or United States governmental authority affecting trade and foreign investment;
  • Regulations on repatriation of funds;
  • Foreign currency exchange restrictions;
  • Interpretation and application of local laws and regulations;
  • Enforceability of intellectual property and contract rights;
  • Local labor conditions and regulations.

An increase in beer excise taxes or other taxes could adversely affect financial results.

      Anheuser-Busch is affected by federal, foreign, state and local income and other taxes, particularly beer excise taxes which are levied both by the federal, foreign and state governments. Proposals are made from time to time to increase beer excise taxes in a variety of states. In addition, Anheuser-Busch is subject to periodic audits and examinations by the Internal Revenue Service and other foreign, state and local taxing authorities. An increase in taxes or an adverse determination by a taxing authority could adversely affect financial results.

Governmental regulation could affect our operations or increase costs.

      All of the Anheuser-Busch businesses are subject to governmental regulation. The Anheuser-Busch domestic beer business and its wholesalers are especially subject to extensive regulation at the federal, state and local levels. Permits, licenses and approvals necessary to the domestic beer business are required from the Alcohol and Tobacco Tax and Trade Bureau of the United States Treasury Department, state alcohol beverage regulatory agencies in the states in which we sell or produce products and local authorities in some jurisdictions in which we sell products. Compliance with these laws and regulations can be costly.

      Anheuser-Busch may be subject to claims that we have not complied with existing laws and regulations, which could result in fines and penalties. Anheuser-Busch is routinely subject to new or modified laws and regulations with which we must comply in order to avoid fines and other penalties and which may affect

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operations. From time to time, new laws and regulations are proposed that would affect operations, affect the distribution of the Anheuser-Busch products by its wholesalers, or increase expenses.

Anheuser-Busch is subject to litigation directed at the alcohol beverage industry and other litigation.

      Anheuser-Busch and many other brewers and distilled spirits manufacturers have been sued in several courts regarding advertising practices and underage consumption. The suits allege that the defendants marketed products to underage consumers. The suits purport to be class actions and seek unspecified money damages and equitable remedies. We believe we have meritorious defenses and will defend ourselves vigorously in these actions.

      Anheuser-Busch is now, and may in the future be, a party to other legal proceedings and claims, and significant damages may be asserted against us. Given the inherent uncertainty of litigation, it is possible that Anheuser-Busch might incur liabilities as a consequence of the proceedings and claims.

Anheuser-Busch may make acquisitions, investments and joint venture and similar arrangements, which are risky.

      Anheuser-Busch has in the past and may in the future desire to make acquisitions of, investments in, and joint venture and similar arrangements with other companies to increase shareholder value. These transactions cannot occur unless we can identify suitable candidates and agree on terms with them. After completion of a transaction, we may be required to integrate acquired businesses or operations into our existing operations. An inability to successfully complete transactions or successfully integrate acquired operations may affect our profitability.

The loss of an important supplier could adversely affect operations and financial results.

      For certain packaging supplies, raw materials and commodities, we rely on a small number of important suppliers. If these suppliers became unable to continue to meet our requirements, and we could not develop alternative sources of supply, our operations and financial results could be adversely affected.

Anheuser-Busch relies on its wholesalers.

      In the United States, Anheuser-Busch sells substantially all of its beer to independent wholesalers for distribution to retailers and ultimately consumers. In 2007, Anheuser-Busch was appointed as the United States importer for a number of the premium European brands of InBev. Many of the wholesalers of these brands have not traditionally been wholesalers for Anheuser-Busch. As independent companies, wholesalers make their own business decisions that may not always align themselves with our interests. If the Anheuser-Busch wholesalers do not effectively distribute our products, our financial results could be adversely affected.

If we are unable to maintain the image and reputation of our products, our operations and financial results may suffer.

      Anheuser-Busch’s success depends on our ability to maintain and increase the image and reputation of our existing products and to develop a favorable image and reputation for new products. The image and reputation of our products may be reduced in the future; concerns about product quality, even when unfounded, could tarnish the image and reputation of our products. Restoring the image and reputation of our products may be costly and may not be possible.

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The Anheuser-Busch businesses are subject to a number of other miscellaneous risks that may adversely affect financial results.

      Other miscellaneous risks include:

  • Changes in global and domestic economies, including slow growth rate, rise in interest rates, changes in currency exchange rates, rise in cost of commodities, inflation, unemployment and weakening consumer confidence which could reduce demand for the Anheuser-Busch products, affect the businesses of the international brewers in which we have made investments or increase costs, including borrowing costs;
  • Natural disasters, such as hurricanes, which may result in shortages of raw materials and commodities and reduction in tourism and attendance at the Anheuser-Busch theme parks;
  • Unusual weather conditions which could affect domestic beer consumption, attendance at the Anheuser-Busch theme parks, raw material availability, or natural gas prices;
  • Continued threat of terrorist acts and war, which may result in heightened security and higher costs for imports and exports, reduced tourism and attendance at the Anheuser-Busch theme parks and contraction of the United States and worldwide economies;
  • Changes in the Anheuser-Busch share price which could affect the share repurchase program.

Item 1B.  Unresolved Staff Comments

      None.

Item 2.  Properties

      ABI has twelve breweries in operation at the present time, located in St. Louis, Missouri; Newark, New Jersey; Los Angeles and Fairfield, California; Jacksonville, Florida; Houston, Texas; Columbus, Ohio; Merrimack, New Hampshire; Williamsburg, Virginia; Baldwinsville, New York; Fort Collins, Colorado; and Cartersville, Georgia. Title to the Baldwinsville, New York brewery is held by the Onondaga County Industrial Development Agency (“OCIDA”) pursuant to a Sale and Agency Agreement with ABI, which enabled OCIDA to issue tax exempt pollution control and industrial development revenue notes and bonds to finance a portion of the cost to purchase and modify the brewery. The brewery is not pledged or mortgaged to secure any of the notes or bonds, and the Sale and Agency Agreement with OCIDA gives ABI the unconditional right to require at any time that title to the brewery be transferred to ABI. ABI’s breweries o perated at approximately 92% of capacity in 2006; during portions of the peak selling periods (second and third quarters), they operated at close to maximum capacity.

      The Company also owns a 97% equity interest in a joint venture that owns and operates a brewery in Wuhan, China. The Company also leases and operates the Stag Brewery near London, England. With its acquisition of Harbin Brewery Group, the Company now has thirteen breweries in northeast China. There are two breweries located in Harbin and one in each of Hailun, Yongji County (Jilin Province), Hegang, Changchun, Mudanjiang, Jiamusi, Daqing, Jinzhou, Tangshan, Shenyang, and Yanji.

      The Company, through wholly-owned subsidiaries, operates malt plants in Manitowoc, Wisconsin, Moorhead, Minnesota, and Idaho Falls, Idaho; rice mills in Jonesboro, Arkansas and Woodland, California; hop farms in Bonners Ferry, Idaho and Huell, Germany; can manufacturing plants in Jacksonville, Florida, Columbus, Ohio, Arnold, Missouri, Windsor, Colorado, Newburgh, New York, Ft. Atkinson, Wisconsin, Rome, Georgia, and Mira Loma, California; can lid manufacturing plants in Gainesville, Florida, Oklahoma City, Oklahoma, and Riverside, California; a label plant in Clarksville, Tennessee; a crown and closure liner material plant in Bridgeton, Missouri; and an aluminum and plastic recycling plant in Hayward, California. The Company operates a glass manufacturing plant in Jacinto City, Texas.

      BEC operates its principal family entertainment facilities in Tampa, Florida; Williamsburg, Virginia; San Diego, California; Orlando, Florida; and San Antonio, Texas. The Tampa facility is 336 acres, the Williamsburg

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facility is 323 acres, the San Diego facility is 166 acres, the Orlando facility is 247 acres, and the San Antonio facility is 316 acres.

      Except for the Baldwinsville brewery, the can manufacturing plants in Newburgh, New York, the SeaWorld park in San Diego, California, the Stag Brewery, the brewery in Wuhan, China, and certain of the breweries owned by Harbin Brewery Group, all of the Company’s principal properties are owned in fee. The lease for the land used by the SeaWorld park in San Diego, California expires in 2048. The Company leases the Stag Brewery from Scottish & Newcastle. In 1995, the joint venture that operates the brewery in Wuhan was granted the right to use the property for a period of 50 years from the appropriate governmental authorities. The Company considers its buildings, improvements, and equipment to be well maintained and in good condition, irrespective of dates of initial construction, and adequate to meet the operating demands placed upon them. The production capacity of each of the manufacturing facilities is adequate for current nee ds and, except as described above, substantially all of each facility’s capacity is utilized.

Item 3.  Legal Proceedings

      The Company has been served with complaints in putative class action lawsuits in Michigan, Ohio, West Virginia and Wisconsin. In these suits, which name a large number of other brewers and distillers, the parents of illegal underage drinkers are suing to recover sums that their offspring purportedly spent illegally buying alcohol from persons or entities other than the defendants. The claims asserted against the Company vary depending on the suit, but include negligence, unjust enrichment, violation of the State’s Sales Practices Act or other statutory provisions, nuisance, fraudulent concealment and civil conspiracy. The suit filed in Michigan includes a claim under the Michigan Consumer Protection Act. Each suit seeks money damages, punitive damages and injunctive and equitable relief, including so-called disgorgement of profits allegedly attributable to illegal underage drinking. The defendants removed the Ohio, W est Virginia and Michigan cases to federal court in 2005; the Wisconsin case remains in state court. The defendants filed motions to dismiss each of these cases, and in 2006 the courts granted these motions, dismissing each of these cases with prejudice. The plaintiffs appealed these dismissals and their appeals are currently pending. The Michigan and Ohio cases are consolidated before the U.S. Court of Appeals for the Sixth Circuit, the West Virginia case is pending before the U.S. Court of Appeals for the Fourth Circuit, and the Wisconsin case is pending before the Wisconsin State Court of Appeals. Similar actions had been filed by the same law firm in New York and Florida, but none of the defendants was ever served in either case and the plaintiffs have voluntarily dismissed both cases without prejudice. The Company also had won from a California trial court dismissal in 2005 of a similar class action on behalf of illegal underage drinkers filed by a different law firm, and in August, 2006, the plaintiffs in that suit voluntarily discontinued their appeal, making the dismissal in the Company’s favor a final judgment. The Company believes that it has strong legal and factual defenses to the remaining class actions and intends to defend itself vigorously.

      On September 19, 2006, one of the Company’s cansheet suppliers, Novelis Corporation (“Novelis”), instituted a lawsuit seeking relief from continued performance of its obligations under its cansheet supply agreement with the Company. The Company has instituted a declaratory judgment action requesting a finding that Novelis is required to continue to comply with its obligations under the agreement. These actions are being heard in federal court in the Northern District of Ohio. The Company believes that the assertions of Novelis are without merit, intends to vigorously defend its rights under the cansheet supply agreement and expects to prevail in the litigation.

      The Company is not a party to any other pending or threatened litigation, the outcome of which could be expected to have a material adverse effect upon its financial condition, its results of operations or cash flows.

Item 4.  Submission of Matters to a Vote of Security Holders

      There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter ended December 31, 2006.

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EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

      AUGUST A. BUSCH IV (age 42) is presently President and Chief Executive and a Director of the Company and has served as President and Chief Executive Officer since December 1, 2006 and as a Director since September 2006. He previously served as Vice President and Group Executive of the Company (2000-November 30, 2006). He is also presently Chairman of the Board (since December, 2006) and President (since 2002) of the Company’s subsidiary, Anheuser-Busch, Incorporated and had previously served as its Group Vice President-Marketing and Wholesale Operations (2000-2002).

      W. RANDOLPH BAKER (age 60) is presently Vice President and Chief Financial Officer of the Company and has served in such capacity since 1996.

      THOMAS W. SANTEL (age 48) is presently Vice President-Corporate Development of the Company and has served in such capacity since 1996.

      STEPHEN J. BURROWS (age 55) is presently Vice President-International Operations of the Company and has served in such capacity since 1999. He is also presently Chief Executive Officer and President of the Company’s subsidiary, Anheuser-Busch International, Inc., and has served as Chief Executive Officer since 1999 and as President since 1994.

      MARK T. BOBAK (age 47) is presently Group Vice President and Chief Legal Officer and has served in that capacity since 2004. He had previously served as Vice President-Corporate Human Resources (2000-2004).

      DOUGLAS J. MUHLEMAN (age 52) is presently Group Vice President-Brewing Operations and Technology of the Company’s subsidiary, Anheuser-Busch, Incorporated, and has served in such capacity since 2001. He also serves as Chairman of the Company’s subsidiary, Anheuser-Busch Packaging, Inc. (since December 2006) and Chairman, Chief Executive Officer and President of the Company’s subsidiary, Busch Agricultural Resources, Inc. (since December 2006).

      FRANCINE I. KATZ (age 48) is presently Vice President-Communications and Consumer Affairs of the Company and has served in such capacity since 2004. She previously served as its Vice President-Corporate Communications (2002-2004) and Vice President-Consumer Affairs (1999-2002).

      KEITH M. KASEN (age 63) is presently Chairman of the Board and President of the Company’s subsidiary, Busch Entertainment Corporation, and has served in such capacities since 2003. He previously served as Executive Vice President and General Manager of the SeaWorld theme parks in Orlando, Florida (2000-2003).

      JOSEPH P. CASTELLANO (age 53) is presently Vice President-Corporate Human Resources of the Company and has served in such capacity since 2004. He previously served as Vice President-Retail Marketing (2001-2004) of the Company’s subsidiary, Anheuser-Busch, Incorporated.

      MICHAEL J. OWENS (age 52) is presently Vice President-Marketing of the Company’s subsidiary, Anheuser-Busch, Incorporated (ABI) and has served in such capacity since 2006. He previously served as Vice President-Sales and Marketing (2004-2005) and Vice President-Sales (2001-2004) of ABI.

      ANTHONY T. PONTURO (age 54) is presently Vice President-Global Media and Sports Marketing of the Company’s subsidiary, Anheuser-Busch, Incorporated and has served in such capacity since 1998.

      JOHN F. KELLY (age 50) is presently Vice President and Controller of the Company and has served in such capacity since 1996.

      MARLENE V. COULIS (age 45) is presently Vice President-Brand Management of the Company’s subsidiary, Anheuser-Busch, Incorporated (ABI) and has served in such capacity since August 2005. She previously served as Vice President-Research and Customer Satisfaction (March 2005-August 2005), Vice President-Geographic Marketing (April 2004-March 2005) and Director-New Products (2001-2004) of ABI.

      DAVID A. PEACOCK (age 38) is presently Vice President-Business Operations of the Company’s subsidiary, Anheuser-Busch, Incorporated (ABI) and has served in such capacity since December 2006. He

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previously served as Vice President-Business and Finance Operations (June 2006-November 2006), Vice President-Administration (July 2004-2006) and Director of Operations-President’s Office (2002-2004) of ABI.

      ROBERT C. LACHKY (age 53) is presently Executive Vice President-Global Industry Development of the Company’s subsidiary, Anheuser-Busch, Incorporated (ABI) and has served in such capacity since August 2005. He previously served as Vice President-Brand Management (2001-July 2005) of ABI.

      MICHAEL S. HARDING (age 55) is presently Chief Executive Officer and President of the Company’s direct subsidiary, Anheuser-Busch Packaging Group, Inc., and Chairman and Chief Executive Officer of the Company’s direct subsidiaries, Anheuser-Busch Recycling Corporation, Metal Container Corporation, Eagle Packaging, Inc., Precision Printing and Packaging, Inc. and Glass Container Corporation (doing business as Longhorn Glass Corporation), and has served in all such capacities since December 2006. He previously served as Vice President-Operations of the Company’s subsidiary, Anheuser-Busch, Incorporated (2001-2006).

PART  II

      The information required by Items 5 (except as set forth below), 6, 7, 7A, and 8 of this Part II are hereby incorporated by reference from pages 26 through 65 of the Company’s 2006 Annual Report to Shareholders.

Item 5.  Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

      Following are the Company’s common stock purchases during the fourth quarter of 2006 (shares in millions):

    Shares

  Avg. Price
per Share

   Shares Remaining Authorized Under Disclosed Repurchase Programs at September 30, 2006              18.2          
        
         
   Less Shares Repurchased:                
   October              0.2        $ 46.89  
   November              2.1        $ 47.14  
   December              1.2        $ 47.95  
        
         
       Total Shares Repurchased              3.5          
        
         
   Shares Remaining Authorized Under Disclosed Repurchase Programs at December 31, 2006              14.7          
        
         

      All shares are repurchased under authorization by the Company’s Board of Directors. The Board authorized a new program to repurchase 100 million shares in December 2006; this program follows a similar 100 million share program authorized in March 2003. There is no prescribed termination date for this program. The figures shown include shares delivered to the Company to exercise stock options.

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    2001 2002 2003 2004 2005 2006
       BUD $100.0   108.7   120.3   117.9   102.2   119.9
       S&P 500 $100.0   78.0   100.3   111.1   116.6   135.0
       Russell 200 $100.0   76.6   97.1   105.2   109.1   126.1
   * Assumes $100 invested on December 31 of first year of chart in Anheuser-Busch Companies, Inc. Common Stock, the S&P 500 Index and the Russell Top 200 Index and that all dividends were reinvested quarterly.
 ** The Company has elected to compare shareholder returns with the Russell Top 200 Index because only one of the other two leading domestic brewers was independent and domestically based during the survey period. The Russell Top 200 Index is comprised of the 200 largest publicly held United States companies, including Anheuser-Busch, based on market capitalization.

*** Compound Annual Growth Rate

Item 6.  Selected Financial Data

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Item 8.  Financial Statements and Supplementary Data

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      None.

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Item 9A.  Controls and Procedures.

      It is the responsibility of the chief executive officer and chief financial officer to ensure the Company maintains disclosure controls and procedures designed to provide reasonable assurance that material information, both financial and non-financial, and other information required under the securities laws to be disclosed is identified and communicated to senior management on a timely basis. The Company’s disclosure controls and procedures include mandatory communication of material subsidiary events, automated accounting processing and reporting, management review of monthly and quarterly results, periodic subsidiary business reviews, an established system of internal controls and rotating internal control reviews by the Company’s internal auditors.

      The chief executive officer and chief financial officer evaluated the Company’s disclosure controls and procedures as of the end of the year ended December 31, 2006 and have concluded that they are effective as of December 31, 2006 in providing reasonable assurance that such information is identified and communicated on a timely basis. Additionally, there were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

      Management’s Report on Internal Control Over Financial Reporting appears on page 41 of the 2006 Annual Report to Shareholders, which is incorporated by reference. The Report of the Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting appears on page 42 of the 2006 Annual Report to Shareholders, which is incorporated by reference.

Item 9B.  Other Information.

      None.

PART  III

Item 10.  Directors, Executive Officers and Corporate Governance of the Registrant

      The information required by this Item is hereby incorporated by reference from the sections entitled “Information Concerning the Election of Directors,” “Additional Information Concerning the Board of Directors of the Company,” “Audit Committee,” “Certain Business Relationships and Transactions,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Code of Business Conduct and Ethics” of the Company’s Proxy Statement for the Annual Meeting of Stockholders on April 25, 2007 (the “2007 Proxy”) and on pages 15 through 16 of this Form 10-K.

Item 11.  Executive Compensation

      The information required by this Item is hereby incorporated by reference from the sections entitled “Director Compensation,” “Executive Compensation” (entire section including all sections thereunder beginning with “Compensation Discussion and Analysis Report” through “Equity Compensation Plan”), “Compensation Committee Interlocks and Insider Participation,” and “Report of the Compensation Committee” of the 2007 Proxy.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

      The information required by this Item hereby is incorporated by reference from the sections entitled “Stock Ownership by Directors and Executive Officers” and “Equity Compensation Plans” of the 2007 Proxy.

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Item 13.  Certain Relationships and Related Transactions, and Director Independence

      The information required by this Item is hereby incorporated by reference from the sections entitled “Additional Information Concerning the Board of Directors of the Company,” “Committees of the Board” and “Certain Business Relationships and Transactions” of the 2007 Proxy.

Item 14.  Principal Accountant Fees and Services

      The information required by this Item is hereby incorporated by reference from the section entitled “Fees Paid to PricewaterhouseCoopers” of the 2007 Proxy.

PART  IV

Item 15.  Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report:

       1.             Financial Statements:    Page
                Report of Independent Registered Public Accounting Firm    42*
 
                Consolidated Balance Sheet at December 31, 2006 and 2005    43*
 
                Consolidated Statement of Income for the three years ended
      December 31, 2006
   44*
 
                Consolidated Statement of Changes in Shareholders Equity for the
      three years ended December 31, 2006
   45*
 
                Consolidated Statement of Cash Flows for the three years ended
      December 31, 2006
   46*
 
                Notes to Consolidated Financial Statements and Supplementary
      Information
   47-65*
 
                *2006 Annual Report to Shareholders    
                
       2.             Financial Statement Schedule:    
 
                Report of Independent Registered Public Accounting Firm on    
                   on Financial Statement Schedule for the three years ended December 31, 2006    F-1
 
                Schedule II—Valuation and Qualifying Accounts and Reserves    F-2
                
       3.          Exhibits:  
 
             Exhibit 3.1      — Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to Form 10-K for the fiscal year ended December 31, 2004).
 
             Exhibit 3.2      — Certificate of Amendment of Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to the Form 10-Q for the quarterly period ended March 31, 2006).
 
             Exhibit 3.3      — By-Laws of the Company (As amended and restated on November 22, 2006) (Incorporated by reference to Exhibit 3.2 to Form 8-K dated November 21, 2006).

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             Exhibit 4.1      — Indenture dated as of August 1, 1995 between the Company and The Chase Manhattan Bank, as Trustee (Incorporated by reference to Exhibit 4.1 in the Form S-3 of the Company, Registration Statement No. 33-60885).
 
             Exhibit 4.2      — Indenture dated as of July 1, 2001 between the Company and The Chase Manhattan Bank, as Trustee (Incorporated by reference to Exhibit 4.4 to the Form 10-K for the fiscal year ended December 31, 2002).
 
        Other indentures are not required to be filed, but the Company agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request.
 
             Exhibit 4.3      — Credit Agreement dated as of September 30, 2005 among the Company and JP Morgan Chase Bank, N.A., as Administrative Agent (Incorporated by reference to Exhibit 4 to Form 10-Q for the quarter ended September 30, 2005).
 
             Exhibit 10.1    — Anheuser-Busch Companies, Inc. Deferred Compensation Plan for Non-Employee Directors amended and restated as of March 1, 2000 (Incorporated by reference to Exhibit 10.1 to Form 10-K for the fiscal year ended December 31, 2004).*
 
             Exhibit 10.2    — Anheuser-Busch Companies, Inc. Non-Employee Director Elective Stock Acquisition Plan amended and restated as of March 1, 2000 (Incorporated by reference to Exhibit 10.2 to the Form 10-K for the fiscal year ended December 31, 2004).*
 
             Exhibit 10.3    — Anheuser-Busch Companies, Inc. Stock Plan for Non-Employee Directors as amended and restated (Incorporated by reference to Appendix B to the Definitive Proxy Statement for Annual Meeting of Stockholders on April 23, 2003).*
 
             Exhibit 10.4    — Anheuser-Busch Companies, Inc. 1989 Incentive Stock Plan (As amended December 20, 1989, December 19, 1990, December 15, 1993, December 20, 1995, and November 26, 1997) (Incorporated by reference to Exhibit 10.4 to Form 10-K for the fiscal year ended December 31, 2002).*
 
             Exhibit 10.5    — Anheuser-Busch Companies, Inc. 1998 Incentive Stock Plan as amended on September 27, 2006 (Incorporated by reference to Exhibit 10.5 to Form 10-Q for the quarterly period ended September 30, 2006).*
 
             Exhibit 10.6    — Anheuser-Busch Companies, Inc. 2007 Equity and Incentive Plan (Incorporated by reference to Appendix B to the Definitive Proxy Statement for Annual Meeting of Stockholders on April 25, 2007.)*
 
             Exhibit 10.7    — Anheuser-Busch Companies, Inc. Excess Benefit Plan amended and restated as of March 1, 2000 (Incorporated by reference to Exhibit 10.6 to the Form 10-K for the fiscal year ended December 31, 2004).*
 
             Exhibit 10.8    — Anheuser-Busch Companies, Inc. Supplemental Executive Retirement Plan amended and restated as of March 1, 2003 (Incorporated by reference to Exhibit 10.8 to Form 10-K for the fiscal year ended December 31, 2002).*
 
             Exhibit 10.9    — Anheuser-Busch Executive Deferred Compensation Plan amended and restated as of January 1, 2002 (Incorporated by reference to Exhibit 10.9 to Form 10-K for the fiscal year ended December 31, 2002).*
 
             Exhibit 10.10  — First Amendment to the Anheuser-Busch Executive Deferred Compensation Plan amended and restated as of January 1, 2002 (Incorporated by reference to Exhibit 10.9 to Form 10-K for the fiscal year ended December 31, 2005).*
 
             Exhibit 10.11  — Anheuser-Busch 401(k) Restoration Plan amended and restated as of March 1, 2000 (Incorporated by reference to Exhibit 10.11 to Form 10-K for the fiscal year ended December 31, 2004).*

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Table of Contents

            
             Exhibit 10.12  — First Amendment to the Anheuser-Busch 401(k) Restoration Plan amended and restated as of March 1, 2000 (Incorporated by reference to Exhibit 10.11 to Form 10-K for the fiscal year ended December 31, 2005).*
 
             Exhibit 10.13  — Form of Indemnification Agreement with Directors and Executive Officers (Incorporated by reference to Exhibit 10.12 to the Form 10-K for the fiscal year ended December 31, 2004).*
 
             Exhibit 10.14  — Anheuser-Busch Officer Bonus Plan as amended on April 26, 2000 and April 27, 2005 (Incorporated by reference to Appendix B to the Definitive Proxy Statement for Annual Meeting of Stockholders on April 27, 2005).*
 
             Exhibit 10.15  — Investment Agreement By and Among Anheuser-Busch Companies, Inc., Anheuser-Busch International, Inc. and Anheuser-Busch International Holdings, Inc. and Grupo Modelo, S.A.B. de C.V., Diblo, S.A. de C.V. and certain shareholders thereof, dated as of June 16, 1993 (Incorporated by reference to Exhibit 10.14 to Form 10-K for the fiscal year ended December 31, 2004).
 
             Exhibit 10.16  — Letter agreement between Anheuser-Busch Companies, Inc. and the Controlling Shareholders regarding Section 5.5 of the Investment Agreement filed as Exhibit 10.15 of this report (Incorporated by reference to Exhibit 10.15 to Form 10-K for the fiscal year ended December 31, 2004).
 
             Exhibit 10.17  — Second Amendment to Investment Agreement By and Among Anheuser-Busch Companies, Inc., Anheuser-Busch International, Inc. and Anheuser-Busch International Holdings, Inc. and Grupo Modelo, S.A.B. de C.V., Diblo, S.A. de C.V., and certain shareholders thereof.
 
             Exhibit 10.18  — Form of Indemnification Agreement between Anheuser-Busch, Incorporated and an Executive Officer of the Company (Incorporated by reference to Exhibit 10.16 to Form 10-K for the fiscal year ended December 31, 2002).*
 
             Exhibit 10.19  — 2007 Officer Bonus Program.*
 
             Exhibit 10.20  — Summary of Compensation arrangements with Executive Officers of the Company.*
 
             Exhibit 10.21  — Summary of Compensation arrangements with Non-Employee Directors of the Company.*
 
             Exhibit 10.22  — Form of Restricted Stock Award Cover Sheet and Standard Restricted Stock Agreement under the Anheuser-Busch Companies, Inc. 1998 Incentive Stock Plan (Incorporated by reference to Exhibit 10.21 to Form 8-K dated November 21, 2006).*
 
             Exhibit 10.23  — Form of Incentive Stock Option Cover Sheet and Standard Incentive Stock Option Agreement under the Anheuser-Busch Companies, Inc. 1998 Incentive Stock Plan for executive officers of Anheuser-Busch Companies, Inc. (Incorporated by reference to Exhibit 10.22 to Form 8-K dated November 21, 2006).*
 
             Exhibit 10.24  — Form of Non-Qualified Stock Option Cover Sheet and Standard Non-Qualified Stock Option Agreement under the Anheuser-Busch Companies, Inc. 1998 Incentive Stock Plan for executive officers of Anheuser-Busch Companies, Inc. (Incorporated by reference to Exhibit 10.23 to Form 8-K dated November 21, 2006).*
 
             Exhibit 10.25  — Independent Consulting Agreement with a Former Executive Officer of the Company (Incorporated by reference to Exhibit 10.24 to Form 8-K dated November 21, 2006).*

21


Table of Contents

            
             Exhibit 10.26  — Independent Consulting Agreement with a Former Executive Officer of the Company (Incorporated by reference to Exhibit 10.25 to Form 8-K dated November 21, 2006).*
 
             Exhibit 10.27  — Confidential Agreement and General Release with a Former Executive of the Company.*
 
             Exhibit 10.28  — Letter to a Former Executive of the Company.*
 
             Exhibit 10.29  — Confidential Agreement and General Release with a Former Executive of the Company.*
 
             Exhibit 10.30  — Summary of Executive Tax and Financial Consulting Program for Executive Officers of the Company (Incorporated by reference to Exhibit 10.24 to Form 10-Q for the quarterly period ended September 30, 2006).*
 
             Exhibit 10.31  — Anheuser-Busch Companies, Inc. Restricted Plan for Non-Employee Directors (Incorporated by reference to Appendix B to the Definitive Proxy Statement for Annual Meeting of Stockholders on April 26, 2006).*
 
             Exhibit 10.32  — Form of Notice of Award and Information Memorandum under Anheuser-Busch Companies, Inc. 2006 Restricted Plan for Non-Employee Directors (Incorporated by reference to Exhibit 10.25 to the Form 10-Q for the quarterly period ended March 31, 2006).*
 
             Exhibit 10.33  — Form of Notice of Award and Information Memorandum under Anheuser-Busch Companies, Inc. 2006 Restricted Stock Plan for Non-Employee Director who is a citizen of Mexico (Incorporated by reference to Exhibit 10.26 to the Form 10-Q for the quarterly period ended March 31, 2006).*
 
             Exhibit 10.34  — Anheuser-Busch Companies, Inc. Related Person Transactions Policy.
 
             Exhibit 12       — Ratio of Earnings to Fixed Charges.
 
             Exhibit 13      — Pages 26 through 65 of the Anheuser-Busch Companies, Inc. 2006 Annual Report to Shareholders, a copy of which is furnished for the information of the Securities and Exchange Commission. Portions of the Annual Report not incorporated herein by reference are not deemed “filed” with the Commission.
 
             Exhibit 14      — Code of Business Ethics and Conduct (Incorporated by reference to Exhibit 14 to Form 10-K for the fiscal year ended December 31, 2003).
 
             Exhibit 21      — Subsidiaries of the Company.
 
             Exhibit 23      — Consent of Independent Registered Public Accounting Firm.
 
             Exhibit 24      — Power of Attorney.
 
             Exhibit 31.1   — Certification of Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act.
 
             Exhibit 31.2   — Certification of Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act.
 
             Exhibit 32.1   — Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
             Exhibit 32.2   — Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*A management contract or compensatory plan or arrangement required to be filed by Item 15(c) of this report.

22


Table of Contents

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  ANHEUSER-BUSCH COMPANIES, INC.
  (Registrant)
   
  By                                              /s/   W. RANDOLPH BAKER                                  
  W. Randolph Baker                     
Vice President and Chief Financial Officer                     

Date: March 1, 2007

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Principal Executive Officer:
      August A. Busch IV*
      President and Chief Executive Officer

Principal Financial Officer:
      W. Randolph Baker
      Vice President and Chief Financial Officer

Principal Accounting Officer:
      John F. Kelly*
      Vice President and Controller

                                                                                      /s/   W. RANDOLPH BAKER                                            
                                                                                (W. Randolph Baker, as attorney-in-fact and on his own
                                                                                behalf as Principal Financial Officer)

Date: March 1, 2007

Directors:
August A. Busch IV*
Patrick T. Stokes*
August A. Busch III*
Carlos Fernandez G.*
James J. Forese*
John E. Jacob*
James R. Jones*
Charles F. Knight*
Vernon R. Loucks, Jr.*
Vilma S. Martinez*
William Porter Payne*
Joyce M. Roché*
Henry Hugh Shelton*
Andrew C. Taylor*
Douglas A. Warner III*
Edward E. Whitacre, Jr.*

* by power of attorney

23


Table of Contents

ANHEUSER-BUSCH COMPANIES, INC.

INDEX TO FINANCIAL STATEMENT SCHEDULE

         Page

                      Report of Independent Registered Public Accounting Firm on Financial
      Statement Schedule
     F-1
                      Financial Statement Schedule for the Years 2006, 2005 and 2004:    
                          Valuation and Qualifying Accounts and Reserves (Schedule II)            F-2

      All other Financial Statement Schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements and Notes.

24


Table of Contents




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of Anheuser-Busch Companies, Inc.

Our audits of the consolidated financial statements, of management’s assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report dated February 28, 2007 appearing in the 2006 Annual Report to Shareholders of Anheuser-Busch Companies, Inc. (which report, consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

St. Louis, MO
February 28, 2007

F-1


Table of Contents

ANHEUSER-BUSCH COMPANIES, INC.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In Millions)

             2006

               2005

               2004

   
Reserve for doubtful accounts:                          
  Balance at beginning of period                $ 15.3              $ 12.5              $ 6.6    
  Additions charged to expense                  2.7                3.8                0.5    
  Additions (recoveries of uncollectible accounts previously written off), including Harbin acquisition in 2004                  .2                3.6                6.3    
  Reductions (uncollectible accounts written off)                  (.6 )              (4.6 )              (0.9 )  
            
              
              
   
  Balance at end of period                $ 17.6              $ 15.3              $ 12.5    
            
              
              
   
Deferred income tax asset valuation allowance:                          
  Balance at beginning of period                 $ 67.0              $ 32.2              $ 19.9    
  Additions charged to expense, including litigation settlement in 2005 and Harbin acquisition in 2004                  18.5                47.6                27.4    
  Reductions from utilizations, primarily litigation settlement in 2006                  (38.1 )              (12.8 )              (15.1 )  
            
              
              
   
  Balance at end of period                 $ 47.4              $ 67.0              $ 32.2    
            
              
              
   

F-2

EX-10.17 2 ex10p17.htm Exhibit 10.17


Exhibit 10.17

SECOND AMENDMENT

to

INVESTMENT AGREEMENT

BY AND AMONG

ANHEUSER-BUSCH COMPANIES, INC.,
ANHEUSER-BUSCH INTERNATIONAL, INC., AND
ANHEUSER-BUSCH INTERNATIONAL HOLDINGS, INC.

AND

GRUPO MODELO, S.A. DE C.V.,
DIBLO, S.A. DE C.V., AND
CERTAIN SHAREHOLDERS THEREOF

WHEREAS, Anheuser-Busch Companies, Inc., a Delaware corporation (“A-B”), Anheuser-Busch International Inc., a Delaware corporation (“A-BI”), Anheuser-Busch International Holdings, Inc., a Delaware corporation (the “Investor”), Grupo Modelo, S.A. de C.V., a Mexican corporation (“G-Modelo”), Diblo, S.A. de C.V., a Mexican corporation (“Diblo”), and certain shareholders of G-Modelo and/or Diblo are parties to an Investment Agreement dated as of the 16th day of June, 1993, as amended on August 31, 1994 (the “Investment Agreement”);

WHEREAS, pursuant to Section 13.6 of the Investment Agreement, the Investment Agreement may be amended, modified or supplemented by written agreement of each of the parties thereto;

WHEREAS, the parties to the Investment Agreement believe that it is in the best interest of each of the parties to amend the Investment Agreement so as to conform its provisions to the recently adopted amendments (as published in the Official Daily of June 1, 2001) to the Securities Market Law of Mexico;

NOW THEREFORE, the parties to the Investment Agreement do hereby agree to amend the Investment Agreement as follows:

1.    Capitalized Terms

Capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Investment Agreement.





2.    Amendment to Section 1.3

Section 1.3 of the Investment Agreement is hereby deleted in its entirety and replaced with the following:

“1.3. Amended Diblo By-laws. “Amended Diblo By-laws” shall mean the By-laws of Diblo as amended and provided to the Investor pursuant to Section 2.4(b)(v) as the same may be amended from time to time thereafter in accordance with applicable law and the provisions of this Agreement.”

3.    Amendment to Section 1.4

Section 1.4 of the Investment Agreement is hereby deleted in its entirety and replaced with the following:

“1.4. Amended G-Modelo By-laws. “Amended G-Modelo By-laws” shall mean the By-laws of G-Modelo as amended and provided to the Investor pursuant to Section 2.4(b)(v) as the same may be amended from time to time thereafter in accordance with applicable law and the provisions of this Agreement.”

4.    Amendment to Section 7.1(a)

Section 7.1(a) of the Investment Agreement is hereby deleted in its entirety and replaced with the following:
 
“(a) The number of members of the G-Modelo Board of Directors shall be fixed at nineteen (each of whom may have an alternate), nine of whom shall be nominated by the Investor (the “Investor Nominees”) and ten of whom shall be nominated by the Controlling Shareholders (the “Controlling Shareholder Nominees”). The Investor Nominees and the Controlling Shareholder Nominees shall be elected to the G-Modelo Board of Directors, in accordance with Mexican law and the Amended G-Modelo By-laws.” 
 
5.    Amendment to Section 7.1(b)

Section 7.1(b) of the Investment Agreement is hereby deleted in its entirety and replaced with the following:

“(b) [Intentionally omitted]”.

6.    Amendment to Section 7.1(h)

Section 7.1(h) of the Investment Agreement is hereby deleted in its entirety and replaced with the following:




“(h) Pursuant to the Amended G-Modelo By-laws and the Amended Diblo By-laws, (i) the Investor shall have rights identical to those set forth in paragraphs (c) through (g) above with respect to Diblo and the Diblo Board of Directors, (ii) the number of members of the Diblo Board of Directors shall be twenty-one (each of whom may have an alternate), the number of Investor Nominees to the Diblo Board of Directors shall be ten and the number of Controlling Shareholder Nominees to the Diblo Board of Directors shall be eleven and (iii) A-B and the Controlling Shareholders will consider maintaining the appointment of the independent nominees with respect to the Diblo Board of Directors.”


7.      Addition of Section 7.1(i)

  The following new Section 7.1(i) is added to the Investment Agreement:

“(i) The G-Modelo Board of Directors will meet at least every three months.”

8.      Amendment to Section 7.2(a)(ii)

  Section 7.2(a)(ii) of the Investment Agreement is hereby deleted in its entirety and replaced with the following:

“(ii) The Investor shall have the right to name a statutory auditor (Comisario) of G-Modelo. This right to name a statutory auditor shall not be affected by the right of any other shareholder or shareholders to name a statutory auditor pursuant to the Securities Market Law or otherwise; it being understood that any statutory auditor named by any shareholder or shareholders other than the Investor shall be in addition to, and not in replacement of or substitution for, the statutory auditor named by the Investor.”

9.      Amendment to Section 7.2(b)(i)

  Section 7.2(b)(i) of the Investment Agreement is hereby deleted in its entirety and replaced with the following:

“(i) The Investor shall have the right to elect nine Investor Nominees to the nineteen person G-Modelo Board of Directors and at least four Investor Nominees to G-Modelo’s nine member Executive Committee (and their respective alternates).”

10.    Except as specifically amended hereby, the Investment Agreement shall remain in full force and effect.





IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to the Investment Agreement to be duly executed on its behalf as of this 22nd day of April,  2002.

 
ANHEUSER-BUSCH COMPANIES, INC.
       
 
By:
/s/ Thomas W. Santel
 
 
Name:
Thomas W. Santel
 
 
Title:
Vice President-Corporate
 
 
 
Development
 
 

 
       
 
ANHEUSER-BUSCH INTERNATIONAL, INC.
       
 
By:
 /s/ Stephen J. Burrows
 
 
Name:
Stephen J. Burrows
 
 
Title:
Chief Executive Officer
 
 
 
and President
       
       
 
ANHEUSER-BUSCH INTERNATIONAL
 
HOLDINGS, INC.
       
 
By:
 /s/ Stephen J. Burrows
 
 
Name:
Stephen J. Burrows
 
 
Title:
President
       
       
 
GRUPO MODELO, S.A. de C.V.
       
 
By:
 /s/ Antonino Fernandez Rodriguez
 
 
Name:
Antonino Fernandez Rodriguez
 
 
Title:
Chairman and President
       
   
 
DIBLO, S.A. de C.V.
       
 
By:
 /s/ Antonino Fernandez Rodriguez
 
 
Name:
Antonino Fernandez Rodriguez
 
 
Title:
Chairman and President
       
   
 
BANCO NACIONAL DE MEXICO, S.A.,
 
AS TRUSTEE OF THE BANAMEX TRUST
       
 
By:
 /s/ Francisco Baltazar
 
 
Name:
Francisco Baltazar
 
 
Title:
Delegado Fiduciario
       
 
By:
 /s/ Gabriel Uribe
 
 
Name:
Gabriel Uribe
 
 
Title:
Delegado Fiduciario
 
  /s/Antonino Fernandez R.
 
Antonino Fernandez R., on his own behalf and as a
member of the technical committee of the Control Trust
 
 

 
 
 
  /s/ Juan Sanchez-Navarro  
 
Juan Sanchez-Navarro y P., on his own behalf and as a member of the technical committee of the Control Trust
 
     
  /s/ Valentin Diez M.  
 
Valentin Diez M., on his own behalf and as a member of the technical committee of the Control Trust
 
     
  /s/ Pablo Gonzalez Diez  
 
Pablo Gonzalez Diez, on his own behalf and as a member of the technical committee of the Control Trust
 
     
 
/s/ Cesareo Gonzalez Diez  
 
Cesareo Gonzalez Diez, on his own behalf and as a member of the technical committee of the Control Trust
 
     
 
/s/ Thelma Yates Vda. de Alvarez Loyo
 
 
Thelma Yates Vda. de Alvarez Loyo
 
     
 
/s/ Eusicinia Gonzalez Diez
 
 
Eusicinia Gonzalez Diez
 
     
 
/s/ Rosario Gonzalez Diez
 
 
Rosario Gonzalez Diez
 
     
 
/s/ Ma. Paulina Gonzalez Diez
 
 
Ma. Paulina Gonzalez Diez
 
     
  /s/ Eleuteria Gonzalez Diez  
 
Eleuteria Gonzalez Diez
 
     
 
/s/ Laurentino Garcia Gonzalez
 
 
Laurentino Garcia Gonzalez
 
     
 
/s/ Ma. Antonia Garcia Gonzalez
 
 
Ma. Antonia Garcia Gonzalez
 
     
 
/s/ Ma. Teresa Garcia Gonzalez
 
 
Ma. Teresa Garcia Gonzalez
 
     
 
 

 
 
/s/ Maria Asuncion Aramburuzabala Larregui de Zapata
 
 
Maria Asuncion Aramburuzabala Larregui de Zapata
 
     
 
/s/ Lucrecia Aramburuzabala Larregui de Fernandez
 
 
Lucrecia Aramburuzabala Larregui de Fernandez
 
     
 
/s/ Luis Javier Gonzalez Cimadevilla
 
 
Luis Javier Gonzalez Cimadevilla
 
     
 
/s/ Juan Pablo Gonzalez Cimadevilla
 
 
Juan Pablo Gonzalez Cimadevilla
 
     
 
/s/ Fernando Gonzalez Cimadevilla
 
 
Fernando Gonzalez Cimadevilla
 
     
 
/s/ Maria del Pilar Gonzalez Cimadevilla
 
 
Maria del Pilar Gonzalez Cimadevilla
 
     
 
/s/ Alejandro Gonzalez Cimadevilla
 
 
Alejandro Gonzalez Cimadevilla
 
     
 
/s/ Ana Maria Gonzalez Cimadevilla
 
 
Ana Maria Gonzalez Cimadevilla
 
     
 
/s/ Mercedes Sanchez-Navarro-Redo
 
 
Mercedes Sanchez-Navarro-Redo
 
     
 
/s/ Maria del Lourdes Sanchez-Navarro Redo
 
 
Maria del Lourdes Sanchez-Navarro Redo
 
     
 
/s/ Elena Josefina Sanchez-Navarro Redo
 
 
Elena Josefina Sanchez-Navarro Redo
 
     
 
/s/ Eduardo Sanchez-Navarro Redo
 
 
Eduardo Sanchez-Navarro Redo
 
     
 
/s/ Miguel Sanchez-Navarro Redo
 
 
Miguel Sanchez-Navarro Redo
 
     
 
/s/ Carlos Fernandez Gonzalez
 
 
Carlos Fernandez Gonzalez
 
     
 
/s/ Felipe Suberbie Cortina
 
 
Felipe Suberbie Cortina
 
 
 

 
     
 
/s/ Maria de Lourdes Suberbie Cortina
 
 
Maria de Lourdes Suberbie Cortina
 
     
 
/s/ Maria Teresa Suberbie Cortina
 
 
Maria Teresa Suberbie Cortina
 
     
 
/s/ Maria del Carmen Suberbie Cortina
 
 
Maria del Carmen Suberbie Cortina
 
     
 
/s/ Maria Eugenia Suberbie Cortina
 
 
Maria Eugenia Suberbie Cortina
 
     
 
/s/ Ana Maria Suberbie Cortina
 
 
Ana Maria Suberbie Cortina
 
     
 
/s/ Emilio Suberbie Mendiola
 
 
Emilio Suberbie Mendiola
 
     
 
/s/ Araceli Leonides Vega Fernandez
 
 
Araceli Leonides Vega Fernandez
 
     
 
/s/ Jose Joaquin Vega Fernandez
 
 
Jose Joaquin Vega Fernandez
 
     
 
/s/ Graciela Elvira Vega Fernandez
 
 
Graciela Elvira Vega Fernandez
 
     
 
/s/ Rocio Elvira Hernandez Vega
 
 
Rocio Elvira Hernandez Vega
 
     
 
/s/ Joaquin Hernando Vega Fernandez
 
 
Joaquin Hernando Vega Fernandez
 
     
 
/s/ Francisco Jose Barberena Lopez
 
 
Francisco Jose Barberena Lopez
 
     
 
/s/ Maria Teresa Barberena Lopez
 
 
Maria Teresa Barberena Lopez
 
     
 
/s/ Maria del Pilar Barberena Lopez
 
 
Maria del Pilar Barberena Lopez
 
 

 
     
 
/s/ Maria de las Mercedes Barberena Lopez
 
 
Maria de las Mercedes Barberena Lopez
 
     
 
/s/ Mario Zenteno Sanchez
 
 
Mario Zenteno Sanchez
 
     
 
/s/ Arturo Apiquian Nava
 
 
Arturo Apiquian Nava
 
     
 
/s/ Jose Miguel Muguerza Juaristi
 
 
Jose Miguel Muguerza Juaristi
 
     
 
/s/ Eduardo Prieto Calzada
 
 
Eduardo Prieto Calzada
 
     
 
/s/ Dolores Gutierrez Palero
 
 
Dolores Gutierrez Palero
 
     
 
/s/ Esteban Fernandez Robles
 
 
Esteban Fernandez Robles
 

EX-10.19 3 ex10p19.htm Exhibit 10.19

Exhibit 10.19

2007 OFFICER BONUS PROGRAM
UNDER THE
ANHEUSER-BUSCH OFFICER BONUS PLAN


The Compensation Committee (the "Committee") of the Board of Directors of Anheuser-Busch Companies, Inc. (the "Company") hereby establishes the 2007 Officer Bonus Program (the "Program") in accordance with the Anheuser-Busch Officer Bonus Plan (the "Plan"), the terms of which are incorporated herein by reference, as follows:

Section 1. PERFORMANCE PERIOD. The calendar year 2007 ("2007") shall constitute the Performance Period for the purpose of determining Bonuses payable to Participants in the Program.

Section 2. PARTICIPANTS AND DESIGNATED COVERED EMPLOYEES. The officers of the Company listed on Schedule A attached hereto are hereby designated as Participants in the Program. The first nine Participants listed on Schedule A ("Designated Covered Employees") are those the Committee believes may be or become covered employees (“Covered Employees”) as that term is defined by Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").

Section 3. PERFORMANCE GOAL. The performance goal for 2007 (the "Performance Goal") shall be met if Pretax Income for 2007 equals or exceeds eighty-five percent of Pretax Income for 2006. No Bonus shall be paid to Designated Covered Employees under the Program if the Performance Goal is not satisfied. For purposes of this Program, "Pretax Income" shall be deemed to mean the amount of the Company's consolidated earnings before income taxes, adjusted as follows:

 
(a)
increased or decreased to eliminate the effect of any normalization adjustment made in calculating consolidated earnings before income taxes as disclosed in the Company’s quarterly reports or annual report in accordance with S.E.C. Regulation 6 on non-GAAP financial information, and/or any accounting principle change required or allowed by GAAP that is not retroactively applied to prior years. (If the accounting change is retroactively applied to the prior year, there is no adjustment for the accounting change.);
     
 
(b)
increased by the amount of bonus expense, whether or not under the Program, which is reflected in the Company's consolidated earnings before income taxes;
     
 
(c)
increased for the impact on pretax income of interest expense attributable to the Company's ownership in Grupo Modelo, S.A.B. de C.V. and Tsingtao Brewery Company, Ltd.;
     
 
(d)
increased for the impact on pretax income of interest expense attributable to the Company’s equity ownership in any additional company acquired in
 
 

 
    2007 and accounted for under the equity method of accounting under GAAP; and
     
 
(e)
increased for the impact on pretax income of interest expense attributable to the Company’s repurchase of Company stock.

Section 4. BONUS POOL. The aggregate amount of Bonuses which may be paid to Participants in the Program shall equal 1.0% of Pretax Income for 2007 (the "Bonus Pool").

Section 5. BONUS FORMULA. The percentage of the Bonus Pool that each Designated Covered Employee shall receive under the Program and the percentage of the Bonus Pool that the remaining Participants shall receive under the Program (the "Bonus Formula") shall be as set forth on Schedule A attached hereto, subject to the Committee's exercise of Committee Discretion as defined in Section 6 below.

Section 6. COMMITTEE DISCRETION. The Committee shall have the discretion to establish the amount of any Bonus payable to any Participant other than a Designated Covered Employee, except that the total amount of Bonuses paid under the Program may not exceed the Bonus Pool established in Section 4; the Committee may reduce but may not increase the amount of any Bonuses payable to Designated Covered Employees to reflect individual performance and/or unanticipated factors (in either case, "Committee Discretion").

Section 7. DESIGNATED COVERED EMPLOYEE MAXIMUM. Notwithstanding satisfaction of the Performance Goal, no Designated Covered Employee may receive a Bonus under the Program which exceeds the lesser of (i) $6 million or (ii) the per-covered employee limit in effect under Section 7 of the Plan on the date of payment.

Section 8. PAYMENT OF BONUSES. After the end of 2007, the Committee shall certify in writing whether the Performance Goal has been satisfied and the amount of the Bonus payable to each Designated Covered Employee for 2007, if any. All or part of the Bonuses payable to Participants who are not Designated Covered Employees may be paid prior to the end of 2007 on an estimated basis, subject to adjustment in the discretion of the Committee. All or part of the Bonuses payable to Designated Covered Employees may be paid prior to the end of 2007 only if such payment will not result in Bonuses paid to Covered Employees failing to constitute qualified performance-based compensation under Section 162(m) of the Code (e.g., if regulations or rulings allow earlier payment on an estimated basis subject to adjustment). Subject to the foregoing, the timing of payment of Bonuses to all Participants shall be within the sole discretion of the Committee; provided, however, that all payments of the Bonuses hereunder shall be made on or before March 15, 2008. The Company shall withhold from any Bonuses all taxes required to be withheld by any federal, state or local government.

Section 9. LIMITATION ON RESTRICTIONS. Notwithstanding anything to the contrary herein, in the event a Designated Covered Employee is determined at the end of the Performance Period not to be a Covered Employee, and to the extent
 
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application of this Section 9 does not cause such Designated Covered Employee to be a Covered Employee,

 
(a)
such Designated Covered Employee may receive a Bonus notwithstanding failure to satisfy the Performance Goal, and
     
 
(b)
Committee Discretion may be exercised to increase the amount of such Designated Covered Employee's Bonus above the amount which would be paid pursuant to the Bonus Formula.

Section 10. TERMINATION OF EMPLOYMENT. No Bonus shall be paid under the Program to any Participant who is not an employee of the Company as of the last day of 2007, except that the Committee shall have the discretion to pay a Bonus to any Participant whose employment terminates by reason of death, disability, retirement, resignation or in other circumstances in which payment of a Bonus would be in furtherance of the best interests of the Company.

Section 11. CHANGE IN CONTROL. Upon a Change in Control (as that term is defined in the Plan from time to time) notwithstanding anything else to the contrary herein:

 
(a)
if the Change in Control takes place after 2007, all Bonuses for 2007 shall be immediately payable in cash,
     
 
(b)
if the Change in Control takes place during 2007, (i) the Performance Goal shall be deemed to have been met if Pretax Income through the end of the month preceding the month in which the Change in Control occurs ("Prechange Pretax Income") equals or exceeds eighty-five percent of Pretax Income for the comparable period in 2006, (ii) the Change in Control Bonus Formula (as defined below) shall be applied to Prechange Pretax Income, (iii) all Bonuses so calculated shall be immediately payable in cash, and (iv) unless expressly terminated, this Program shall continue in effect throughout the remainder of 2007 with the amount of any Bonuses payable at the end of 2007 reduced by the amount of any Bonuses paid upon the Change in Control,
     
 
(c)
the Committee shall not have the ability to exercise Committee Discretion to reduce the amount payable to any Participant below the formula amount, and
     
 
(d)
the provisions of this Section 11 may not be amended in any manner without the written consent of all Participants.

For purposes of determining the amounts of Bonuses payable to Participants under Sections 11 (a) and (b) above, (i) each Participant who was a participant in the 2006 Officer Bonus Program under the Anheuser-Busch Officer Bonus Plan shall be entitled to receive a share of the Bonus Pool which is equivalent to that Participant's share of all bonuses actually paid under the 2006 Program, (ii) each Participant who did not participate in the 2006 Program shall be entitled to receive a share of the Bonus Pool
 
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which is equivalent to the share of all bonuses actually paid under the 2006 Program paid to the individual (or the average paid to individuals) in the most closely comparable position to that of such Participant (based on salary level), (iii) the shares so computed shall be adjusted on a pro rata basis so that the amount of Bonuses payable under this Section 11 shall equal 100% of the applicable Bonus Pool (the "Change in Control Bonus Formula"). If any Participant is employed by the Company for less than the entire period with respect to which Bonuses under this Section 11 are calculated, such Participant shall only be entitled to receive a Bonus in an amount calculated as set forth above times the number of days such Participant was employed by the Company in such period divided by the total number of days in such period. If by reason of this Section 11 an excise or other special tax ("Excise Tax") is imposed on any payment under the Plan (a "Required Payment"), the amount of each Required Payment shall be increased by an amount which, after payment of income taxes, payroll taxes and Excise Tax thereon, will equal such Excise Tax on the Required Payment, except that the total amount paid to any Designated Covered Employee shall not exceed the maximum set forth in Section 7 unless exceeding such maximum, or a provision allowing bonuses to exceed such maximum, would not jeopardize qualification of all Bonuses under the Program to Covered Employees as qualified performance-based compensation under Section 162(m) of the Code.

Section 12. INTERPRETATION. It is intended that the Program shall in all respects be subject to and governed by the provisions of the Plan and, except to the extent Bonuses are paid on an accelerated basis pursuant to a Change in Control as defined in the Plan, that all Bonuses paid to Covered Employees shall constitute qualified performance-based compensation under Section 162(m) of the Code. The terms of this Program shall in all respects be so interpreted and construed as to be consistent with this intention.

Section 13. ADJUSTMENTS. If any of the following events occurs during the Performance Period:

 
(a)
any reorganization, merger, consolidation or other corporate change having a similar effect, to the extent it is tax-free for federal income tax purposes,
     
 
(b)
any spin-off, sale of a business unit, or other corporate change having a similar effect,
     
 
(c)
any contribution of operating assets previously accounted for by the consolidation method of accounting to an entity that is accounted for by the equity or cost methods of accounting, or
     
 
(d)
any distribution to stockholders generally other than a normal dividend
     
and such event affects Pretax Income and has an impact on the achievement of the Performance Goal or a material impact on the size of the Bonus Pool (herein "Corporate Change"):

 
(x)
for purposes of determining whether the Performance Goal has been met, 2006 Pretax Income shall be deemed to equal (i) actual Pretax Income for
 
 
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    2006 times a ratio the numerator of which is the number of days in the Performance Period prior to the Corporate Change and the denominator of which is 365, plus (ii) restated or pro-forma Pretax Income for 2006 times a ratio the numerator of which is the number of days in the Performance Period beginning with the date of the Corporate Change and the denominator of which is 365;
     
 
(y)
the size of the Bonus Pool shall be equal to (i) actual Pretax Income for the portion of the Performance Period ending the day before the Corporate Change occurs times the Bonus Pool percentage set forth in Section 4 (1.0%), plus (ii) actual Pretax Income for the portion of the Performance Period beginning the day of the Corporate Change times that percentage which if multiplied by restated or pro-forma Pretax Income for 2006 would equal 1.0% of actual Pretax Income for 2006.

Section 14. AMENDMENTS. The Committee may amend this Program unilaterally if the Committee determines that amendment is necessary to assure that Bonuses paid to Covered Employees under this Program constitute qualified performance-based compensation under Section 162(m) of the Code. The Committee also may amend this Program unilaterally in any way if the Committee determines that such amendment (i) is not contrary to the terms of the Plan, (ii) does not require shareholder approval, and (iii) would not jeopardize qualification of Bonuses to Covered Employees under the Program as performance-based compensation under Section 162(m) of the Code.

Section 15. NO RIGHT TO EMPLOYMENT. Nothing in this Program or the Plan shall confer upon any Participant any right or expectation to continue in the employ of his or her employer or the Company, or to interfere in any manner with the absolute right of the employer or the Company to change or terminate the Participant's employment at any time for any reason.


5
EX-10.20 4 ex10p20.htm Exhibit 10.20


Exhibit 10.20



SUMMARY OF COMPENSATION OF EXECUTIVE OFFICERS



Anheuser-Busch Companies, Inc. (the “Company”) does not have employment agreements with any of its executive officers. The following is a description of executive officer compensation.

On November 21, 2006, the Compensation Committee (the “Committee”) of the Board of Directors of the Company approved the annual base salaries effective January 1, 2007, of the Company’s executive officers after review of performance and competitive market data. The following table sets forth the 2007 base salary of the Company’s Named Executive Officers (which officers were determined by reference to the Proxy Statement for the Company’s 2007 Annual Meeting of Stockholders, dated March 12, 2007).

 
                           Name and Position
 
2007 Annual
Base Salary
 
August A. Busch IV
President and Chief Executive Officer
 
$
1,225,000
 
         
W. Randolph Baker
Vice President and Chief Financial Officer
 
$
645,750
 
         
Mark T. Bobak
Group Vice President and Chief Legal Officer
 
$
634,608
 
         
Douglas J. Muhleman
Group Vice President, Brewing, Operations and Technology
Anheuser-Busch, Incorporated
 
$
603,488
 
         
Michael J. Owens
Vice President - Marketing
Anheuser-Busch, Incorporated
 
$
540,000
 

 
Information regarding 2006 bonus payments is contained in the Company’s Form 8-K filed with the Securities and Exchange Commission on February 14, 2007. Information regarding 2007 bonuses is contained in the Company’s Form 8-K filed with the Securities and Exchange Commission on February 28, 2007.




Also on November 21, 2006, the Committee approved grants of ten year incentive and non-qualified stock option awards to approximately 3,000 officers and management employees of the Company and its subsidiaries and affiliates eligible to receive such awards under the Company’s 1998 Incentive Stock Plan including the Named Executive Officers for 2006. In addition, the Committee approved performance-vesting restricted stock awards to Executive Officers of the Company including the Named Executive Officers for 2006 and service-vesting restricted stock awards to approximately 2,800 officers and management employees of the Company and its subsidiaries and affiliates eligible to receive such awards under the 1998 Incentive Stock Plan. All such awards of restricted stock were effective January 1, 2007. The 1998 Incentive Stock Plan, as amended, is attached as Appendix C to the Proxy Statement for the Company’s 2005 Annual Meeting of Stockholders, dated March 10, 2005.

Information concerning the stock option awards to the Company’s Named Executive Officers is contained in Form 8-K dated November 21, 2006, and filed by the Company with the Securities & Exchange Commission on November 27, 2006. Performance-vesting restricted stock awards made to the Company’s Named Executive Officers are set forth below:


 
                          Name and Position
 
Restricted Stock
Awards
 
August A. Busch IV
President and Chief Executive Officer
   
45,149
 
         
W. Randolph Baker
Vice President and Chief Financial Officer
   
10,798
 
         
Mark T. Bobak
Group Vice President and Chief Legal Officer
   
10,714
 
         
Douglas J. Muhleman
Group Vice President, Brewing, Operations and Technology
Anheuser-Busch, Incorporated
   
7,929
 
         
Michael J. Owens
Vice President - Marketing
Anheuser-Busch, Incorporated
   
6,898
 

The Company will provide additional information regarding compensation awarded to Named Executive Officers in respect of and during the year ended December 31, 2006, in the Proxy Statement for the Company’s 2007 Annual Meeting of Stockholders dated March 12, 2007, which will be filed with the Securities and Exchange Commission on March 12, 2007.

EX-10.21 5 ex10p21.htm Exhibit 10.21


Exhibit 10.21
SUMMARY OF COMPENSATION OF NON-EMPLOYEE DIRECTORS OF
ANHEUSER-BUSCH COMPANIES, INC.

Each non-employee director of Anheuser-Busch Companies, Inc. (the “Company”) is entitled to:

 
1.
An annual retainer of $60,000, which such director may elect to receive in stock, cash or a combination of stock and cash under the Anheuser-Busch Companies, Inc. Non-Employee Director Elective Stock Acquisition Plan amended and restated as of March 1, 2000;
     
 
2.
A fee of $2,000 per meeting for each meeting of the Board or any committee of the Board or other scheduled meeting of the directors of the Company at which less than a quorum is present;
     
 
3.
An annual fee of $60,000 less any board service fees that the director is paid by an affiliate company for service as a representative of the Company’s Board of Directors on the Board of an affiliated company;
     
 
4.
An annual fee of $10,000 for serving as the chair of the Compensation, Conflict of Interest, Corporate Governance, Finance, and Pension Committees of the Board; and
     
 
5.
An annual fee of $15,000 for serving as the chair of the Audit Committee of the Board.

Under the Anheuser-Busch Companies, Inc. Deferred Compensation Plan for Non-Employee Directors, amended and restated as of March 1, 2000, each such director may elect to defer payment of part or all of their directors’ fees.

The Company pays for the travel and accommodation expenses of such director (and spouse when requested by the Company) to attend meetings or corporate functions; the Company will also pay the taxes related to such payments. Such travel is by Company aircraft if available. As part of their continuing education, such directors are encouraged to visit Company facilities and the Company pays their expenses related to such visits. The Company reimburses such directors for their expenses incurred in attending director education courses. The Company provides each such director group term life insurance coverage of $50,000.

Under the Anheuser-Busch Companies, Inc. Stock Plan for Non-Employee Directors as amended and restated, each such director receives an annual grant of options to purchase 5,000 shares of the Company’s common stock (or 5,000 stock appreciation rights if a director is unable to own the Company’s common stock due to possible conflicts with state alcoholic beverage control laws).

Under the Anheuser-Busch Companies, Inc. 2006 Restricted Stock Plan for Non-Employee Directors, each such director receives an annual award of 500 shares of Restricted Stock (or 500 shares of Restricted Stock units if a director is unable to own the Company’s common stock due to possible conflicts with state alcoholic beverage control laws).

The directors are eligible to participate in the Anheuser-Busch Foundation Matching Gift Program. The maximum gift total for a participant in this Program is $10,000 in any calendar year.



EX-10.27 6 ex10p27.htm Unassociated Document


Exhibit 10.27

CONFIDENTIAL AGREEMENT AND GENERAL RELEASE

This Confidential Agreement and General Release (“Agreement”) is between ANHEUSER-BUSCH COMPANIES, INC., a Delaware corporation with its principal offices at One Busch Place, St. Louis, Missouri, 63118, its affiliates, subsidiaries, successors and assigns (collectively “Anheuser-Busch”), and JOSEPH P. SELLINGER of 15 West Geyer, St. Louis, Missouri 63131 (“Sellinger”).

IN CONSIDERATION of the mutual promises exchanged below, Anheuser-Busch and Sellinger agree as follows:

1. Retirement:
A. Anheuser-Busch and Sellinger have agreed that Sellinger will retire from Anheuser-Busch effective November 30, 2006.
B.  Until his retirement, Sellinger will remain in his current position as Chairman of the Board, CEO and President - Anhueser-Busch Packaging Group, Inc. to assist in the orderly transfer of his duties and responsibilities.
C. Unless otherwise agreed to by the parties, Sellinger agrees to return all Anheuser-Busch property (including, but not limited to, company documents and records, computers, cell phones and pagers, security badge and credit cards) upon his November 30, 2006 retirement.
D. Sellinger will be eligible to receive a 2006 bonus from Anheuser-Busch, which shall be paid to him not later than March 15, 2007.
E. Sellinger will not receive further Long Term Incentives (in the form of stock options or restricted stock). Sellinger’s rights in existing stock option grants are governed by the terms and conditions of his stock option agreements and applicable law, and will not be affected by the terms of this Agreement.
 

 
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2. Special Retirement Benefits: 
A. Anheuser-Busch agrees that on or before March 15, 2007 it will transfer to Sellinger all rights, title and interest in the 2005 Cadillac Seville STS (VIN: 1G6DC67A350200200) that is currently assigned to him as a company car. The parties agree that such transfer shall be “As is - where is” and with no warranty express or implied by Anheuser-Busch.
B. Anheuser-Busch agrees that it will provide Sellinger and his eligible dependents with insured dental and vision benefits through May 31, 2010 that are materially similar to the dental and vision benefits that are provided from time to time to its salaried employees. In the event that Sellinger dies before May 31, 2010, Anheuser-Busch agrees to continue such benefits for his spouse until May 31, 2010.
C. Anheuser-Busch agrees that it will continue to pay the insurance premium on the supplemental executive life insurance policy (“policy”) with an insured face value of $1,400,000 through Metropolitan Life, or its successor (“Insurer”), that it currently provides to Sellinger, as follows: Anheuser-Busch will continue to make monthly premium payments of $1,061.20 through February 2007; on or before March 15, 2007 it will pay to Insurer the sum of $13,524, as an annual insurance premium for the period of March 2007 through February 2008; on or before March 15, 2008 it will pay to Insurer the sum of $14,263, as an annual insurance premium for the period of March 2008 through February 2009; on or before March 15, 2009 it will pay to Insurer the sum of $14,928, as an annual insurance premium for the period of March 2009 through February 2010; and on or before March 15, 2010 it will pay to Insurer the sum of $3,855.50 to cover premium payments through May 31, 2010. Thereafter, the policy will continue in effect according to the terms of the policy, but all further premium payments shall be the responsibility of Sellinger.

3. Normal Retirement Benefits:
A. Upon his November 30, 2006 retirement Sellinger will be entitled to retiree medical benefits under the terms of the applicable retiree medical benefits plan then in effect. Sellinger shall also be entitled to elect distribution of benefits from the Anheuser-Busch Salaried Employees’ Pension Plan (“SEPP”), and the Anheuser-Busch Deferred
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Income Stock Purchase and Savings Plan (“401(k)”), according to the terms of such plans. Sellinger understands that processing of benefits from the SEPP or the 401(k) will not begin until he notifies the SEPP or 401(k) Plan Administrator in writing that he wants to receive benefits from that plan. Any benefit to which Sellinger is entitled under the Anheuser-Busch Companies, Inc. Supplemental Executive Retirement Plan (“SERP”) or the Anheuser-Busch 401(k) Restoration Plan will be distributed to Sellinger according to the terms of the applicable plan and pursuant to Sellinger’s existing election.
 
4. Consulting Arrangement
A. Upon Sellinger’s November 30, 2006 retirement, Anheuser-Busch agrees to retain Sellinger as a Consultant for a three-year period commencing June 1, 2007 and ending May 31, 2010. During the period he serves as a Consultant, Sellinger agrees to make himself available to consult with Anheuser-Busch up to 20 hours per calendar month on matters related to the company’s production of glass bottles, labels, crown liners, aluminum cans and lids, and to attend such planning and strategy meetings as requested by Anheuser-Busch’s President & Chief Executive Officer or his designee. The parties agree that in no event shall Sellinger be required to provide services to Anheuser-Busch at an annual rate that is 50% or more of the services Sellinger rendered to Anheuser-Busch on average during the final three calendar years of his employment with Anheuser-Busch.
B. For his services as a Consultant, Anheuser-Busch agrees to pay Sellinger a consulting fee of $40,833.33.00 per month, less applicable withholding. Payment of all consulting fees shall be made on a semi-monthly basis, with the first consulting fee payment being due on June 15, 2007 and the last consulting fee payment being due on May 31, 2010.
C. Sellinger’s participation as an employee in the Anheuser-Busch employee benefit plans for salaried employees (except for retiree medical benefits) will cease as of November 30, 2006. Consulting fee payments made to Sellinger shall not be treated as wages under the SEPP, the 401(k), the SERP, the Anheuser-Busch 401(k) Restoration Plan, or the Anheuser-Busch Executive Deferred Compensation Plan.
 
 
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D. During the consulting period, Anheuser-Busch will provide Sellinger with such equipment (e.g. laptop computer, cell phone, Blackberry pager, etc.) as the parties agree is necessary for Sellinger to effectively perform his consulting services. Sellinger shall work from his personal residence or office and shall not be provided with an office during the consulting period. In the event Sellinger is requested to travel in performing services for Anheuser-Busch, he will be entitled to reimbursement for all ordinary, necessary and reasonable travel expenses pursuant to company travel expense guidelines. In order to be entitled to such reimbursement Sellinger must submit an itemized expense report within 15 days after completion of each travel assignment as the basis for reimbursement by Anheuser-Busch.
E.  During the consulting period, Sellinger may be employed by, or provide services to, other companies, subject to the restrictive covenants set out in paragraph 8 of this Agreement.
F. During the consulting period, Sellinger will be entitled to use the facilities at Anheuser-Busch’s Kingsmill Resort subject to the following order of priority:
1.  
Corporate business purposes
2.  
Current Strategy Committee members
3.  
Current other officers
4.  
Retired Strategy Committee members
5.  
Non-officer employees who report directly to a member of the Strategy Committee.
All cash charges and W-2 income inclusions will apply to such stays at the corporate rates applicable to the time(s) of such usage.
G. Anheuser-Busch and Sellinger agree that the terms and conditions of the Indemnification Agreement between Anheuser-Busch Companies, Inc. and Sellinger effective December 6, 2000 shall continue to apply, but only as to events or occurrences that took place on or before his November 30, 2006 retirement. In the event that Sellinger is named a defendant in any civil suit as a result of his performing consulting services pursuant to this Agreement after his November 30, 2006 retirement, Anheuser-Busch agrees to indemnify Sellinger against expenses (including attorney fees), judgments, fines or amounts paid in settlement resulting from such suits, except
 
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to the extent that such amounts are incurred as a result of Sellinger’s gross negligence or willful misconduct.
H. In the event that Sellinger dies prior to May 31, 2010, Anheuser-Busch agrees to pay all remaining monthly consulting fee payments to Sellinger’s spouse unless otherwise directed in writing by Sellinger.

4. No Reemployment
Sellinger agrees that upon execution of this Agreement he is not eligible for further transfer or promotion with Anheuser-Busch, and after his November 30, 2006 retirement, he will not reapply for employment with Anheuser-Busch. Sellinger expressly releases and waives any and all rights or claims to any continued employment or reemployment with Anheuser-Busch after November 30, 2006.

5. No Admission of Liability
Sellinger acknowledges and agrees that he would not receive all the payments and benefits specified in this Agreement except for his execution of this Agreement and his fulfillment of its terms. Neither the making of this Agreement, nor anything contained in it, shall in any way be construed or considered to be an admission by Anheuser-Busch of noncompliance with any law or of any other wrongdoing.

6. Release of Liability
A. Except for the obligations of Anheuser-Busch as stated in this Agreement, Sellinger, of his own free will, voluntarily releases and forever discharges Anheuser-Busch and their respective directors, officers, employees and other authorized representatives (collectively the “Releasees”) from all actions, causes of action, claims, debts, charges, complaints, contracts and promises of any kind, whether known or unknown, which Sellinger, his heirs, executors, administrators, successors and assigns (referred to collectively throughout this Agreement as “Sellinger”) may have from all time in the past to the effective date of this Agreement, including, but not limited to, all matters or claims relating to or arising out of Sellinger’s employment by Anheuser-
 
5

 
Busch and the cessation of his employment and including, but not limited to, any violation of:
(1)  
Title VII of the Civil Rights Act, as amended;
(2)  
Sections 1981 through 1988 of Title 42 of the United States Code;
(3)  
the Employee Retirement Income Security Act, as amended;
(4)  
the Family and Medical Leave Act;
(5)  
the Age Discrimination in Employment Act, as amended;
(6)  
the Americans with Disabilities Act;
(7)  
the Missouri Human Rights Act;
(8)  
the Sarbanes-Oxley Act of 2002;
(9)  
any other alleged violation of any local, state or federal law, regulation or ordinance and/or public policy, contract, tort or common law having any bearing on the terms and conditions and/or cessation of his employment with Anheuser-Busch.
Except as otherwise provided in this Agreement, this release shall not apply to any claim for benefits which may be due to Sellinger under any Anheuser-Busch employee benefit plan in which Sellinger is or was a participant.
B. Sellinger warrants that he has not caused or permitted to be filed on his behalf any charge, complaint, or action before any federal, state or local administrative agency or court against Anheuser-Busch and/or any of the Releasees. If any such claim is asserted in the future, Sellinger agrees that this Agreement will act as a complete bar to his re-employment or to his recovery of any amount from Anheuser-Busch and/or any of the Releasees resulting, directly or indirectly, from any lawsuit, remedy, charge or complaint whether brought privately by him or by anyone else, including any federal, state or local agency, whether or not on his behalf or at his request.

7. Confidentiality 
A. Sellinger agrees to keep in strict secrecy and confidence any and all unique, confidential and/or proprietary information and material belonging or relating to Anheuser-Busch that is not a matter of common knowledge or otherwise generally
 
6

 
available to the public including, but not limited to, business, financial, trade, technical or technological information. Sellinger acknowledges and agrees that he remains subject to the “Employee Agreement as to Intellectual Property and Confidentiality,” which he has previously signed and is incorporated into this Agreement by this reference.
B. Sellinger agrees that he will make no public statements and take no public action that disparages or is detrimental to Anheuser-Busch and/or any of the Releasees, or would otherwise cause or contribute to Anheuser-Busch and/or any of the Releasees being held in disrepute by the general public, customers or employees.
C. Sellinger acknowledges that Anheuser-Busch Companies, Inc. is a publicly traded company, and as such may be required to publicly disclose the terms of this Agreement, or to publicly file a copy of this Agreement, as required by law.

8. Restrictive Covenants
A. Unless otherwise agreed to in writing by Anheuser-Busch and upon such terms and conditions as Anheuser-Busch may impose, from the date of this Agreement until May 31, 2010, Sellinger shall not, anywhere in the world, engage, directly or indirectly, in any activity or business that manufactures, distributes or sells alcohol beverages and/or no-alcohol malt beverages or that otherwise competes with any current business activity of Anheuser-Busch Companies, Inc. and/or any of its affiliates or subsidiaries, either alone, as a member of a partnership or association, as an officer, director, employee, consultant or representative of or to any corporation, industry trade association, or other business entity, or as an investor in, or beneficial owner of 1% or more of any security of any class of any corporation or 1% or more of any equity interest of any unincorporated enterprise.
B. Sellinger agrees that if he violates any provision of this paragraph 8, or if an arbitrator or court of competent jurisdiction rules that the non-compete provisions of this paragraph 8 are not enforceable (either circumstance will be referred to in this paragraph as an “Event”), this Agreement will immediately terminate effective on the date of the Event, and Sellinger shall forfeit all remaining consulting payments due under paragraph 4 In the event that Anheuser-Busch believes that Sellinger is in violation of any provision of this paragraph 8, Anheuser-Busch shall give Sellinger
 
7

 
written notice of such violation and Sellinger shall be provided with a reasonable opportunity to cure such violation, discontinue such conduct, or present documented evidence establishing that the activity or employment does not constitute a violation of this Agreement, prior to Anheuser-Busch availing itself of its remedies under this paragraph 8. Anheuser-Busch will have the right at any time to request that Sellinger certify that he is in compliance with this paragraph 8, and Sellinger’s failure to certify such compliance as requested will be deemed to be: an Event as defined in this paragraph 8; a material violation of this paragraph 8; and a material breach of this Agreement.

9. Enforceability and Choice of Law
A. Except as otherwise provided in paragraph 8, above, should Sellinger challenge any provision of this Agreement and such provision be declared illegal or unenforceable by any arbitrator or court of competent jurisdiction and is not modified to be enforceable, such provision will immediately become void, leaving the remainder of this Agreement in effect. However, if any portion of the general release (paragraph 6) is ruled to be unenforceable as a result of such challenge, Sellinger agrees that Anheuser-Busch and/or any of the Releasees will be entitled to a set-off against any subsequent judgment or award made to Sellinger in the amount of all compensation paid to him by Anheuser-Busch under this Agreement.
B. The parties have read and fully considered this Agreement and mutually desire to enter into this Agreement. The terms of this Agreement are the product of mutual negotiation and compromise between Sellinger and Anheuser-Busch. Having elected to execute this Agreement, to fulfill the promises and receive the sums set forth herein, Sellinger freely and knowingly, and after due consideration, enters into this Agreement intending to waive, settle, and release all claims he has against Anheuser-Busch and/or any of the Releasees as of the effective date of this Agreement.
C. This Agreement shall be governed by and construed according to the law of the State of Missouri. This Agreement constitutes the entire understanding between Sellinger and Anheuser-Busch with respect to its subject matter. Except as otherwise provided in this Agreement, it supersedes all previous or contemporaneous
 
8

 
negotiations, commitments, agreements, statements, representations, or promises, oral or written between the parties. This Agreement may not be modified except in a writing signed by both parties.
D. It is the parties’ intent and expectation that the insured dental and vision benefits, life insurance premiums, transfer of car title, and financial planning assistance (“Exempt Benefits”) provided to Sellinger under the terms of this Agreement are exempt from the application of Internal Revenue Code Section 409A and all regulations and other guidance issued thereunder.  In the event that new regulations, interpretations or other legal guidance change that assessment, the parties intend that appropriate adjustments will be made to cause the Exempt Benefits to be exempt or, if that is not possible, to cause the Exempt Benefits to comply with Section 409A.  It is also the parties intent and expectation that all forms of compensation provided by this Agreement that are subject to the application of Section 409A ("Nonexempt Benefits") will fully comply with Section 409A, and in the event that new regulations, interpretations or other legal guidance change that assessment, the parties intend that appropriate adjustments will be made to cause the Nonexempt Benefits to comply with Section 409A.
E. Sellinger acknowledges that he has been advised by Anheuser-Busch that there may be substantial federal and state income tax consequences for Sellinger as a result of entering into this Agreement, and that he should seek professional tax and legal advice before doing so. Sellinger further acknowledges that he has not been provided with any advice on the tax effects of this Agreement by Anheuser-Busch or any of its employees or agents.

10. Remedies 
A. Sellinger agrees that if Anheuser-Busch breaches any provision of this Agreement, his sole remedy shall be enforcement of the terms of this Agreement. 
B. Anheuser-Busch and Sellinger agree that all disputes between the parties relating to or arising out of: (a) this Agreement; (b) Sellinger’s employment with Anheuser-Busch; and/or (c) the cessation of Sellinger’s employment with Anheuser-Busch must be resolved through the Anheuser-Busch Dispute Resolution Program,
 
9

 
which includes final and binding arbitration of covered claims. Sellinger acknowledges that he has previously signed the “Mutual Agreement to Arbitrate Claims” which is attached to this Agreement as Exhibit A and is incorporated by this reference.

11. Notices
Unless otherwise provided, all notices, requests, consents and other communications required or permitted under this Agreement must be in writing and must be hand delivered or mailed, addressed as follows, or to such other address as may be provided by the respective parties to this Agreement:
If to Anheuser-Busch:
Anheuser-Busch Companies, Inc.
One Busch Place
St. Louis, MO 63118
Attn.: President & Chief Executive Officer

If to Mr. Sellinger:
Mr. Joseph P. Sellinger
15 West Geyer
St. Louis, Missouri 63131


12. SELLINGER STATES THAT HE HAS CAREFULLY READ THIS “CONFIDENTIAL AGREEMENT AND GENERAL RELEASE,” THAT HE KNOWS AND UNDERSTANDS ITS CONTENTS AND THAT HE IS ENTERING INTO THIS AGREEMENT AS HIS OWN FREE ACT AND DEED. SELLINGER FURTHER REPRESENTS AND AGREES THAT:

·  
HE HAS BEEN ADVISED BY ANHEUSER-BUSCH TO CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT;

·  
HE FULLY UNDERSTANDS THAT HIS EXECUTION OF THIS AGREEMENT CONSTITUTES A FULL AND FINAL RELEASE OF ALL CLAIMS HE MAY HAVE AGAINST ANHEUSER-BUSCH AS OF THE EFFECTIVE DATE OF THIS AGREEMENT WITH FINAL AND BINDING EFFECT;

·  
HE HAS BEEN GIVEN AT LEAST 21 DAYS TO CONSIDER THIS AGREEMENT;

·  
FOR A PERIOD OF SEVEN DAYS FROM THE DATE HE SIGNS THIS AGREEMENT, SELLINGER MAY REVOKE THIS AGREEMENT BY
 
10

 
  
NOTIFYING ANHEUSER-BUSCH IN WRITING OF HIS INTENT TO DO SO; AND
 
·  
THIS AGREEMENT WILL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE, WHICH MAY BE ENFORCED BY THE PARTIES.

The parties to this Confidential Agreement and General Release now voluntarily and knowingly execute this Agreement.

ANHEUSER-BUSCH COMPANIES, INC.


By: /s/ Patrick Stokes                Date:  11/27/06                    
President &
Chief Executive Officer

 
/s/ Joseph P. Sellinger               Date:  11/2/06                      
JOSEPH P. SELLINGER
 
 
11
EX-10.28 7 ex10p28.htm Unassociated Document



Exhibit 10.28


November 22, 2006


Dear John,

On behalf of the Board of Directors and the shareholders of Anheuser-Busch, I want to thank you for your valuable service to the Company. In recognition of your dedicated service, the Company will transfer the title to your current Company car to you, on or before December 31, 2007;


Sincerely,



/s/ Vernon R. Loucks Jr.                                                     
Vernon R. Loucks Jr.
Chairman, Compensation Committee, Board of Directors
Anheuser-Busch Companies, Inc.
EX-10.29 8 ex10p29.htm Unassociated Document


Exhibit 10.29
CONFIDENTIAL AGREEMENT AND GENERAL RELEASE

This Confidential Agreement and General Release (“Agreement”) is between ANHEUSER-BUSCH INCORPORATED, a Missouri corporation with its principal offices at One Busch Place, St. Louis, Missouri, 63118, its parent, affiliates, subsidiaries, successors and assigns (collectively “Anheuser-Busch”), and JAMES F. HOFFMEISTER of 6902 Christopher Drive, St. Louis, Missouri 63129 (“Hoffmeister”).

IN CONSIDERATION of the mutual promises exchanged below, Anheuser-Busch and Hoffmeister agree as follows:

1. Retirement:
A. Anheuser-Busch and Hoffmeister have agreed that Hoffmeister will retire from Anheuser-Busch effective November 30, 2006.
B.  Until his retirement, Hoffmeister will remain in his current position as Group Vice-President, Procurement, Logistics and Agriculture to assist in the orderly transfer of his duties and responsibilities.
C. Unless otherwise agreed to by the parties, Hoffmeister agrees to return all Anheuser-Busch property (including, but not limited to, company documents and records, computers, cell phones and pagers, security badge and credit cards) upon his November 30, 2006 retirement.
D. Hoffmeister will be eligible to receive a 2006 bonus from Anheuser-Busch, which shall be paid to him not later than March 15, 2007.
E. Hoffmeister will not receive further Long Term Incentives (in the form of stock options or restricted stock). Hoffmeister’s rights in existing stock option grants are governed by the terms and conditions of his stock option agreements and applicable law, and will not be affected by the terms of this Agreement.

 
1

2. Special Retirement Benefits: 
A. Anheuser-Busch agrees that on or before March 15, 2007 it will transfer to Hoffmeister all rights, title and interest in the 2007 Cadillac-Escalade AWD (VIN: 1GYFK638X7R306714) that is currently assigned to him as a company car. The parties agree that such transfer shall be “As is - where is” and with no warranty express or implied by Anheuser-Busch.
B. Anheuser-Busch agrees that it will provide Hoffmeister and his eligible dependents with insured dental and vision benefits through May 31, 2010 that are materially similar to the dental and vision benefits that are provided from time to time to its salaried employees. In the event that Hoffmeister dies before May 31, 2010, Anheuser-Busch agrees to continue such benefits for his spouse until May 31, 2010.
C. Anheuser-Busch agrees that it will provided Hoffmeister with Executive level outplacement services, at a cost not to exceed $30,000, with a firm to be mutually selected by Anheuser-Busch and Hoffmeister; provided, however, that Hoffmeister must commence outplacement services on or before February 28, 2007 otherwise, he will forfeit all rights to this benefit, and Anheuser-Busch will pay the cost for such services to the provider on or before March 15, 2007.
D. Anheuser-Busch agrees that it will continue to pay the insurance premium on the supplemental executive life insurance policy (‘policy”) with an insured face value of $875,000 through Metropolitan Life, or its successor (“Insurer”), that it currently provides to Hoffmeister, as follows: Anheuser-Busch will continue to make monthly premium payments of $742.88 through February 2007; on or before March 15, 2007 it will pay to Insurer the sum of $9,303, as an annual insurance premium for the period of March 2007 through February 2008; on or before March 15, 2008 it will pay to Insurer the sum of $9,639, as an annual insurance premium for the period of March 2008 through February 2009; on or before March 15, 2009 it will pay to Insurer the sum of $10,174, as an annual insurance premium for the period of March 2009 through February 2010; and on or before March 15, 2010 it will pay to Insurer the sum of $2,698.50 to cover premium payments through May 31, 2010. Thereafter, the policy will continue in effect according to the terms of the policy, but all further premium payments shall be the responsibility of Hoffmeister.

2

3. Normal Retirement Benefits:
A. Upon his November 30, 2006 retirement Hoffmeister will be entitled to retiree medical benefits under the terms of the applicable retiree medical benefits plan then in effect. Hoffmeister shall also be entitled to elect distribution of benefits from the Anheuser-Busch Salaried Employees’ Pension Plan (“SEPP”), and the Anheuser-Busch Deferred Income Stock Purchase and Savings Plan (“401(k)”), according to the terms of such plans. Hoffmeister understands that processing of benefits from the SEPP or the 401(k) will not begin until he notifies the SEPP or 401(k) Plan Administrator in writing that he wants to receive benefits from that plan. Any benefit to which Hoffmeister is entitled under the Anheuser-Busch Companies, Inc. Supplemental Executive Retirement Plan (“SERP”) or the Anheuser-Busch 401(k) Restoration Plan will be distributed to Hoffmeister according to the terms of the applicable plan and pursuant to Hoffmeister’s existing election.

4. Consulting Arrangement
A. Upon Hoffmeister’s November 30, 2006 retirement, Anheuser-Busch agrees to retain Hoffmeister as a Consultant for a three-year period commencing June 1, 2007 and ending May 31, 2010. During the period he serves as a Consultant, Hoffmeister agrees to make himself available to consult with Anheuser-Busch up to 20 hours per calendar month on procurement, logistics and agricultural matters, and to attend such planning and strategy meetings as requested by Anheuser-Busch’s President & Chief Executive Officer or his designee. The parties agree that in no event shall Hoffmeister be required to provide services to Anheuser-Busch at an annual rate that is 45% or more of the services Hoffmeister rendered to Anheuser-Busch on average during the final three calendar years of his employment with Anheuser-Busch.
B. For his services as a Consultant, Anheuser-Busch agrees to pay Hoffmeister a consulting fee of $29,167.00 per month, less applicable withholding. Payment of all consulting fees shall be made on a semi-monthly basis, with the first consulting fee payment being due on June 15, 2007 and the last consulting fee payment being due on May 31, 2010.
 
 
3

C. Hoffmeister’s participation as an employee in the Anheuser-Busch employee benefit plans for salaried employees (except for retiree medical benefits) will cease as of November 30, 2006. Consulting fee payments made to Hoffmeister shall not be treated as wages under the SEPP, the 401(k), the SERP, the Anheuser-Busch 401(k) Restoration Plan, or the Anheuser-Busch Executive Deferred Compensation Plan.
D. During the consulting period, Anheuser-Busch will provide Hoffmeister with such equipment (e.g. laptop computer, cell phone, Blackberry pager, etc.) as the parties agree is necessary for Hoffmeister to effectively perform his consulting services. Hoffmeister shall work from his personal residence or office and shall not be provided with an office during the consulting period. In the event Hoffmeister is requested to travel in performing services for Anheuser-Busch, he will be entitled to reimbursement for all ordinary, necessary and reasonable travel expenses pursuant to company travel expense guidelines. In order to be entitled to such reimbursement Hoffmeister must submit an itemized expense report within 30 days after completion of each travel assignment as the basis for reimbursement by Anheuser-Busch.
E.  During the consulting period, Hoffmeister may be employed by, or provide services to, other companies, subject to the restrictive covenants set out in paragraph 8 of this Agreement.
F. Anheuser-Busch and Hoffmeister agree that the terms and conditions of the Indemnification Agreement between Anheuser-Busch Companies, Inc. and Hoffmeister effective July 1, 2004 shall continue to apply, but only as to events or occurrences that took place on or before his November 30, 2006 retirement. In the event that Hoffmeister is named a defendant in any civil suit as a result of his performing consulting services pursuant to this Agreement after his November 30, 2006 retirement, Anheuser-Busch agrees to indemnify Hoffmeister against expenses (including attorney fees), judgments, fines or amounts paid in settlement resulting from such suits, except to the extent that such amounts are incurred as a result of Hoffmeister’s gross negligence or willful misconduct.
 
 
4

G. In the event that Hoffmeister dies prior to May 31, 2010, Anheuser-Busch agrees to pay all remaining monthly consulting fee payments to Hoffmeister’s spouse unless otherwise directed in writing by Hoffmeister.

4. No Reemployment
Hoffmeister agrees that upon execution of this Agreement he is not eligible for further transfer or promotion with Anheuser-Busch, and after his November 30, 2006 retirement, he will not reapply for employment with Anheuser-Busch. Hoffmeister expressly releases and waives any and all rights or claims to any continued employment or reemployment with Anheuser-Busch after November 30, 2006.

5. No Admission of Liability
Hoffmeister acknowledges and agrees that he would not receive all the payments and benefits specified in this Agreement except for his execution of this Agreement and his fulfillment of its terms. Neither the making of this Agreement, nor anything contained in it, shall in any way be construed or considered to be an admission by Anheuser-Busch of noncompliance with any law or of any other wrongdoing.

6. Release of Liability
A. Except for the obligations of Anheuser-Busch as stated in this Agreement, Hoffmeister, of his own free will, voluntarily releases and forever discharges Anheuser-Busch and their respective directors, officers, employees and other authorized representatives (collectively the “Releasees”) from all actions, causes of action, claims, debts, charges, complaints, contracts and promises of any kind, whether known or unknown, which Hoffmeister, his heirs, executors, administrators, successors and assigns (referred to collectively throughout this Agreement as “Hoffmeister”) may have from all time in the past to the effective date of this Agreement, including, but not limited to, all matters or claims relating to or arising out of Hoffmeister’s employment by Anheuser-Busch and the cessation of his employment and including, but not limited to, any violation of:
(1)  
Title VII of the Civil Rights Act, as amended;

5

(2)  
Sections 1981 through 1988 of Title 42 of the United States Code;
(3)  
the Employee Retirement Income Security Act, as amended;
(4)  
the Family and Medical Leave Act;
(5)  
the Age Discrimination in Employment Act, as amended;
(6)  
the Americans with Disabilities Act;
(7)  
the Missouri Human Rights Act;
(8)  
the Sarbanes-Oxley Act of 2002;
(9)  
any other alleged violation of any local, state or federal law, regulation or ordinance and/or public policy, contract, tort or common law having any bearing on the terms and conditions and/or cessation of his employment with Anheuser-Busch.
Except as otherwise provided in this Agreement, this release shall not apply to any claim for benefits which may be due to Hoffmeister under any Anheuser-Busch employee benefit plan in which Hoffmeister is or was a participant.
B. Hoffmeister warrants that he has not caused or permitted to be filed on his behalf any charge, complaint, or action before any federal, state or local administrative agency or court against Anheuser-Busch and/or any of the Releasees. If any such claim is asserted in the future, Hoffmeister agrees that this Agreement will act as a complete bar to his re-employment or to his recovery of any amount from Anheuser-Busch and/or any of the Releasees resulting, directly or indirectly, from any lawsuit, remedy, charge or complaint whether brought privately by him or by anyone else, including any federal, state or local agency, whether or not on his behalf or at his request.

7. Confidentiality 
A. Hoffmeister agrees to keep in strict secrecy and confidence any and all unique, confidential and/or proprietary information and material belonging or relating to Anheuser-Busch that is not a matter of common knowledge or otherwise generally available to the public including, but not limited to, business, financial, trade, technical or technological information. Hoffmeister acknowledges and agrees that he remains subject to the “Employee Agreement as to Intellectual Property and Confidentiality,”
 
6

 
which he has previously signed and is incorporated into this Agreement by this reference.
B. Hoffmeister agrees that he will make no public statements and take no public action that disparages or is detrimental to Anheuser-Busch and/or any of the Releasees, or would otherwise cause or contribute to Anheuser-Busch and/or any of the Releasees being held in disrepute by the general public, customers or employees.
C. Hoffmeister acknowledges that Anheuser-Busch Companies, Inc., the parent company of Anheuser-Busch Incorporated, is a publicly traded company, and as such may be required to publicly disclose the terms of this Agreement, or to publicly file a copy of this Agreement, as required by law.

8. Restrictive Covenants
A. Unless otherwise agreed to in writing by Anheuser-Busch and upon such terms and conditions as Anheuser-Busch may impose, from the date of this Agreement until May 31, 2010, Hoffmeister shall not, anywhere in the world, engage, directly or indirectly, in any activity or business that manufactures, distributes or sells alcohol beverages and/or no-alcohol malt beverages or that otherwise competes with any current business activity of Anheuser-Busch Companies, Inc. and/or any of its affiliates or subsidiaries, either alone, as a member of a partnership or association, as an officer, director, employee, consultant or representative of or to any corporation, industry trade association, or other business entity, or as an investor in, or beneficial owner of 1% or more of any security of any class of any corporation or 1% or more of any equity interest of any unincorporated enterprise.
B. Hoffmeister agrees that if he violates any provision of this paragraph 8, or if an arbitrator or court of competent jurisdiction rules that the non-compete provisions of this paragraph 8 are not enforceable (either circumstance will be referred to in this paragraph as an “Event”), this Agreement will immediately terminate effective on the date of the Event, and Hoffmeister shall forfeit all remaining consulting payments due under paragraph 4 In the event that Anheuser-Busch believes that Hoffmeister is in violation of any provision of this paragraph 8, Anheuser-Busch shall give Hoffmeister written notice of such violation and Hoffmeister shall be provided with a reasonable
 
7

opportunity to cure such violation, discontinue such conduct, or present documented evidence establishing that the activity or employment does not constitute a violation of this Agreement, prior to Anheuser-Busch availing itself of its remedies under this paragraph 8. Anheuser-Busch will have the right at any time to request that Hoffmeister certify that he is in compliance with this paragraph 8, and Hoffmeister’s failure to certify such compliance as requested will be deemed to be: an Event as defined in this paragraph 8; a material violation of this paragraph 8; and a material breach of this Agreement.

9. Enforceability and Choice of Law
A. Except as otherwise provided in paragraph 8, above, should Hoffmeister challenge any provision of this Agreement and such provision be declared illegal or unenforceable by any arbitrator or court of competent jurisdiction and is not modified to be enforceable, such provision will immediately become void, leaving the remainder of this Agreement in effect. However, if any portion of the general release (paragraph 6) is ruled to be unenforceable as a result of such challenge, Hoffmeister agrees that Anheuser-Busch and/or any of the Releasees will be entitled to a set-off against any subsequent judgment or award made to Hoffmeister in the amount of all compensation paid to him by Anheuser-Busch under this Agreement.
B. The parties have read and fully considered this Agreement and mutually desire to enter into this Agreement. The terms of this Agreement are the product of mutual negotiation and compromise between Hoffmeister and Anheuser-Busch. Having elected to execute this Agreement, to fulfill the promises and receive the sums set forth, Hoffmeister freely and knowingly, and after due consideration, enters into this Agreement intending to waive, settle, and release all claims he has against Anheuser-Busch and/or any of the Releasees as of the effective date of this Agreement.
C. This Agreement shall be governed by and construed according to the law of the State of Missouri. This Agreement constitutes the entire understanding between Hoffmeister and Anheuser-Busch with respect to its subject matter. Except as otherwise provided in this Agreement, it supersedes all previous or contemporaneous negotiations, commitments, agreements, statements, representations, or promises, oral
 
8

or written between the parties. This Agreement may not be modified except in a writing signed by both parties.
D. It is the parties’ intent and expectation that the insured dental and vision benefits, life insurance premiums, transfer of car title and outplacement benefits, (“Exempt Benefits”) provided to Hoffmeister under the terms of this Agreement are exempt from the application of Internal Revenue Code Section 409A and all regulations and other guidance issued thereunder.  In the event that new regulations, interpretations or other legal guidance change that assessment, the parties intend that appropriate adjustments will be made to cause the Exempt Benefits to be exempt or, if that is not possible, to cause the Exempt Benefits to comply with Section 409A.  It is also the parties intent and expectation that all forms of compensation provided by this Agreement that are subject to the application of Section 409A ("Nonexempt Benefits") will fully comply with Section 409A, and in the event that new regulations, interpretations or other legal guidance change that assessment, the parties intend that appropriate adjustments will be made to cause the Nonexempt Benefits to comply with Section 409A.
E. Hoffmeister acknowledges that he has been advised by Anheuser-Busch that there may be substantial federal and state income tax consequences for Hoffmeister as a result of entering into this Agreement, and that he should seek professional tax and legal advice before doing so. Hoffmeister further acknowledges that he has not been provided with any advice on the tax effects of this Agreement by Anheuser-Busch or any of its employees or agents.

10. Remedies 
A. Hoffmeister agrees that if Anheuser-Busch breaches any provision of this Agreement, his sole remedy shall be enforcement of the terms of this Agreement. 
B. Anheuser-Busch and Hoffmeister agree that all disputes between the parties relating to or arising out of: (a) this Agreement; (b) Hoffmeister’s employment with Anheuser-Busch; and/or (c) the cessation of Hoffmeister’s employment with Anheuser-Busch must be resolved through the Anheuser-Busch Dispute Resolution Program, which includes final and binding arbitration of covered claims. Hoffmeister
 
 
9

acknowledges that he has previously signed the “Mutual Agreement to Arbitrate Claims” which is attached to this Agreement as Exhibit A and is incorporated by this reference.

11. Notices
Unless otherwise provided, all notices, requests, consents and other communications required or permitted under this Agreement must be in writing and must be hand delivered or mailed, addressed as follows, or to such other address as may be provided by the respective parties to this Agreement:
If to Anheuser-Busch:
Anheuser-Busch Incorporated.
One Busch Place
St. Louis, MO 63118
Attn.: President & Chief Executive Officer

If to Mr. Hoffmeister:
Mr. James F. Hoffmeister
6902 Christopher Drive
St. Louis, Missouri 63129


12. HOFFMEISTER STATES THAT HE HAS CAREFULLY READ THIS “CONFIDENTIAL AGREEMENT AND GENERAL RELEASE,” THAT HE KNOWS AND UNDERSTANDS ITS CONTENTS AND THAT HE IS ENTERING INTO THIS AGREEMENT AS HIS OWN FREE ACT AND DEED. HOFFMEISTER FURTHER REPRESENTS AND AGREES THAT:

 
·
HE HAS BEEN ADVISED BY ANHEUSER-BUSCH TO CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT;

 
·
HE FULLY UNDERSTANDS THAT HIS EXECUTION OF THIS AGREEMENT CONSTITUTES A FULL AND FINAL RELEASE OF ALL CLAIMS HE MAY HAVE AGAINST ANHEUSER-BUSCH AS OF THE EFFECTIVE DATE OF THIS AGREEMENT WITH FINAL AND BINDING EFFECT;

 
·
HE HAS BEEN GIVEN AT LEAST 21 DAYS TO CONSIDER THIS AGREEMENT;

 
·
FOR A PERIOD OF SEVEN DAYS FROM THE DATE HE SIGNS THIS AGREEMENT, HOFFMEISTER MAY REVOKE THIS AGREEMENT BY NOTIFYING ANHEUSER-BUSCH IN WRITING OF HIS INTENT TO DO SO; AND
 
 
10

 
 
·
THIS AGREEMENT WILL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE, WHICH MAY BE ENFORCED BY THE PARTIES.

The parties to this Confidential Agreement and General Release now voluntarily and knowingly execute this Agreement.

ANHEUSER-BUSCH COMPANIES, INC.


By: /s/ Patrick Stokes                Date:  11/27/06                    
President &
Chief Executive Officer

 
/s/ James F. Hoffmeister             Date:  11/27/06                    
JAMES F. HOFFMEISTER
 
 
11
EX-10.34 9 ex10p34.htm


Exhibit 10.34
 
ANHEUSER-BUSCH COMPANIES, INC.
 
RELATED PERSON TRANSACTIONS POLICY
 
The Company’s Code of Business Conduct and Ethics provides that employees, executive officers and directors owe a duty to the Company to act with integrity, which requires among other things, being honest and ethical. This includes the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. In addition, under applicable Securities and Exchange Commission (“SEC”) rules, the Company is required to disclose related person transactions as defined in the SEC’s rules.
 
The Board of Directors of the Company (the “Board”) has adopted this Related Person Transaction Policy to set forth the policies and procedures for the review and approval or ratification of Related Person Transactions (as defined below).
 
1.
Definitions
 
For the purposes of this Policy, a “Related Person” is:
 
 
 
a)
 
any person who is or was an executive officer, director, or director nominee of the Company at any time since the beginning of the last calendar year for which the Company has filed a Form 10-K;
 
 
 
b)
 
any person who is or was an Immediate Family Member of an executive officer, director, director nominee at any time since the beginning of the last calendar year for which the Company has filed a Form 10-K; or
 
 
 
c)
 
any person who, at the time of the transaction, is the beneficial owner of more than 5% of any class of the Company’s voting securities (a “Significant Shareholder”); or
 
 
 
d)
 
any person who, at the time of the transaction, is an Immediate Family Member of a Significant Shareholder of the Company.
 
An “Immediate Family Member” of a person is any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of such person, or any other person sharing the household of such person, other than a tenant or employee.
 
A “Related Person Transaction” is any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which the Company was or is to be a participant, the amount involved exceeds $120,000, and a Related Person had or will have a direct or indirect material interest. Except as otherwise set forth in this policy, “Related Person Transaction” specifically includes, without limitation, purchases of goods or services by or from the Related Person or entities in which the Related Person has a material interest, indebtedness, guarantees of indebtedness, and employment by the Company of a Related Person. The Board has determined that transactions with certain characteristics do not pose an actual or apparent conflict of interest and are, therefore, not “Related Person Transactions” for purposes of this Policy. These transactions are described on Exhibit 1 and include transactions in which the Related Persons are only directors and/or owners of a less than 10% equity interest in the entity
 
 
1

engaged in the transaction, arrangement or relationship with the Company; transactions in which the Related Persons are only directors, officers and/or owners of a less than 10% equity interest in the entity engaged in the transaction, arrangement or relationship with the Company and the amount of the transaction is not significant to either the Company or the other entity; transactions that are subject to review by the Compensation Committee of the Board; and transactions that have other characteristics or features mitigating concern about an actual or apparent conflict of interest.
 
2.
Policies and Procedures for Review, Approval or Ratification of Related Person Transactions
 
Any Related Person Transaction proposed to be entered into by the Company must be reviewed and approved by the Conflict of Interest Committee of the Board (the “Committee”) in accordance with the terms of this Policy. Such approval will be obtained prior to effectiveness or consummation of the Transaction, whenever practicable. If the Chairman of the Committee determines that advance Committee approval of a Related Person Transaction is not practicable under the circumstances, the Chairman of the Committee may preliminarily approve such Transaction, subject to ratification by the Committee at the next meeting of the Committee; provided, that if the Committee does not ratify the Transaction, the Company shall make all reasonable efforts to cancel or annul such Transaction.
 
Transactions with Passive Shareholders shall be reported to the Committee on an informational basis, but need not be reviewed and approved by the Committee.
 
In addition, any Related Person Transaction previously approved by the Committee or otherwise already existing that is ongoing in nature shall be reviewed by the Committee annually to ensure that such Related Person Transaction has been conducted in accordance with the previous approval granted by the Committee, if any, and that all required disclosures regarding the Related Person Transaction are made.
 
Transactions involving compensation, severance, termination, and special retirement arrangements for executive officers shall be reviewed and approved by the Compensation Committee of the Board in the manner specified in the charter of the Compensation Committee.
 
3.
Standards for Review, Approval or Ratification of Related Person Transactions
 
A Related Person Transaction reviewed under this Policy will be considered approved or ratified if it is authorized by the Committee in accordance with the standards set forth in this Policy after full disclosure of the Related Person’s interests in the transaction. As appropriate for the circumstances, the Committee shall review and consider:
 
 
·
 
the Related Person’s position(s) or relationship(s) with, or ownership in, the firm, corporation, or other entity that is a party to, or has an interest in, the Related Person Transaction;
 
 
 
·
 
the approximate dollar value of the amount involved in the Related Person Transaction;
 
 
 
2

 
 
·
 
the approximate dollar value of the amount of the Related Person’s interest in the transaction without regard to the amount of any profit or loss;
 
 
 
·
 
whether the transaction was undertaken in the ordinary course of business of the Company;
 
 
 
·
 
whether the transaction with the Related Person is proposed to be, or was, entered into on terms comparable to the terms the Company could have been reached with an unrelated third party;
 
 
 
·
 
the purpose of, and the potential benefits to the Company of, the transaction; and
 
 
 
·
 
any other information regarding the Related Person Transaction or the Related Person in the context of the proposed transaction that the Committee determines to be relevant to its decision to either approve or disapprove the Transaction.
 
The Committee will review all relevant information available to it about the Related Person Transaction. The Committee may approve or ratify the Related Person Transaction only if the Committee determines that, under all of the circumstances, the transaction is in the best interests of the Company. The Committee may, in its sole discretion, impose such conditions as it deems appropriate on the Company or the Related Person in connection with approval of the Related Person Transaction.
 
The review, approval or ratification of a transaction, arrangement or relationship pursuant to this Policy does not necessarily imply that such transaction, arrangement or relationship is required to be disclosed under item 404(a) of Regulation S-K.
 
4.
Interaction with Other Policies
 
This policy is in addition to, and is not a replacement for, other Company policies that may address situations involving Related Person Transactions, including without limitation, the Code of Business Conduct and Ethics, Policy on Employment of Relatives and Policy on Employee Purchase of an Anheuser-Busch Wholesaler.
 
3

Exhibit 1
 
The following are not considered to be Related Person Transactions for purposes of the policy:
 
1.
 
Interests arising only from the Related Person’s position as a director of another corporation or organization that is a party to the transaction;
 
2.
 
Interests arising only from the direct or indirect ownership by the Related Person and all other Related Persons in the aggregate of less than a 10% equity interest (other than a general partnership interest) in another entity which is a party to the transaction;
 
3.
 
Interests arising from both the position and ownership level described in (1) and (2) above;
 
4.
 
Interests arising solely from the Related Person’s position as an executive officer of another entity (whether or not the person is also a director of such entity) that is a participant in the transaction, where (a) the Related Person and all other Related Persons own in the aggregate less than a 10% equity interest in such entity, (b) the Related Person and his or her Immediate Family Members are not involved in the negotiation of the terms of the transaction with the Company and do not receive any special benefits as a result of the transaction and (c) the amount involved in the transaction equals less than the greater of $1 million dollars or 2% of the annual consolidated net sales of the other entity that is a participant in the transaction, and (d) the amount involved in the transaction equals less than 2% of the annual consolidated net sales of the Company;
 
5.
 
Interests arising solely from the ownership of a class of the Company’s equity securities if all holders of that class of equity securities receive the same benefit on a pro rata basis;
 
6.
 
A transaction that involves compensation to an executive officer if the compensation has been approved by the Compensation Committee of the Board or recommended to the Board for approval by the Compensation Committee of the Board and then approved by the Board;
 
7.
 
A transaction that involves compensation to a director for services as a director of the Company if such compensation will be reported pursuant to Item 402(k) of Regulation S-K;
 
8.
 
A transaction that is specifically contemplated by provisions of the Certificate of Incorporation or Bylaws of the Company;
 
9.
 
Interests arising solely from indebtedness of a Significant Shareholder or an Immediate Family Member of a Significant Shareholder to the Company;
 
10.
 
Transactions with Significant Shareholders (or their Immediate Family Members) who have a current Schedule 13G filed with the SEC with respect to their ownership of the Company’s securities (“Passive Shareholders”);
 
11.
 
A transaction where the rates or charges involved in the transaction are determined by competitive bids;
 
 
 
4

 
12.
 
A transaction that involves the rendering of services as a common or contract carrier or public utility at rates or charges fixed in conformity with law or governmental authority; or
 
13.
 
A transaction that involves services as a bank depositary of funds, transfer agent registrar, trustee under a trust indenture, or similar services.
 

 
 
5
 

 

 
EX-12 10 ex12.htm Unassociated Document

Exhibit 12


ANHEUSER-BUSCH COMPANIES, INC.
 
RATIO OF EARNINGS TO FIXED CHARGES


The following table sets forth the Company’s ratio of earnings to fixed charges, on a consolidated basis for the periods indicated ($ in millions):


   
2006
 
2005
 
2004
 
2003
 
2002
 
                       
Earnings
                     
                       
Consolidated pretax income
 
$
2,276.9
 
$
2,057.4
 
$
2,812.1
 
$
2,643.9
 
$
2,473.2
 
                                 
Dividends received from equity investees
   
247.0
   
210.1
   
179.0
   
169.2
   
46.7
 
                                 
Net interest capitalized
   
10.8
   
8.3
   
7.7
   
3.3
   
10.8
 
                                 
Fixed charges
   
498.5
   
502.3
   
471.1
   
442.6
   
406.8
 
                                 
Adjusted earnings
 
$
3,033.2
 
$
2,778.1
 
$
3,469.9
 
$
3,259.0
 
$
2,937.5
 
                                 
                                 
Fixed Charges
                               
                                 
Interest expense
 
$
451.3
 
$
454.5
 
$
426.9
 
$
401.5
 
$
368.7
 
                                 
Interest portion of rent expense 1/
   
41.9
   
42.5
   
38.9
   
36.3
   
34.1
 
                                 
Amortization of deferred debt issuance costs
   
5.3
   
5.3
   
5.3
   
4.8
   
4.0
 
                                 
Total fixed charges
 
$
498.5
 
$
502.3
 
$
471.1
 
$
442.6
 
$
406.8
 
                                 
                                 
Ratio of Earnings to Fixed Charges
   
6.1X
   
5.5X
   
7.4X
   
7.4X
   
7.2X
 

 
1/ Calculated as one-third of total rents paid.

 
 
EX-13 11 ex13.htm Exhibit 13
Exhibit 13
 
 
 
This discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity, and cash flows of Anheuser-Busch Companies, Inc., for the three-year period ended December 31, 2006. This discussion should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements included in this annual report.
 
Objectives
 
Anheuser-Busch remains focused on its three core objectives designed to enhance long-term shareholder value:
 
Increasing domestic beer segment volume and per barrel profitability which will provide the basis for earnings per share growth and improvement in return on capital employed.
 
Increasing international beer segment profit growth. Anheuser-Busch has made significant marketing investments to build recognition of its Budweiser brands outside the United States and owns and operates breweries in China, including Harbin Brewery Group, and in the United Kingdom. The company also has a 50% equity position in Grupo Modelo, Mexico's largest brewer and producer of the Corona brand, and a 27% equity position in Tsingtao, one of the largest brewers in China and producer of the Tsingtao brand.
 
Continued growth in pretax profit and free cash flow from the packaging and entertainment segments. Packaging operations provide significant efficiencies, cost savings, and quality assurance for domestic beer operations. Entertainment operations enhanced the company's corporate image by showcasing Anheuser-Busch's heritage, values and commitment to quality and social responsibility to 22 million visitors this year.
 
Comparison of Operating Results
 
Anheuser-Busch had a successful year in 2006, with consolidated net sales increasing 4.5% and reported diluted earnings per share growing 13.5%. Growth momentum was restored in the company's domestic beer business and significant progress was made on several strategic initiatives to enhance shareholder value. The company's domestic beer shipments were up 1.2% for the year and wholesaler sales-to-retailers were up 1.1%. Revenue per barrel was up 1.4% and productivity improvement reduced costs by almost $100 million. The company has made substantial progress increasing its participation in the high-margin and fast-growing import and craft segments of the beer market, including import alliances with InBev, Grolsch, Kirin, Tiger and the Czechvar brand, the acquisition of the Rolling Rock brands, and the introduction of several internally developed specialty brands. In addition, the company significantly expanded its participation in the fast growing energy drink business through a distribution agreement with Hansen Natural, including their Monster energy brands. Also, in December Anheuser-Busch announced a more aggressive leverage target (25% to 30% cash flow to total debt ratio) that will enable it to use its balance sheet more effectively to support existing operations, acquisitions, dividend growth and share repurchasing, while maintaining substantial financial flexibility. These strategic initiatives, the restoration of momentum in our domestic beer business, domestic price increases that have been implemented, and Modelo's new U.S. import joint venture position the company well for continued volume and earnings growth in 2007.
 
Comparisons of key operating results for 2006, 2005 and 2004 are summarized in the following tables. Effective in the first quarter 2006, Anheuser-Busch adopted FAS 123R, "Share-Based Payment." FAS 123R requires the recognition of stock compensation expense for stock options and other forms of equity compensation, based on the fair value of the instruments on the date of grant. In order to enhance the comparability of all periods presented and provide the fullest understanding of the impact that expensing stock compensation has on the company's financial results, Anheuser-Busch elected to apply the modified retrospective method of adopting FAS 123R. The company has therefore recast prior years' results to incorporate the impact of previously disclosed pro forma stock compensation expense. For financial reporting purposes, stock compensation expense is included in cost of sales and marketing, distribution and administrative expenses, depending on where the recipient's cash compensation is reported. Stock compensation expense is classified as a corporate item for segment reporting and was $.11, $.12 and $.15 per diluted share for 2006, 2005 and 2004, respectively.
 
Results shown below also include the impact of one-time items in all years that make direct comparisons of underlying operations between those years difficult. In 2006, the company recorded a one-time deferred income tax benefit resulting from tax legislation in Texas. The one-time items in 2005 are settlement of litigation involving a domestic beer wholesaler, the favorable impact of settling of certain tax matters in Chile related to the sale of the company's investment in Compañía Cervecerías Unidas S.A. (CCU), a deferred income tax benefit from tax legislation in Ohio and a gain on the sale of the company's interest in the Port Aventura theme park in Spain. In 2004 the company
 
26                                                                  ANHEUSER-BUSCH COMPANIES, INC.

 
recorded one-time gains related to the sale of commodity hedges and the sale of the company's equity investment in CCU, plus a deferred income tax benefit from a reduction in Mexican corporate income tax rates related to the company's Grupo Modelo equity investment. Excluding these one-time items, diluted earnings per share increased 9.1% in 2006, decreased 10.5% in 2005 and increased 10.3% in 2004. The company excludes certain one-time nonrecurring items from its analysis of operating results because it believes this provides a more accurate basis of comparison among years by eliminating potential distortion of the company's underlying performance trends, both favorable and unfavorable. This is the same basis of comparison used by Anheuser-Busch management and the Board of Directors to evaluate the company's operations. See additional discussion and quantitative analysis on pages 30 through 33.
               
   
2006
 
2005
 
2006 vs. 2005
 
Gross sales 
 
$
17,958
 
$
17,254
$
up  704
 
 
 up   4.1
%
Net sales 
 
$
15,717
 
$
15,036
$
  up  681
 
 
up   4.5
%
Income before income taxes 
 
$
2,277
 
$
2,057
$
  up  220
 
 
up 10.7
%
Equity income, net of tax 
 
$
589
 
$
498
$
up   91
 
 
up 18.2
%
Net income 
 
$
1,965
 
$
1,744
$
up 221
 
 
up 12.7
%
Diluted earnings per share 
 
$
2.53
 
$
2.23
 
$
up  .30
 
 
up 13.5
%
                   
   
2005
 
2004
 
2005 vs. 2004
 
Gross sales 
 
$
17,254
 
$
17,160
$
up    94
 
 
up    0.5
%
Net sales 
 
$
15,036
 
$
14,934
$
up  102
 
 
up    0.7
%
Income before income taxes 
 
$
2,057
 
$
2,812
$
down  755
 
 
down  26.8
%
Equity income, net of tax 
 
$
498
 
$
404
 
$
up    94
 
 
up  23.3
%
Net income 
 
$
1,744
 
$
2,119
 
$
down  375
 
 
down  17.7
%
Diluted earnings per share 
 
$
2.23
 
$
2.62
 
$
down   .39
 
 
down  14.9
%
                   
   
2004
 
2003
 
2004 vs. 2003
 
Gross Ssles
  $ 17,160  
$
16,320
 
$
 up  840
   
up   5.1
%
Net sales 
 
$
14,934
 
$
14,147
 
$
up  787
   
up   5.6
%
Income before income taxes 
 
$
2,812
 
$
2,644
 
$
up  168
   
up   6.4
%
Equity income, net of tax 
 
$
404
 
$
345
 
$
up    59
   
up 17.2
%
Net income 
 
$
2,119
 
$
1,963
 
$
up  156
   
up   8.0
%
Diluted earnings per share 
 
$
2.62
 
$
2.34
 
$
up    .28
   
 up 12.0
%
 
SALES
Revenue per barrel reflects the net average sales price the company obtains from wholesaler customers for its products. The higher the net revenue per barrel, the greater the company's gross profit dollars and gross profit margin, with revenue per barrel increases having nearly twice the impact on profits as comparable percentage increases in beer volume. Revenue per barrel is calculated as net sales generated by the company's domestic beer operations on barrels of beer sold, determined on a U.S. GAAP basis, divided by the volume of beer shipped to U.S. wholesalers.

Anheuser-Busch strives to obtain long-term price increases that are slightly less than increases in the U.S. Consumer Price Index (CPI). On a constant dollar basis, beer is more affordable today than it was 10 years ago, and the company believes this long-term pricing strategy allows for continuing future moderate price increases. The company also believes that significant excise tax increases, although not expected, could disrupt the current industry pricing environment because tax increases could trigger retail beer price increases significantly in excess of the CPI. The cost of such increases would be borne directly by consumers.
 
Anheuser-Busch reports domestic beer sales volume based on beer sales to the company's network of independent wholesalers. Higher beer sales-to-wholesalers volume will increase gross profit dollars and potentially increase gross profit margin. Wholesaler sales-to-retailers volume reflects demand for the company's products at the retail level. Higher wholesaler sales-to-retailers require increased beer sales-to-wholesalers to meet ongoing demand. The company has led the U.S. brewing industry in sales volume and market share since 1957.
 
WORLDWIDE BEER VOLUME
The company's reported beer volume for the three years ended December 31, 2006, is summarized in the following table (millions of barrels).
               
   
2006
 
2005
 
Change
 
Domestic 
   
102.3
   
101.1
   
up 1.2
%
International 
   
22.7
   
20.8
   
up 9.3
%
Worldwide A-B brands 
   
125.0
   
121.9
   
up 2.6
%
International equity partner brands 
   
31.6
   
26.4
   
up 19.7
%
Total brands 
   
156.6
   
148.3
   
up    5.6
%
               
   
2005
 
2004
 
Change
 
Domestic 
   
101.1
   
103.0
   
down    1.8
%
International 
   
20.8
   
13.8
   
up  50.8
%
Worldwide A-B brands 
   
121.9
   
116.8
   
up    4.4
%
International equity partner brands 
   
26.4
   
19.3
   
up  36.6
%
Total brands 
   
148.3
   
136.1
   
up    9.0
%
               
   
2004
 
2003
 
Change
 
Domestic 
   
103.0
   
102.6
   
up    0.4
%
International 
   
13.8
   
8.4
   
up  64.8
%
Worldwide A-B brands 
   
116.8
   
111.0
   
up   5.3
%
International equity partner brands
   
19.3
   
18.8
   
up   2.7
%
Total brands 
   
136.1
   
129.8
   
up   4.9
%
 
Worldwide Anheuser-Busch beer volume is composed of domestic volume and international volume. Domestic beer volume represents beer shipped within the United States, which includes both the company's domestically-produced brands and 
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                  27

 
imported brands. International beer volume consists of brands produced overseas by company-owned operations in China and the United Kingdom and under various license and contract-brewing agreements, plus exports from the company's U.S. breweries. International equity partners' volume represents the company's ownership percentage share of volume in its foreign equity partners Grupo Modelo and Tsingtao reported on a one-month-lag, and includes Anheuser-Busch's pro rata share in the beer volume of CCU for 2004. Total brands combine worldwide Anheuser-Busch brands volume with international equity partners' volume.
 
 
SALES - 2006 VS. 2005
Anheuser-Busch reported gross sales of $18.0 billion and net sales of $15.7 billion in 2006. Gross sales improved $704 million, or 4.1%, and net sales were up $681 million, or 4.5%. The difference between gross and net sales is due to beer excise taxes of $2.2 billion. Sales increases for the year were driven by improvement in all operating segments. Domestic beer net sales increased 2.8%, or $308 million on higher beer sales volume and increased revenue per barrel. International beer segment net sales grew 7%, or $65 million, primarily on volume increases. Packaging segment net sales increased 10%, or $153 million, on higher recycling sales. Entertainment sales increased 9%, or $94 million primarily from increased attendance and higher in-park spending.
 
Domestic beer revenue per barrel was up 1.4% due to the successful implementation of price increases and discount reductions on a majority of the company's domestic volume. Pricing initiatives have been tailored to selected markets, brands and packages. Revenue per barrel contributed $197 million to the segment increase in net sales, including the impact of the acquired Rolling Rock brands and imports Grolsch and Tiger. The 1.2% increase in domestic beer volume added $111 million to the increase in segment net sales. Wholesalers' sales-to-retailers increased 1.1% for the year. Rolling Rock, Grolsch and Tiger contributed 0.5 points of growth to both beer volume and sales-to-retailers. Wholesaler beer inventory levels at the end of the year are more than 1.5 days below 2005 year-end levels.

Domestic beer industry volume, including imports, was very strong, up approximately 2% in 2006. The company's estimated domestic market share (excluding exports) for the full year was 48.4%, compared with 2005 market share of 48.7%. Domestic market share is based on estimated U.S. beer industry shipment volume using information provided by the Beer Institute and the U.S. Department of Commerce. The company's shipment-based market share comparisons were adversely impacted by the reduction in wholesaler inventories.
 
International beer volume was up 9.3%, or 1.9 million barrels, on volume growth in China, Canada and Mexico, partially offset by declines in the United Kingdom and Ireland. Worldwide Anheuser-Busch brands volume was up 2.6%, or 3.1 million barrels, to 125.0 million barrels. Equity partner brands volume grew 19.7% for the year, to 31.6 million barrels due to Modelo and Tsingtao volume growth. The company began equity accounting for Tsingtao in May 2005. Total brands volume was up 5.6%, to 156.6 million barrels for the year.
 
SALES - 2005 VS. 2004
Gross and net sales increased slightly in 2005, to $17.3 billion and $15.0 billion, respectively. Beer excise taxes totaled $2.2 billion. For the year, gross sales increased $94 million, or 0.5%, and net sales improved $102 million, or 0.7%, on sales improvement in international beer, packaging and entertainment operations, partially offset by lower domestic beer sales.
 
International beer sales were up $123 million, or 15.2% due primarily to higher beer volume in China (including a full year of Harbin), Canada and Mexico. Commodity-based packaging operations sales were up $116 million, or 8.3% on higher aluminum prices and increased volume. Entertainment segment sales increased $96 million, or 9.7% from higher attendance, increased pricing and increased in-park spending. Domestic beer segment net sales decreased 2.5%, or $285 million. $206 million of the decrease is due to a 1.8% decline in beer sales volume, while $79 million stems from a 0.5% decrease in revenue per barrel for the year.
 
Domestic beer sales-to-wholesalers declined 1.8% while wholesaler sales-to-retailers increased 0.2% (selling day adjusted). Sales-to-retailers results were led by the Budweiser Family, particularly from the introduction of Budweiser Select. Wholesaler inventories were reduced significantly during 2005, ending the year over two days lower than the end of 2004.
 
The company's estimated domestic market share (excluding exports) for 2005 was 48.7%, compared with 2004 market share of 49.6%. Anheuser-Busch's shipment-based market share performance was adversely impacted by the company's wholesaler inventory reduction.
 
28                                                                ANHEUSER-BUSCH COMPANIES, INC.

 
International beer volume increased 50.8%, or 7.0 million barrels in 2005 due primarily to increased volume for China Budweiser operations, Canada and Mexico, and the impact of the Harbin Brewery acquisition in mid-2004. International volume excluding the impact of Harbin increased 324,000 barrels, or 3.8% for the year. The increase in international beer volume drove a worldwide Anheuser-Busch brands volume increase of 4.4% for 2005, to 121.9 million barrels. Equity partners' brands volume grew 7.1 million barrels, or 36.6% in 2005 due to Modelo volume growth and the addition of Tsingtao equity volume beginning in May 2005, partially offset by the loss of volume from the sale of CCU in the fourth quarter 2004. Total brands volume was up 9.0%, to 148.3 million barrels for the full year 2005.
 
SALES - 2004 VS. 2003
Anheuser-Busch generated gross and net sales of $17.2 billion and $14.9 billion, respectively, in 2004. Beer excise taxes totaled $2.2 billion. Gross sales for the year increased $840 million, or 5.1%, and net sales improved $787 million, or 5.6%. These increases were driven primarily by a 3% increase in domestic beer segment sales, due to 2.5% higher revenue per barrel and higher volume. The increase in revenue per barrel generated $323 million in net sales improvement and beer volume gains contributed $42 million of the increase. The consolidated gross margin impact of the increase in domestic beer revenue per barrel was offset by the impact of higher sales and costs from the company's commodity-based can manufacturing and aluminum recycling operations.
 
International beer segment sales increased $173 million due to volume gains in Canada, China, and the United Kingdom and the impact of Harbin in the second half of the year. Packaging segment sales increased $172 million primarily due to higher soft drink can volume and pricing, and increased recycling operations sales. Entertainment segment sales were up $65 million due to higher admissions pricing and increased in-park spending. Entertainment sales were adversely impacted by hurricanes in Florida in the second half of the year.
 
Domestic beer sales-to-wholesalers increased 0.4% in 2004, to 103.0 million barrels. This increase was led by the growth of Michelob ULTRA and Bud Light. Wholesaler sales-to-retailers declined 0.3% versus 2003. Both sales-to-retailers and sales-to-wholesalers were adversely impacted during 2004 by abnormally wet weather in many markets, especially during the key summer selling season. This was coupled with a general slowdown in consumer spending during the year, particularly among lower-income consumers. The company's domestic market share (excluding exports) for the full year 2004 was 49.6%, compared to 2003 market share of 49.7%.
 
International beer volume increased 5.4 million barrels, or 65%, to 13.8 million barrels in 2004 due to volume growth in Canada, China and the United Kingdom, and the addition of Harbin volume. Excluding 5.2 million barrels of Harbin volume, international volume grew 3.2% for the year. The growth in international volume drove the 5.3% increase in worldwide volume, to 116.8 million barrels. International equity partner volume grew to 19.3 million barrels, 2.7% versus 2003, as a result of Grupo Modelo volume improvement partially offset by the impact of the CCU sale in November. Total brands volume increased 4.9% for the year versus 2003.
 
COST OF SALES
The company continuously strives to reduce costs throughout its manufacturing and distribution systems. Brewery modernizations have yielded long-term savings through reduced beer packaging and shipping costs and reduced maintenance costs. The company's focused production methods and wholesaler support distribution centers concentrate small-volume brand and package production at three of the company's 12 breweries to create production efficiencies, reduce costs, and enhance responsiveness to changing consumer brand and package preferences. The company also works to reduce distribution costs for its products through better systemwide coordination with its network of independent wholesalers.
 
The cost of sales for 2006 increased $559 million, or 5.8% to $10.2 billion. The increase in cost of sales is attributable to higher costs for all the company's segments, including costs associated with higher beer volume worldwide; increased packaging materials and plant operating costs for domestic beer; higher energy costs for all operations; increased aluminum costs for recycling operations; and higher park operating costs for entertainment operations. Incremental costs associated with increased beer volume were $75 million for domestic beer and $48 million for international operations. Gross profit as percentage of net sales was down 80 basis points for the year, to 35.3% due primarily to lower gross margins for domestic and international beer and the commodity-based recycling operations.
 
The cost of sales was $9.6 billion for 2005, an increase of $586 million, or 6.5%. This increase is attributable to higher costs for all of the company's major business segments, including higher aluminum and other packaging materials expense and increased energy costs for domestic beer; incremental production costs for international beer associated with higher beer volume and the timing of the Harbin acquisition; increased aluminum, energy and other manufacturing costs for the commodity-based packaging segment; and higher park operating expenses in entertainment operations. Gross profit as a percentage of net sales decreased 350 basis points, to 36.1%, due primarily to the decreases in domestic beer sales volume and revenue per barrel combined with increases in domestic beer production costs.
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                    29

 
Cost of sales was $9.0 billion for 2004, an increase of $535 million, or 6.3%. The increase was due to higher costs for all of the company's business segments. Domestic beer costs were higher due to increased costs for brewing and packaging materials, costs associated with increased beer volume, and higher utility costs. International beer experienced higher costs associated with increased beer volume plus the impact of incremental cost of sales associated with the Harbin acquisition. Packaging operations experienced higher aluminum costs and entertainment operations incurred higher park operating expenses, including hurricane cleanup costs in the second half of the year. Consolidated gross profit margin decreased 40 basis points, to 39.6%, due primarily to a 20 basis point gross margin increase from domestic beer operations being more than offset by higher sales and costs from the company's commodity-based can manufacturing and aluminum recycling operations.
 
MARKETING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES
Advertising and promotional activities for its beer brands and theme park operations are important elements of Anheuser-Busch's strategy and represent significant annual expenditures. The company employs a variety of national, regional and local media outlets in its promotional efforts, including television, radio, the Internet, print and outdoor advertising and event sponsorships.
 
Marketing, distribution and administrative expenses were $2.8 billion for 2006, a decrease of $5 million, or 0.2% due to lower marketing expenses for domestic beer mostly offset by higher marketing costs for international beer in China and for entertainment operations, and increased general and administrative costs. The company also experienced slightly favorable distribution costs for company-owned beer wholesale operations due to having one less location.
 
Marketing, distribution and administrative expenses for 2005 were $2.8 billion, an increase of $97 million, or 3.5%. The increase is the result of higher marketing and selling costs for both domestic and international beer operations and increased entertainment marketing costs, partially offset by reduced general and administrative expenses. Domestic beer marketing costs were up primarily for the Budweiser Family, including the national introduction of Budweiser Select, and in support of beer volume and market share growth initiatives. International beer marketing increased primarily due to the Harbin acquisition. Higher domestic beer distribution costs were largely the result of increased fuel costs while international distribution costs increased due to Harbin and higher costs in the United Kingdom.
 
Marketing, distribution and administrative expenses were $2.7 billion in 2004, an increase of $98 million, or 3.7%. The increase was principally due to increased international beer marketing and distribution costs, higher entertainment advertising costs, increased marketing costs associated with the Olympics, higher domestic beer distribution costs from owning an additional wholesale operation, and higher corporate expenses due primarily to higher employee benefits costs.
 
Operating results for 2005 also include the one-time $105 million pretax litigation settlement cost which is reported as a separate line item in the consolidated income statement. See page 33 of this Discussion for additional information. The settlement expense is classified as a corporate item for business segment reporting.
 
OPERATING INCOME
Operating income represents the measure of the company's financial performance before net interest cost, other nonoperating items and equity income. The company generated operating income of $2.7 billion in 2006, an increase of $233 million, or 9.4%. Operating margin for the year was up 80 basis points to 17.3%. Excluding the 2005 litigation settlement, operating income was up $128 million, or 4.9% and operating margin improved 10 basis points as shown below.
               
   
2006
 
2005
 
Change
 
Reported operating margin
   
17.3
%
 
16.5
%
 
80
  bps
Impact of litigation settlement
   
   
0.7
   
(70
) bps
Excluding litigation settlement
   
17.3
%
 
17.2
%
 
10
  bps
 
Operating income of $2.5 billion decreased $687 million, or 22% in 2005. Operating margin for 2005 was 16.5%, a decline of 480 basis points due primarily to reduced domestic beer sales volume, lower revenue per barrel and higher operating costs, including the one-time litigation settlement. Excluding the litigation settlement, operating margin decreased 410 basis points, as shown below.
               
   
2005
 
2004
 
Change
 
Reported operating margin
   
16.5
%
 
21.3
%
 
(480
) bps
Impact of litigation settlement
   
0.7
       
70
   bps
Excluding litigation settlement
   
17.2
%
 
21.3
%
 
(410
) bps
 
Operating income was $3.2 billion in 2004, representing an increase versus prior year of $155 million, or 5.1%. Operating margin was 21.3% for 2004, level versus 2003.
 
INTEREST EXPENSE LESS INTEREST INCOME
Interest expense less interest income was $449.5 million for 2006, $452.1 million for 2005, and $422.2 million for 2004, representing a decrease of 0.6% in 2006, and increases of 7.1% and 5.6%, respectively, for 2005 and 2004. The 2006 result is due to lower average debt balances throughout the year mostly offset by higher average interest rates. The increases in 2005 and
 
30                                 &# 160;                           ANHEUSER-BUSCH COMPANIES, INC.

 
2004 primarily result from higher average outstanding debt balances compared with prior years, plus the impact of slightly higher average interest rates in 2005. See the Liquidity and Financial Condition section of this Discussion for additional information regarding the company's leverage philosophy and specific changes in the company's debt portfolio.
 
INTEREST CAPITALIZED
Interest capitalized as part of the cost basis of capital assets was $17.6 million in 2006, $19.9 million in 2005, and $21.9 million in 2004. The amount of interest capitalized fluctuates depending on construction-in-progress balances, which are impacted by the amount and timing of capital spending, the timing of project completion dates, and by market interest rates.
 
OTHER INCOME, NET
Other income, net includes items of a nonoperating nature that do not have a material impact on the company's consolidated results of operations, either individually or in total. Earnings from the company's equity investments in domestic beer wholesalers are included in other income in 2005 and 2004. The company had consolidated net other expense of $10.8 million in 2006, and net other income of $2.7 million and $38.7 million in 2005 and 2004, respectively.
 
Other income for 2005 includes the one-time $15.4 million pretax gain from the sale of the company's 13% stake in the Port Aventura theme park in Spain. The theme park sale gain was partially offset by expenses incurred to call the company's 7.25% and 7.00% U.S. dollar debentures due 2015 and 2025, respectively. These transactions are all classified as corporate items for business segment reporting.
 
Other income for 2004 includes a one-time pretax gain of $19.5 million from the sale of commodity derivatives that were originally placed for future years using estimates of conversion costs to be included in the renewal of supply contracts. These costs were reduced during negotiations, resulting in significant hedge ineffectiveness as determined under FAS 133. The company sold the hedges and realized the ineffective portion of the gain, which is reported in the corporate segment. Also in 2004, the company recorded a $13.4 million pretax gain on the sale of its investment in CCU, which is recognized in the international beer segment. In addition, the company sold equity investments in two domestic beer wholesaler partnerships in 2004 and recorded a $19.1 million pretax gain in domestic beer results.
 
 
INCOME BEFORE INCOME TAXES — 2006 VS. 2005
On a reported basis, income before income taxes increased 10.7%, or $220 million due to higher profits in domestic beer and entertainment operations. Pretax income increased 6.1%, excluding from 2005 results both the $105 million pretax litigation settlement charge and the $15.4 million pretax gain from the sale of the theme park interest in Spain. These items are excluded to enhance comparability (see page 33).
 
Income before income taxes for domestic beer was up 3.1%, or $83 million on higher volume, increased revenue per barrel and lower marketing costs, partially offset by higher beer production costs. Higher costs are primarily attributable to increased costs for aluminum and other packaging materials and energy. International beer pretax income decreased 11.3%, or $10 million due to lower earnings in the United Kingdom partially offset by increased profits in China, Canada, Ireland and Mexico. Packaging segment pretax income was up 2.5%, or $4 million primarily due to higher can manufacturing profits. Entertainment segment pretax results improved 13.1%, or $27 million on increased attendance and in-park spending, partially offset by higher park operating expenses and marketing costs.
 
INCOME BEFORE INCOME TAXES — 2005 VS. 2004
Reported income before income taxes decreased $755 million, or 27% primarily reflecting lower profits in domestic beer, international beer and packaging operations, partially offset by improved results from entertainment operations. Income before income taxes includes the impact of the one-time gains in both 2004 and 2005 plus the 2005 litigation settlement. Excluding these items from both years to enhance comparability, income before income taxes decreased 22.7% (see page 33).
 
Domestic beer pretax income decreased $603 million, or 18% due to lower beer sales volume, reduced revenue per barrel and higher costs. Higher costs resulted from commodity cost pressures for aluminum, glass and energy, plus costs for new packaging initiatives such as applied plastic labels and aluminum bottles. Pretax income for international beer decreased $44 
ANHEUSER-BUSCH COMPANIES, INC.                                                   31

 
million, or 34% for the full year primarily due to lower profits in China and the United Kingdom and the impact of the CCU sale gain in 2004, partially offset by improved results in Canada. Excluding the CCU sale gain, pretax income for international beer decreased 26%, as shown in the following table.
               
   
2005
 
2004
 
Change
 
International beer pretax income 
 
$
86.5
 
$
130.9
   
(33.9
)%
Gain on sale of CCU 
       
(13.4
)
 
7.5
 
International beer pretax excluding 
                   
CCU gain 
 
$
86.5
 
$
117.5
   
(26.4
)%
 
Packaging segment pretax profits were down $22 million, or 14% during 2005 due to higher energy and materials costs for can and glass manufacturing operations and lower profits for the company's aluminum recycling and label manufacturing operations. Entertainment segment pretax results improved $33 million, or 19% due to increased attendance, admissions pricing and in-park spending, partially offset by higher park operating expenses. Results in 2004 were adversely impacted by a series of hurricanes in Florida.
 
INCOME BEFORE INCOME TAXES — 2004 VS. 2003
Reported income before income taxes for 2004 was $2.8 billion, an increase of $168 million, or 6.4%. This increase reflects improved results for all of the company's operating segments. Excluding favorable one-time items in 2004 to enhance comparability, income before income taxes increased 5.1% (see page 33).
 
Pretax income for the domestic beer segment was up $159 million for the full year, reflecting increased beer volume and higher revenue per barrel, partially offset by higher costs. International beer segment pretax income improved $40 million for 2004, primarily due to volume and profit growth in China, Canada, and the United Kingdom; the impact of Harbin in the second half of the year; and the gain on the sale of CCU. Packaging segment pretax profits were up $8 million for the year primarily due to higher soft drink can volume and pricing and improved results from the company's aluminum recycling operations. Entertainment segment pretax income increased $10 million compared with the full year 2003, primarily due to higher admissions pricing and increased in-park spending, partially offset by hurricane impacts.
 
EQUITY INCOME, NET OF TAX
Equity income of $588.8 million was an increase of 18.2% versus prior year primarily due to Grupo Modelo volume increases, pricing growth in Mexico and a lower Mexican income tax rate.
 
Equity income was $498.1 million in 2005, an increase of $94 million, or 23% for year, reflecting the benefit of Grupo Modelo volume growth, lower Mexican income taxes and the impact of including Tsingtao equity income beginning May 2005, partially offset by the reduction in equity income due to the sale of CCU and a one-time $18 million deferred income tax benefit in 2004 from a reduction in Mexican corporate income tax rates. The tax benefit in 2004 was partially offset by $8 million of incremental U.S. deferred income taxes in the consolidated income tax provision. Excluding the Mexican tax benefit from 2004 results, equity income for full year 2005 increased 29% (see page 33).
 
Equity income was $404.1 million for 2004, up $59 million, or 17.2%, due to the benefit of revenue growth from Grupo Modelo and the $10 million Mexican income tax benefit (net of U.S. deferred taxes). Equity income results for 2003 included a $5.5 million one-time after-tax benefit representing Anheuser-Busch's equity share of a gain on the sale of a brewery by CCU. Excluding the Mexican tax rate benefit from 2004, equity income would have increased 11.9% (see page 33).
 
NET INCOME AND DILUTED EARNINGS PER SHARE
Diluted earnings per share for all years benefited from the company's ongoing share repurchase program. The company reported 2006 net income of $2.0 billion, a $221 million, or 12.7% increase compared to prior year. Diluted earnings per share increased $.30, or 13.5% to $2.53 for the same period. Comparisons of net income and earnings per share between 2006 and 2005 are impacted by one-time income tax events in both years, as well as the 2005 litigation settlement and gain on the sale of the Spanish theme park investment. In 2006, Anheuser-Busch recognized a gain of $7.8 million from the reduction of deferred income taxes resulting from state income tax reform legislation in Texas, while in 2005 the company recognized a similar gain of $7.2 million due to tax reform legislation in Ohio, incurred a favorable tax impact from the sale of the Spanish theme park, and reported a $6.8 million favorable settlement of certain Chilean taxes associated with the 2004 sale of the company's equity stake in CCU. Excluding these one-time items to enhance comparability, net income and diluted earnings per share for 2006 increased 8.5% and 9.1%, respectively.
 
Anheuser-Busch generated net income of $1.7 billion in 2005, a decrease of $374 million, or 17.7%, while reported diluted earnings per share of $2.23 decreased 14.9%, or $.39. Excluding the one-time 2005 items noted above and also the previously discussed one-time 2004 commodity hedge gain and Mexican income tax rate benefit, net income and diluted earnings per share decreased by 13.4% and 10.5%, respectively, versus 2004 as shown in the table on page 33.
 
32                                                          ANHEUSER-BUSCH COMPANIES, INC.


Net income of $2.1 billion for 2004 was an increase versus 2003 of $156 million, or 8%. Diluted earnings per share were $2.62, an increase of 12%, or $.28. Excluding the 2004 one-time items from the comparison with 2003, net income increased 6.1% and diluted earnings per share increased 10.3% (see table below).
 
The following information is provided to make direct comparisons easier for 2006, 2005 and 2004 versus prior year by excluding one-time items previously discussed (in millions, except per share). The company believes excluding one-time items better illustrates underlying results by providing a consistent basis of comparison.
                       
   
Income
Before
Income
Taxes
 
Provision
For Income
Taxes 
 
Equity
 Income 
 
Net
Income
 
Diluted
Earnings
Per Share
 
2006 
                     
Reported 
 
$
2,276.9
 
$
(900.5
)
$
588.8
 
$
1,965.2
 
$
2.53
 
Texas income tax legislation benefit 
   
   
(7.8
)
 
   
(7.8
)
 
(.01
)
Excluding one-time item 
 
$
2,276.9
 
$
(908.3
)
$
588.8
 
$
1,957.4
 
$
2.52
 
Percentage Change - 2006 vs. 2005 
                 
Reported 
   
10.7
%
       
18.2
%
 
12.7
%
 
13.5
%
Excluding one-time items 
   
6.1
%
       
18.2
%
 
8.5
%
 
9.1
%
2005 
                               
Reported 
 
$
2,057.4
 
$
(811.1
)
$
498.1
 
$
1,744.4
 
$
2.23
 
Gain on sale of Spanish theme park 
   
(15.4
)
 
(3.5
)
 
   
(18.9
)
 
(.024
)
CCU sale Chile tax settlement 
   
   
(6.8
)
 
   
(6.8
)
 
(.009
)
Ohio income tax legislation benefit 
   
   
(7.2
)
 
   
(7.2
)
 
(.009
)
Litigation settlement 
   
105.0
   
(12.6
)
 
   
92.4
   
.118
 
Excluding one-time items 
 
$
2,147.0
 
$
(841.2
)
$
498.1
 
$
1,803.9
 
$
2.31
 
Percentage Change - 2005 vs. 2004 
                 
Reported 
   
(26.8
)%
       
23.3
%
 
(17.7
)%
 
(14.9
)%
Excluding one-time items 
   
(22.7
)%
       
29.0
%
 
(13.4
)%
 
(10.5
)%
 
                       
   
Income
Before Income
Taxes
 
Provision
For Income
Taxes
 
Equity
Income
 
Net
Income
 
Diluted
Earnings
Per Share
 
2004 
                     
Reported 
 
$
2,812.1
 
$
(1,097.5
)
$
404.1
 
$
2,118.7
 
$
2.62
 
Commodity hedge gain 
   
(19.5
)
 
7.4
   
   
(12.1
)
 
(.015
)
Gain on sale of CCU 
   
(13.4
)
 
(1.3
)
 
   
(14.7
)
 
(.018
)
Benefit from Mexican tax rate reduction 
   
   
8.0
   
(18.0
)
 
(10.0
)
 
(.012
)
Excluding one-time items 
 
$
2,779.2
 
$
(1,083.4
)
$
386.1
 
$
2,081.9
 
$
2.58
 
Percentage Change - 2004 vs. 2003 
                 
Reported 
   
6.4
%
       
17.2
%
 
8.0
%
 
12.0
%
Excluding one-time items 
   
5.1
%
       
11.9
%
 
6.1
%
 
10.3
%
 
INCOME TAXES
The effective tax rates for 2006 and 2005 include on-going benefits from the American Jobs Creation Act. The company's fourth quarter effective tax rate is typically higher than during the rest of the year due to the granting of incentive stock options for which the company cannot assume a future tax deduction.
 
Anheuser-Busch's effective tax rate for 2006 was 39.5%, up 10 basis points for the year, and includes a benefit from partial utilization of the litigation settlement capital loss. Excluding the one-time $7.8 million Texas tax legislation benefit from 2006 the effective rate was 39.9%, an increase of 70 basis points primarily due to higher taxes on foreign earnings. This comparison excludes from 2005 the one-time tax impacts of the limited deductibility of the litigation settlement, the $3.5 million related to the sale of the Spanish theme park, the $6.8 million for the settlement of CCU tax matters and the $7.2 million Ohio tax legislation benefit.
 
The 2005 effective income tax rate of 39.4% was up 40 basis points versus 2004. The effective tax rate for 2005 includes the one-time favorable impacts noted above, which were essentially offset by a limited income tax benefit available from the litigation settlement. The company recognized a limited benefit for the settlement due to not having sufficient capital gains available to allow full deductibility of the loss.
 
The 2004 effective tax rate of 39.0% increased 20 basis points versus the 2003 rate. The rate for 2004 includes the impact of the $8 million of incremental U.S. deferred income taxes provided to partially offset the Mexican corporate income tax rate reduction previously discussed.
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                       33

 
 
EMPLOYEE-RELATED COSTS
Employee-related costs were $2.7 billion in 2006, an increase of 3.5% versus 2005. These costs totaled $2.6 billion in 2005, an increase of 1.8% versus 2004 costs of $2.5 billion, which increased 7.2% versus 2003. The changes in employee-related costs primarily reflect increases in annual compensation and benefits expense, including the impact of acquiring Harbin in 2004. Annual compensation comprises the majority of employee-related costs and totaled $2.0 billion in 2006 and $1.9 billion in both 2005 and 2004, representing an increase of 3.4% in 2006, a decrease in 2005 of 2.5%, due to lower stock compensation costs, and an increase in 2004 of 4.0%, respectively. The remainder of employee-related costs consists primarily of pension, life insurance and health care benefits and payroll taxes. The company had 30,183 full-time employees at December 31, 2006. Full-time employees numbered 31,485 and 31,435 at the end of 2005 and 2004, respectively.
 
 
OTHER TAXES
In addition to income taxes, the company is significantly impacted by other federal, state and local taxes, most notably beer excise taxes. Taxes related to 2006 operations, not including the many indirect taxes included in materials and services purchased, totaled $3.4 billion, an increase of 3.4% versus total taxes in 2005 of $3.3 billion. The increase in 2006 reflects higher beer excise taxes due to increased beer volume, and increased income taxes due to higher pretax earnings. Tax expense in 2005 decreased 8.1% compared with total taxes of $3.6 billion in 2004. These figures highlight the significant tax burden on the company and the entire brewing industry.
 
Proposals to increase excise taxes on beer are addressed by the company and the brewing industry every year. Anheuser-Busch understands that spending cuts or temporary tax increases may be necessary for states to address budget concerns; however, the company believes that states should accomplish this objective in the most efficient and least harmful way possible. The company does not believe excise taxes, which are regressive and primarily burden working men and women, are the solution. To ensure its views on this important matter are known, company and industry representatives meet proactively on an ongoing basis with legislators and administration officials from various states to present arguments against increases in beer excise taxes.
 
RETURN ON CAPITAL EMPLOYED
Value for shareholders is created when companies earn rates of return in excess of their cost of capital. Anheuser-Busch views the rate of return on capital employed to be an important performance measure because it gauges how efficiently the company is deploying its capital assets. Also, increases in the rate are often considered by the investment community to be a strong driver of stock price, especially in conjunction with earnings per share growth.
 
The company's rate of return on capital employed was 15.6% in 2006 compared to 14.0% and 17.5% in 2005 and 2004, respectively. Return on capital employed is computed as net income for the year plus after-tax net interest (interest expense less interest capitalized), divided by average net investment. Net investment is defined as total assets less nondebt current liabilities. The return on capital employed ratio measures after-tax performance; therefore net interest cost is tax-effected in the computation for consistency. For 2006, 2005, and 2004, after-tax net interest expense was $269 million, $269 million and $251 million, respectively, calculated as pretax net interest expense of $434 million, $435 million and $405 million, respectively, less income taxes applied at an assumed 38% rate.
 
Liquidity and Financial Condition
Anheuser-Busch's strong financial position allows it to pursue its growth strategies while also providing substantial returns to shareholders. Accordingly, the company has established the following priorities for its available cash:
 
Investing in core businesses to enhance profit growth. This includes capital expenditures in existing operations, and acquisitions and investments to enhance the company's long-term earnings growth.
 
34                                                                 ANHEUSER-BUSCH COMPANIES, INC.


Returning cash to shareholders by consistently increasing dividends in line with expected growth in diluted earnings per share, and share repurchasing, consistent with the company's leverage target.
 
The company considers its cash flow to total debt ratio to be one of the most important indicators of leverage, and following the company's announcement in December 2006, currently targets a ratio between 25% and 30%. Cash flow to total debt is defined as: operating cash flow before the change in working capital, adjusted for pension contributions less service costs; divided by total debt, adjusted to include the funded status of the company's single-employer defined benefit pension plans. Based on its specific financial position and risk tolerance, Anheuser-Busch believes this leverage target strikes the best balance between a low cost-of-capital and maintaining adequate financial flexibility. The company's ratio of cash flow to total debt was 32.7% in 2006, 29.5% in 2005, and 35.1% in 2004.
 
 
SOURCES AND USES OF CASH
The company's primary source of liquidity is cash provided by operations. Principal uses of cash are capital expenditures, business investments, dividends and share repurchases. Information on the company's cash flows, by category, is presented in the consolidated statement of cash flows.
 
Cash generated by each of the company's business segments is projected to exceed funding requirements for that segment's anticipated capital expenditures. Corporate spending on share repurchases and dividend payments, plus possible additional acquisitions, may require external financing as the company maintains its cash flow to total debt ratio within its target range. The use of debt financing lowers the company's overall cost of capital and the extent and timing of external financing will vary depending on the company's evaluation of existing market conditions and other economic factors. The company uses its share repurchase program to manage its leverage position, and typically operates at a working capital deficit as it manages its cash flows. The company had working capital deficits of $417 million, $224 million and $151 million, at December 31, 2006, 2005, and 2004, respectively.
 
 
OFF-BALANCE-SHEET OBLIGATIONS, COMMITMENTS AND CONTINGENCIES
Anheuser-Busch has a long history of paying dividends and expects to continue paying dividends each year. The company also has an active share repurchase program and anticipates continued share repurchase in the future. However, Anheuser-Busch has no commitments or obligations related to dividends, or for the repurchase or pledging of shares. The company has cash commitments in the normal course of business, including operating leases. The company has no off-balance-sheet obligations specifically structured to provide earnings or tax benefits, or to avoid recognition or disclosure of assets or liabilities.
 
The company's 9% debentures due 2009 permit holders to require repayment of the debt prior to its maturity after a decline in the company's credit rating below investment grade. The credit downgrade must be preceded by a change in control. The total outstanding balance for this debt at December 31, 2006, is $350 million. The 5.35% notes due 2023 permit beneficiaries of deceased note owners to require repayment of the debt at any time prior to maturity, subject to an annual limit of $25,000 per decedent and a cap on aggregate redemptions of $3.6 million per year. The company redeemed $2.8 million of these notes in 2006 and $1.8 million in 2005.
 
The company's fixed charge coverage ratio was 6.1X for the year ended December 31, 2006 and was 5.5X and 7.4X for the years ended December 31, 2005 and 2004, respectively.
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                             35

 
The company's future cash commitments are shown below, as of December 31, 2006 (in millions).
                       
   
2007
 
2008
and 2009
 
2010
and 2011
 
2012 and
Thereafter
 
Total 
 
Capital expenditures 
 
$
86
 
$
64
 
$
 
$
 
$
150
 
Operating leases 
   
44
   
59
   
43
   
271
   
417
 
Brewing and packaging materials 
   
410
   
277
   
222
   
321
   
1,230
 
Unfunded benefits payments 
   
67
   
146
   
150
   
416
   
779
 
Interest payments 
   
415
   
803
   
683
   
4,455
   
6,356
 
Royalty arrangements 
   
93
   
192
   
200
   
1,795
   
2,280
 
Maturities of long-term debt 
   
22
   
750
   
776
   
6,106
   
7,654
 
   
$
1,137
 
$
2,291
 
$
2,074
 
$
13,364
 
$
18,866
 
 
CAPITAL EXPENDITURES
During the next five years, the company will continue capital expenditure programs designed to take advantage of growth and productivity improvement opportunities for its beer, packaging and entertainment operations. The company has a formal and intensive review procedure for the authorization of capital expenditures, with the most important financial measure of acceptability for a discretionary capital project being the degree to which its projected discounted cash flow return on investment exceeds the company's cost of capital.
 
Capital expenditures were $813 million in 2006, were $1.1 billion in both 2005 and 2004, and totaled $4.9 billion over the past five years. The company expects capital expenditures of approximately $900 million in 2007 and is projecting capital spending during the five-year period 2007 - 2011 of $4.5 billion. See Note 13 for information on capital expenditures by business segment.
 
 
FINANCING ACTIVITIES
The company's debt balance decreased a total of $318.6 million in 2006, compared with a decrease of $306.5 million in 2005. Details of debt increases and decreases for the last two years follow.
 
Increases In Debt 
         
Description 
 
Amount
(in millions)
 
Interest Rate
(fixed unless noted)
 
2006 
         
U.S. Dollar Debentures 
 
$
300.0
   
5.75
%
Industrial Revenue Bonds 
   
17.7
   
4.98%, wtd. avg.
 
U.S. Dollar Notes 
   
17.3
   
5.54
%
Other 
   
11.3
   
Various
 
   
$
346.3
       
2005 
             
U.S. Dollar Notes 
 
$
100.0
   
5.49
%
United Kingdom Brewery Lease 
   
52.9
   
6.25
%
Other 
   
2.1
   
Various
 
   
$
155.0
       

Decreases In Debt 
         
Description 
 
Amount
(in millions)
 
Interest Rate
(fixed unless noted)
 
2006 
         
Commercial Paper 
 
$
444.2
   
5.00% wtd. avg., floating
 
U.S. Dollar Notes 
   
52.8
 
 
$50.0 at 5.6% and
 
 
          $2.8 at 5.35%  
U.S. Dollar EuroNotes 
   
100.0
   
4.51
%
Net Change in Chinese Renminbi-Denominated Debt 
   
43.8
   
5.41% wtd. avg.
 
Industrial Revenue Bonds 
   
20.0
   
6.63% wtd. avg.
 
Other 
   
4.1
   
Various
 
   
$
664.9
       
2005 
             
U.S. Dollar Debentures 
 
$
350.0
 
 
$200.0 at 7.0% and
 
 
          $150.0 at 7.25%  
Commercial Paper 
   
61.6
   
3.31% wtd. avg., floating
 
Net change in Chinese Renminbi-Denominated Debt 
   
37.8
   
5.41% wtd. avg.
 
U.S. Dollar Notes 
   
1.8
   
5.35
%
Other 
   
10.3
   
Various
 
   
$
461.5
       
 
In February 2007, the company issued $300.0 million of 5.6% U.S. dollar notes due 2017 and also replaced $20.2 million of 5.75% industrial revenue bonds due 2030 with 4.8% bonds due 2046.
 
In addition to long-term debt, Anheuser-Busch issues commercial paper as a source of short-term financing. Commercial paper activity is supported by the company's committed $2 billion bank revolving credit agreement that expires in October 2010. This standby credit agreement, which has never been used, provides Anheuser-Busch with an immediate and continuing source of liquidity. Commercial paper borrowings generally fluctuate in conjunction with the seasonality of operations and the timing of long-term debt issuance, with the company experiencing its strongest net positive cash flows in the second and third quarters of the year, and relatively lower net cash flows in the first and fourth quarters. Peak commercial paper borrowings
36                                                         ANHEUSER-BUSCH COMPANIES, INC.

 
of $1.4 billion and $1.6 billion occurred in February 2006 and April 2005, respectively. Lowest commercial paper borrowings were zero during portions of August and September 2006 and were $515 million in September 2005. Average outstanding commercial paper balances were $600 million during 2006 and $1.1 billion during 2005.
 
In 2006, the company executed a long-term lease with the City of New York for land to which the company will relocate its New York beer distribution facility. The company will construct a new warehouse, distribution, vehicle maintenance, and office complex on the site as well as make extensive site development improvements for a total estimated cost of approximately $72 million. The development site is located in a low-income distressed area of New York City and investment in the construction project qualifies for certain federal economic development tax incentives. In order to obtain the tax incentives, the company entered into agreements with Banc of America Community Development Corporation, Enterprise Community Investment, Inc. and certain affiliates to provide $46 million in construction financing, in the form of a project investment of $11 million and loan proceeds totaling $35 million. The $11 million investment is related to the development tax incentives and will be recognized by Anheuser-Busch as a reduction in its cost of financing over the seven-year term of the borrowing.
 
PENSION CONTRIBUTIONS
The company made total contributions to its pension plans of $352 million, $56 million, and $245 million, respectively, in calendar years 2006, 2005, and 2004. See Note 5 for additional retirement benefits information.
 
SHARE REPURCHASE
The company spent $746 million, $620 million, and $1.7 billion, to repurchase 16.7 million, 12.9 million, and 33.2 million Anheuser-Busch common shares in 2006, 2005, and 2004, respectively. Anheuser-Busch uses its share repurchase program to manage its capital structure consistent with its cash flow to total debt ratio leverage target. The company has historically repurchased significantly more shares each year than it has issued under stock option plans, with average net annual repurchases of 2.5% of outstanding shares for over 10 years. All shares are repurchased under authorization of the board of directors and in December 2006 the board of directors authorized a new multi-year repurchase of an additional 100 million shares, which brought total open authorized repurchases to approximately 115 million shares. See Note 11 for details of common stock activity.
 
DIVIDENDS
Dividends are paid in the months of March, June, September and December of each year. Cash dividends paid to shareholders were $872 million in 2006, $801 million in 2005, and $743 million in 2004. In the third quarter of 2006, effective with the September dividend, the board of directors increased the quarterly dividend rate from $.27 to $.295 per share. This increased annual dividends to $1.13 per share, a 9.7% increase compared with $1.03 per share in 2005. The dividend rate in 2005 reflected an increase of 10.8% versus the rate of $.93 per share in 2004. Quarterly dividends per share for the first and second halves of the year, respectively, were $.27 and $.295 for 2006, $.245 and $.27 for 2005, and $.22 and $.245 for 2004.

 
COMMON STOCK
At December 31, 2006, registered common stock shareholders numbered 51,888 compared with 53,573 at the end of 2005. The company's common stock is listed on the New York Stock Exchange under the symbol BUD. The closing price of the company's common stock at December 31, 2006 and 2005 was $49.20 and $42.96, respectively. Following are comparative 2006 and 2005 quarterly high and low closing prices for BUD.
 
Price Range of Anheuser-Busch Common Stock (BUD)
           
   
2006
 
2005
 
   
High
 
Low
 
High
 
Low
 
First quarter 
 
$
43.98
 
$
40.42
 
$
50.52
 
$
47.26
 
Second quarter 
 
$
46.96
 
$
41.90
 
$
48.10
 
$
45.10
 
Third quarter 
 
$
49.91
 
$
45.19
 
$
46.48
 
$
43.04
 
Fourth quarter 
 
$
49.38
 
$
46.14
 
$
44.70
 
$
40.57
 
 
Critical Accounting Policies
 
The SEC defines a critical accounting policy as a policy for which there is a choice among alternatives available under U.S. generally accepted accounting principles (GAAP), and for which choosing a legitimate alternative would yield materially different results. Outlined below are the accounting policies that Anheuser-Busch believes are essential to a full understanding of the company's operations and financial results. All the company's accounting policies are in compliance with U.S. GAAP.
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                 37


REVENUE RECOGNITION
The company's revenue recognition policies are simple, straightforward and comply with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The company recognizes revenue only when title transfers or services have been rendered to unaffiliated customers, based on negotiated arrangements and normal industry practices. As such, alternative recognition and accounting methods are not available to the company.
 
EQUITY METHOD ACCOUNTING
Anheuser-Busch applies the equity method of accounting whenever it believes it can exert significant influence on an investee company, typically 20% to 50% owned investments. Equity accounting involves recognizing the company's pro rata share of the net earnings of investee companies in the income statement. Cash is received and recognized (as a reduction of the company's investment, not equity income) only when distributed by the investee company. As an equity investor, Anheuser-Busch does not control the amount or timing of cash distributions by investees. The company provides incremental U.S. deferred income taxes on equity earnings in excess of dividends received. In 2006, the company had equity income of $588.8 million and received cash distributions from investees of $247.0 million. In 2005, Anheuser-Busch recognized equity income of $498.1 million and received cash distributions from investees of $210.1 million. In 2004, equity income was $404.1 million and cash received was $179.0 million. Consolidation of the company's equity investees would not be appropriate because Anheuser-Busch does not have control of these entities. Therefore, alternative accounting methods are not available. See Note 2 for additional information.
 
DERIVATIVES
The company's use of derivative financial instruments is limited to highly correlated hedges of either firm commitments or anticipated transactions that expose Anheuser-Busch to cash flow or fair value fluctuations in the ordinary course of business. Company policy expressly prohibits active trading or speculating with derivatives. Accordingly, all the company's derivative holdings are designated as hedges and qualify for hedge accounting under FAS 133, "Accounting for Derivatives and Related Hedging Activity." Since company policy is to only use derivatives that will qualify for hedge accounting under FAS 133, the accounting alternative to using hedge accounting would be to voluntarily forgo using hedge accounting, which could introduce volatility into the company's quarterly and annual earnings based on the changes in the market values of the derivatives.
 
ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional activities are a key element of the company's strategy, and represent significant annual costs incurred by the company. Advertising production costs are accumulated and expensed the first time the advertisement is shown, while advertising media costs are expensed as incurred. Both of these approaches are acceptable under GAAP and the company applies each consistently, based on the nature of the spending. Applying either method exclusively would not materially alter the timing of expense recognition.
 
Sales promotion costs are recognized as a reduction of net sales when incurred, as required by GAAP. There are no alternative accounting methods available.
 
POSTRETIREMENT PENSION, HEALTH CARE AND INSURANCE BENEFITS
Anheuser-Busch provides pension plans covering substantially all of its regular employees. The accounting for the majority of these plans under FAS 87, "Employer's Accounting for Pensions," requires that the company use three key assumptions when computing estimated annual pension expense. These assumptions are the long-term rate of return on plan assets, the discount rate applied to the projected pension benefit obligation, and the long-term growth rate for salaries.
 
Of the three key assumptions, only the discount rate is determined by observable market pricing, and it is based on the interest rate derived from matching future pension benefit payments with expected cash flows from high-quality, long-term corporate debt for the same periods. The discount rate used to value the company's pension obligation at any year-end is used for expense calculations the next year — e.g., the December 31, 2006 rate is being used for 2007 expense calculations. For the rates of return on plan assets and salary growth, the company uses estimates based on experience as well as future expectations. Due to the long-term nature of pension liabilities, Anheuser-Busch attempts to choose rates for these assumptions that will have long-term applicability. See Note 5 for information on the impact of a 1% change in key pension assumptions.
 
Anheuser-Busch provides health care and life insurance coverage for most of its retirees after they achieve certain age and years of service requirements. Under FAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," the company is required to estimate the discount rate and future health care cost inflation rate in order to determine annual retiree health care and life insurance expense, and to value the related postretirement benefit liability on the balance sheet. Similar to pensions, the discount rate is determined by observable market rates, and it is based on the interest rate derived from matching future postretirement benefits payments with expected cash flows from high-quality, long-term corporate debt for the same periods. Health care inflation rates are recommended by the company's actuarial consultants each year. See Note 5 for information on the impact of a 1% change in the assumed discount rate and health care inflation rate.
 
 
38                                                        ANHEUSER-BUSCH COMPANIES, INC.


Risk Management
 
Through its operations and investments, Anheuser-Busch is exposed to foreign currency exchange, interest rate, and commodity price risks. These exposures primarily relate to beer sales to foreign customers, foreign currency denominated capital expenditures, royalty receipts from foreign license and contract brewers, acquisition of raw materials from both domestic and foreign suppliers, dividends from equity investments and changes in interest rates. In addition to long-term supply agreements, the company uses derivative financial instruments, including forward exchange contracts, futures contracts, swaps, and purchased options and collars, to manage certain of these exposures. The company has been impacted by certain changes in underlying market conditions during 2005 and 2006, particularly upward cost pressure for commodities. There have been no significant changes in Anheuser-Busch's philosophy and approach for managing these exposures, or in the types of derivative instruments used to hedge the company's risks.
 
Anheuser-Busch has well-established policies and procedures governing the use of derivatives. The company hedges only firm commitments or anticipated transactions in the ordinary course of business and corporate policy prohibits the use of derivatives for speculation, including the sale of freestanding instruments. The company neither holds nor issues financial instruments for trading purposes. Specific hedging strategies used depend on several factors, including the magnitude and volatility of the exposure, the cost and availability of appropriate hedging instruments, the anticipated time horizon, the commodity basis exposure, the opportunity cost, and the nature of the underlying hedged item. The company's overall risk management goal is to strike a balance between managing its exposures to market volatility while obtaining the most favorable transaction costs possible. The company monitors the effectiveness of its hedging structures, based either on cash offset between changes in the value of the underlying hedged exposure and changes in the fair value of the derivative, or by measuring the ongoing correlation between the price of the underlying hedged exposure and the pricing upon which the derivative is based. The fair value of derivatives is the amount the company would pay or receive if terminating any contracts.
 
Counterparty default risk is considered low because derivatives are either exchange-traded instruments with frequent margin position requirements that are highly liquid, or over-the-counter instruments transacted with highly rated financial institutions. Bilateral collateral posting arrangements are in place with all over-the-counter derivatives counterparties, who are required to post collateral to Anheuser-Busch whenever the fair value of their positions reach specified thresholds favorable to the company. The thresholds are based on their credit ratings from Moody's and Standard & Poor's, respectively, as follows (in millions).
 
Fair Value Thresholds for Collateral Posting
       
Counterparties rated at least A2 or A 
 
$
30
 
Counterparties rated A3 and A- 
 
$
15
 
Counterparties rated below A3 or A- 
 
$
0
 
 
The same collateral posting requirements and thresholds apply to Anheuser-Busch and its credit ratings, if the fair value of the derivatives is unfavorable to the company. All collateral must be cash, U.S. Treasury securities, or letters of credit. At December 31, 2006, the company held zero counterparty collateral and had zero collateral outstanding. Given the composition of the company's derivatives portfolio, current market prices for derivatives held and the company's credit rating, material funding needs arising from the company's collateral arrangements are not expected.
 
Following is a summary of potential unfavorable changes in the fair value of the company's derivative holdings under certain market movements during the last two years (in millions).
           
   
2006
 
2005
 
Foreign Currency Risk — Forwards and Options 
 
$
0.7
 
$
1.0
 
Interest Rate Risk — Interest Rate Swaps 
 
$
0.3
 
$
0.3
 
Commodity Price Risk — Futures, Swaps and Options 
 
$
13.8
 
$
10.2
 
 
The company uses value-at-risk (VAR) analysis for foreign currency and interest rate derivatives exposures, and sensitivity analysis for commodity price exposures. VAR forecasts fair value changes using a Monte Carlo statistical simulation model that incorporates historical correlations among various currencies and interest rates. The VAR model assumes that the company could liquidate its currency and interest rate positions in a single day (one-day holding period). The volatility figures provided represent the maximum one-day loss the company could experience on each portfolio at a 95% confidence level, based on market history and current conditions. Sensitivity analysis reflects the impact of a hypothetical 10% adverse change in the market price for the company's underlying price exposures. The volatility of foreign currencies, interest rates, and commodity prices is dependent on many factors that cannot be forecasted with accuracy. Therefore, changes in fair value over time could differ substantially from the illustration. Also, the preceding derivatives volatility analyses ignore changes in the value of the underlying hedged transactions, although the company expects largely offsetting impacts between changes in derivative values and changes in the pricing of the underlying hedged transactions.
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                               39

 
The average daily change in fair value for interest rate swaps in 2006 was $200,000, with a computed one-day high of $900,000 and a one-day low of zero. The average daily change in fair value for foreign exchange derivatives in 2006 was $120,000, with a computed one-day high of $500,000 and a one-day low of zero. Average daily changes for foreign exchange derivatives are computed as the monthly variance in fair value divided by the number of business days in the month.
 
Anheuser-Busch's exposure to interest rate volatility related to its outstanding debt is low, because the company predominantly issues fixed-rate debt. At December 31, 2006, fixed-rate debt with an approximate average maturity of 15 years represented 90% of the company's outstanding debt. Assuming the percentage of floating-rate debt at year-end remains constant in 2007, and including the impact of an existing fixed-to-floating interest rate swap, an immediate 100 basis points (1.0 percentage point) increase in the company's effective interest rate would result in incremental interest expense of approximately $8 million over the course of the full year.
 
Other Matters
 
FAIR VALUE OF MODELO INVESTMENT
The economic benefit of the company's Modelo investment can be measured in two ways: through equity income, which represents Anheuser-Busch's pro rata share in the net earnings of Modelo, and by the excess of the fair market value of the investment over its cost. The excess of fair market value over the company's cost, based on Grupo Modelo's closing stock price on the Mexican stock exchange (Bolsa) at December 31, 2006, was $10 billion. Although this amount is appropriately not reflected in the company's income statement or balance sheet, it represents economic value to Anheuser-Busch and its shareholders.
 
CERTIFICATIONS AND GOVERNANCE
The company has included the required CEO and CFO certifications regarding the company's public disclosure as exhibits to its 2006 annual report on Form 10-K filed with the SEC. Also, a CEO certification regarding the company's compliance with corporate governance listing standards has been submitted to the New York Stock Exchange, as required by its listing rules. Available on the company's Web site, www.anheuser-busch.com, are charters for all standing committees of the board of directors (including audit, compensation and corporate governance); codes of business conduct for directors, officers and employees; and Anheuser-Busch's corporate governance guidelines.
 
ENVIRONMENTAL ISSUES
The company is strongly committed to environmental protection. Its Environmental Management System provides specific guidance for how the environment must be factored into business decisions and mandates special consideration of environmental issues in conjunction with other business issues when any of the company's facilities or business units plans capital projects or changes in processes. Anheuser-Busch also encourages its suppliers to adopt similar environmental management practices and policies.
 
The company is subject to federal, state and local environmental protection laws and regulations and is operating within such laws or is taking action aimed at assuring compliance with such laws and regulations. Compliance with these laws and regulations is not expected to materially affect the company's competitive position. It is the opinion of management that potential costs, either individually or in the aggregate, related to any federal or state designated cleanup sites for which Anheuser-Busch has been identified as a Potentially Responsible Party will not materially affect the company's financial position, results of operations, or liquidity.
 
40                                           &# 160;                    ANHEUSER-BUSCH COMPANIES, INC.

 
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
Management's Responsibility for Financial Statements
 
The company's financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States. The management of Anheuser-Busch is responsible for the preparation and presentation of the financial statements and other financial information included in this annual report, including the reasonableness of estimates and judgments inherent in the preparation of the financial statements.
 
The board of directors is responsible for ensuring the independence and qualifications of audit committee members under applicable New York Stock Exchange and U.S. Securities and Exchange Commission standards. The audit committee consists of five nonmanagement directors and oversees the company's financial reporting and internal controls system and meets with management, the independent auditors and the internal auditors periodically to review auditing and financial reporting matters. The audit committee is solely responsible for the selection and retention of the company's independent auditors, subject to shareholder approval. The audit committee held five meetings during 2006 and its report for 2006 can be found in the company's proxy statement.
 
In addition to the audits of the company's internal control over financial reporting and management's assessment of internal control over financial reporting, PricewaterhouseCoopers LLP, an independent registered public accounting firm, is also responsible for auditing the company's financial statements in accordance with the standards of the Public Company Accounting Oversight Board, and expressing an opinion as to whether the financial statements fairly present, in all material respects, the company's financial position, operating results, cash flows, and changes in shareholders equity.

Management's Report on Internal Control Over Financial Reporting
 
It is also management's responsibility to establish and maintain adequate internal control over financial reporting; as such term is defined by the U.S. Securities and Exchange Commission. Under the supervision and with the participation of management, including the chief executive officer and chief financial officer, the company conducted an assessment of the effectiveness of its internal control over financial reporting based on the framework set forth in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the company's financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
Based on the company's evaluation under the COSO framework, Anheuser-Busch management concluded that the company's internal control over financial reporting was effective as of December 31, 2006. The company's internal control over financial reporting, and management's assessment of the effectiveness of the company's internal control over financial reporting as of December 31, 2006, have both been audited by PricewaterhouseCoopers LLP, as stated in its report.
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                            41


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Shareholders and Board of Directors of Anheuser-Busch Companies, Inc.
 
We have completed integrated audits of Anheuser-Busch Companies, Inc.'s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
 
Consolidated Financial Statements
 
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in shareholders equity and cash flows present fairly, in all material respects, the financial position of Anheuser-Busch Companies, Inc. and its subsidiaries (the "Company") at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
As discussed in Notes 5 and 6 to the consolidated financial statements, respectively, the Company adopted Statement of Financial Accounting Standard No. 158, Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans, and Statement of Financial Accounting Standard No. 123(R), Share-Based Payment.
 
Internal Control Over Financial Reporting
 
Also, in our opinion, management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
 
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
 
St. Louis, MO
February 28, 2007
 
 
42                                                                                                                                                 ANHEUSER-BUSCH COMPANIES, INC.


CONSOLIDATED BALANCE SHEET
           
Year Ended December 31 (in millions, except per share) 
 
2006
 
2005
 
           
Assets 
         
Current Assets 
             
Cash 
 
$
219.2
 
$
225.8
 
Accounts receivable 
   
720.2
   
681.4
 
Inventories 
   
694.9
   
654.5
 
Other current assets 
   
195.2
   
197.0
 
Total current assets 
   
1,829.5
   
1,758.7
 
Investments in affiliated companies 
   
3,680.3
   
3,448.2
 
Plant and equipment, net 
   
8,916.1
   
9,041.6
 
Intangible assets, including goodwill of $1,077.8 and $1,034.5, respectively 
   
1,367.2
   
1,232.6
 
Other assets 
   
584.1
   
1,073.9
 
Total Assets 
 
$
16,377.2
 
$
16,555.0
 
               
Liabilities and Shareholders Equity 
             
Current Liabilities 
             
Accounts payable 
 
$
1,426.3
 
$
1,249.5
 
Accrued salaries, wages and benefits 
   
342.8
   
250.9
 
Accrued taxes 
   
133.9
   
156.7
 
Accrued interest 
   
124.2
   
123.7
 
Other current liabilities 
   
218.9
   
201.8
 
Total current liabilities 
   
2,246.1
   
1,982.6
 
Retirement benefits 
   
1,191.5
   
1,412.8
 
Debt 
   
7,653.5
   
7,972.1
 
Deferred income taxes 
   
1,194.5
   
1,345.9
 
Other long-term liabilities 
   
152.9
   
161.8
 
Shareholders Equity 
             
Common stock, $1.00 par value, authorized 1.6 billion shares 
   
1,473.7
   
1,468.6
 
Capital in excess of par value 
   
2,962.5
   
2,685.9
 
Retained earnings 
   
16,741.0
   
15,698.0
 
Treasury stock, at cost 
   
(16,007.7
)
 
(15,258.9
)
Accumulated nonowner changes in shareholders equity 
   
(1,230.8
)
 
(913.8
)
Total Shareholders Equity 
   
3,938.7
   
3,679.8
 
Commitments and contingencies 
   
   
 
Total Liabilities and Shareholders Equity 
 
$
16,377.2
 
$
16,555.0
 
 
The footnotes on pages 47 - 63 of this report are an integral component of the company’s consolidated financial statements.
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                                      43


CONSOLIDATED STATEMENT OF INCOME
               
Year Ended December 31 (in millions, except per share) 
 
2006
 
2005
 
2004
 
Gross sales 
 
$
17,957.8
 
$
17,253.5
 
$
17,160.2
 
Excise taxes 
   
(2,240.7
)
 
(2,217.8
)
 
(2,226.0
)
Net sales 
   
15,717.1
   
15,035.7
   
14,934.2
 
Cost of sales 
   
(10,165.0
)
 
(9,606.3
)
 
(9,020.0
)
Gross profit 
   
5,552.1
   
5,429.4
   
5,914.2
 
Marketing, distribution and administrative expenses 
   
(2,832.5
)
 
(2,837.5
)
 
(2,740.5
)
Litigation settlement 
   
   
(105.0
)
 
 
Operating income 
   
2,719.6
   
2,486.9
   
3,173.7
 
Interest expense 
   
(451.3
)
 
(454.5
)
 
(426.9
)
Interest capitalized 
   
17.6
   
19.9
   
21.9
 
Interest income 
   
1.8
   
2.4
   
4.7
 
Other income/(expense), net 
   
(10.8
)
 
2.7
   
38.7
 
Income before income taxes 
   
2,276.9
   
2,057.4
   
2,812.1
 
Provision for income taxes 
   
(900.5
)
 
(811.1
)
 
(1,097.5
)
Equity income, net of tax 
   
588.8
   
498.1
   
404.1
 
Net income 
 
$
1,965.2
 
$
1,744.4
 
$
2,118.7
 
                     
Basic earnings per share 
 
$
2.55
 
$
2.24
 
$
2.65
 
Diluted earnings per share 
 
$
2.53
 
$
2.23
 
$
2.62
 
 
The footnotes on pages 47 - 63 of this report are an integral component of the company’s consolidated financial statements.
 
44                                                                                                                                    ANHEUSER-BUSCH COMPANIES, INC.


CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
               
Year Ended December 31 (in millions, except per share) 
 
2006
 
2005
 
2004
 
               
Common Stock, $1.00 Par Value 
             
Balance, beginning of period 
 
$
1,468.6
 
$
1,463.0
 
$
1,457.9
 
Shares issued under stock plans 
   
5.1
   
5.6
   
5.1
 
Balance, end of period 
 
$
1,473.7
 
$
1,468.6
 
$
1,463.0
 
                     
Capital in Excess of Par Value 
                   
Balance beginning of period 
 
$
2,685.9
 
$
2,387.9
 
$
1,981.0
 
Stock compensation related 
   
138.2
   
134.1
   
187.3
 
Shares issued under stock plans 
   
138.4
   
163.9
   
145.6
 
Grupo Modelo capital transaction 
   
   
   
74.0
 
Balance, end of period 
 
$
2,962.5
 
$
2,685.9
 
$
2,387.9
 
                     
Retained Earnings 
                   
Balance, beginning of period 
 
$
15,698.0
 
$
14,754.4
 
$
13,404.2
 
Net income 
   
1,965.2
   
1,744.4
   
2,118.7
 
Common dividends paid (per share: 2006, $1.13; 2005, $1.03; 2004, $.93) 
   
(871.6
)
 
(800.8
)
 
(742.8
)
Deferred income tax adjustment 
   
(50.6
)
 
   
(25.9
)
Shares issued under stock plans 
   
   
   
0.2
 
Balance, end of period 
 
$
16,741.0
 
$
15,698.0
 
$
14,754.4
 
                     
Treasury Stock 
                   
Balance, beginning of period 
 
$
(15,258.9
)
$
(14,638.5
)
$
(12,939.0
)
Treasury stock acquired 
   
(745.9
)
 
(620.4
)
 
(1,699.5
)
Restricted stock cancellations 
   
(2.9
)
 
   
 
Balance, end of period 
 
$
(16,007.7
)
$
(15,258.9
)
$
(14,638.5
)
                     
Accumulated Nonowner Changes in Shareholders Equity 
                   
Balance, beginning of period 
 
$
(913.8
)
$
(988.9
)
$
(890.3
)
Foreign currency translation gains/(losses) 
   
(70.2
)
 
184.5
   
102.9
 
Deferred hedging gains/(losses) 
   
4.5
   
(1.1
)
 
(61.1
)
Deferred securities valuation gains/(losses) 
   
1.0
   
(95.6
)
 
(76.4
)
Deferred retirement benefits costs 
   
(252.3
)
 
(12.7
)
 
(64.0
Total changes, net of deferred income taxes 
   
(317.0
)
 
75.1
    (98.6
Balance, end of period 
 
$
(1,230.8
)
$
(913.8
)
$
(988.9
)
                     
ESOP Debt Guarantee 
                   
Balance, beginning of period 
  $
 
$
 
$
(46.3
)
Annual debt service 
   
   
   
46.3
 
Balance, end of period 
 
$
 
$
 
$
 
Total Shareholders Equity 
 
$
3,938.7
 
$
3,679.8
 
$
2,977.9
 
                     
Net Income and Nonowner Changes in Shareholders Equity 
                   
Net income 
 
$
1,965.2
 
$
1,744.4
 
$
2,118.7
 
Total nonowner changes in shareholders equity, net of deferred income taxes 
   
(317.0
)
 
75.1
   
(98.6
)
Combined Net Income and Nonowner Changes in Shareholders Equity 
 
$
1,648.2
 
$
1,819.5
 
$
2,020.1
 
 
The footnotes on pages 47 - 63 of this report are an integral component of the company’s consolidated financial statements.
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                          45


CONSOLIDATED STATEMENT OF CASH FLOWS
               
Year Ended December 31 (in millions) 
 
2006
 
2005
 
2004
 
               
Cash Flow from Operating Activities 
             
Net Income 
 
$
1,965.2
 
$
1,744.4
 
$
2,118.7
 
Adjustments to reconcile net income to cash provided by operating activities: 
                   
Depreciation and amortization 
   
988.7
   
979.0
   
932.7
 
Stock compensation expense 
   
122.9
   
134.1
   
187.3
 
lncrease/(Decrease) in deferred income taxes 
   
(45.8
)
 
(39.1
)
 
121.4
 
Gain on sale of business 
   
   
(15.4
)
 
(13.4
)
Undistributed earnings of affiliated companies 
   
(341.8
)
 
(288.0
)
 
(225.1
)
Other, net 
   
(168.6
)
 
136.6
   
(25.0
)
Operating cash flow before change in working capital 
   
2,520.6
   
2,651.6
   
3,096.6
 
(Increase)/Decrease in working capital 
   
188.8
   
50.3
   
(181.6
)
Cash provided by operating activities 
   
2,709.4
   
2,701.9
   
2,915.0
 
                     
Cash Flow from Investing Activities 
                   
Capital expenditures 
   
(812.5
)
 
(1,136.7
)
 
(1,089.6
)
New business acquisitions 
   
(101.0
)
 
   
(727.9
)
Proceeds from sale of business 
   
   
48.3
   
302.5
 
Cash used for investing activities 
   
(913.5
)
 
(1,088.4
)
 
(1,515.0
)
                     
Cash Flow from Financing Activities 
                   
Increase in debt 
   
334.8
   
100.0
   
1,443.8
 
Decrease in debt 
   
(663.3
)
 
(456.0
)
 
(510.6
)
Dividends paid to shareholders 
   
(871.6
)
 
(800.8
)
 
(742.8
)
Acquisition of treasury stock 
   
(745.9
)
 
(620.4
)
 
(1,699.5
)
Shares issued under stock plans 
   
143.5
   
161.4
   
146.1
 
Cash used for financing activities 
   
(1,802.5
)
 
(1,615.8
)
 
(1,363.0
)
Net increase in cash during the year 
   
(6.6
)
 
(2.3
)
 
37.0
 
Cash, beginning of year 
   
225.8
   
228.1
   
191.1
 
Cash, end of year 
 
$
219.2
 
$
225.8
 
$
228.1
 
 
The footnotes on pages 47 - 63 of this report are an integral component of the company’s consolidated financial statements.
 
46                                                                                                                                                           ANHEUSER-BUSCH COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.
Summary of Significant Accounting Policies
 
ACCOUNTING PRINCIPLES AND POLICIES
This summary of the significant accounting principles and policies of Anheuser-Busch Companies, Inc., and its subsidiaries is provided to assist in evaluating the company's consolidated financial statements. These principles and policies conform to U.S. generally accepted accounting principles. The company is required to make certain estimates in preparing the financial statements that impact the reported amounts of certain assets, liabilities, revenues and expenses. All estimates are based on the company's best information at the time and are in conformity with U.S. generally accepted accounting principles. Actual results could differ from the estimates, and any such differences are recognized when incurred.
 
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the company and all its subsidiaries. The company consolidates all majority-owned and controlled subsidiaries, uses the equity method of accounting for investments in which the company is able to exercise significant influence, and uses the cost method for all other equity investments. All significant intercompany transactions are eliminated. Minority interests in the company's consolidated China subsidiaries are not material.
 
REVENUE RECOGNITION
The company's revenue recognition practices comply with Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The company recognizes revenue only when legal title transfers or services have been rendered to unaffiliated customers. For malt beverages shipped domestically to independent wholesalers, title transfers on shipment of product from the company's breweries. For company-owned beer wholesalers, title transfers when products are delivered to retail customers. The company does not recognize any revenue when independent wholesalers sell the company's products to retail customers. For international beer and packaging operations, title transfers on customer receipt. Entertainment operations recognize revenue when customers actually visit a park location, rather than when advance or season tickets are sold.
 
TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are reported at net realizable value. This value includes an allowance for estimated uncollectible receivables, which is charged to the provision for doubtful accounts. Estimated uncollectible receivables are based on the amount and status of past-due accounts, contractual terms of the receivables and the company's history of uncollectible accounts.
 
FOREIGN CURRENCY
Financial statements of foreign subsidiaries where the local currency is the functional currency are translated into U.S. dollars using period-end exchange rates for assets and liabilities and average exchange rates during the period for revenues and expenses. Cumulative translation adjustments associated with net assets are reported in nonowner changes in equity and are not recognized in the income statement until the investment is sold.
 
Exchange rate gains or losses related to foreign currency transactions are recognized in the income statement as incurred, in the same financial statement caption as the underlying transaction, and are not material for any year shown.
 
TAXES COLLECTED FROM CUSTOMERS
Taxes collected from customers and remitted to tax authorities are state and federal excise taxes on beer shipments and local and state sales taxes on attendance, food service and merchandise transactions at the company's theme parks. Excise taxes are shown in a separate line item in the consolidated income statement as reduction of gross sales. Sales taxes collected from customers are recognized as a liability, with the liability subsequently reduced when the taxes are remitted to the tax authority. Entertainment operations collected from customers and remitted to tax authorities total sales taxes of $62.0 million, $56.4 million, and $52.5 million, respectively, in 2006, 2005 and 2004.
 
DELIVERY COSTS
In accordance with EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," the company reports pass-through freight costs on beer shipped to independent beer wholesalers in cost of sales. Reimbursements of these costs by wholesalers are reported in sales.
 
Costs incurred by company-owned beer wholesalers to deliver beer to retail customers are included in marketing, distribution and administrative expenses. These costs are considered marketing related because in addition to product delivery, drivers provide substantial marketing and other customer service functions to retailers including product display, shelf space management, distribution of promotional materials, draught line cleaning and product rotation. Delivery costs associated with company-owned beer wholesalers totaled $274.1 million, $277.5 million and $266.6 million, respectively in 2006, 2005 and 2004.
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                                             47


ADVERTISING AND PROMOTIONAL COSTS
Advertising production costs are deferred and expensed the first time the advertisement is shown. Advertising media costs are expensed as incurred. Advertising costs are recognized in marketing, distribution and administrative expenses and totaled $771.2 million in 2006, $849.8 million in 2005 and $806.7 million in 2004. Sales promotion costs are recognized as a reduction of net sales when incurred, and totaled $675.3 million in 2006, $716.7 million in 2005 and $535.7 million in 2004.
 
FINANCIAL DERIVATIVES
Anheuser-Busch uses financial derivatives to mitigate the company's exposure to volatility in commodity prices, interest rates, and foreign currency exchange rates. The company hedges only exposures in the ordinary course of business and company policy prohibits holding or trading derivatives for profit.
 
The company accounts for its derivatives in accordance with FAS No. 133, "Accounting for Derivative Instruments and Hedging Activity," which requires all derivatives to be carried on the balance sheet at fair value and meet certain documentary and analytical requirements to qualify for hedge accounting treatment. Hedge accounting creates the potential for an income statement match between the changes in fair values of derivatives and the changes in cost or values of the associated underlying transactions, generally in cost of sales for Anheuser-Busch. By policy, derivatives held by the company must be designated as hedges of specific exposures at inception, with an expectation that changes in the fair value will essentially offset the change in cost or value for the underlying exposure. All of the company's derivatives qualify for hedge accounting under FAS 133. Liquidation of derivative positions is required whenever it is subsequently determined that an underlying transaction will not occur, with the gains or losses recognized in the income statement on liquidation. The fair values of derivatives are determined from market observation or dealer quotation. Commodities derivatives outstanding at December 31, 2006, all have initial terms of three years or less and the associated underlying transactions are expected to occur within that timeframe.
 
Option premiums paid to counterparties are initially recorded as assets and subsequently adjusted to fair value each period, with the effective portion of the change in fair value reported in nonowner changes in equity until the underlying transaction occurs. Amounts due from counterparties (unrealized hedge gains) or owed to counterparties (unrealized hedge losses) are included in current assets and current liabilities, respectively.
 
See Note 3 for additional information on underlying hedge categories, notional and fair values of derivatives, types and classifications of derivatives used, and gains and losses from hedging activity.
 
INCOME TAXES
The provision for income taxes is based on the income and expense amounts reported in the consolidated statement of income. Deferred income taxes are recognized for the effect of temporary differences between financial reporting and tax filing in accordance with the requirements of FAS No. 109, "Accounting for Income Taxes." See Note 7 for additional information on the company's provision for income taxes, deferred income tax assets and liabilities, and effective tax rate.
 
In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." The Interpretation requires that realization of an uncertain income tax position must be estimated as "more likely than not" (i.e., greater than 50% likelihood of receiving a benefit) before it can be recognized in the financial statements. Further, the Interpretation requires the recognition of tax benefits recorded in the financial statements to be based on the amount most likely to be realized assuming a review by tax authorities having all relevant information. The Interpretation also clarifies the financial statement classification of tax-related penalties and interest and sets forth new disclosures regarding unrecognized tax benefits. Anheuser-Busch will adopt the Interpretation when required in the first quarter 2007. The company expects minimal impact from adoption of this Interpretation.
 
RESEARCH AND DEVELOPMENT COSTS AND START-UP COSTS
Research and development costs and plant start-up costs are expensed as incurred, and are not material for any year presented.
 
CASH
Cash includes cash in banks, demand deposits, and investments in short-term marketable securities with original maturities of 90 days or less.
 
INVENTORIES
Inventories are valued at the lower of cost or market. The company uses the last-in, first-out method (LIFO) valuation approach to determine cost primarily for domestic production inventories, and uses average cost valuation primarily for international production and retail merchandise inventories. LIFO was used for 68% and 72% of total inventories at December 31, 2006 and 2005, respectively. Had the average cost method been used for all inventories as of December 31, 2006 and 2005, the value of total inventories would have been $137.9 million and $126.6 million higher, respectively.

 
48                                                                                                                                                                        ANHEUSER-BUSCH COMPANIES, INC.    

 
Following are the components of the company's inventories as of December 31 (in millions).
           
   
2006
 
2005
 
Raw materials and supplies 
 
$
385.6
 
$
386.9
 
Work in process 
   
110.8
   
93.5
 
Finished goods 
   
198.5
   
174.1
 
Total inventories 
 
$
694.9
 
$
654.5
 
 
INTANGIBLE ASSETS
Anheuser-Busch's intangible assets consist of trademarks, beer distribution rights, and goodwill. Trademarks and beer distribution rights meeting criteria for separate recognition as specified by FAS 142, "Goodwill and Other Intangible Assets," are recognized in distinct asset categories. Trademarks include purchased trademarks, brand names, logos, slogans, or other recognizable symbols associated with the company's products. Trademarks are not amortized because they have indefinite lives. Domestic beer distribution rights are associated with company-owned beer wholesale operations and represent the exclusive legal right to sell the company's products in defined geographic areas. The carrying values of these rights have indefinite lives and are not amortized, primarily due to the company's intent to operate its wholesalerships in perpetuity and the lives not being contractually or statutorily limited. International distribution rights relate to operations in the United Kingdom and China and are being amortized over their respective useful lives. The company's distribution rights in the United Kingdom are contractually limited to 32 years and expire in 2029. Distribution rights in China are being amortized over seven years, through 2011, based on independent valuation appraisal and normal practice in China. The company analyzes its trademarks and product distribution rights for potential impairment annually, based on projected future cash flows and observation of independent beer wholesaler exchange transactions.
 
The company recognizes the excess of the cost of acquired businesses over the fair value of the net assets purchased as goodwill. Goodwill related to consolidated businesses is included in intangible assets on the balance sheet while goodwill associated with the company's equity investments (primarily Grupo Modelo) is included in investments in affiliated companies. Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually, with ongoing recoverability based on applicable operating unit performance, consideration of significant events or changes in the overall business environment and comparable market transactions. The impairment analysis for consolidated goodwill is performed at the reporting unit level using a two-step process. The first step is a comparison of the fair value of the business, determined using future cash flow analysis and/or comparable market transactions, to its recorded amount on the balance sheet. If the recorded amount exceeds the fair value, the second step quantifies any impairment write-down by comparing the current implied value of goodwill to the recorded goodwill balance. A review of goodwill completed in the fourth quarter of 2006 found no impairment. Goodwill related to equity investments is tested for impairment if events or circumstances indicate the entire investment could be impaired. Recoverability testing for equity investment goodwill is based on a combination of future cash flow analysis and consideration of pertinent business and economic factors. See Note 4 for additional information on changes in the balances of intangible assets.
 
COMPUTER SYSTEMS DEVELOPMENT COSTS
The company capitalizes computer systems development costs that meet established criteria, and amortizes those costs to expense on a straight-line basis over five years. Computer systems development costs not meeting the proper criteria for capitalization, including systems reengineering costs, are expensed as incurred.
 
PLANT AND EQUIPMENT
Fixed assets are carried at original cost less accumulated depreciation, and include expenditures for new facilities as well as expenditures that increase the useful lives of existing facilities. The cost of routine maintenance, repairs, and minor renewals is expensed as incurred. Depreciation expense is recognized using the straight-line method based on the following weighted-average useful lives: buildings, 25 years; production machinery and equipment, 15 years; furniture and fixtures, 10 years; computer equipment, 3 years. When fixed assets are retired or sold, the book value is eliminated and any gain or loss on disposition is recognized in cost of sales. The components of plant and equipment as of December 31 are summarized below (in millions).
           
   
2006
 
2005
 
Land 
 
$
297.7
 
$
282.5
 
Buildings 
   
5,123.6
   
4,970.4
 
Machinery and equipment 
   
12,919.8
   
12,552.9
 
Construction in progress 
   
369.5
   
403.1
 
Plant and equipment, at cost 
   
18,710.6
   
18,208.9
 
Accumulated depreciation 
   
(9,794.5
)
 
(9,167.3
)
Plant and equipment, net 
 
$
8,916.1
 
$
9,041.6
 
 
VALUATION OF SECURITIES
For investments accounted for under the cost basis, Anheuser-Busch applies FAS 115, "Accounting for Certain Investments in Debt and Equity Securities." Under FAS 115, the company classifies its investments as "available for sale" and adjusts the carrying values of those securities to fair market value each period. Market valuation gains or losses are deferred in nonowner changes in shareholders equity and are not recognized in the income statement until the investment is sold. The only investment currently accounted for under FAS 115 is an immaterial 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                              49

 
investment in the common stock of Kirin Brewing Company, Ltd. of Japan. In 2005 and 2004, deferred market valuations also included noncash changes in the value of convertible debt issued to the company by its strategic partner in China, Tsingtao Brewery. See Note 2 for a complete discussion of the company's investment in Tsingtao.
 
ISSUANCE OF STOCK BY EQUITY INVESTEES
The company has elected to treat issuances or repurchases of common stock by equity investees as equity transactions per SEC Staff Accounting Bulletin No. 52, and therefore recognizes no gain or loss when shares are issued or repurchased.
 
2.
International Equity Investments
 
GRUPO MODELO
Anheuser-Busch owns a 35.12% direct interest in Grupo Modelo, S.A.B. de C.V. (Modelo), Mexico's largest brewer and producer of the Corona brand, and a 23.25% direct interest in Modelo's operating subsidiary Diblo, S.A. de C.V. (Diblo). The company's direct investments in Modelo and Diblo give Anheuser-Busch an effective (direct and indirect) 50.2% equity interest in Diblo. Anheuser-Busch holds nine of 19 positions on Modelo's board of directors (with the Controlling Shareholders Trust holding the other 10 positions) and also has membership on the audit committee. Anheuser-Busch does not have voting or other effective control of either Diblo or Modelo and consequently accounts for its investments using the equity method. The total cost of the company's investments was $1.6 billion.
 
The carrying amount of the Modelo investment was $3,362.7 million and $3,148.3 million, respectively, at December 31, 2006 and 2005. Included in the carrying amounts of the Modelo investment is goodwill of $536.6 million and $558.0 million, respectively. Changes in goodwill during 2006 and 2005 are primarily due to changes in exchange rates between the U.S. dollar and Mexican peso.
 
Dividends received from Grupo Modelo in 2006 totaled $240.0 million, compared to $203.6 million in 2005 and $170.2 million in 2004. Dividends are paid based on a free-cash-flow distribution formula in accordance with the Investment Agreement between the companies and are recorded as a reduction in the carrying value of the company's investment. Cumulative unremitted earnings of Grupo Modelo totaled $1,901.5 million at December 31, 2006.
 
In the third quarter 2004, Modelo received a $251.0 million capital infusion into certain subsidiaries in exchange for equity in those subsidiaries. Anheuser-Busch recognized its after-tax share of the capital infusion as an equity transaction and reported an $85.4 million increase in its Grupo Modelo investment and a $74.0 million increase in capital in excess of par value, net of deferred income taxes of $11.4 million.
 
Summary financial information for Grupo Modelo as of and for the three years ended December 31 is presented in the following table (in millions). The amounts represent 100% of Grupo Modelo's consolidated operating results and financial position based on U.S. generally accepted accounting principles on a one-month lag basis, and include the impact of Anheuser-Busch's purchase accounting adjustments.
               
   
2006
 
2005
 
2004
 
Cash and marketable securities 
 
$
2,094.0
 
$
1,640.5
 
$
1,419.6
 
Other current assets 
 
$
1,017.6
 
$
933.3
 
$
719.4
 
Noncurrent assets 
 
$
4,538.5
 
$
4,592.8
 
$
4,041.3
 
Current liabilities 
 
$
524.7
 
$
407.1
 
$
406.0
 
Noncurrent liabilities 
 
$
345.9
 
$
411.3
 
$
356.9
 
Gross sales 
 
$
5,460.2
 
$
4,734.0
 
$
4,220.8
 
Net sales 
 
$
5,072.1
 
$
4,399.0
 
$
3,862.6
 
Gross profit 
 
$
2,643.9
 
$
2,315.1
 
$
2,092.3
 
Minority interest 
 
$
1.5
 
$
1.3
 
$
3.5
 
Net income 
 
$
1,141.1
 
$
966.8
 
$
788.1
 
 
TSINGTAO
Since 2003, Anheuser-Busch has participated in a strategic alliance with Tsingtao Brewery Company, Ltd., the largest brewer in China and producer of the Tsingtao brand. Through March 2005, the company had invested $211 million in Tsingtao, in the form of a 9.9% equity stake in Tsingtao common shares and two convertible bonds. The 9.9% equity interest was accounted for under the cost method through April 2005 when the company converted its bonds into Tsingtao Series H common shares. The bond conversion increased Anheuser-Busch's economic ownership in Tsingtao from 9.9% to 27%, and its voting stake from 9.9% to 20%. Local government authorities hold the proxy voting rights for the 7% difference between the company's voting and economic stakes. The increased economic stake allowed Anheuser-Busch to nominate an additional director, giving the company two of eleven board seats and representation on related committees. Because of the increased share and voting ownership and board representation, Anheuser-Busch believes it has the ability to exercise significant influence and therefore began applying the equity method of accounting for Tsingtao in May 2005, on a one-month lag basis.
 
In the fourth quarter 2003, the company loaned Tsingtao $15 million for a term of five years at an annual interest rate of l%. The loan provided Tsingtao with funding to reacquire minority interests in three of its brewery subsidiaries.
 
The carrying values of the company's Tsingtao investment were $241.9 million and $224.8 million, respectively, at December 31, 2006 and 2005. Dividends received from Tsingtao totaled $7.0 million in 2006 and $6.5 million in 2005.
 
50                                                                                                                                ANHEUSER-BUSCH COMPANIES, INC.  


3.
Derivatives and Other Financial Instruments
 
DERIVATIVES
Under FAS 133, derivatives are classified as fair value, cash flow or net investment hedges (foreign currency denominated), depending on the nature of the underlying exposure. The company's interest rate hedges are fair value hedges, while commodity cost hedges and most foreign currency denominated hedges are classified as cash flow hedges. Hedged commodity exposures are short, meaning the company must acquire additional quantities to meet its operating needs, and include aluminum, rice, corn and natural gas. Anheuser-Busch's primary foreign currency exposures result from transactions and investments denominated in Mexican pesos, Chinese renminbi, Canadian dollars, British pounds sterling, and euros. These exposures are long, meaning the company has or generates surplus quantities of these currencies.
 
Fair value hedges are accounted for by recognizing the changes in fair values for both the derivative and the underlying hedged exposure in earnings each period. For cash flow hedges, the portion of the derivative gain or loss that is effective in offsetting the change in cost or value of the underlying exposure is deferred in nonowner changes in shareholders equity, and later reclassified into earnings to match the impact of the underlying transaction when it occurs. Net investment hedges are accounted for in the foreign currency translation account in nonowner changes in shareholders equity. Regardless of classification, a 100% effective hedge will result in zero net earnings impact while the derivative is outstanding. To the extent that any hedge is ineffective at offsetting cost or value changes in the underlying exposure, there could be a net earnings impact. Gains and losses from the ineffective portion of any hedge are recognized in the income statement immediately.
 
Following are the notional transaction amounts and fair values for the company's outstanding derivatives at December 31 (in millions, with brackets indicating a deferred loss position). Because the company hedges only with derivatives that have high correlation with the underlying transaction cost or value, changes in derivatives fair values and the underlying cost are expected to largely offset.
                   
   
2006
 
2005
 
   
Notional
Amount 
 
Fair
Value 
 
Notional
Amount 
 
Fair
Value
 
Foreign currency 
                 
Forwards 
 
$
115.3
 
$
2.7
 
$
115.2
 
$
(2.1
)
Options 
   
306.5
   
4.4
   
277.2
   
7.6
 
Total foreign currency 
   
421.8
   
7.1
   
392.4
   
5.5
 
Interest rate 
                         
Swaps 
   
100.0
   
(1.3
)
 
250.0
   
0.2
 
Commodity price 
                         
Swaps 
   
22.2
   
(4.1
)
 
26.2
   
(3.8
)
Futures and forwards 
   
111.9
   
8.4
   
82.0
   
(1.9
)
Total commodity price 
   
134.1
   
4.3
   
108.2
   
(5.7
)
Total outstanding derivatives 
 
$
655.9
 
$
10.1
 
$
750.6
 
$
 
 
The table below shows derivatives gains and losses deferred in nonowner changes in shareholders equity as of December 31, 2006, 2005 and 2004 (in millions). The amounts shown for 2005 and 2004 were subsequently recognized in earnings as the hedged transactions took place, mostly in the next year. The gains and losses deferred as of December 31, 2006 are generally expected to be recognized in 2007 as the underlying transactions occur. However, the amounts ultimately recognized may differ, favorably or unfavorably, from those shown because some of the company's derivative positions are not yet settled and therefore remain subject to ongoing market price fluctuations. Included in the figures below are deferred option premium costs of $3.1 million, $4.4 million and $6.5 million at the end of 2006, 2005 and 2004, respectively.
               
   
2006
 
2005
 
2004
 
Deferred gains 
 
$
9.2
 
$
2.6
 
$
2.8
 
Deferred losses 
   
(5.9
)
 
(6.4
)
 
(4.9
)
Net deferred gains/(losses) 
 
$
3.3
 
$
(3.8
)
$
(2.1
)
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                 51


Following are derivative gains and losses recognized in earnings during the years shown. As noted, effective gains and losses had been deferred over the life of the transaction and recognized simultaneously with the impact of price changes in the underlying transactions. The ineffective gains and losses were recognized immediately when it was evident they did not precisely offset price changes in the underlying transactions. The ineffective gain for 2004 includes $19.5 million reported in other income related to the sale of commodity hedges that had been in place for future years. The hedges were originally placed using cost estimates which were subsequently lowered during contract renewal negotiations, resulting in significant hedge ineffectiveness in accordance with FAS 133.
               
   
2006
 
2005
 
2004
 
Effective gains 
             
Cash flow hedges 
 
$
1.5
 
$
20.1
 
$
65.7
 
Fair value hedges 
   
5.6
   
(0.5
)
 
 
Total effective gains 
   
7.1
   
20.6
   
65.7
 
Effective losses 
                   
Cash flow hedges 
   
(34.0
)
 
(8.1
)
 
(15.3
)
Fair value hedges 
   
(24.8
)
 
(6.0
)
 
(13.6
)
Total effective losses 
   
(58.8
)
 
(14.1
)
 
(28.9
)
Net effective gains/(losses) 
 
$
(51.7
)
$
6.5
 
$
36.8
 
Net ineffective gains 
 
$
2.2
 
$
0.2
 
$
26.5
 
 
CONCENTRATION OF CREDIT RISK
The company does not have a material concentration of credit risk.
 
NONDERIVATIVE FINANCIAL INSTRUMENTS
Nonderivative financial instruments included in the balance sheet are cash, accounts receivable, accounts payable and long-term debt. Accounts receivable include allowances for doubtful accounts of $17.6 million and $15.3 million, at December 31, 2006 and 2005, respectively. The fair value of long-term debt, excluding commercial paper, and estimated based on future cash flows discounted at interest rates currently available to the company for debt with similar maturities and characteristics, was $7.7 billion and $8.3 billion at December 31, 2006 and 2005, respectively.
 
4.
Intangible Assets
 
The following table shows the activity in goodwill, beer distribution rights and trademarks during the three years ended December 31 (in millions). International beer distribution rights have a combined gross cost of $57.1 million and a remaining unamortized balance of $40.0 million at December 31, 2006. The company expects amortization expense of approximately $5 million per year related to international distribution rights over the next five years.
               
   
Trademarks
 
Goodwill
 
Beer
Distribution
Rights
 
Balance at Dec. 31, 2003 
 
$
 
$
989.9
 
$
221.3
 
Domestic beer wholesaler acquisition 
   
   
21.2
   
10.6
 
Disposition of domestic beer wholesaler equity investment 
   
   
   
(40.1
)
Harbin acquisition 
   
44.4
   
613.8
   
15.4
 
CCU disposition 
   
   
(126.0
)
 
 
Amortization of international distribution rights 
   
   
   
(1.8
)
Foreign currency translation 
   
   
10.3
   
1.5
 
Balance at Dec. 31, 2004 
   
44.4
   
1,509.2
   
206.9
 
Domestic beer wholesaler disposition 
   
   
   
(5.6
)
Disposition of domestic beer wholesaler equity investment 
   
   
   
(20.9
)
Tsingtao investment 
   
97.9
   
   
11.6
 
Harbin purchase accounting adjustments 
   
   
34.3
   
 
Amortization of international distribution rights 
   
   
   
(4.7
)
Foreign currency translation 
   
3.5
   
49.0
   
(1.7
)
Balance at Dec. 31, 2005 
   
145.8
   
1,592.5
   
185.6
 
Harbin minority interest buyout 
   
   
20.5
   
 
Acquisition of Rolling Rock brands
   
79.3
   
   
3.0
 
Acquisition of Grolsch and Tiger import rights 
   
   
   
9.2
 
Domestic beer wholesaler equity investment 
   
   
   
27.8
 
Disposition of domestic beer wholesaler equity investment 
   
   
   
(14.8
)
Amortization of international distribution rights 
   
   
   
(5.6
)
Foreign currency translation 
   
4.6
   
1.4
   
3.3
 
Balance at Dec. 31, 2006 
 
$
229.7
 
$
1,614.4
 
$
208.5
 
 
5.
Retirement Benefits
 
ADOPTION OF FAS 158
In September 2006, the Financial Accounting Standards Board issued FASB No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans." FAS 158 focuses primarily on balance sheet reporting for the funded status of benefit plans and requires recognition of benefit liabilities for under-funded plans and benefit assets for over-funded plans, with offsetting impacts to nonowner changes in shareholders equity.
 
52                                                                                                                                          &# 160;        ANHEUSER-BUSCH COMPANIES, INC.


The company adopted FAS 158 effective with the December 31, 2006 financial statements. Anheuser-Busch is in a net underfunded position for its pension and retiree health care plans and has therefore recognized incremental retirement benefit liabilities on adoption. Additionally, the company has reclassified its pension liability from other long-term liabilities to retirement benefits on the consolidated balance sheet.
 
The new rules will also require companies to measure benefit plan assets and liabilities as of the balance sheet date for financial reporting purposes, eliminating the alternative approach of using a measurement date up to 90 days prior to the balance sheet date. The effective date for this change is delayed until year-end 2008. The company currently uses an October 1 measurement date and will adopt a December 31 measurement date in 2008 as required. Adopting the new measurement date will require a one-time adjustment to retained earnings per the transition guidance in FAS 158. None of the changes prescribed by FAS 158 will impact the company's results of operations or cash flows.
 
PENSION BENEFITS
The company sponsors pension plans for its employees. Net annual pension expense for single-employer defined benefit plans and total pension expense for the three years ended December 31 are presented in the following table (in millions). Contributions to multiemployer plans in which the company and its subsidiaries participate are determined in accordance with the provisions of negotiated labor contracts, based on employee hours or weeks worked. Pension expense recognized for these plans equals cash contributions made by Anheuser-Busch.
               
   
2006
 
2005
 
2004
 
Service cost (benefits earned during the year) 
 
$
102.7
 
$
94.2
 
$
86.6
 
Interest cost on projected benefit obligation 
   
170.0
   
168.3
   
159.2
 
Assumed return on plan assets 
   
(198.6
)
 
(194.9
)
 
(189.2
)
Amortization of prior service cost and net actuarial losses 
   
112.8
   
88.8
   
62.0
 
Single-employer defined benefit plans 
   
186.9
   
156.4
   
118.6
 
Multiemployer plans 
   
16.2
   
16.2
   
16.8
 
Defined contribution plans 
   
20.1
   
19.1
   
18.9
 
Total pension expense 
 
$
223.2
 
$
191.7
 
$
154.3
 
 
The measurement date for the company's pension accounting is October 1. The key actuarial assumptions used in determining the annual pension expense and funded status for single-employer defined benefit plans for the three years ended December 31 follow.
               
   
2006
 
2005
 
2004
 
Annual expense: 
             
Discount rate 
   
5.5
%
 
6.0
%
 
6.25
%
Long-term return on plan assets 
   
8.5
%
 
8.5
%
 
8.5
%
Rate of compensation growth 
   
4.0
%
 
4.25
%
 
4.25
%
Funded status: 
                   
Discount rate 
   
6.0
%
 
5.5
%
 
6.0
%
Rate of compensation growth 
   
4.0
%
 
4.0
%
 
4.25
%
 
For informational purposes, following is a summary of the potential impact on 2007 annual pension expense of a hypothetical 1% change in actuarial assumptions (in millions). Brackets indicate annual pension expense would be reduced. Modification of these assumptions does not impact the company's pension funding requirements
               
Assumption 
 
2006 Rate
 
Impact of
 1% Increase
 
Impact of
1% Decrease
 
Long-term return on assets 
   
8.5
%
$
(24.3
)
$
24.3
 
Discount rate 
   
5.5
%
$
(47.2
)
$
55.5
 
Compensation growth rate 
   
4.0
%
$
20.5
 
$
(18.1
)
 
Under FAS 158, pension assets or liabilities are recognized for the funded status of single-employer pension plans, based on a comparison of the projected benefit obligation (PBO) to plan assets for each plan. The following tables present changes in the PBO, changes in the fair value of plan assets and the combined funded status for all single-employer defined benefit plans for the two years ended December 31 (in millions).
           
   
2006
 
2005
 
Beginning projected benefit obligation (PBO) 
 
$
3,189.9
 
$
2,894.0
 
Service cost 
   
102.7
   
94.2
 
Interest cost 
   
170.0
   
168.3
 
Plan amendments 
   
3.3
   
6.7
 
Actuarial loss/(gain) 
   
(135.0
)
 
205.8
 
Foreign currency translation 
   
8.9
   
(6.6
)
Benefits paid 
   
(214.7
)
 
(172.5
)
Projected benefit obligation (PBO) at Oct. 1 
 
$
3,125.1
 
$
3,189.9
 
           
   
2006
 
2005
 
Fair value of plan assets, beginning of year 
 
$
2,314.7
 
$
2,188.1
 
Actual return on plan assets 
   
238.2
   
282.4
 
Employer contributions 
   
236.3
   
15.8
 
Foreign currency translation 
   
5.5
   
(3.9
)
Benefits paid 
   
(214.7
)
 
(172.5
)
Fair value of plan assets at Oct. 1 
   
2,580.0
   
2,309.9
 
Fourth quarter contributions 
   
79.3
   
4.8
 
Fair value of plan assets, end of year 
 
$
2,659.3
 
$
2,314.7
 
Funded status - PBO in excess of plan assets 
 
$
465.8
 
$
875.2
 
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                             53

 
The following shows pension assets and liabilities reported on the balance sheet at December 31, 2006. The PBO is the actuarial net present value of all benefits related to employee service rendered to date, including assumptions of future annual compensation increases to the extent appropriate. The pension asset is classified as noncurrent on the balance sheet. Of the $466.8 million total pension liability, $2.8 million is classified as current, with the remainder classified as noncurrent.
       
   
2006
 
Plans with assets in excess of PBO (pension asset) 
     
Plan assets 
 
$
117.6
 
PBO 
   
(116.6
)
Pension asset recognized 
 
$
1.0
 
       
   
2006
 
Plans with PBO in excess of assets (pension liability) 
     
PBO 
 
$
(3,008.5
)
Plan assets 
   
2,541.7
 
Pension liability recognized 
 
$
(466.8
)
 
Following is information the two years ended December 31 for those plans where the accumulated benefit obligation (ABO) for single-employer plans exceeds plan assets (in millions). The ABO is the actuarial present value of benefits for services rendered to date, with no consideration of future compensation increases.
           
   
2006
 
2005
 
Plans with ABO in excess of assets
         
ABO
 
$
(2,748.9
)
$
(2,890.9
)
Plan assets at Oct. 1
   
2,541.7
   
2,309.9
 
ABO in excess of plan assets 
 
$
(207.2
)
$
(581.0
)
 
The ABO for all plans totaled $2,865.5 at December 31, 2006 and $2,890.9 at December 31, 2005.
 
Following is the prepaid pension asset for single-employer pension plans recognized as of December 31, 2005 (in millions).
       
   
2005
 
Funded status - plan assets greater than/(less than) PBO 
 
$
(875.2
)
Unrecognized net actuarial loss 
   
1,136.2
 
Unamortized prior service cost 
   
131.1
 
Prepaid pension asset 
 
$
392.1
 
 
Prior to the adoption of FAS 158, recognition of an alternative minimum pension liability (offset in nonowner changes in equity) was necessary whenever the ABO exceeded plan assets. Summarized in the following table are the components of the company's minimum pension liability recognized for the year ended December 31, 2005 and the minimum pension liability at December 31, 2006 prior to adoption of FAS 158 (in millions).
           
   
2006
 
2005
 
Minimum pension liability - domestic plans 
 
$
(695.9
)
$
(968.4
)
Minimum pension liability - equity investments 
   
(15.7
)
 
(28.2
)
Intangible asset - unrecognized prior service costs 
   
108.3
   
132.6
 
Deferred income taxes 
   
233.3
   
334.3
 
Deferred pension costs, pre-FAS 158 
 
$
(370.0
)
$
(529.7
)
 
Following are deferred pension costs which have not yet been recognized in periodic pension expense but instead are accrued in nonowner changes in shareholders equity, as of December 31 (in millions). Unrecognized actuarial losses represent changes in the PBO over time, primarily due to changes in assumed discount rates. Unrecognized prior service cost is the impact of changes in plan benefits applied retrospectively to employee service previously rendered. Deferred pension costs are amortized into annual pension expense over the average remaining assumed service period for active employees, which was approximately ten years at the end of 2006. Actuarial losses and prior service costs expected to be amortized into net periodic pension expense in 2007 are $66 million and $19 million, respectively. Recording these deferred costs has no impact on annual pension expense or funding requirements.
           
   
2006
 
2005
 
Prior service cost 
 
$
(112.5
)
$
(131.1
)
Unrecognized actuarial losses 
   
(872.8
)
 
(837.3
)
Pretax deferred pension costs 
   
(985.3
)
 
(968.4
)
Deferred income taxes 
   
391.2
   
334.3
 
Deferred pension costs - domestic plans 
   
(594.1
)
 
(634.1
)
Intangible asset - unrecognized prior service cost 
   
   
132.6
 
Deferred pension costs - equity investments 
   
(15.7
)
 
(28.2
)
Net pension costs deferred in nonowner changes in shareholders equity 
 
$
(609.8
)
$
(529.7
)
 
The following illustrates the impact on nonowner changes in shareholders equity of accruing all deferred pension costs at December 31, 2006, in accordance with FAS 158 (in millions).
       
    
2006
 
 
 
Before
FAS 158
Adjustments
 
FAS 158
Adjustments
 
Ending
Balance
 
Reported in assets and liabilities 
             
Pension asset 
 
$
519.6
 
$
(518.6
)
$
1.0
 
Pension liability 
 
$
(695.9
)
$
229.1
 
$
(466.8
)
Reported in nonowner changes in shareholders equity 
                   
Deferred pension costs (domestic and equity) 
 
$
(711.6
)
$
(289.4
)
$
(1,001.0
)
Intangible asset - unrecognized prior service cost 
   
108.3
   
(108.3
)
   
Deferred income taxes 
   
233.3
   
157.9
   
391.2
 
Net deferred pension costs 
 
$
(370.0
)
$
(239.8
)
$
(609.8
)
 
 
 54                                                                                                                                     60;               ANHEUSER-BUSCH COMPANIES, INC. 

 
PENSION PLAN ASSETS
Required funding for the company's single-employer defined benefit pension plans is determined in accordance with guidelines set forth in the federal Employee Retirement Income Security Act (ERISA). Funding for the company's multi-employer and defined contribution plans is based on specific contractual requirements for each plan. Additional contributions to enhance the funded status of pension plans can be made at the company's discretion. The company plans to make required pension contributions totaling $58 million for all plans in 2007, and provided additional discretionary pension funding of $85 million in January 2007. The company also made accelerated pension contributions of $214 million in 2006 and $187 million in 2004. Projections indicated that Anheuser-Busch would have been required to contribute these amounts in future years, but the company chose to make the contributions early in order to enhance the funded status of the plans.
 
Following is information regarding the allocation of the company's pension plan assets as of December 31, 2006 and 2005 and target allocation for 2007.
               
Asset Category 
 
Percentage of
Plan Assets at
Dec. 31, 2005
 
Percentage of
Plan Assets at
Dec. 31, 2006
 
Target Asset
Allocation for
2007
 
Equity securities 
   
70
%
 
70
%
 
69
%
Debt securities 
   
26
%
 
26
%
 
27
%
Real estate 
   
4
%
 
4
%
 
4
%
Total 
   
100
%
 
100
%
 
100
%
 
Asset allocations are intended to achieve a total asset return target over the long term, with an acceptable level of risk in the shorter term. Risk is measured in terms of likely volatility of annual investment returns, pension expense, and funding requirements. Expected returns, risk, and correlation among asset classes are based on historical data and investment advisor input. The assumed rate of return on pension plan assets is consistent with Anheuser-Busch's long-term investment return objective, which enables the company to provide competitive and secure employee retirement pension benefits. The company strives to balance expected long-term returns and short-term volatility of pension plan assets. Favorable or unfavorable differences between the assumed and actual returns on plan assets are generally recognized in periodic pension expense over the subsequent five years. The actual annual rate of return on plan assets net of investment manager fees was 10.5%, 13.7% and 11.7% for plan years ended September 30, 2006, 2005 and 2004, respectively.

The company assumes prudent levels of risk to meet overall pension investment goals. Risk levels are managed through formal and written investment guidelines. Portfolio risk is managed by having well-defined long-term strategic asset allocation targets. The company avoids tactical asset allocation and market timing and has established disciplined rebalancing policies to ensure asset allocations remain close to targets. The company's asset allocations are designed to provide broad market diversification, which reduces exposure to individual companies, industries and sectors of the market. Pension assets do not include any direct investment in Anheuser-Busch debt or equity securities.
 
The use of derivatives is permitted where appropriate to achieve overall investment policy objectives. Derivatives may be used by investment funds to hedge exposure to foreign currency denominated stocks and securitize cash in investment portfolios.
 
RETIREMENT HEALTH CARE AND INSURANCE BENEFITS
The company provides certain health care and life insurance benefits to eligible retired employees. Through December 31, 2005, participants were required to have at least 10 years of service after the age of 45 to become eligible for any retiree health care benefits. Effective January 1, 2006, participants must have at least 10 years of continuous service after reaching age 48 to become eligible. Employees become eligible for full retiree health care benefits after achieving specific age and total years of service requirements, based on hire date.
 
Net periodic retirement benefits expense for company retiree health care and life insurance plans was comprised of the following for the three years ended December 31 (in millions). During 2004, Anheuser-Busch began recognizing the estimated impact of the Medicare Prescription Drug Improvement and Modernization Act, which provides federal payments to sponsors of retiree health care plans, such as Anheuser-Busch. On adoption of the Act, the company made a one-time $40.1 million reduction to its accumulated retirement benefits obligation which is accounted for as a deferred actuarial gain and amortized over the remaining service life of participating employees; approximately 9 years. Applying the Act has reduced annual retiree health care and life insurance expense by approximately $9 million.
               
   
2006
 
2005
 
2004
 
Service cost 
 
$
24.3
 
$
25.6
 
$
22.3
 
Interest cost on APBO 
   
36.9
   
39.3
   
34.8
 
Amortization of prior service benefit 
   
(16.4
)
 
(11.4
)
 
(11.4
)
Amortization of net actuarial loss 
   
20.2
   
14.1
   
4.2
 
Net periodic retirement health care and life insurance benefits expense 
 
$
65.0
 
$
67.6
 
$
49.9
 
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                                 55

 
The following table details the components of the company's obligation for its single-employer defined benefit retirement health care and life insurance plans as of December 31 (in millions). As of December 31, 2006 and 2005, $64.3 million and $60.9 million, respectively, of the company's accumulated postretirement benefits obligation (APBO) was classified as current. Postretirement benefits obligations are unfunded; therefore no assets are associated with the plans. At December 31, 2005, neither deferred actuarial losses (primarily due to changes in assumed discount rates and differences in assumed versus actual health care costs) nor deferred prior service benefits were recognized on the balance sheet. With the adoption of FAS 158, these deferred actuarial items are fully recognized on the balance sheet as of December 31, 2006. Deferred actuarial items are amortized into annual retirement benefits expense over the remaining service life of participating employees. Deferred actuarial losses and unrecognized prior service benefits expected to be amortized into net retirement benefits expense in 2007 are $25 million and $10 million, respectively.
           
   
2006
 
2005
 
APBO, beginning of year 
 
$
654.3
 
$
600.4
 
Service cost 
   
24.3
   
25.6
 
Interest cost 
   
36.9
   
39.3
 
Actuarial loss 
   
140.2
   
152.2
 
Plan amendments 
   
   
(99.9
)
Benefits paid 
   
(68.7
)
 
(63.3
)
Plan participants' contributions 
   
2.4
   
 
Medicare Part D subsidy 
   
2.4
   
 
APBO, end of year 
   
791.8
   
654.3
 
Unrecognized prior service benefits 
   
   
105.0
 
Unrecognized net actuarial losses 
   
   
(254.0
)
Total retirement health care and life insurance liability 
 
$
791.8
 
$
505.3
 
 
The following illustrates the impact on nonowner changes in shareholders equity of accruing all deferred retirement health care and life insurance costs at December 31, 2006, in accordance with FAS 158 (in millions).
       
   
2006
 
Deferred actuarial losses 
 
$
(374.0
)
Deferred prior service benefits 
   
88.6
 
Net deferred actuarial items 
   
(285.4
)
Deferred income taxes 
   
113.2
 
Net actuarial items deferred in nonowner changes in shareholders equity 
 
$
(172.2
)
 
The key actuarial assumptions used to determine net retirement benefits expense and the APBO for the three years ended December 31 are provided in the table below. For actuarial purposes, the initial health care inflation rate is assumed to decline ratably to the future rate in 2012 and then remain constant thereafter. The measurement date for the company's retiree health care accounting is December 31.
               
   
2006
 
2005
 
2004
 
Discount rate 
   
5.75
%
 
5.5
%
 
6.0
%
Initial health care inflation rate 
   
8.1
%
 
8.9
%
 
9.7
%
Future health care inflation rate 
   
5.0
%
 
5.0
%
 
5.0
%
 
For informational purposes, following is a summary of the potential impact on net periodic retirement benefits expense and the APBO of a hypothetical 1% change in the assumed health care inflation rate (in millions). Brackets indicate a reduction in expense or liability.
           
   
1% Increase
 
1% Decrease
 
Net periodic retirement benefits expense 
 
$
3.7
 
$
(3.7
)
Retirement benefits liability 
 
$
38.9
 
$
(39.3
)

RETIREMENT BENEFITS PAYMENTS
Following are retirement benefits expected to be paid in future years, based on employee data and plan assumptions, as of December 31, 2006 (in millions).
           
   
Pensions 
 
Health Care
and Insurance
 
2007 
 
$
166.0
 
$
64.3
 
2008 
 
$
173.1
 
$
65.2
 
2009 
 
$
192.7
 
$
67.1
 
2010 
 
$
208.3
 
$
68.4
 
2011 
 
$
223.3
 
$
70.1
 
2012 - 2016 
 
$
1,324.1
 
$
367.3
 
 
Effective November 30, 2006, the chairman of the board, the president and chief executive officer, and certain other senior executives retired as executive officers of the company and received lump sum pension payments from the supplemental executive retirement plan. The total of the lump sum payouts represented a portion of the supplemental plan's projected benefit obligation sufficient enough to constitute a plan settlement per FAS 88, Employer's Accounting for Settlements and Curtailments of Defined Benefit Pension Plans. Because the retirements occurred after the company's pension measurement date of October 1, and in accordance with FAS 88 settlement accounting, liabilities related to the supplemental plan have been remeasured as of December 15, 2006 and the company will recognize related deferred actuarial losses in the first quarter 2007.
 
EMPLOYEE STOCK PURCHASE AND SAVINGS PLANS
The company sponsors employee stock purchase and savings plans (401(k) plans), which are voluntary defined contribution plans in which most regular employees are eligible for participa-
 
56                                                                                                                                          &# 160;                     ANHEUSER-BUSCH COMPANIES, INC.

 
tion. Under the 401(k) plans, the company makes matching cash contributions for up to 6%of employee pretax savings. The company's matching contribution percentage is established annually based on a formula that considers both consolidated net income and total employee costs. Total 401(k) expense was $60.7 million, $63.6 million and $50.9 million for 2006, 2005 and 2004, respectively. The 2004 expense was favorably impacted by the funding of a portion of the company's matching obligation through qualified Employee Stock Ownership Plans (ESOPs) which expired in March 2004.
 
6.
Stock-Based Compensation
 
STOCK OPTIONS
Under the terms of the company's stock option plans, officers, certain other employees and nonemployee directors may be granted options to purchase the company's common stock at a price equal to the closing market price per the New York Stock Exchange Composite Tape on the date the options are granted. Previously, stock options were granted with an exercise price equal to the average of the high and low market prices on the effective date of the grant. At December 31, 2006, 2005 and 2004, a total of 115 million, 121 million and 95 million shares of common stock were designated for future issuance under existing stock option plans, respectively. The company issues new shares when options are exercised under employee stock compensation plans. Under the plans for the board of directors, shares are issued from treasury stock.
 
The company's stock options ratably vest over a three-year service period commencing immediately following grant of the award, and have a maximum life of 10 years. There are no performance-based vesting requirements associated with stock options. The company's stock option plans provide for immediate vesting of all unvested options whenever an employee voluntarily leaves the company and has completed at least 20 years of service or is at least age 60. For employees meeting these criteria the accelerated vesting policy renders the requisite three-year service condition "nonsubstantive" under FAS No. 123R. Due to the nonsubstantive service condition, these stock options are considered nonforfeitable, with the option grant date being the effective service completion date. The company therefore fully expenses all options granted to individuals meeting either criterion as of the grant date. The company also identifies stock options granted to employees who do not yet, but will meet the separation-based vesting criteria prior to the end of the three year vesting cycle and recognizes expense over the substantive vesting period for that group of options. Stock options granted to employees not meeting the separation-based vesting criteria are expensed ratably over the three-year option vesting period. Due to the requirement to expense nonforfeitable options as of the grant date, the company recognizes approximately 60% of its annual stock option expense in the fourth quarter each year when stock options are granted. For financial reporting purposes, stock compensation expense is included in cost of sales and marketing, distribution and administrative expenses, depending on where the recipient's cash compensation is reported, and is classified as a corporate item for business segments reporting.
 
Nonemployee directors may elect to receive their annual retainer in shares of Anheuser-Busch common stock instead of cash. If all nonemployee directors eligible to own the company's common stock elected to receive their 2007 annual retainer in shares, the total number of shares issued would be 14,634, based on the closing price for the company's common stock at December 31, 2006.
 
The company's stock option plans provide for accelerated exercisability on the occurrence of certain events relating to a change in control, merger, sale of substantially all company assets, or complete liquidation of the company.
 
Following is a summary of stock option activity and pricing for the years shown (options in millions).
                   
   
Options
 Outstanding
 
Wtd. Avg.
Exercise
Price
 
Options
Exercisable
 
Wtd. Avg.
 Exercise
Price
 
Balance, Dec. 31, 2003 
   
83.4
 
$
41.67
   
55.2
 
$
37.43
 
Granted 
   
14.1
 
$
50.30
             
Exercised 
   
(5.5
)
$
26.15
             
Cancelled 
   
(0.2
)
$
48.13
             
Balance, Dec. 31, 2004 
   
91.8
 
$
43.93
   
64.1
 
$
40.92
 
Granted 
   
11.4
 
$
43.83
             
Exercised 
   
(5.9
)
$
25.48
             
Cancelled 
   
(0.8
)
$
49.38
             
Balance, Dec. 31, 2005 
   
96.5
 
$
45.01
   
71.5
 
$
44.06
 
Granted 
   
9.5
 
$
46.34
             
Exercised 
   
(4.9
)
$
27.43
             
Cancelled 
   
(1.1
)
$
48.64
             
Balance, Dec. 31, 2006 
   
100.0
 
$
45.97
   
80.3
 
$
45.89
 
 
The fair values of options granted during the last three years are as follows (in millions, except per option).
               
   
2006
 
2005
 
2004
 
Fair value of each option granted 
 
$
9.73
 
$
8.81
 
$
10.49
 
Total number of options granted 
   
9.5
   
11.4
   
14.1
 
Total fair value of options granted 
 
$
92.4
 
$
100.4
 
$
147.9
 
 
The fair value of stock options granted has been estimated on the date of grant using a binomial (lattice method) option-pricing model. The binomial model is used for valuation because it accommodates several inputs in order to take into account multiple option exercise patterns as determined by the 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                            57

 
company's actuaries, and essentially computes an overall value based on a weighting of each distinct pattern. The assumptions used in applying the binomial model follow. For illustrative purposes, the expected life, risk-free rate, and fair value per option shown are weighted averages derived from the distinct exercise patterns. The volatility of Anheuser-Busch common stock is estimated by the company's actuaries based on an analysis of both historical and current market volatilities.
               
   
2006
 
2005
 
2004
 
Expected life of option 
   
6.3 yrs.
   
5.5 yrs.
   
5.5 yrs.
 
Risk-free interest rate 
   
4.6
%
 
4.4
%
 
3.7
%
Expected volatility of Anheuser-Busch stock 
   
20
%
 
21
%
 
22
%
Expected dividend yield on Anheuser-Busch stock 
   
2.5
%
 
2.5
%
 
1.8
%
 
The following tables provide additional information regarding options outstanding and options that were exercisable as of December 31, 2006.
             
     
Options Outstanding
 
Options Exercisable
 
 
Range of
Exercise
Prices 
 
Number
 
Wtd. Avg.
Remaining
Life
 
Wtd. Avg.
Exercise
Price
 
Number
 
Wtd. Avg.
Remaining
Life
 
Wtd. Avg.
Exercise
Price
 
$10 -$29 
   
6.4
   
1.6 yrs
 
$
27.64
   
6.4
   
1.6 yrs
 
$
27.64
 
$30 - $39 
 
 
7.3
   
2.8 yrs
 
$
37.84
   
7.3
   
2.8 yrs
 
$
37.84
 
$40 - $49 
   
58.3
   
6.3 yrs
 
$
46.46
   
42.3
   
5.1 yrs
 
$
46.89
 
$50 - $54 
   
28.0
   
6.8 yrs
 
$
51.29
   
24.3
   
6.6 yrs
 
$
51.44
 
$10- $54 
   
100.0
   
5.9 yrs
 
$
45.96
   
80.3
   
5.1 yrs
 
$
45.89
 
             
 
Range of
     
Pretax In-the-Money Value 
 
 
Exercise
Prices
 
Number
 
Options
Outstanding
 
Options
Exercisable
 
$10 - $29
   
6.4
 
$
138.9
 
$
138.9
 
  $30 - $39
   
7.3
   
81.8
   
81.8
 
$40 - $49
   
58.3
   
183.4
   
82.0
 
$50 - $54
   
28.0
             
$10- $54
   
100.0
 
$
404.1
 
$
302.7
 
 
ADOPTION OF FAS 123R
Prior to 2006, Anheuser-Busch accounted for employee stock compensation in accordance with FAS 123, "Accounting for Stock-Based Compensation," and elected to recognize no expense related to employee stock compensation, since options were always granted with an exercise price equal to the market price of the company's stock on the effective date of grant. In December 2004, the Financial Accounting Standards Board issued a revised and renamed Standard regarding stock compensation - FAS 123R, "Share-Based Payment." The revised Standard, which was adopted by Anheuser-Busch in the first quarter of 2006, eliminates the disclosure-only election available under FAS 123 and requires recognition of compensation expense for stock options and all other forms of equity compensation, generally based on the fair value of the instruments on the effective date of grant. In order to enhance the comparability of all periods presented and provide the fullest understanding of the impact that expensing stock compensation has on the company's results, Anheuser-Busch has retrospectively applied the new Standard to prior period results.
 
Following are amounts pertinent to operations and cash flows for the years 2005 and 2004, and the balance sheet as of December 31, 2005 and 2004 as they were previously reported and after the retrospective adoption of FAS 123R. In connection with the adoption, the company adjusted deferred income taxes $50.6 million (offset in retained earnings) as of December 31, 2006 to eliminate deferred income taxes related to incentive stock options.
           
   
2005
 
2004
 
   
Including
FAS 123R
 
As
Reported
 
Including
FAS 123R
 
As
Reported
 
Operating Results 
                 
Cost of sales 
 
$
9,606.3
 
$
9,579.5
 
$
9,020.0
 
$
8,982.5
 
Gross profit 
 
$
5,429.4
 
$
5,456.2
 
$
5,914.2
 
$
5,951.7
 
Marketing, distribution and administrative expenses 
 
$
2,837.5
 
$
2,730.2
 
$
2,740.5
 
$
2,590.7
 
Operating income 
 
$
2,486.9
 
$
2,621.0
 
$
3,173.7
 
$
3,361.0
 
Income before income taxes 
 
$
2,057.4
 
$
2,191.5
 
$
2,812.1
 
$
2,999.4
 
Provision for income taxes 
 
$
811.1
 
$
850.4
 
$
1,097.5
 
$
1,163.2
 
Net income 
 
$
1,744.4
 
$
1,839.2
 
$
2,118.7
 
$
2,240.3
 
Basic earnings per share 
 
$
2.24
 
$
2.37
 
$
2.65
 
$
2.80
 
Diluted earnings per share 
 
$
2.23
 
$
2.35
 
$
2.62
 
$
2.77
 
                           
Cash Flows 
                         
Operating cash flow before the change in working capital 
 
$
2,651.6
 
$
2,677.5
 
$
3,096.6
 
$
3,121.9
 
Cash provided by operating activities 
 
$
2,701.9
 
$
2,727.8
 
$
2,915.0
 
$
2,940.3
 
Shares issued under stock plans 
 
$
161.4
 
$
135.5
 
$
146.1
 
$
120.8
 
Cash used for financing activities 
 
$
1,615.8
 
$
1,641.7
 
$
1,363.0
 
$
1,388.3
 
                           
Balance Sheet as of December 31 
                         
Deferred income taxes 
 
$
1,345.9
 
$
1,682.4
 
$
1,417.4
 
$
1,727.2
 
Capital in excess of par value 
 
$
2,685.9
 
$
1,601.8
 
$
2,387.9
 
$
1,425.3
 
Retained earnings 
 
$
15,698.0
 
$
16,445.6
 
$
14,754.4
 
$
15,407.2
 
Shareholders equity 
 
$
3,679.8
 
$
3,343.3
 
$
2,977.9
 
$
2,668.1
 
 
58                                                                                                                                          &# 160;                      ANHEUSER-BUSCH COMPANIES, INC.

 
The following illustrates the impact of stock option activity on earnings and cash flows for the last three years (in millions, except per share). Unrecognized pretax stock compensation cost as of December 31, 2006 was $96 million, which is expected to be recognized over a weighted average life of approximately 1.5 years.
               
   
2006
 
2005
 
2004
 
Pretax stock compensation expense 
 
$
122.9
 
$
134.1
 
$
187.3
 
After-tax stock compensation expense 
 
$
87.1
 
$
94.8
 
$
121.6
 
Diluted earnings per share impact 
 
$
.11
 
$
.12
 
$
.15
 
Cash proceeds from stock option exercises 
 
$
121.3
 
$
135.4
 
$
111.0
 
In-the-money value of stock options exercised 
 
$
97.1
 
$
122.4
 
$
118.9
 
Income tax benefit of stock options exercised 
 
$
34.3
 
$
41.6
 
$
41.6
 
Income tax benefit in excess of associated deferred taxes 
 
$
22.6
 
$
25.9
 
$
25.3
 
 
The income tax benefit the company receives from the exercise of stock options is based on the income realized by optionees upon exercise, and is recognized as a reduction of current taxes payable and an increase in paid-in-capital with no impact on earnings. Because the company's employee stock options are not traded on an exchange, the fair value disclosed is required to be based on a theoretical option-pricing model. Employees can receive no value nor derive any benefit from holding stock options under these plans without an increase in the market price of Anheuser-Busch stock. Such an increase in stock price benefits all shareholders.
 
RESTRICTED STOCK
Effective January 2, 2006, the company issued shares of restricted stock to officers and certain other employees pursuant to grants made to them on November 22, 2005. Shares of restricted stock either vest ratably over a three-year period (time-based shares), or vest in prespecified percentages at the end of three years based on total BUD shareholder return performance ranked against the S&P 500 companies over that period (performance-based shares). The performance-based shares were granted to members of the company's Strategy Committee. All other employees received time-based shares. The company awarded 168,557 performance-based shares, of which 53,284 were cancelled in December due to senior executive retirements and the remainder are outstanding and unvested. Time-based shares awarded totaled 403,827, of which 129,668 vested on January 3, 2007. In accordance with FAS 123R, compensation expense is being recognized over the three-year vesting or performance evaluation period, respectively based on the grant date fair values of $43.39 per share for time-based shares and $35.58 per share for performance-based shares. As appropriate under FAS 123R, the fair value of the performance-based restricted shares includes a discount from the grant date market price that reflects the risk of forfeiture due to the performance-based vesting criteria.

7.
Income Taxes
 
Following are the components of the provision for income taxes for the three years ended December 31 (in millions).
               
   
2006
 
2005
 
2004
 
Current tax provision 
             
Federal 
 
$
789.3
 
$
712.0
 
$
772.6
 
State 
   
141.1
   
129.8
   
170.0
 
Foreign 
   
16.0
   
8.4
   
33.5
 
Total current provision 
   
946.4
   
850.2
   
976.1
 
Deferred tax provision 
                   
Federal 
   
(26.1
)
 
(38.9
)
 
109.6
 
State 
   
(10.5
)
 
(12.7
)
 
11.8
 
Foreign 
   
(9.3
)
 
12.5
   
 
Total deferred provision 
   
(45.9
)
 
(39.1
)
 
121.4
 
Total tax provision 
 
$
900.5
 
$
811.1
 
$
1,097.5
 
 
The deferred income tax provision is a noncash expense resulting from temporary differences between financial reporting and income tax filing in the timing of certain income and expense items, and differences in the bases of assets and liabilities. The primary temporary differences relate to depreciation on fixed assets, pension contributions and accrued U.S. taxes on equity income, net of applicable foreign tax credits. Anheuser-Busch operates in multiple legal jurisdictions that subject it to tax audits in the U.S. and various foreign countries. The company believes it has made adequate provisions in all jurisdictions for all years remaining subject to audit.
 
The company's deferred income tax liabilities and deferred income tax assets as of December 31, 2006 and 2005, are summarized by category in the following table (in millions). Deferred income tax liabilities result primarily from income tax deductions being received prior to expense recognition for financial reporting purposes. Deferred income tax assets relate primarily to expenses being recognized for financial reporting purposes that are not yet deductible for income tax purposes, and the recognition of underfunded pension liabilities. Deferred income taxes are not provided on undistributed earnings of consolidated foreign subsidiaries that are considered to be permanently reinvested outside the United States. Cumulative foreign earnings considered permanently reinvested totaled $234.8 million and $205.6 million, respectively, at December 31, 2006 and 2005.
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                    59

 
           
   
2006
 
2005
 
Deferred income tax liabilities 
         
Fixed assets 
 
$
1, 789.1
 
$
1, 839.4
 
Accelerated pension contributions 
   
234.6
   
219.8
 
Accrued net U.S. taxes on equity earnings 
   
210. 6
   
188. 3
 
Other 
   
217.4
   
177.9
 
Total deferred income tax liabilities 
   
2, 451.7
   
2, 425.4
 
Deferred income tax assets 
             
Deferred retirement benefits 
   
713.8
   
541.2
 
Stock compensation 
   
309.3
   
336.5
 
Spare parts and production supplies 
   
79.4
   
77.0
 
Compensation-related obligations 
   
70.4
   
72.2
 
Other 
   
184.7
   
178.6
 
Valuation allowances 
   
(47.4
)
 
(67.0
)
Total deferred income tax assets (1) 
   
1, 310.2
   
1, 138.5
 
Net deferred income tax liabilities 
 
$
1, 141.5
 
$
1, 286.9
 
 
Note 1: Deferred income tax assets of $53.0 million and $59.0 million, respectively, are classified in other current assets at December 31, 2006 and 2005.
 
Reconciliation between the U.S. federal statutory income tax rate and Anheuser-Busch's effective income tax rate for the three years ended December 31 is presented below.
               
   
2006
 
2005
 
2004
 
Federal statutory tax rate
   
35.0
%
 
35.0
%
 
35.0
%
State taxes, net of federal benefit
   
3.7
   
3.7
   
4.0
 
Impact of foreign operations
   
2.8
   
0.7
   
0.6
 
Other items, net
   
(2.0
)
 
   
(0.6
)
Effective tax rate
   
39.5
%
 
39.4
%
 
39.0
%
 
In 2004, Anheuser-Busch identified a $25.9 million balance sheet reclassification related to the 1996 spin-off of its Campbell Taggart bakery subsidiary. The company increased its deferred income tax liability by $25.9 million and decreased retained earnings by the same amount. The reclassification had no impact on the company's results of operations, total assets, or cash flows.
 
8. Debt
 
The company uses SEC shelf registrations for debt issuance efficiency and flexibility, and currently has $1.35 billion in registered debt available for issuance. Gains or losses on debt redemptions (either individually or in the aggregate) were not material for any year presented. The company has the ability and intent to refinance its entire debt portfolio on a long-term basis and therefore classifies all debt as long-term. Debt at December 31 consisted of the following (in millions).
           
   
2006
 
2005
 
U.S. dollar notes due 2008 to 2023, interest rates from 4.375% to 7.5% 
 
$
3,540.7
 
$
3,576.2
 
U.S. dollar debentures due 2009 to 2043, interest rates from 5.75% to 9.0% 
   
2,900.0
   
2,600.0
 
Commercial paper, interest rates of 5.39% and 4.39%, respectively, at year-end 
   
658.4
   
1,102.6
 
Industrial revenue bonds due 2009 to 2041, interest rates from 4.6% to 7.4% 
   
269.4
   
271.7
 
Medium-term notes due 2010, interest rate 5.625% 
   
200.0
   
200.0
 
Chinese renminbi-denominated bank loans due 2007 to 2011, interest rates from 5.02% to 7.02% 
   
32.0
   
75.8
 
U.S. dollar EuroNotes due 2006, interest rate 4.51% 
   
   
100.0
 
Miscellaneous items 
   
72.4
   
66.1
 
Unamortized debt discounts 
   
(19.4
)
 
(20.3
)
Total debt 
 
$
7,653.5
 
$
7,972.1
 
 
The company's 5.49% fixed rate ($100.0 million notional value) U.S. dollar notes were swapped to a floating LIBOR-based rate when issued. The effective interest rate for this debt was 4.98% in 2006, with a year-end rate of 5.25%. In addition to the 5.49% U.S. dollar notes, in 2005 the company had outstanding fixed-rate 4.51% Euro Notes and 5.60% U.S. dollar notes (additional notional value of $150.0 million) which had also been swapped to LIBOR-based floating rates when issued. The weighted average effective interest rate for this debt during 2005 was 3.21% and the year-end 2005 rate was 4.29%.
 
The weighted-average interest rates for commercial paper borrowings during 2006, 2005, and 2004 were 5.00%, 3.31%, and 1.40%, respectively. The company has in place a single committed $2 billion revolving credit agreement that expires in October 2010, to support the company's commercial paper program. The agreement is syndicated among 17 banks, has no financial covenants, and does not designate a material adverse change as a default event or as an event prohibiting a borrowing. Credit rating triggers in the agreement pertain only to annual fees and the interest rate applicable to any potential borrowing, not to the availability of funds. There have been no borrowings under the agreement for any year shown. Annual fees for the agreement were $1.0 million in 2006 and $1.2 million for both 2005 and 2004. Commercial paper borrowings up to $2 billion are classified as long-term, as they are supported on a long-term basis by the revolving credit agreement. Any commercial paper borrowings in excess of $2 billion will be classified as short-term.
 
 
60                                                                                                                                          &# 160;                    ANHEUSER-BUSCH COMPANIES, INC.


9.
Supplemental Cash Flow Information
 
Accounts payable include $105 million and $99 million of outstanding checks at December 31, 2006 and 2005, respectively. Supplemental cash flows information for the three years ended December 31 is presented in the following table (in millions).
               
   
2006
 
2005
 
2004
 
Cash paid during the year 
             
Interest, net of interest capitalized 
 
$
433.2
 
$
436.0
 
$
390.3
 
Income taxes 
 
$
920.2
 
$
814.7
 
$
962.3
 
Excise taxes 
 
$
2,252.3
 
$
2,217.3
 
$
2,229.1
 
Change in working capital 
                   
(Increase)/Decrease in current assets: 
                   
Accounts receivable 
 
$
(38.8
)
$
14.7
 
$
(26.7
)
Inventories 
   
(40.4
)
 
35.8
   
(102.8
)
Other current assets 
   
(4.6
)
 
6.9
   
(21.6
)
lncrease/(Decrease) in current liabilities: 
                   
Accounts payable 
   
176.8
   
54.7
   
101.1
 
Accrued salaries, wages and benefits 
   
91.9
   
(40.5
)
 
2.5
 
Accrued taxes 
   
(22.8
)
 
3.8
   
(10.2
)
Accrued interest 
   
0.5
   
(1.5
)
 
14.8
 
Other current liabilities 
   
17.1
   
(2.9
)
 
3.6
 
Derivatives fair value adjustment 
   
6.1
   
(9.8
)
 
(91.3
)
Working capital adjustment for acquisition/disposition 
   
3.0
   
(10.9
)
 
(51.0
)
Net (increase)/decrease in working capital 
 
$
188.8
 
$
50.3
 
$
(181.6
)
 
10.
Accumulated Nonowner Changes In Shareholders Equity
 
The components of accumulated nonowner changes in shareholders equity as of December 31 are summarized below (in millions).
           
   
2006
 
2005
 
Foreign currency translation 
 
$
(452.2
)
$
(382.0
)
Deferred hedging gains/(losses) 
   
2.1
   
(2.4
)
Deferred securities valuation gains 
   
1.3
   
0.3
 
Deferred retirement benefits costs 
   
(782.0
)
 
(529.7
)
Accumulated nonowner changes in shareholders equity 
 
$
(1,230.8
)
$
(913.8
)
 
Deferred income tax liabilities of $1.2 million and deferred tax assets of $1.4 million have been recognized for deferred hedging gains and losses, respectively, as of December 31, 2006 and 2005. Deferred income tax liabilities of $0.7 million and $0.2 million have been provided for deferred securities valuation gains, respectively, while deferred tax assets of $504.4 million and $334.3 million, respectively, have been recognized for deferred benefits costs. The majority of foreign currency translation losses relate to equity investments (primarily Grupo Modelo) whose operations are reported in Anheuser-Busch's financial statements on a net-of-tax basis. Please see Note 3 for details of hedging gains and losses recognized in earnings which had previously been deferred in nonowner changes in shareholders equity.
 
11.
Preferred and Common Stock
 
COMMON STOCK ACTIVITY
Common stock activity for the three years ended December 31 is summarized below (shares in millions).
               
   
2006
 
2005
 
2004
 
Common Stock 
             
Beginning common stock 
   
1,468.6
   
1,463.0
   
1,457.9
 
Shares issued under stock plans 
   
5.1
   
5.6
   
5.1
 
Common stock 
   
1,473.7
   
1,468.6
   
1,463.0
 
Treasury Stock 
                   
Beginning treasury stock 
   
(690.9
)
 
(678.0
)
 
(644.8
)
Treasury stock acquired 
   
(16.7
)
 
(12.9
)
 
(33.2
)
Cumulative treasury stock 
   
(707.6
)
 
(690.9
)
 
(678.0
)
Net common stock outstanding 
   
766.1
   
777.7
   
785.0
 
 
EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share are computed by dividing net income by the weighted-average number of shares of common stock outstanding for the year. Diluted earnings per share are computed using the weighted-average number of common shares outstanding, plus an adjustment for the dilutive effect of unexercised in-the-money stock options. A reconciliation between basic and diluted weighted-average common shares outstanding for the three years ended December 31 follows (millions of shares). There were no adjustments to net income for any year shown for purposes of calculating earnings per share.
               
   
2006
 
2005
 
2004
 
Basic weighted average shares outstanding 
   
770.6
   
777.5
   
798.9
 
Weighted average stock option shares 
   
6.4
   
5.1
   
9.6
 
Diluted weighted average shares outstanding 
   
777.0
   
782.6
   
808.5
 
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                                    61


COMMON STOCK REPURCHASE
The board of directors has approved resolutions authorizing the company to repurchase shares of its common stock. At December 31, 2006, approximately 15 million shares remained available for repurchase under a March 2003 board authorization for 100 million shares. In December 2006, the Board approved the multi-year repurchase of an additional 100 million shares to commence when prior authorizations are exhausted. The Board does not specify minimum or maximum share repurchase levels and authorizations expire when fully utilized. The company repurchased 16.7 million common shares in 2006, 12.9 million shares in 2005, and 33.2 million shares in 2004, for $745.9 million, $620.4 million, and $1,699.5 million, respectively.
 
PREFERRED STOCK
At December 31, 2005 and 2004, 40 million shares of $1.00 par value preferred stock were authorized and unissued.
 
12.
Contingencies
 
The company and certain of its subsidiaries are involved in claims and legal proceedings in which monetary damages and other relief is sought. The company is vigorously contesting these claims; however resolution is not expected to occur quickly, and the ultimate outcome cannot presently be predicted. It is the opinion of management that the ultimate resolution of these claims, legal proceedings, and other contingencies, either individu-ally or in the aggregate, will not materially affect the company's financial position, results of operations or liquidity.
 
13.
Business Segments
 
The company categorizes its operations into four business segments: domestic beer, international beer, packaging and entertainment.
 
The domestic beer segment consists of the company's U.S. beer manufacturing and company-owned beer wholesale sales operations, including vertically integrated rice, barley and hops operations.
 
The international beer segment consists of the company's export sales and overseas beer production and marketing operations, which include company-owned operations in China and the United Kingdom, administration of contract and license brewing arrangements, and equity investments. Principal foreign markets for sale of the company's products are China, the United Kingdom, Canada, Mexico and Ireland. The company attributes foreign sales based on the location of the distributor purchasing the product.
 
The packaging segment is composed of the company’s aluminum beverage can and lid manufacturing, aluminum recycling, label printing, and glass manufacturing operations. Cans and lids are produced for both the company’s domestic beer operations and external customers in the U.S. soft drink industry.
 
The entertainment segment consists of the company’s SeaWorld, Busch Gardens and other adventure park operations.
 
Following is Anheuser-Busch business segment information for 2006, 2005, and 2004, (in millions). Intersegment sales are fully eliminated in consolidation. No single customer accounted for more than 10% of sales. General corporate expenses, including net interest expense and stock compensation expense, are not allocated to the operating segments. Effective in 2005, the company began reporting its transportation business within the domestic beer segment, and its real estate business as a corporate item. These businesses previously comprised the “other” segment. Segment results for 2004 were updated to conform to this change which was immaterial for all segments. Corporate results for 2005 and 2004 have been recast for the retrospective adoption of FAS 123R in 2006, which had no impact on the company’s four operating segments.
 
62                                                                                                                                          &# 160;                            ANHEUSER-BUSCH COMPANIES, INC.

 
                           
2006
 
Domestic
Beer
 
International
 Beer
 
Packaging
 
Entertainment
 
Corporate &
Eliminations(1)
 
Consolidated
 
Income Statement Information 
                         
Gross sales
 
$
13,394.2
   
1,235.6
   
2,562.3
   
1,178.5
   
(412.8
)
$
17,957.8
 
Net sales - intersegment
 
$
2.8
   
   
896.4
   
   
(899.2
)
$
 
Net sales - external
 
$
11,388.2
   
998.2
   
1,665.9
   
1,178.5
   
486.3
 
$
15,717.1
 
Depreciation and amortization
 
$
715.1
   
51.2
   
76.9
   
99.0
   
46.5
 
$
988.7
 
Income before income taxes
 
$
2,758.5
   
76.7
   
145.0
   
232.8
   
(936.1
)
$
2,276.9
 
Equity income, net of tax
 
$
3.4
   
585.4
   
   
   
 
$
588.8
 
Net income
 
$
1,713.7
   
633.0
   
89.9
   
144.3
   
(615.7
)
$
1,965.2
 
Balance Sheet Information 
                                     
Total assets
 
$
7,988.3
   
5,350.6
   
781.5
   
1,479.1
   
777.7
 
$
16,377.2
 
Equity method investments
 
$
67.8
   
3,604.6
   
   
   
 
$
3,672.4
 
Goodwill
 
$
21.2
   
1,283.0
   
21.9
   
288.3
   
 
$
1,614.4
 
Foreign-located fixed assets
 
$
   
517.7
   
   
   
 
$
517.7
 
Capital expenditures
 
$
516.7
   
36.9
   
55.9
   
157.6
   
45.4
 
$
812.5
 
 
                           
2005
 
Domestic
Beer
 
International
Beer
 
Packaging
 
Entertainment
 
Corporate & Eliminations(1)
 
Consolidated
 
Income Statement Information 
                         
Gross sales
 
$
13,067.6
   
1,165.5
   
2,383.6
   
1,084.8
   
(448.0
)
$
17,253.5
 
Net sales - intersegment
 
$
2.7
   
   
871.1
   
   
(873.8
)
$
 
Net sales - external
 
$
11,079.8
   
932.8
   
1,512.5
   
1,084.8
   
425.8
 
$
15,035.7
 
Depreciation and amortization
 
$
706.6
   
52.1
   
83.3
   
93.9
   
43.1
 
$
979.0
 
Income before income taxes
 
$
2,675.6
   
86.5
   
141.5
   
205.9
   
(1,052.1
)
$
2,057.4
 
Equity income, net of tax
 
$
 
 
498.1
   
   
   
 
$
498.1
 
Net income
 
$
1,658.9
   
551.7
   
87.7
   
127.7
   
(681.6
)
$
1,744.4
 
Balance Sheet Information 
   
 
   
 
                         
Total assets
 
$
8,019.0
   
5,049.2
   
764.4
   
1,400.8
   
1,321.6
 
$
16,555.0
 
Equity method investments
 
$
 
 
3,373.1
   
   
   
 
$
3,373.1
 
Goodwill
 
$
21.2
   
1,261.1
   
21.9
   
288.3
   
 
$
1,592.5
 
Foreign-located fixed assets
 
$
 
 
510.3
   
   
   
 
$
510.3
 
Capital expenditures
 
$
851.7
   
72.8
   
55.0
   
104.2
   
53.0
 
$
1,136.7
 
 
                           
2004(2)
 
Domestic
Beer 
 
International
 Beer 
 
Packaging
 
Entertainment
 
Corporate & Eliminations(1)
 
Consolidated
 
Income Statement Information 
                         
Gross sales 
 
$
13,388.5
   
1,015.1
   
2,276.8
   
989.3
   
(509.5
)
$
17,160.2
 
Net sales - intersegment 
 
$
2.8
   
   
880.1
   
   
(882.9
)
$
 
Net sales - external 
 
$
11,364.9
   
809.9
   
1,396.7
   
989.3
   
373.4
 
$
14,934.2
 
Depreciation and amortization 
 
$
680.5
   
35.0
   
83.9
   
91.8
   
41.5
 
$
932.7
 
Income before income taxes 
 
$
3,279.0
   
130.9
   
163.9
   
172.7
   
(934.4
)
$
2,812.1
 
Equity income, net of tax 
 
$
 
 
404.1
   
   
   
 
$
404.1
 
Net income 
 
$
2,033.0
   
485.3
   
101.6
   
107.1
   
(608.3
)
$
2,118.7
 
Balance Sheet Information 
                                     
Total assets 
 
$
7,857.9
   
4,683.9
   
800.8
   
1,378.9
   
1,451.9
 
$
16,173.4
 
Equity method investments 
 
$
 
 
2,686.2
   
   
   
 
$
2,686.2
 
Goodwill 
 
$
21.2
   
1,177.8
   
21.9
   
288.3
   
 
$
1,509.2
 
Foreign-located fixed assets 
 
$
 
 
451.5
   
   
   
 
$
451.5
 
Capital expenditures 
 
$
800.0
   
56.6
   
56.3
   
131.9
   
44.8
 
$
1,089.6
 
 
Note 1:
Corporate assets principally include cash, marketable securities, deferred charges, and certain fixed assets. Eliminations impact only gross and intersegment sales. External net sales reflects the reporting of pass-through beer delivery costs reimbursed by independent wholesalers of $370.9 million, $340.1 million, and $312.0 million in 2006, 2005, and 2004, respectively.
 
Note 2:
In 2005, the company began reporting its transportation business in Domestic Beer and its real estate business in Corporate. These businesses formerly comprised the Other segment. Results for 2004 have been updated to conform to this convention.
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                                     63


SUPPLEMENTAL FINANCIAL INFORMATION
                   
 
 
Year Ended December 31 (in millions, except per share)
 
2006
 
2005
 
2004
 
2003
 
2002
 
Barrels of Anheuser-Busch beer brands sold worldwide 
   
125.0
   
121.9
   
116.8
   
111.0
   
109.8
 
Gross sales 
 
$
17,957.8
 
$
17,253.5
 
$
17,160.2
 
$
16,320.2
 
$
15,686.8
 
Excise taxes 
   
(2,240.7
)
 
(2,217.8
)
 
(2,226.0
)
 
(2,173.5
)
 
(2,120.4
)
Net sales 
   
15,717.1
   
15,035.7
   
14,934.2
   
14,146.7
   
13,566.4
 
Cost of sales 
   
(10,165.0
)
 
(9,606.3
)
 
(9,020.0
)
 
(8,485.1
)
 
(8,161.4
)
Gross profit 
   
5,552.1
   
5,429.4
   
5,914.2
   
5,661.6
   
5,405.0
 
Marketing, distribution and administrative expenses 
   
(2,832.5
)
 
(2,837.5
)
 
(2,740.5
)
 
(2,642.7
)
 
(2,575.7
)
Litigation settlement 
   
   
(105.0
)
 
   
   
 
Operating income 
   
2,719.6
   
2,486.9
   
3,173.7
   
3,018.9
   
2,829.3
 
Interest expense 
   
(451.3
)
 
(454.5
)
 
(426.9
)
 
(401.5
)
 
(368.7
)
Interest capitalized 
   
17.6
   
19.9
   
21.9
   
24.4
   
17.7
 
Interest income 
   
1.8
   
2.4
   
4.7
   
1.7
   
1.3
 
Other income/(expense), net 
   
(10.8
)
 
2.7
   
38.7
   
0.4
   
(6.4
)
Income before income taxes 
   
2,276.9
   
2,057.4
   
2,812.1
   
2,643.9
   
2,473.2
 
Provision for income taxes 
   
(900.5
)
 
(811.1
)
 
(1,097.5
)
 
(1,026.3
)
 
(984.2
)
Equity income, net of tax 
   
588.8
   
498.1
   
404.1
   
344.9
   
351.7
 
Net income 
 
$
1,965.2
 
$
1,744.4
 
$
2,118.7
 
$
1,962.5
 
$
1,840.7
 
Basic earnings per share 
 
$
2.55
 
$
2.24
 
$
2.65
 
$
2.38
 
$
2.13
 
Diluted earnings per share 
 
$
2.53
 
$
2.23
 
$
2.62
 
$
2.34
 
$
2.09
 
Basic weighted average common shares 
   
770.6
   
777.5
   
798.9
   
826.2
   
866.0
 
Diluted weighted average common shares 
   
777.0
   
782.6
   
808.5
   
837.0
   
878.9
 
 
64                                                                                                                                          &# 160;                           ANHEUSER-BUSCH COMPANIES, INC.


SUPPLEMENTAL FINANCIAL INFORMATION
                       
Year Ended December 31 (in millions, except per share) 
 
2006
 
2005
 
2004
 
2003
 
2002
 
Total assets 
 
$
16,377.2
 
$
16,555.0
 
$
16,173.4
 
$
14,689.5
 
$
14,119.5
 
Debt 
 
$
7,653.5
 
$
7,972.1
 
$
8,278.6
 
$
7,285.4
 
$
6,603.2
 
Common dividends paid 
 
$
871.6
 
$
800.8
 
$
742.8
 
$
685.4
 
$
649.5
 
Per share 
 
$
1.13
 
$
1.03
 
$
.93
 
$
.83
 
$
.75
 
 
Selected unaudited quarterly information for 2006 and 2005 (in millions, except per share).
                   
 Year Ended December 31, 2006 
                 
 
 
 Net
 
 Gross
 
 Net
 
Earnings Per Share
 
   
 Sales
 
 Profit
 
Income
 
 Basic
 
 Diluted
 
First quarter 
 
$
3,755.6
 
$
1,337.9
 
$
499.2
 
$
.64
 
$
.64
 
Second quarter 
   
4,256.0
   
1,595.3
   
637.8
   
.83
   
.82
 
Third quarter 
   
4,280.7
   
1,636.1
   
637.5
   
.83
   
.82
 
Fourth quarter 
   
3,424.8
   
982.8
   
190.7
   
.25
   
.25
 
Annual 
 
$
15,717.1
 
$
5,552.1
 
$
1,965.2
 
$
2.55
 
$
2.53
 
                       
 Year Ended December 31, 2005                       
 
Net
 
Gross
 
Net
 
Earnings Per Share
 
   
Sales
 
Profit
 
Income
 
Basic
 
Diluted
 
First quarter 
 
$
3,563.7
 
$
1,332.7
 
$
500.4
 
$
.64
 
$
.64
 
Second quarter 
   
4,018.1
   
1,538.3
   
593.6
   
.76
   
.76
 
Third quarter 
   
4,088.5
   
1,570.9
   
504.8
   
.65
   
.65
 
Fourth quarter 
   
3,365.4
   
987.5
   
145.6
   
.19
   
.19
 
Annual 
 
$
15,035.7
 
$
5,429.4
 
$
1,744.4
 
$
2.24
 
$
2.23
 
 
 
 
ANHEUSER-BUSCH COMPANIES, INC.                                                                                                                    65

EX-21 12 ex21.htm Unassociated Document


EXHIBIT 21


SUBSIDIARIES OF ANHEUSER-BUSCH COMPANIES, INC.
 
 
 
 
NAME OF COMPANY
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION
 
 
TRADE NAME(S)
 Anheuser-Busch, Incorporated
 Missouri
 Anheuser-Busch Center
 
 
 (The) Anheuser-Busch Collectors Club
 
 
 Anheuser-Busch Conference and Sports Centre
 
 
 Anheuser-Busch Sales Co.
 
 
 Anheuser-Busch Sales of Canton
 
 
 Anheuser-Busch Sales Co. of Denver
 
 
 Anheuser-Busch Sales Company of Denver
 
 
 Anheuser-Busch Sales of Enid
 
 
 Anheuser-Busch Sales of Oklahoma
 
 
 Anheuser-Busch Sales of Oklahoma - Enid Branch
 
 
 Anheuser-Busch Sales of Oklahoma - Perry Branch
 
 
 Anheuser-Busch Sales of Oklahoma - Ponca City Branch
 
 
 Anheuser-Busch Sales of Oklahoma - Tulsa Branch
 
 
 Anheuser-Busch Sales of Oklahoma - Vinita Branch
 
 
 Anheuser-Busch Sales of Ponca City
 
 
 Anheuser-Busch Sales of San Diego
 
 
 Anheuser-Busch Sales of Stillwater
 
 
 Anheuser-Busch Sales of Stockton
 
 
 Anheuser-Busch Sales of Sylmar
 
 
 Anheuser-Busch Sales of Tulsa
 
 
 Anheuser-Busch Sales of Vinita
 
 
 Beechwood Brewing Group
 
 
 Blue Dawg Brewing
 
 
 Bud Productions
 
 
 Bud Sports
 
 
 Evolve Beverage Company
 
 
 Grant’s Farm
 
 
 Green Valley Brewing Company
 
 
 Kingsmill Golf Club
 
 
 Hill Brewing Company
 
 
 Import Brands Alliance
 
 
 Latrobe Brewing Co.
 
 
 Margaritaville Brewing Co.
 
 
 (The) Peels Beverage Company
 
 
 Promotional Products Group
 
 
 St. Louis Soccer Park
 
 
 Widmer Brothers Brewing Company
 Anheuser-Busch Jade Hong Kong Holding Company, Limited
 Hong Kong
 
 Anheuser-Busch Asia, Inc.
 Delaware
 
 Anheuser-Busch Brasil Holdings Ltda.
 Brazil
 
 Anheuser-Busch Canada, Inc.
 Delaware
 



Page 2


 
 
NAME OF COMPANY
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION
 
 
TRADE NAME(S)
Anheuser-Busch Distributors of New York, Inc.
Delaware
Anheuser-Busch Sales and Service of New York
Anheuser-Busch Europe, Inc.
Delaware
 
Anheuser-Busch Europe Limited
United Kingdom
 
Anheuser-Busch Hong Kong Investment Company, Limited
Hong Kong
 
Anheuser-Busch Hong Kong Trading Company, Limited
Hong Kong
 
Anheuser-Busch Import Investments, Inc.
Delaware
 
Anheuser-Busch International, Inc.
Delaware
 
Anheuser-Busch International Holdings, Inc.
Delaware
 
Anheuser-Busch Investments, S.L.
Spain
 
Anheuser-Busch Latin American Development Corporation
Delaware
 
Anheuser-Busch Management (Shanghai) Company Limited
China
 
Anheuser-Busch Mexico, Inc.
Delaware
 
Anheuser-Busch Overseas Holdings, L.L.C.
Delaware
 
Anheuser-Busch Packaging Group, Inc.
Delaware
Anheuser-Busch Companies Packaging Group
Anheuser-Busch Recycling Corporation
Ohio
 
Anheuser-Busch River North Investment Capital Corporation
Delaware
River North Distributing Company
Anheuser-Busch Sales of Hawaii, Inc.
Delaware
 
Anheuser-Busch San Diego Wholesaler Development Corporation
Delaware
Anheuser-Busch Sales of San Diego
Anheuser-Busch South Asia Holding Company
Mauritius
 
Anheuser-Busch Spanish Holdings, Inc.
Delaware
 
Anheuser-Busch Wholesaler Development Corp.
Delaware
Anheuser-Busch Sales, Pomona
Anheuser-Busch Sales, Antelope Valley
Anheuser-Busch Wholesaler Development Corporation III
Delaware
 
Anheuser-Busch Wholesaler Development Corporation IV
Delaware
 
Anheuser-Busch Wisconsin Investment Capital Corporation
Wisconsin
 
Anheuser-Busch World Trade Ltd.
Delaware
 
August A. Busch & Co. of Massachusetts, Inc.
Massachusetts
 
Ballantine Management Limited
British Virgin Islands
 
Bannon Corporation
Delaware
 
BARI-Canada, Inc.
Delaware
 
Bevo Music, Inc.
Delaware
 
Bow Tie Music, Inc.
Delaware
 




Page 3

 
 
NAME OF COMPANY
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION
 
 
TRADE NAME(S)
Budweiser Brasil Ltda.
Brazil
 
Budweiser (China) Sales Company, Limited
China
 
Budweiser Hong Kong Holding Company, Limited
Hong Kong
 
Budweiser Stag Brewing Company Limited
United Kingdom
 
Budweiser Wuhan International Brewing Company Limited
China
 
Busch Agricultural Resources, Inc.
Delaware
Mill Spring Farms
Busch Agricultural Resources International, Inc.
Delaware
 
Busch Entertainment Corporation
Delaware
Sesame Place
Busch Entertainment Company International, Inc.
Delaware
 
Busch Hong Kong Holding Company, Limited
Hong Kong
 
Busch Investment Corporation
Delaware
 
Busch Mechanical Services, Inc.
Delaware
Atlanta Transportation Services Company
 
 
Busch Reclamation Services
 
 
Busch Transportation Services, Inc.
 
 
Springfield Railway Services
 
 
Memphis Transportation Services
Busch Media Group, Inc.
Delaware
 
Busch Properties, Inc.
Delaware
Kingsmill Audio Visual Services
 
 
Kingsmill Golf Club
 
 
Kingsmill Inn and Conference Center
Busch Properties of Florida, Inc.
Florida
 
Civic Center Corporation
Missouri
 
Consolidated Farms, Inc.
Delaware
Elk Mountain Farms, Inc.
Eagle Packaging, Inc.
Delaware
 
Eagle Snacks, Inc.
Delaware
The Cape Cod Company in Hyannis
 
 
Eagle Snacks of Missouri
 
 
Carolina Harvest Company
Extra Lucky Investment Limited
Hong Kong
 
Fung Heng Investment Limited
Hong Kong
 
Garrard Holding
Delaware
Longhorn Glass Corporation
Garrard Leasing Company
Delaware
 
Glass Container Corporation
Kentucky
 
Global Conduit Holdings Limited
British Virgin Islands
 
Harbin Beer Sales Company Limited
China
 
Harbin Brewery (Changchun Yinpu) Company Limited
China
 
Harbin Brewery Group Limited
Cayman Islands
 
Harbin Brewery Investments Limited
British Virgin Islands
 
Harbin Brewing Company Limited
China
 
Harbin Brewing Daqing Xiaoxue Company Limited
Daqing, China
 
Harbin Brewing (Hegang) Company Limited
China
 



Page 4

 
 
NAME OF COMPANY
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION
 
 
TRADE NAME(S)
Harbin Brewing (Hailun) Company Limited
China
 
Harbin Brewing (Jiamusi Jiafeng) Company Limited
China
 
Harbin Brewing Jinzhou Company Limited
China
 
Harbin Brewing (Mudanjiang Jingpo) Company Limited
China
 
Harbin Brewing (Shenyang) Company Limited
China
 
Harbin Brewing (Songjiang) Company Limited
China
 
Harbin Brewing (Tangshan) Company Limited
China
 
Harbin Brewing (Yanji) Company Limited
Yanji, China
 
Here’s to Beer, Inc.
District of Columbia
 
HSH of Orlando, Inc.
Florida
 
ILH Company
Florida
 
Import Brands Alliance, Inc.
Delaware
 
Jilin Harbin Brewing Company Limited
China
 
King Victory Investments, Inc.
British Virgin Islands
 
Kingsmill Realty, Inc.
Virginia
 
Langhorne Food Services, Inc.
Delaware
 
Litchfield Development Corporation
Delaware
 
Longhorn Glass Manufacturing, L.P.
Delaware
Longhorn Glass Corporation
Long Tail Libations, Inc.
Delaware
Jekyll & Hyde Spirits
Manufacturers Cartage Company
Missouri
 
Manufacturers Railway Company
Missouri
 
Metal Container Corporation
Delaware
MCC Riverside
Metal Container Corporation of California
California
 
M.R.S. Redevelopment Corporation
Missouri
 
New-Biz Corporation
British Virgin Islands
 
Noble Right Limited
British Virgin Islands
 
Nutri-Turf, Inc.
Delaware
 
Pacific International Rice Mills, Inc.
Delaware
 
PBP, Inc.
Delaware
 
Pestalozzi Street Insurance Company, Ltd.
Bermuda
 
Precision Printing and Packaging, Inc.
Delaware
 
Prestige Full Investment Limited
Hong Kong
 
Promociones y Desarrollos Mexico de Mexicali, S. de R. L. de C. V.
Mexico
 
SeaWorld, Inc.
Delaware
Sea World Vacations
 
 
Busch Gardens Vacations
 
 
Sesame Place Vacations
 
 
Water Country USA Vacations
 
 
Adventure Island Vacations
 
 
Discovery Cove Vacations
 
 
SeaWorld of Ohio
SeaWorld of Florida, Inc.
Florida
 
SeaWorld of Texas, Inc.
Delaware
 




Page 5


 
 
NAME OF COMPANY
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION
 
 
TRADE NAME(S)
SeaWorld & Busch Gardens Conservation Fund
Delaware
 
SFKBPP, Inc.
Missouri
 
Somerset Distributions, L.L.C.
Delaware
Anheuser-Busch Sales, Beach Cities
Stag Brewing Company Limited
United Kingdom
 
St. Louis Refrigerator Car Company
Delaware
 
Tune Out Music, Inc.
Delaware
 
Wholesaler Equity Development Corporation
Delaware
 
Williamsburg Transport, Inc.
Virginia
 


EX-23 13 ex23.htm Exhibit 23


Exhibit 23



CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Forms S-3 (No. 333-104097 and No. 333-117742) and in the Registration Statements on Forms S-8 (No. 333-113898, No. 333-113897, No. 333-132193, No. 33-36132, No. 33-53333, No. 333-67027, No. 333-71311, No. 333-88015, No. 333-60216, No. 333-105362 and No. 333-124589) of Anheuser-Busch Companies, Inc. of our report dated February 28, 2007 relating to the financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 28, 2007 relating to the financial statement schedule, which appears in this Form 10-K.
 

PricewaterhouseCoopers LLP

St. Louis MO
March 1, 2007


EX-24 14 ex24.htm Exhibit 24

Exhibit 24
 
POWER OF ATTORNEY


KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and officers of Anheuser-Busch Companies, Inc. (hereinafter referred to as the "Company") hereby constitutes and appoints August A. Busch IV, W. Randolph Baker, John F. Kelly and JoBeth G. Brown, and each of them acting singly, the true and lawful agents and attorneys, or agent and attorney, with full powers of substitution, resubstitution and revocation, for and in the name, place and stead of the undersigned to do any and all things and to execute any and all instruments which said agents and attorneys, or any of them, may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the 2006 Annual Report on Form 10-K of the Company, including specifically, but without limiting the generality of the foregoing, full power and authority to sign the name of each of the undersigned in the capacities indicated below to the said 2006 Annual Report on Form 10-K to be filed with the Securities and Exchange Commission, and to any and all amendments to said 2006 Annual Report on Form 10-K, and each of the undersigned hereby grants to said attorneys and agents, and to each of them singly, full power and authority to do and perform on behalf of the undersigned every act and thing whatsoever necessary or appropriate to be done in the premises as fully as the undersigned could do in person, hereby ratifying and confirming all that said attorneys and agents, or any of them, or the substitutes or substitute of them or of any of them, shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has subscribed these presents this 28th day of February, 2007.



/s/ August A. Busch IV
 
/s/ W. Randolph Baker
 
(August A. Busch IV)
 
(W. Randolph Baker)
 
President and Chief Executive Officer
 
Vice President and Chief
 
and Director
 
Financial Officer
 
(Principal Executive Officer)
 
(Principal Financial Officer)
 
       
       
/s/ John F. Kelly
 
/s/ August A. Busch III
 
(John F. Kelly)
 
(August A. Busch III)
 
Vice President and Controller
 
Director
 
(Principal Accounting Officer)
     
       
       
/s/ Carlos Fernandez G.
 
/s/ James J. Forese
 
(Carlos Fernandez G.)
 
(James J. Forese)
 
Director
 
Director
 
 
 

 
       
       
/s/ John E. Jacob
 
/s/ James R. Jones
 
(John E. Jacob)
 
(James R. Jones)
 
Director
 
Director
 
       
       
/s/ Charles F. Knight
 
/s/ Vernon R. Loucks, Jr.
 
(Charles F. Knight)
 
(Vernon R. Loucks, Jr.)
 
Director
 
Director
 
       
       
/s/ Vilma S. Martinez
 
/s/ William Porter Payne
 
(Vilma S. Martinez)
 
(William Porter Payne)
 
Director
 
Director
 
       
       
/s/ Joyce M. Roché
 
/s/ Henry Hugh Shelton
 
(Joyce M. Roché)
 
(Henry Hugh Shelton)
 
Director
 
Director
 
       
       
/s/ Patrick T. Stokes
 
/s/ Andrew C. Taylor
 
(Patrick T. Stokes)
 
(Andrew C. Taylor)
 
Director
 
Director
 
       
       
/s/ Douglas A. Warner III
 
/s/ Edward E. Whitacre, Jr.
 
(Douglas A. Warner III)
 
(Edward E. Whitacre, Jr.)
 
Director
 
Director
 

EX-31.1 15 ex31p1.htm Unassociated Document

Exhibit 31.1

CERTIFICATION


I, August A. Busch IV, certify that:

1)
I have reviewed this annual report on Form 10−K of Anheuser−Busch Companies, Inc.;
   
2)
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
   
3)
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
   
4)
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
     
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
     




Date:
February 28, 2007
 
/s/ August A. Busch IV                      
     
August A. Busch IV
President and Chief Executive Officer
Anheuser-Busch Companies, Inc.

EX-31.2 16 ex31p2.htm Unassociated Document

Exhibit 31.2

CERTIFICATION


I, W. Randolph Baker, certify that:

1)
I have reviewed this annual report on Form 10−K of Anheuser−Busch Companies, Inc.;
   
2)
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
   
3)
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
   
4)
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
     
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
     




Date:
February 28, 2007
 
/s/ W. Randolph Baker                            
     
W. Randolph Baker
Vice President and Chief Financial Officer
Anheuser-Busch Companies, Inc.


EX-32.1 17 ex32p1.htm Unassociated Document

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
ANHEUSER−BUSCH COMPANIES, INC.
FORM 10−K FOR THE YEAR ENDED DECEMBER 31, 2006
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES−OXLEY ACT OF 2002



I am the President and Chief Executive Officer of Anheuser-Busch Companies, Inc., a Delaware corporation (the "Company"). I am delivering this certificate in connection with the Form 10−K of the Company for the year ended December 31, 2006 and filed with the Securities and Exchange Commission ("Form 10−K").

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002, I hereby certify that, to the best of my knowledge, the Form 10−K fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10−K fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 
Date:
February 28, 2007
 
/s/ August A. Busch IV                      
     
August A. Busch IV
President and Chief Executive Officer
Anheuser-Busch Companies, Inc.

 
EX-32.2 18 ex32p2.htm Unassociated Document

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
ANHEUSER−BUSCH COMPANIES, INC.
FORM 10−K FOR THE YEAR ENDED DECEMBER 31, 2006
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES−OXLEY ACT OF 2002


I am the Vice President and Chief Financial Officer of Anheuser−Busch Companies, Inc., a Delaware corporation (the "Company"). I am delivering this certificate in connection with the Form 10−K of the Company for the year ended December 31, 2006 and filed with the Securities and Exchange Commission ("Form 10−K").

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002, I hereby certify that, to the best of my knowledge, the Form 10−K fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10−K fairly presents, in all material respects, the financial condition and results of operations of the Company.
 

 

 
Date:
February 28, 2007
 
/s/ W. Randolph Baker                            
     
W. Randolph Baker
Vice President and Chief Financial Officer
Anheuser-Busch Companies, Inc.

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March 1, 2007



Securities and Exchange Commission
Judiciary Plaza
450 Fifth St., N.W.
Washington, D.C. 20549

Attention:
Document Control - EDGAR
   
Subject:
Annual Report of Anheuser-Busch Companies, Inc. for 2006
 
on Form 10-K, File number 1-7823

Gentleman and Mesdames:

Enclosed herewith for filing under the Securities and Exchange Act of 1934 is the Company’s Report on Form 10-K for the year ended December 31, 2006.
 
The financial statements in the Anheuser-Busch Companies, Inc. 2006 Annual Report to shareholders (filed as Exhibit 13 of this Form 10-K) do not reflect any changes from the preceding year in any accounting principles or practices, or in the method of applying any such principles or practices, except as follows:
 
 
·
In the first quarter 2006, the company adopted FAS 123R, “Share-Based Payment.”
     
 
·
As of December 31, 2006, the company adopted FAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.”

If you have any questions or comments concerning this filing, please call me collect at the following number: (314) 577-2454.

Sincerely,

/s/ Laura H. Reeves

Laura H. Reeves
Assistant Secretary
Anheuser-Busch Companies, Inc.

 
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