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Article by DailyStocks_admin    (03-28-08 04:42 AM)

The Daily Warren Buffett Stock is BUD. Berkshire Hathaway owns 35,563,200 shares. As of Dec 31,2007, this represents 2.72 percent of portfolio.

BUSINESS OVERVIEW

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 2007, domestic beer contributed 75% and 64%, international beer contributed 7% and 26%, packaging contributed 10% and 4%, and entertainment contributed 8% and 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 74% 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 2007 Annual Report to Shareholders, which Note hereby is incorporated by reference.

U.S. beer volume was 104.4 million barrels in 2007 as compared with 102.3 million barrels in 2006. U.S. beer volume represents produced Anheuser-Busch brands, import brands and acquired brands shipped to U.S. wholesalers. Worldwide sales of the Company’s beer brands aggregated 128.4 million barrels in 2007 as compared with 125.0 million barrels in 2006. Worldwide beer volume is comprised of U.S. 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 equity partners. Total brands volume was 161.6 million barrels and 156.6 million barrels in 2007 and 2006, respectively.

U.S. 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 2007, ABI discontinued Anheuser-Busch Lager, Natty Up, BACARDI Silver, BACARDI Silver Big Apple, Peels Blueberry Pomegranate, Peels Spiced Apple, Peels Strawberry Passion Fruit, Peels Cranberry Peach, Peels Spiced Apple, Spykes Banana, Spykes Blue Raspberry, Spykes Grape, Spykes Hot Chocolate, Spykes Peach, Spykes Melon, Spykes Lime, and Spykes Mango.

Budweiser Family

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

Budweiser, Bud Light, Budweiser Select, 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 ULTRA Lime Cactus, Michelob ULTRA Tuscan Orange Grapefruit, and Michelob ULTRA Pomegranate Raspberry (all introduced in 2007) are sold in 49 states. Additionally, Michelob Pale Ale and Michelob Porter are sold in 49 states. Michelob Marzen is sold in 46 states, Michelob Bavarian-Style Wheat in 45 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 ULTRA Lime Cactus, Michelob ULTRA Tuscan Orange Grapefruit, Michelob ULTRA Pomegranate Raspberry, Michelob Honey Lager, Michelob Marzen, Michelob Porter and Michelob Bavarian-Style Wheat are sold in packaged form. Michelob Pale Ale is sold in sampler packs only.

Busch Family

Busch and Busch Light are sold in 49 states. Busch Ice is sold in 40 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 sold on a nationwide basis in both draught and packaged form.

Specialty Beers

Bud Extra (formerly known as B E ) is sold in 49 states only in packaged form.

Bare Knuckle Stout is sold on a nationwide basis in draught form.

American Red is sold in 29 states only in draught form under a variety of custom names.

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

Land Shark Lager is sold in 50 states only in packaged form.

Redbridge is sold nationwide only in packaged form.

Stone Mill Pale Ale is sold on a nationwide basis in both draught and packaged form.

Chelada Bud (introduced in 2007) and Chelada Bud Light (introduced in 2007) are sold in 50 states. Chelada Bud and Chelada Bud Light are only sold in packaged form.

In 2007, the Company began distributing Ray Hill American Pilsner (owned by Hill Brewing Co.) in 6 states in packaged form only.

Rolling Rock and Rock Green Light are sold on a nationwide basis in both draught and packaged form.

The Company periodically develops and sells 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 49 states, Hurricane Malt Liquor in 33 states and Hurricane Ice in 4 states.

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

Specialty Malt Beverages

BACARDI Silver Watermelon, BACARDI Silver Strawberry, BACARDI Silver Raz, BACARDI Silver Mojito (introduced in 2007), BACARDI Silver Mojito Pomegranate (introduced in 2007) and Tilt are distributed and sold on a nationwide basis. BACARDI Silver O 3 and Tequiza are sold in 49 states. BACARDI Silver Peach is sold in 47 states. Tilt Green is sold in 42 states. Intensitea Lemon (introduced in 2007) is sold in 14 states, Intensitea Raspberry (introduced in 2007) in 13 states, and Intensitea Peach (introduced in 2007) in 11 states. Wild Blue is sold in 3 states.

BACARDI Silver Raz and BACARDI Silver Mojito are sold in both draught and packaged form. BACARDI Silver O 3 , BACARDI Silver Watermelon, BACARDI Silver Strawberry, BACARDI Silver Peach, BACARDI Silver Mojito, BACARDI Silver Mojito Pomegranate, Tilt, Tilt Green, Tequiza, Intensitea Lemon, Intensitea Raspberry, Intensitea Peach and Wild Blue are sold only in packaged form.

Alliance Partner Products

Coastal Brands

ABI owns a 49% equity interest in Maryland-based Fordham Brewing Co. Through this alliance, ABI is the master distributor of Coastal Brewing Brands in 4 states.

Redhook Ale and Widmer Brothers

In 2007, Seattle-based Redhook Ale Brewery, Inc. and Portland-based Widmer Brothers Brewing Company announced that they will merge to form Craft Brewers Alliance, Inc. The new company will maintain the brands of both companies. The Company owns a 33.1% equity interest in Seattle-based Redhook Ale Brewery, Inc. Through this alliance, Redhook products are distributed exclusively by ABI wholesalers in 49 states. The Company owns a 39.6% interest in Portland-based Widmer Brothers Brewing Company. Widmer products are distributed exclusively by ABI wholesalers in 49 states. Widmer has ownership interests in Hawaii-based Kona Brewing Company and Illinois-based Goose Island Brewing Company and their products Kona and Goose Island, respectively, are distributed exclusively by ABI wholesalers in 17 and 14 states, respectively. The Company will have a 36.4% interest in Craft Brewers Alliance, Inc.

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 50 states and Kirin Light in 41 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”, “180 Orange”, “180 Blue”, “180 Red” (introduced in 2007), “180 Blue Low Calorie” (introduced in 2007) and “180 Orange Low Calorie” (introduced in 2007) in the energy drink category. 180, 180 Orange and 180 Blue are sold on a nationwide basis, 180 Red is sold in 49 states, and 180 Blue Low Calorie and 180 Orange Low Calorie in 40 states. All 180 brands are available in packaged form only with the exception of 180 which is in test in draught form.

The Company distributes Hansen energy drinks, including Monster Energy, Lost Energy and Rumba (energy juice). In 2007, the Company signed an agreement to market and sell Monster Energy energy drinks to on-premise retailers.

Other

The Company’s subsidiary, Long Tail Libations Inc., currently has a liqueur product, Jekyll & Hyde, available in packaged form in 81 test markets in 17 states.

The Company distributes Ku Soju (a Korean liquor manufactured by Ku Soju, Inc.) in packaged form in 39 test markets in 2 states.

The Company began distributing Blue Coat Gin (owned by Philadelphia Distilling, LLC) in packaged form in 2 test markets in 2007.

The Company began distributing Vermont Spirits Vodka (owned by Duncan Spirits, Inc.) in packaged form in 9 test markets in 2007.

The Company began distributing Margaritaville Tequilla (owned by Margaritaville Spirits) in packaged form in 11 test markets in 3 states in 2007.

The Company distributes Icelandic Glacial Spring Water (owned by Icelandic Water Holdings) in packaged form in 20 states.

The Company began marketing and distributing Borba Skin Balance Waters (owned by Borba) in packaged form in 4 states in 2007.

Imports

The Company, through an import alliance with Royal Grolsch N.V., imports certain of the Grolsch traditional European brands into the U.S. Grolsch Lager is sold in 49 states, Grolsch Amber in 45 states, Grolsch Light in 44 states and Grolsch Blonde in 43 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 imports Harbin Lager (manufactured by the Company in China) and Tiger Lager (flagship brand of Asia Pacific Breweries) into the U.S. Harbin Lager is sold in 48 states only in packaged form. Tiger Lager is sold in 49 states only in packaged 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. Czechvar is sold in 40 states in draught and packaged form.

In 2007, the Company became the exclusive U.S. importer of a number of the premium European brands of InBev nv/sa (a Belgium brewery company), including Stella Artois, Beck’s, Bass Pale Ale, Hoegaarden, Leffe and other select InBev brands. Stella Artois, Beck’s and Bass Pale Ale are available nationwide in draught and packaged form. Hoegaarden is available in 49 states in draught and packaged form. Leffe Blonde is available in 40 states in draught and packaged form and Leffe Brown is available on draught in 32 states.

U.S. 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 2007, other than the import brands, 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 these 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 U.S. beer sales in 2007 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.

The Company’s import brands are distributed through a combination of the Company’s wholesalers as well as non-equity wholesalers under new or preexisting arrangements in place at the time the Company began importing such brand.

Another wholly-owned subsidiary, Wholesaler Equity Development Corporation, shares equity positions with qualified partners in independent beer wholesalerships and is currently invested in 5 wholesalerships.

There are more than 100 companies engaged in the highly competitive brewing industry in the United States. ABI’s beers are distributed and sold in competition with other nationally distributed beers, with locally and regionally distributed beers, and with other 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, Bare Knuckle Stout, Bud Extra, Land Shark Lager, Redbridge, Stone Mill Pale Ale, and the 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 2007, its sales exceeded those of its nearest competitor by more than 60 million barrels. ABI’s U.S. market share for 2007 was approximately 48.5%. Major competitors in the United States brewing industry during 2007 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 with other types of alcohol beverage choices available to consumers.

International Beer

International beer volume was 24.0 million barrels in 2007, compared with 22.7 million barrels in 2006. 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, Michelob, and Michelob ULTRA brands to selected on-premise accounts, brewers, wholesalers, and directly to off-premise accounts. Budweiser, Bud Ice, and Michelob ULTRA are brewed and packaged at the Stag Brewery near London, England which is owned by ABEL. Harbin 1900 and Estrella Damm are 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 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 ten of the breweries and a majority interest in the remaining three breweries.

The Company also operates two sales companies in China, the Budweiser (China) Sales Company, Ltd., and the Harbin Beer Sales Company, Ltd., both indirect wholly-owned subsidiaries (“The China Sales Companies”). BWIB, Harbin Brewing Group and the China Sales Companies are responsible for the production, marketing and distribution of the Company’s products in China. They currently sell Budweiser, Bud Ice, Bud Ultra, Bud Genuine Draft, Harbin Ice, Harbin 1900 and various other Harbin brands. During 2007 the Budweiser (China) Sales Company, Ltd., began importing Grupo Modelo’s Corona brand.

During 2007 Anheuser-Busch International, Inc. announced plans to build a new brewery in Foshan in the Guangdong province with a scheduled completion date in late 2008.

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.), Russia (Heineken) and Panama (Heineken). 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 Argentina 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.

The Company has a strategic investment agreement with Tsingtao Brewery Company Limited, the second largest brewer in China, and producer of the Tsingtao brand. The Company has a 27% economic stake and a 20% voting stake in Tsingtao.

In 2007 the Anheuser-Busch International, Inc. and Crown Beers agreed to a 50/50 joint venture to brew, market and distribute Budweiser and other brands in India. The joint venture operates under the name Crown Beers India Ltd., and includes a new 500,000 hectoliter brewery in the Southern city of Hyderabad.

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 2007 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 2007 no single foreign country accounted for more than 3.6% of consolidated revenues or 2.6% 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 76%, 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 58% 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 82%, including a share of 16% 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.B. 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 2007 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.

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. A tenth park in Orlando (Aquatica) is scheduled to open in March 2008.

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 and earnings in the second and third quarters than in the first and fourth quarters.

The Company is the second 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 2007 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

Busch Agricultural Resources, L.L.C. (“BARL”), owned and operated by ABI, 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. BARL also owns and operates malt plants in Manitowoc, Wisconsin, Moorhead, Minnesota, and Idaho Falls, Idaho. Through other entities owned by BARL, ABI 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 BARL. 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, and 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.

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 would impose higher operating costs on the Company while depressing sales volume. Higher operating costs result from the need to maintain separate inventories of packaging materials for deposit states and non-deposit states and from ensuing loss of packaging flexibility.

Number of Employees

As of December 31, 2007, the Company had approximately 30,849 full-time employees worldwide. Within the United States approximately 8,072 employees were represented by the International Brotherhood of 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.
CEO BACKGROUND



August A. Busch III

Mr. Busch, 70, has been a director since 1963. He has been Chairman of the Executive Committee of the Board of Directors of the Company since 1979. He served as Chairman of the Board of the Company from 1977 until his retirement on November 30, 2006. He also served as President of the Company from 1974 to June 2002 and as Chief Executive Officer from 1975 to June 2002. He is also a director of AT&T Inc. and Emerson Electric Co.



August A. Busch IV

Mr. Busch, 43, has been a director since September 2006. He has been President and Chief Executive Officer of the Company since December 1, 2006. He was Vice President and Group Executive of the Company from 2000 to November 2006. He has been President of Anheuser-Busch, Incorporated since 2002 and has held the additional title of Chairman of the Board of that company since December 2006. He is also a director of FedEx Corporation.

Carlos Fernandez G.

Mr. Fernandez, 41, has been a director since 1996. He is Chairman of the Board of Directors and Chief Executive Officer of Grupo Modelo, S.A.B. de C.V., a Mexican company engaged in brewing and related operations, which positions he has held since 2005 and 1997, respectively. He was Vice Chairman of the Board of Grupo Modelo from 1994 to 2005. He is also a director of Emerson Electric Co. and Grupo Televisa, S.A.B. de C.V.



James R. Jones

Ambassador Jones, 68, has been a director since 1998. He has been Co- Chairman and Chief Executive Officer of Manatt Jones Global Strategies, LLC, a global business consulting firm, since 2001. He has been Senior Counsel in the law firm of Manatt, Phelps & Phillips LLP since 1998. He was President of Warnaco International, an apparel company, from 1997 to 1998. He was the U.S. Ambassador to Mexico from 1993 to 1997. He is also a director of Kansas City Southern.

Joyce M. Roché

Ms. Roché, 60, has been a director since 1998. She has been President and Chief Executive Officer of Girls Incorporated, a national nonprofit research, education, and advocacy organization, since 2000. She was an independent management consultant from 1999 to 2000 and President and Chief Operating Officer of Carson, Inc., a personal care products company, from 1996 to 1998. She is also a director of AT&T Inc., Macy’s Inc., and Tupperware Brands Corporation.



Henry Hugh Shelton

General Shelton, 66, has been a director since 2001. He was President, International Operations of M.I.C. Industries, an international manufacturing company, from 2002 to 2005. He served as Chairman of the Joint Chiefs of Staff from October 1997 to 2001. He is also a director of CACI International, Ceramic Protection Corporation, and Red Hat, Inc.

Patrick T. Stokes

Mr. Stokes, 65, has been a director since 2000. He has been Chairman of the Board of the Company since December 1, 2006. He served as President and Chief Executive Officer of the Company from 2002 until his retirement on November 30, 2006. He was Senior Executive Vice President of the Company from 2000 to 2002. He is also a director of Ameren Corporation and U.S. Bancorp.



Andrew C. Taylor

Mr. Taylor, 60, has been a director since 1995. He is Chairman and Chief Executive Officer of Enterprise Rent-A-Car Company (“Enterprise”), an international car rental and related services company. He has been Chairman of Enterprise since November 2001 and Chief Executive Officer of Enterprise since 1991. He is Chairman and Chief Executive Officer of Vanguard Car Rental and has held that position since August 2007. He has also been Chairman of Centric Group LLC, a holding company for several manufacturing and distribution businesses, since 2007. He is also a director of Commerce Bancshares, Inc.



Douglas A. Warner III

Mr. Warner, 61, has been a director since 1992. He was Chairman of the Board and Co-Chairman of the Executive Committee of J.P. Morgan Chase & Co., an international commercial and investment banking firm, from December 2000 until he retired in November 2001. From 1995 until 2000, he was Chairman of the Board, President and Chief Executive Officer of J.P. Morgan & Co., Incorporated. He is also a director of General Electric Company and Motorola, Inc.



James J. Forese

Mr. Forese, 72, has been a director since 2003. He has been Operating Partner and Chief Operating Officer of Thayer Hidden Creek, a private equity investment firm, since 2003. He was Chairman of the Board of IKON Office Solutions, Inc. (“IKON”) from 2000 until his retirement in 2003. He was President and Chief Executive Officer of IKON from 1998 to 2002. He is also a director of BFI Canada, and non-executive Chairman and a director of Spherion Corporation.

Vernon R. Loucks, Jr.

Mr. Loucks, 73, has been a director since 1988. He has been Chairman of the Board of The Aethena Group, LLC, a health care merchant banking firm, since 2001. He was Chief Executive Officer of Segway L.L.C., a company providing solutions to short distance travel, from January to November 2003. He was Chairman of the Board of Baxter International Inc., a manufacturer of health care products, specialty chemicals, and instruments, from 1980 to 1999 and was Chief Executive Officer of Baxter International from 1980 to 1998. He is also a director of Affymetrix, Inc., Edwards Lifesciences Corporation, Emerson Electric Co., and MedAssets, Inc.

Vilma S. Martinez

Ms. Martinez, 64, has been a director since 1983. She has been a partner in the law firm of Munger, Tolles & Olson LLP since 1982. She is also a director of Burlington Northern Santa Fe Corporation and Fluor Corporation.

William Porter Payne

Mr. Payne, 60, has been a director since 1997. He has been Vice Chairman and a partner of Gleacher Partners LLC, an investment banking and asset management firm, since 2007 and 2000, respectively. Mr. Payne is also a director of Cousins Properties, Inc. and Lincoln National Corporation.

Edward E. Whitacre, Jr.

Mr. Whitacre, 66, has been a director since 1988. He has been Chairman Emeritus of AT&T Inc., a communications holding company, since June 5, 2007. He was Chairman of the Board and Chief Executive Officer of AT&T Inc. from 1990 until his retirement on June 4, 2007. He is also a director of Burlington Northern Santa Fe Corporation.

SHARE OWNERSHIP

(1) Includes share unit balances in the Company’s deferred compensation plan for non-employee directors and share equivalent balances held by executives in the Company’s 401(k) Restoration Plan. Although ultimately paid in cash, the value of share units and share equivalents mirrors the value of the Company’s common stock. The share units and share equivalents do not have voting rights.

(2) The number of shares includes 2,007,277 shares that are subject to currently exercisable stock options, of which 67,000 are held in a family partnership, and 20,306 shares of unvested restricted stock.

(3) The number of shares includes 911,147 shares that are subject to currently exercisable stock options and 18,585 shares of unvested restricted stock.

(4) The number of shares includes 4,628,462 shares that are subject to currently exercisable stock options, of which 100,000 are held in trusts for the benefit of children of Mr. Busch III, and 7,028 shares of unvested restricted stock. Of the shares shown, Mr. Busch III has shared voting and shared investment power as to 1,059,836 shares and 2,048,064 shares are held in trusts of which Mr. Busch III is income beneficiary and as to which he has certain rights, but as to which he has no voting or investment power. 85,348 shares beneficially owned by members of his immediate family are not included.

(5) The number of shares includes 2,657,779 shares that are subject to currently exercisable stock options. Of those options, 50,000 were granted to Mr. Busch III and presently are held in trust for the benefit of Mr. Busch IV. Also included in the total are 67,847 shares of unvested restricted stock.

(6) The number of shares includes 20,001 shares that are subject to currently exercisable stock options and 833 shares of unvested restricted stock.

(7) The number of shares includes 15,001 shares that are subject to currently exercisable stock options and 833 shares of unvested restricted stock.

(8) The number of shares includes 1,214,638 shares that are subject to currently exercisable stock options, of which 80,000 are held in a trust for the benefit of the child of Mr. Jacob, and 1,359 shares of unvested restricted stock.

(9) The number of shares includes 33,001 shares that are subject to currently exercisable stock options and 833 shares of unvested restricted stock. 4000 of the shares held by Mr. Loucks have been pledged as security.

(10) Mr. Jones has shared voting and shared investment power with respect to 2,256 of these shares.

(11) The number of shares includes 1,300,701 shares that are subject to currently exercisable stock options and 16,815 shares of unvested restricted stock.

(12) The number of shares includes 964,624 shares that are subject to currently exercisable stock options and 14,628 shares of unvested restricted stock.

(13) The number of shares includes 25,001 shares that are subject to currently exercisable stock options and 833 shares of unvested restricted stock.

(14) The number of shares includes 6,569,247 shares that are subject to currently exercisable stock options (of which 1,366,621 are held in a family partnership), 351,252 shares that are held in a family partnership for which Mr. Stokes’ wife has shared voting and shared investment power, and 15,645 shares that are held in a trust in which Mr. Stokes and his wife have an economic interest, but as to which they have no voting or investment power. Also included are 13,613 shares of unvested restricted stock.

(15) The number of shares stated includes 27,374,005 shares that are subject to currently exercisable stock options, 258,731 shares of unvested restricted stock, 2,048,064 of the shares that are referred to in Note 4, as to which Mr. Busch III has no voting or investment power, and 366,897 of the shares that are referred to in Note 14 for which Mr. Stokes has no voting or investment power. 4,000 of the shares are pledged as security. The directors and executive officers as a group have sole voting and sole investment power as to 2,833,765 shares and shared voting and shared investment power as to 1,062,092 shares. 98,259 shares held by immediate family members or family trusts are not included and beneficial ownership of such shares is disclaimed.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations
Anheuser-Busch reported that third quarter 2007 net sales increased 7.9% and diluted earnings per share increased 15.9%. For the nine months of 2007, net sales increased 5.7% and diluted earnings per share increased 9.2%. The company is pleased with its earnings performance this quarter, with all operating segments reporting higher sales and profits. Sales volume and revenue growth in the company’s U.S. beer business benefited from its broadened beer portfolio, with greater participation in the high end segment, and the wholesaler transition and supply issues encountered earlier this year regarding the InBev European brands have been resolved. Additionally, the earnings contribution from our international segment accelerated, led by Grupo Modelo. The company continues to expect the full-year 2007 earnings per share increase to exceed our long term growth target of 7% to 10%.
The third quarter of 2007 includes normalization items that impact the comparability of reported operating results versus prior year. The company recorded a $26.5 million pretax gain ($.02 per share) on the sale of certain beer distribution rights in southern California and also incurred its pro rata share of a charge by Grupo Modelo for restructuring of its domestic distribution system and C-store closings. Excluding the impact of these normalization items, which the company believes allows a better comparison of underlying operating results, diluted earnings per share increased 15.9% for the third quarter. Additionally, results for the nine months of 2007 include the second quarter gain on the sale of the company’s remaining interest in its Spanish theme park, and year-to-date 2006 results include the one-time deferred income tax benefit from state income tax reform legislation in Texas. Excluding all normalization items for better comparison of underlying results, diluted earnings per share for the nine months increased 9.3% (see additional discussion and reconciliation on pages 17 through 20).

Beer Sales Results
Following is a summary and discussion of the company’s beer volume and sales results for the third quarter and nine months of 2007 versus comparable 2006 periods.

U.S. beer volume represents beer shipments to wholesalers in the United States. U.S. beer shipments-to-wholesalers increased 2% for the third quarter, while sales-to-retailers increased 2.2%. Import brands contributed 160 basis points of growth to shipments and 170 points to sales-to-retailers. For the nine months of 2007, shipments-to-wholesalers increased 1.7%, and sales-to-retailers increased 0.9% with acquired and import brands contributing 170 basis points of growth to both shipments and sales-to-retailers. Wholesaler inventories for Anheuser-Busch produced brands at the end of the third quarter were approximately half a day higher than at the end of the third quarter 2006. The company’s estimated U.S. beer market share for the nine months of 2007 was 48.8% compared to prior year market share of 48.7%. 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.
International volume consisting of 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, increased 8.2% for the third quarter and 6.1% for the nine months of 2007, driven primarily by volume increases in China, Mexico and Canada in both periods, partially offset by lower volume in the United Kingdom for the nine months. Worldwide Anheuser-Busch brands volume is comprised of U.S. and international volume, and increased 3.2% for the third quarter and 2.4% year-to-date, to 35.1 million and 99.5 million barrels, respectively.


Equity partner brands volume, which represents the company’s share of its foreign equity partners’ volume reported on a one-month lag, increased 7.6% for the third quarter of 2007, to 9.9 million barrels, and increased 6.4% for the nine months to 25.6 million barrels, due to Modelo and Tsingtao volume growth in both periods. Total brands volume, which combines worldwide Anheuser-Busch brand volume with equity partner brands volume was 45.0 million barrels in the third quarter and 125.1 million barrels for the nine months, up 4.1% and 3.2%, respectively.

2007 Financial Results
Following is a summary and discussion of key operating results for the third quarter and nine months of 2007 versus comparable 2006 periods.

Anheuser-Busch reported gross sales of $5.2 billion during the third quarter 2007, an increase of $360 million, or 7.4%. Gross sales increased 5.3%, or $742 million, to $14.8 billion for the nine months. Net sales were $4.6 billion and $13 billion, increases of $337 million and $700 million, respectively, or 7.9% for the quarter and 5.7% year-to-date. The differences between gross and net sales in 2007 are due to beer excise taxes of $619 million and $1.8 billion, respectively. The sales increases were driven by higher sales for all operating segments. For the third quarter and nine months, respectively, U.S. beer segment net sales increased 7%, or $203 million, and 6%, or $512 million on higher volume and increased revenue per barrel; international beer net sales increased 16% and 10%, respectively, primarily due to volume gains in China, Mexico and Canada in both periods, partially offset by lower volume in the United Kingdom year-to-date; packaging operations net sales increased 10% and 3% for the third quarter and nine months, respectively, on higher aluminum can and recycling revenues; and entertainment segment sales increased 8% in both periods due to increased attendance, higher ticket pricing and higher in-park spending.
U.S. beer revenue per barrel was up 3.1% in the third quarter 2007 and grew 2.8% compared to the nine months of 2006, due to the successful implementation of price increases and discount reductions on over half the company’s U.S. volume earlier in the year, higher promotional prices over the key summer holiday periods, and favorable brand mix. Revenue per barrel is calculated as net sales generated by the company’s U.S. beer operations on barrels of beer sold, determined on a U.S. GAAP basis, divided by the total volume of beer shipped to U.S. wholesalers. Net pricing actions and favorable mix accounted for $100 million and $267 million, respectively, of the increases in U.S. beer net sales in the third quarter and nine months, while higher beer volume contributed $69 million and $162 million, respectively, and non-beer revenues added $34 million and $83 million, respectively, to the increases for the same periods. Consistent with its pattern for pricing actions in recent years, the company plans to implement increases on the majority of its volume early next year, with a few selective increases in the fourth quarter 2007. As in the past, pricing initiatives will be tailored to selected markets, brands and packages.
The cost of sales for the third quarter 2007 was $2.9 billion, an increase of $224 million, or 8.5%, and was up $478 million, or 6%, to $8.2 billion for the nine months. The increases in cost of sales are primarily attributable to increased costs associated with higher U.S. and international beer volume, higher costs for brewing and packaging materials and higher labor and operating costs for entertainment operations, partially offset by lower energy costs and lower can manufacturing operating costs. Costs associated with higher U.S. and international beer volumes were $84 million and $23 million, respectively, for the third quarter and $215 million and $42 million, respectively, for the nine months. Gross profit as a percentage of net sales was 37.9% for the third quarter and 36.9% year-to-date, down 30 basis points for both periods.
Marketing, distribution and administrative expenses were $777 million for the third quarter and $2.2 billion year-to-date, representing a $39 million increase for the quarter and a $131 million increase year-to-date. The changes versus prior year periods are due to higher U.S. beer marketing costs, including incremental marketing and selling expense for the company’s new import beer portfolio, increased marketing costs for international beer and entertainment operations and higher delivery costs for company-owned beer wholesalerships, partially offset by lower administrative expenses in both periods. Administrative expenses
in 2007 include asset disposition gains in both the third quarter and nine months and a FAS 88 settlement charge year-to-date.
Operating income was $998 million, an increase of $100 million, or 11% for the third quarter 2007. For the nine months of 2007, operating income was $2.6 billion, an increase of $117 million, or 5%. Operating margins improved 60 basis points for the third quarter and declined 20 basis points for the nine months, to 21.6% and 20.1%, respectively. The increases in operating income are due to improved results for all business segments plus the one-time gain on the sale of distribution rights in California and lower administrative expenses.



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