UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

[X] x 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 20062007
   
[   ] o 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
PERIOD FROMTO

COMMISSION FILE NUMBER: 1-7823

ANHEUSER-BUSCH COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
43-1162835
(State of Incorporation)(I.R.S. Employer Identification No.)

One Busch Place, St. Louis, Missouri 63118
(Address of principal executive offices) (Zip Code)

(314) 577-2000
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)
 
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 the filing requirements for the past 90 days.
Yes [X]Yes  x    No  o
No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [X]
Large Accelerated Filer  xAccelerated Filer  oNon-Accelerated Filer  o
Accelerated Filer [  ]Non-Accelerated Filer [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [  ]Yes  o    No  x
No [X]

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

$1 Par Value Common Stock - 772,798,830759,797,680 shares as of March 31, 2006.2007.

 

1

Anheuser-Busch Companies, Inc. and Subsidiaries
Consolidated Balance Sheet (Unaudited)



 (in millions, except per share)March 31, Dec. 31,
  2006 2005
 Assets   
 Current Assets:   
 Cash$212.5 $225.8
 Accounts receivable873.0 681.4
 Inventories707.7 654.5
 Other current assets208.8 197.0
 Total current assets2,002.0 1,758.7
 Investments in affiliated companies3,575.8 3,448.2
 Plant and equipment, net8,966.9 9,041.6
 Intangible assets, including goodwill of $1,039.1 and $1,034.51,237.0 1,232.6
 Other assets1,293.9 1,073.9
 Total assets$17,075.6 $16,555.0
     
     
 Liabilities and Shareholders Equity   
 Current Liabilities:   
 Accounts payable$1,170.9 $1,249.5
 Accrued salaries, wages and benefits246.6 250.9
 Accrued taxes443.7 156.7
 Accrued interest114.9 123.7
 Other current liabilities254.6 201.8
 Total current liabilities2,230.7 1,982.6
 Postretirement benefits445.5 444.3
 Debt8,127.4 7,972.1
 Deferred income taxes1,329.8 1,345.9
 Other long-term liabilities1,136.9 1,130.3
 Shareholders Equity:   
 Common stock, $1.00 par, authorized 1.6 billion shares1,469.6 1,468.6
 Capital in excess of par value2,735.6 2,685.9
 Retained earnings15,987.5 15,698.0
 Treasury stock, at cost(15,507.9) (15,258.9)
 Accumulated non-owner changes in equity(879.5) (913.8)
 Total Shareholders Equity3,805.3 3,679.8
 Commitments and contingencies- -
 Total Liabilities and Shareholders Equity$17,075.6 $16,555.0
 March 31, Dec. 31, 
 2007 2006 
Assets    
Current Assets:    
Cash
$274.1 $219.2 
Accounts receivable
949.1 720.2 
Inventories
802.7 694.9 
Other current assets
207.3 195.2 
Total current assets
2,233.2 1,829.5 
Investments in affiliated companies3,803.1 3,680.3 
Plant and equipment, net8,872.6 8,916.1 
Intangible assets, including goodwill of $1,085.5 and $1,077.81,441.0 1,367.2 
Other assets611.9 584.1 
Total Assets
$16,961.8 $16,377.2 
     
     
Liabilities and Shareholders Equity    
Current Liabilities:    
Accounts payable
$1,279.6 $1,426.3 
Accrued salaries, wages and benefits
274.7 342.8 
Accrued taxes
362.2 133.9 
Accrued interest
122.5 124.2 
Other current liabilities
243.2 218.9 
Total current liabilities
2,282.2 2,246.1 
Retirement benefits1,166.6 1,191.5 
Debt8,276.2 7,653.5 
Deferred income taxes1,181.1 1,194.5 
Other long-term liabilities237.7 152.9 
Shareholders Equity:    
Common stock
1,476.9 1,473.7 
Capital in excess of par value
3,057.1 2,962.5 
Retained earnings
17,033.0 16,741.0 
Treasury stock, at cost
(16,479.8)(16,007.7)
Accumulated non-owner changes in equity
(1,269.2)(1,230.8)
Total Shareholders Equity
3,818.0 3,938.7 
Commitments and contingencies- - 
Total Liabilities and Shareholders Equity
$16,961.8 $16,377.2 
     

See the accompanying footnotes on pages 5 to 13.11.



2

Anheuser-Busch Companies, Inc. and Subsidiaries
Consolidated Statement of Income (Unaudited)


     
 (in millions, except per share)First Quarter
  Ended March 31,
  2006 2005
 Gross sales$4,296.3 $4,085.1
 Excise taxes(540.7) (521.4)
 Net sales3,755.6 3,563.7
 Cost of sales(2,417.7) (2,231.0)
 Gross profit1,337.9 1,332.7
 Marketing, distribution and administrative expenses(615.7) (619.3)
 Operating income722.2 713.4
 Interest expense(115.1) (114.8)
 Interest capitalized4.0 5.2
 Interest income0.6 2.0
 Other income, net3.7 19.5
 Income before income taxes615.4 625.3
 Provision for income taxes(238.6) (230.8)
 Equity income, net of tax122.4 105.9
 Net income$499.2 $500.4
 Basic earnings per share$.64 $.64
 Diluted earnings per share$.64 $.64
 
First Quarter
Ended March 31,
 
 2007 2006 
Gross sales$4,405.6 $4,296.3 
Excise taxes
(547.2)(540.7)
Net Sales3,858.4 3,755.6 
Cost of sales
(2,474.7)(2,417.7)
Gross Profit
1,383.7 1,337.9 
Marketing, distribution and administrative expenses
(665.7)(615.7)
Operating income718.0 722.2 
Interest expense
(119.9)(115.1)
Interest capitalized
3.5 4.0 
Interest income
0.5 0.6 
Other income / (expense), net
(5.9)3.7 
Income before income taxes596.2 615.4 
Provision for income taxes
(238.1)(238.6)
Equity income, net of tax159.4 122.4 
Net income$517.5 $499.2 
     
Basic earnings per share$.68 $.64 
Diluted earnings per share$.67 $.64 


See the accompanying footnotes on pages 5 to 13.11.




3

Anheuser-Busch Companies, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)



 (in millions)Three Months 
  Ended March 31, 
  2006  2005 
 Cash flow from operating activities:     
 Net income$499.2  $500.4 
 Adjustments to reconcile net income to cash     
 provided by operating activities:     
 Depreciation and amortization245.5  236.8 
 Decrease in deferred income taxes(17.3) (36.7)
 Stock compensation expense17.1  19.0 
 Undistributed earnings of affiliated companies(122.4) (105.9)
 Gain on sale of business-  (15.4) 
 Other, net(180.9) 47.3 
 Operating cash flow before change in working capital441.2  645.5 
 Decrease / (Increase) in working capital5.8  (115.3)
 Cash provided by operating activities447.0  530.2 
       
 Cash flow from investing activities:     
 Capital expenditures(159.1) (277.3)
 Proceeds from sale of business-  48.3 
 Cash used for investing activities(159.1) (229.0)
       
 Cash flow from financing activities:     
 Increase in debt299.3  278.3 
 Decrease in debt(143.2) (22.1)
 Dividends paid to shareholders(209.8) (190.8)
 Acquisition of treasury stock(259.7) (483.6)
 Shares issued under stock plans12.2  41.2 
 Cash used for financing activities(301.2) (377.0)
 Net decrease in cash during the period(13.3) (75.8)
 Cash, beginning of period225.8  228.1 
 Cash, end of period$212.5  $152.3 
 
Three Months
Ended March 31,
 
 2007 2006 
Cash flow from operating activities:    
Net income
$517.5 $499.2 
Adjustments to reconcile net income to cash provided by
operating activities:
    
Depreciation and amortization
246.0 245.5 
Decrease in deferred income taxes
(21.9)(17.3) 
Stock-based compensation expense
15.1 17.1 
Undistributed earnings of affiliated companies
(159.4) (122.4) 
Other, net
(40.9) (180.9) 
Operating cash flow before the change in working capital
556.4 441.2 
(Increase) / Decrease in working capital
(240.4) 5.8 
Cash provided by operating activities
316.0 447.0 
     
Cash flow from investing activities:    
Capital expenditures
(154.4) (159.1) 
Acquisitions
(83.5) -- 
Cash used for investing activities
(237.9) (159.1) 
     
Cash flow from financing activities:    
Increase in debt
585.1 299.3 
Decrease in debt
(0.7) (143.2) 
Dividends paid to shareholders
(225.5) (209.8) 
Acquisition of treasury stock
(477.4) (259.7) 
Shares issued under stock plans
95.3 12.2 
Cash used for financing activities
(23.2) (301.2)��
Net increase / (decrease) in cash during the period54.9 (13.3) 
Cash, beginning of period219.2 225.8 
Cash, end of period$274.1 $212.5 

See the accompanying footnotes on pages 5 to 13.11.



4


ANHEUSER-BUSCH COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.
Unaudited Financial Statements
The unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles and applicable SEC guidelines pertaining to quarterly financial reporting, and include all adjustments necessary for a fair presentation. These statements should be read in combination with the consolidated financial statements and notes included in the company’s annual report on Form 10-K for the year ended December 31, 2005.2006.

2.
Business Segments Information
Comparative business segment information for the first quarter ended March 31 (in millions):
              
  
 
U.S.
Beer
 
 
International
Beer
 
 
 
Packaging
 
 
 
Entertainment
 
 
Corporate
and Elims
 
 
 
Consolidated
 
2007
             
Gross Sales  $3,463.5  279.5  604.5  185.0  (126.9) $4,405.6 
                    
Net Sales:                   
- Intersegment  $0.8  0.3  232.0  --  (233.1) -- 
- External  $2,959.4  235.3  372.5  185.0  106.2  $3,858.4 
                    
Income Before
Income Taxes
 
 
$762.1
  
17.6
  
44.5
  
(18.5
)
 
(209.5
)
 
$596.2
 
                    
Equity Income  $0.1  159.3  --  --  --  $159.4 
                    
Net Income  $472.6  170.2  27.6  (11.5) (141.4) $517.5 
                    
                    
2006
                   
Gross Sales  $3,357.7  257.1  629.4  170.7  (118.6) $4,296.3 
                    
Net Sales:                   
- Intersegment  $0.7  --  225.9  --  (226.6) -- 
- External  $2,856.5  216.9  403.5  170.7  108.0  $3,755.6 
                    
Income Before
Income Taxes
 
 
$774.2
  
22.1
  
38.7
  
(17.6
)
 
(202.0
)
 
$615.4
 
                    
Equity Income  $0.6  121.8  --  --  --  $122.4 
                    
Net Income  $480.6  135.5  24.0  (10.9) (130.0) $499.2 
 
       
 DomesticInt'l  Corporate 
 BeerBeerPackagingEntertain.and ElimsConsol.
2006
      
Gross Sales$3,357.7257.1629.4170.7(118.6)$4,296.3
Net Sales:      
- Intersegment$0.7-     225.9-     (226.6)$ -     
- External$2,856.5216.9403.5170.7108.0$3,755.6
Income Before      
Income Taxes$782.522.138.7(17.6)(210.3)$615.4
Equity Income$0.6121.8-     -     -     $122.4
Net Income$485.8135.524.0(10.9)(135.2)$499.2
       
       
       
2005
      
Gross Sales$3,213.7248.3566.5175.1(118.5)$4,085.1
Net Sales:      
- Intersegment$0.7-     208.6-     (209.3)$ -     
- External$2,734.4205.5357.9175.190.8$3,563.7
Income Before      
Income Taxes$781.321.835.6(6.4)(207.0)$625.3
Equity Income-     $105.9-     -     -     $105.9
Net Income$484.4119.422.1(4.0)(121.5)$500.4
       

In 2007, the company changed reporting responsibility for certain administrative and technology support costs from Corporate to the U.S. beer segment. 2006 segment results have been updated to conform to this reporting convention.


5

The company adopted FAS 123R, “Share-Based Payment,” effective in the first quarter 2006 and has elected to apply the modified retrospective method of adoption. Stock compensation expense is classified as a corporate item for segment reporting purposes. Pursuant to the modified retrospective approach, the 2005 corporate information included in the company’s segment disclosures has been revised to include the impact of previously disclosed pro forma stock compensation expense.

3.
Stock Compensation
Under the terms of the company’s stock option plans, officers, certain other employees and non-employee directors may be granted options to purchase the company’s common stock at a price equal to the market priceclosing composite tape on the New York Stock Exchange on the date the option is granted. Options generally vest over three years and have a maximum term of 10 years. At March 31, 2006,2007, existing stock plans authorized issuance of 120112 million shares of common stock. The company issues new shares when options are exercised under employee stock option plans. Under the plan for the board of directors, shares are issued from treasury stock.
FollowingFor 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 summarycorporate item for business segments reporting. Unrecognized pretax stock compensation cost as of stock option activityMarch 31, 2007 was $82 million, and related prices for the first quarteris expected to be recognized over a weighted average life of 2006 (options in millions).approximately 1.5 years.
 
 
Options
Outstanding
Wtd. Avg.
Exercise
Price
 
Options
Exercisable
Wtd. Avg.
Exercise
Price
 
Balance, Dec. 31, 2005
 
96.5
 
$45.01
 
71.5
 
$44.06
 
Granted
 
---
 
N/A
  
 
Exercised
 
(0.5)
 
$25.56
  
 
Cancelled
 
(0.4)
 
$48.63
  
 
Balance, Mar. 31, 2006
 
95.6
 
$45.10
 
70.9
 
$44.20


6


The following table provides additional information regarding options outstanding and options that were exercisable as of March 31, 20062007 (options and in the money values in millions).
Options OutstandingOptions Exercisable
Range of
Exercise
Prices
Number
Wtd. Avg.
Remaining
Life
Wtd. Avg.
Exercise
Price
Pretax
In The
Money
Value
         Number
Wtd. Avg.
Exercise
Price
Pretax
In The
Money
Value
Options OutstandingOptions Exercisable
Range of
Exercise
Prices
 
 
Number
Wtd. Avg.
Remaining
Life
Wtd. Avg.
Exercise
Price
Pretax
In The Money
Value
 
 
Number
Wtd. Avg.
Exercise
Price
Pretax
In The Money
Value
$20-29
 
  9.6
 
2.0 years
 
$26.06
 
$160.9
 
  9.6
 
$26.06
 
$160.9
4.51.4 years$27.92$100.5     4.5$27.92$100.5
$30-39
 
  8.0
 
3.4 years
 
$37.84
 
38.7
 
  8.0
 
$37.84
 
38.7
7.12.6 years$37.8488.77.1$37.8488.7
$40-49
 
49.9
 
6.4 years
 
$46.47
 
---
 
38.6
 
$47.25
 
---
57.46.1 years$46.48242.541.5$46.92115.9
$50-53
 
28.1
 
8.0 years
 
$51.29
 
---
 
14.7
 
$51.60
 
---
27.9  6.5 years$51.292.2  24.1  $51.442.2     
$20-53
 
95.6
 
6.2 years
 
$45.10
 
$199.6
 
70.9
 
$44.20
 
$199.6
96.9     5.7 years$46.37$433.9   77.2   $46.39$307.3  


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 day 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 under FAS 123 and requires the 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 date of grant. In order to enhance comparability among all years presented and to provide the fullest understanding of the impact that expensing stock compensation has on the company, Anheuser-Busch has retrospectively applied the new standard to prior period results.
The fair value of stock compensation is recognized in expense over the vesting period, and is determined on the date of grant using a binomial (lattice method) option-pricing model. The company recognizes the entire fair value associated with non-forfeitable stock options (approximately 60% of the total) in stock compensation expense when options are granted. The remaining expense associated with forfeitable options is recognized ratably over the three-year option vesting period. For financial reporting purposes, stock compensation expense is included in either cost of sales or marketing, distribution and administrative expenses depending on where the

7

recipient’s cash compensation is reported, and is classified as a corporate item for business segments reporting.
The following table shows the fair value of stock options granted for 2005, 2004 and 2003 (in millions, except per option).

 200520042003
 
Fair value of each option granted
 
$8.81
 
$10.49
 
$13.58
 
Total number of options granted
 
11.4
 
14.1
 
14.4
 
 
Total fair value of options granted
 
$100.4
 
$147.9
 
$195.6

Anheuser-Busch uses the binomial option-pricing model for the valuation of stock options because it accommodates several inputs in order to take into account multiple option exercise patterns, and essentially computes an overall value based on a weighting of the various patterns. The company used the Black-Scholes pricing model to determine the fair value of stock options granted in 2003. The assumptions used in developing the fair value of stock options granted for the years 2005, 2004 and 2003 follow. For illustrative purposes, the expected life, risk-free rate, and fair value per option shown above are weighted averages.

 200520042003
 
Expected life of option
 
5.5 yrs.
 
5.5 yrs.
 
7.0 yrs.
 
Risk-free interest rate
 
4.4%
 
3.7%
 
4.0%
 
Expected volatility of Anheuser-Busch stock
 
21%
 
22%
 
22%
 
Expected dividend yield on Anheuser-Busch stock
 
2.5%
 
1.8%
 
1.7%

Pretax stock compensation expense was $17 million and $19 million for the first quarter of 2006 and 2005, respectively. The impact on net income was $12 million for both periods, while the impact on diluted earnings per share was $.015 for the first quarter of 2006 and $.016 for the first quarter of 2005. Unrecognized pretax stock compensation cost as of March 31, 2006 was $95 million, which is expected to be recognized over a weighted average life of approximately 1.5 years.
Cash proceeds from the exercise of stock options totaled $10 million in the first quarter of 2006 and $39 million for the first quarter of 2005. Stock options exercised in the first quarter of 2006 and 2005 had an aggregate intrinsic value (amount by which the market price exceeded the exercise price on the date of exercise) of $9

8

million and $31 million, respectively. The income tax benefit related to the exercise of employee stock options (recognized as a reduction of current taxes payable and an increase in paid-in-capital) was $3 million and $9 million, respectively, for the first quarter of 2006 and 2005.
Following are figures pertinent to first quarter 2005 operations and the balance sheet as of December 31, 2005 as they were previously reported and for the retrospective adoption of FAS 123R.

 
 
Including
FAS 123R
 
As Previously
Reported
Operating Results and Cash Flow for First Quarter 2005
   
Cost of sales$2,231.0 $2,227.2
Gross profit$1,332.7 $1,336.5
Marketing, distribution and administrative expenses$619.3 $604.1
Operating income$713.4 $732.4
Income before income taxes$625.3 $644.3
Provision for income taxes$230.8 $237.4
Net income$500.4 $512.8
Basic earnings per share$.64 $.66
Diluted earnings per share$.64 $.65
    
Operating cash flow before change in working capital$645.5 $651.5
Cash provided by operating activities$530.2 $536.2
Shares issued under stock plans$41.2 $35.2
Cash used for financing activities$377.0 $383.0
    
Balance Sheet as of December 31, 2005
   
Deferred income taxes$1,345.9 $1,682.4
Capital in excess of par value$2,685.9 $1,601.8
Retained earnings$15,698.0 $16,445.6
Shareholders equity$3,679.8 $3,343.3



9


4.
Derivatives
Anheuser-Busch accounts for its derivatives in accordance with FAS 133, “Accounting for Derivatives and Other Hedging Instruments,Instruments.” and thereforeFor cash flow hedges, the company defers in accumulated non-owner changes in shareholders equity the portion of cash flow hedging gains and losses that equal the change in cost of the underlying hedged transactions.
6
As the underlying hedged transactions occur, the associated deferred hedging gains and losses are reclassified into earnings to match the change in cost of the transaction. For fair value hedges, the changes in value for both the derivative and the underlying hedged exposure are recognized in earnings each quarter.
Following are pretax effective gains and losses from derivatives which were recognized in earnings during the first quarter (in millions). These gains and losses effectivelylargely offset price or value changes in the company’s hedged exposures.

First Quarter
First Quarter
First Quarter
2006
 
 
2005
20072007 2006
Gains
 
Losses
 
 
Gains
 
Losses
 Losses Gains Losses
$0.5
 
$26.7
 
 
$0.6
 
$4.5
    
$3.7 $5.1 $0.5 $26.7

The company immediately recognizes in earnings any portion of derivative gains or losses that are not 100% effective at offsetting price changes in the underlying transactions. Anheuser-Busch recognized net pretax lossesgains due to this hedge ineffectiveness of $0.9 million for the first quarter of 2007 compared to net ineffective pretax losses of $0.7 million for the first quarter of 2006 compared to net ineffective pretax losses of $0.3 million for the first quarter of 2005.2006.

5.
Earnings Per Share
Earnings per share are calculated by dividing net income by weighted-average common shares outstanding for the period. The difference between basic and diluted weighted-average common shares is the dilutive impact of unexercised in-the-money stock options. There were no adjustments to net income for any period shown for purposes of calculating earnings per share.

10


Weighted-average common shares outstanding for the quarter ended March 31 are shown below (millions of shares):
 
First Quarter
First Quarter
 
2006
 
 
2005
2007 2006
Basic weighted average shares outstanding
 
776.1
 
 
779.3
763.5 776.1
Diluted weighted average shares outstanding
 
780.2
 
 
785.9
773.3 780.2

7


6.  
Inventories
The company’s inventories were comprised of the following as of March 31, 2007 and December 31, 2006 (in millions).
  March 31, Dec. 31, 
  2007 2006 
Raw Materials  
$399.0
  
$385.6
 
Work-in-Process  118.5  110.8 
Finished Goods  285.2  198.5 
Total Inventories  
$802.7
  
$694.9
 

6.7.  
Non-OwnerNonowner Changes in Shareholders Equity
The components of accumulated non-ownernonowner changes in shareholders equity, net of applicable taxes, as of March 31, 20062007 and December 31, 20052006 follow (in millions):
  March 31, Dec. 31, 
  2007 2006 
Foreign currency translation loss  
$(493.3
) 
$(452.2
)
Deferred hedging gains  5.2  2.1 
Deferred securities valuation gains  0.9  1.3 
Deferred retirement benefits costs  (782.0) (782.0)
Accumulated nonowner changes in shareholders equity  
$(1,269.2
) 
$(1,230.8
)

 
 
March 31,
 
 
Dec. 31,
 
 
2006
 
 
2005
 
Foreign currency translation loss
 
$(347.5)
 
 
$(382.0)
 
Deferred hedging losses
 
(3.0)
 
 
(2.4)
 
Deferred securities valuation gains
 
0.7
 
 
0.3
 
Minimum pension liability
 
(529.7)
 
 
(529.7)
 
Accumulated non-owner changes in shareholders equity
 
$(879.5)
 
 
$(913.8)

Net income plus non-ownernonowner changes in shareholders equity, net of applicable taxes, for the quarter ended March 31 follows (in millions):
 
 
First Quarter
 
 
2006
 
 
2005
 
Net income
 
$499.2
 
 
$500.4
 
Foreign currency translation gains
 
34.5
 
 
30.4
 
Net change in deferred hedging (losses) / gains
 
(0.6)
 
 
5.1
 
Deferred securities valuation gains
 
0.4
 
 
7.9
 
Net income plus non-owner changes in shareholders equity
 
$533.5
 
 
$543.8
  First Quarter 
  2007 2006 
Net income  
$517.5
  
$499.2
 
Foreign currency translation gains / (losses)  (41.1) 34.5 
Net change in deferred hedging gains / (losses)  3.1  (0.6)
Net change in deferred securities valuation gains / (losses)  (0.4) 0.4 
Net income plus nonowner changes in shareholders equity  
$479.1
  
$533.5
 



118


7.8.  
Goodwill
Following is goodwill by business segment, as of March 31, 20062007 and December 31, 20052006 (in millions). Goodwill is included in either other assets or investment in affiliated companies, as appropriate, in the consolidated balance sheet. The change in goodwill during the first quarter 20062007 results from fluctuations in foreign currency exchange rates.
 
 
Mar. 31, 2006
 
 
Dec. 31, 2005
  March 31, 2007  Dec. 31, 2006 
Domestic Beer
 
$21.2
 
 
$21.2
  $21.2  $21.2 
International Beer
 
1,269.9
 
 
1,261.1
  1,282.1  1,283.0 
Packaging
 
21.9
 
 
21.9
  21.9  21.9 
Entertainment
 
288.3
 
 
288.3
  288.3   288.3  
Total goodwill
 
$1,601.3
 
 
$1,592.5
  $1,613.5   $1,614.4  

8.9.  
Pension and PostretirementRetirement Health Care Expense
The components of quarterly expense for pensions and postretirementretirement health care benefits are shown below for the first quarter of 20062007 and 20052006 (in millions):
 
Pensions
Postretirement
Health Care
 
Pensions
Retirement Health
Care
20062005200620052007200620072006
Service cost (benefits earned during the period)
 
$26.6
 
$24.3
 
$6.2
 
$6.2
$25.1 $26.6 $6.5$6.2
Interest cost on benefit obligation
 
42.5
 
42.2
 
8.7
 
9.6
44.6 42.5 10.98.7
Assumed return on plan assets
 
(49.6)
 
(49.0)
 
---
 
---
(52.1)(49.6) --
Amortization of prior service cost and net actuarial losses / (gains)
 
28.5
 
22.0
 
1.3
 
(1.7)
Amortization of prior service cost and net actuarial losses
 
21.3 
 
28.5 
 
4.1
 
1.3
FAS 88 Settlement19.0 -- --
Expense for defined benefit plans
 
48.0
 
39.5
 
16.2
 
14.1
57.9 48.0 21.516.2
Cash contributed to multi-employer plans
 
3.9
 
3.9
 
---
 
---
4.2 3.9  ----
Cash contributed to defined contribution plans
 
4.7
 
4.7
 
---
 
---
5.2 4.7 --
Total quarterly expense
 
$56.6
 
$48.1
 
$16.2
 
$14.1
$67.3 $56.6 $21.5$16.2



9
In order to enhance the funded status of its defined benefit pension plans, the company made a discretionary pension contributioncontributions of $85 million in January 2007 and $214 million in January 2006. This contribution isThese contributions were in addition to the company’s required pension fundingfunding.
In the first quarter, the company recognized previously deferred actuarial losses resulting from the retirement of certain executive officers in the fourth quarter 2006, in accordance with FAS 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans.” The company recognized the FAS 88 impact in the first quarter of 2007 because these individuals retired subsequent to the company’s pension accounting measurement date of October 1, 2006.

10.  
Uncertain Tax Positions
Effective January 1, 2007, Anheuser-Busch adopted FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” On adoption, the company had $96.8 million in gross unrecognized tax benefits, resulting in $45.9 million of net uncertain tax benefit positions that would reduce the company’s effective income tax rate if recognized. To comply with FIN 48, Anheuser-Busch reclassified $102.6 million of tax liabilities from current to noncurrent on the balance sheet and also separately recognized $53.1 million of deferred tax assets which had previously been netted against tax liabilities. The company made no adjustments to retained earnings related to the adoption and anticipates no significant changes to the amount of unrecognized tax benefits in the next 12 months.
The company’s policy is to accrue interest related to potential underpayment of income taxes within the provision for income taxes. The liability for accrued interest totaled $7.8 million as of January 1, 2007. Interest is computed on the difference between the company’s uncertain tax benefit positions under FIN 48 and the amount deducted or expected to be deducted in the company’s tax returns.
The principal jurisdictions for which Anheuser-Busch files income tax returns are U.S. federal and the various city, state, and international locations where the company has operations. The company participates in the IRS Compliance Assurance Process
1210

program for the examination of U.S. federal income tax returns, and examinations are substantively complete through 2005. City and state examinations are substantially complete through 2001. The status of international tax examinations varies by jurisdiction. The company does not anticipate any material adjustments to its financial statements resulting from tax examinations currently in progress.

9.11.  
Equity Investment in Grupo Modelo
Summary financial information for Anheuser-Busch’s equity investee Grupo Modelo for the first quarter of 20062007 and 20052006 is presented below (in millions). The amounts shown represent 100% of 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 the company’s purchase accounting adjustments.
 
First Quarter
Ended March 31,
 2007 2006
Cash and marketable securities$2,020.3 $1,790.5
Other current assets$1,361.8 $989.4
Non-current assets$4,715.9 $4,644.3
Current liabilities$623.3 $382.2
Non-current liabilities$323.9 $367.0
Gross sales$1,431.0 $1,233.0
Net sales$1,332.4 $1,142.4
Gross profit$716.3 $605.4
Minority interest$43.5 $0.3
Net income$312.7 $241.9

 
First Quarter
Ended March 31,
 2006 2005
 
Cash and marketable securities
 
$1,790.5
 
 
$1,434.5
 
Other current assets
 
$989.4
 
 
$830.2
 
Non-current assets
 
$4,644.3
 
 
$4,248.4
 
Current liabilities
 
$382.2
 
 
$359.8
 
Non-current liabilities
 
$367.0
 
 
$445.4
 
Gross sales
 
$1,233.0
 
 
$1,010.8
 
Net sales
 
$1,142.4
 
 
$930.4
 
Gross profit
 
$605.4
 
 
$518.1
 
Minority interest
 
$0.3
 
 
$0.3
 
Net income
 
$241.9
 
 
$211.0




1311


Management’s Discussion and Analysis of Operations and Financial Condition
This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of Anheuser-Busch Companies, Inc. for the first quarter ended March 31, 2006,2007, compared to the first quarter ended March 31, 2005,2006, and the year ended December 31, 2005.2006. This discussion should be read in conjunction with the consolidated financial statements and notes included in the company’scompany's annual report to shareholders for the year ended December 31, 2005.2006.
This discussion contains forward-looking statements regarding the company’s expectations concerning its future operations, earnings and prospects. On the date the forward-looking statements are made, the statements represent the company’s expectations, but the company’s expectations concerning its future operations, earnings and prospects may change. The company’s expectations involve risks and uncertainties (both favorable and unfavorable) and are based on many assumptions that the company believes to be reasonable, but such assumptions may ultimately prove to be inaccurate or incomplete, in whole or in part. Accordingly, there can be no assurances that the company’s expectations and the forward-looking statements will be correct. Please refer to the company’s most recent SEC Form 10-K for a description of risk factors that could cause actual results to differ (favorably or unfavorably) from the expectations stated in this discussion. Anheuser-Busch disclaims any obligation to update any of these forward-looking statements.
Results of Operations
Effective inAnheuser-Busch reported improved sales and earnings for the first quarter 2006, Anheuser-Busch adopted FAS 123R, “Share-Based Payment.” FAS 123R requires the recognition of stock compensation expense for stock options2007, with consolidated net sales increasing 2.7% 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, Anheuser-Busch elected to apply the modified retrospective method of adopting FAS 123R.diluted earnings per share up 4.7%. The company has therefore recast comparative 2005 resultsis encouraged by its progress on key initiatives during the first quarter. Domestic beer price increases and discount reductions were successfully implemented earlier this year and the pricing environment continues to incorporatebe favorable. Cost reduction efforts have lessened the impact of previously disclosed pro formaongoing cost pressures and consolidated gross profit margin improved during the quarter. The transition of the InBev European brands into Anheuser-Busch’s wholesaler system is ahead of schedule and good progress has been made implementing other import and energy drink alliances. The international segment, led by Grupo Modelo, continues to make a significant contribution to earnings growth. These

1412

stock compensation expense. The impact of adopting FAS 123R is not material to the results of operationsfactors, combined with marketing and selling initiatives, provide a good foundation for any period presented. See Note 3 for additional information.
Coming off a difficult year in 2005, Anheuser-Busch achieved encouraging first quarter 2006 results. Through a number of sales initiatives the company has restored its domestic beer volume growth momentum, and successfully implemented a moderate price increase in early 2006. The cost pressures the company experienced last year continue, but at a lesser rate, and a number of initiatives to reduce costs and enhance productivity have been implemented.
Consolidated net sales increased 5.4% versus prior year, while diluted earnings per share of $.64 were level with 2005. Reported earnings per share for the first quarter 2005 include the one-time gain on the sale of an interest in a theme park in Spain. Excluding the one-time gain from 2005, which allows a better comparison between underlying 2006 and 2005 operating results, diluted earnings per share for the first quarter increased 4.9% (see additional discussion on pages 18 through 20).
Anheuser-Busch continues to expect sales andaccelerated earnings growth in 2006 and believes it is off to a good start. In addition to the sale of the Spanish theme park, the company experienced other one-time items in the second and third quarters of 2005 which impacted the underlying results of operations. For informational and comparative purposes, the table below sets forth the assumptions used by company representatives when comparing expectations for full year 2006 diluted earnings per share to 2005 results including FAS 123R stock compensation expense and excluding one-time items.

Earnings
Full Year 2005 Basis of Comparison
Per Share
Including FAS 123R$2.23
Gain on Sale of Spanish Theme Park(.024)
Favorable Chile Income Tax Settlement on CCU Sale(.009)
Deferred Income Tax Benefit From Ohio Tax Legislation(.009)
Litigation Settlement.118
Including FAS 123R and Excluding One-Time Items$2.31


15


2007.
Beer Sales Results
Following is a summary and discussion of the company’s beer volume and sales results for the first quarter 20062007 compared with the first quarter 2005.2006.

Beer Volume (millions of barrels)
Beer Volume (millions of barrels)
 Beer Volume (millions of barrels)
 
First Quarter
 
 
2006 vs. 2005
 First Quarter 2007 vs. 2006
 
2006
 
 
2005
 
 
Barrels
 
 
%
 2007 2006 Barrels %
Domestic
 
25.6
 
 
24.4
 
 
Up 1.2
 
 
Up 4.6%
 25.7 25.6 Up 0.1 Up 0.5%
International
 
4.8
 
 
4.4
 
 
Up 0.4
 
 
Up 9.4%
 5.2 4.8 Up 0.4 Up 8.7%
Worldwide A-B Brands
 
30.4
 
 
28.8
 
 
Up 1.6
 
 
Up 5.4%
 30.9 30.4 Up 0.5 Up 1.8%
Equity Partner Brands
 
6.4
 
 
4.3
 
 
Up 2.1
 
 
Up 47.9%
 6.7 6.4 Up 0.3 Up 4.1%
Total Brands
 
36.8
 
 
33.1
 
 
Up 3.7
 
 
Up 10.9%
 37.6 36.8 Up 0.8 Up 2.2%

Domestic beer volume represents Anheuser-Busch beer produced and shipped within the United States. DomesticU.S., which includes both the company’s domestically-produced brands and imported brands. U.S. beer shipments-to-wholesalers increased 4.6%0.5% for the first quarter 2006,2007, with acquired and actual wholesaler sales-to-retailersimport brands contributing 1.2 points to overall growth. Sales-to-retailers were up 3.3%. On0.1%, including a selling day adjusted basis, sales-to-retailers were up 1.7%. Shipments to wholesalers are not selling day adjusted. Our sales-to-retailers increase was led by Bud Light, which grew mid-single digits (selling day adjusted).contribution of 1.7 points of growth from acquired and import brands. Wholesaler inventories at the end of the first quarter 2006 were about oneone-half of a day lower than at the end of the first quarter 2005.2006. In February the company became the exclusive importer of select InBev European brands.
The company’s estimated domestic market share (excluding exports) for the first quarter of 20062007 was 51.2%50.2%, compared to prior year market share of 51.1%50.9%. 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.
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, to markets around the world, increased 9%8.7% for the first quarter 2006,2007 driven primarily by sales in China.China and Canada. Worldwide Anheuser-Busch brands volume is comprised of domestic volume and international volume and rose 5%1.8%, to 30.430.9 million barrels.
13
Equity partner brands volume, representing the company’s share of its foreign equity partners’ volume reported on a one-month lag, increased 48%4.1% for the first quarter of 2006, to 6.4 million barrels2007 due to the strongincreased volume performance offrom Grupo Modelo

and Tsingtao.
16

and the inclusion of Tsingtao volume. The company began accounting for Tsingtao on an equity basis in May 2005.
Total brands volume, which combines worldwide Anheuser-Busch brand volume with equity partner brands volume was 36.8up 2.2%, to 37.6 million barrels in the first quarter, up 3.7 million barrels, or 11%.

quarter.
First Quarter 20062007 Financial Results
Following is a summary and discussion of key operating results for the first quarter 20062007 versus 2005.2006.

    
$ in millions, except per shareFirst Quarter 2006 vs. 2005 First Quarter 2007 vs. 2006
 
2006
 
 
2005
 
 
$
 
 
%
 2007 2006 $ %
Gross Sales
 
$4,296
 
 
$4,085
 
 
Up $211
 
 
Up 5.2%
 $4,406     $4,296     Up $110     Up 2.5%    
Net Sales
 
$3,756
 
 
$3,564
 
 
Up $192
 
 
Up 5.4%
 $3,858     $3,756     Up $102     Up 2.7%    
Income Before Income Taxes
 
$615
 
 
$625
 
 
Dn $(10)
 
 
Dn (1.6)%
 $596     $615    Dn $19     Dn 3.1%    
Equity Income
 
$122
 
 
$106
 
 
Up $16
 
 
Up 15.6%
 $159     $122     Up $37     Up 30.3%    
Net Income
 
$499
 
 
$500
 
 
Dn $(1)
 
 
Dn (0.2)%
 $518     $499     Up $19     Up 3.7%    
Diluted Earnings per Share
 
$.64
 
 
$.64
 
 
--
 
 
--
 $.67     $.64     Up $.03     Up 4.7%    

Anheuser-Busch reported gross sales of $4.3$4.4 billion during the first quarter 2006,2007, an increase of $211 million, or 5%2.5%. Net sales were $3.8$3.9 billion, an increase of $192 million, or 5%2.7%. The difference between gross and net sales in 20062007 reflects beer excise taxes of $540$548 million.
The increases in both gross and net sales were due to sales increases for domestic beer,U.S. and international beer and packagingentertainment operations. DomesticU.S. beer segment net sales increased 4.5%3.6% on higherimproved revenue per barrel and increased sales volume. International beer net sales increased 5.5%8.5% primarily due to strong salesvolume increases in China.China and Canada. Packaging operations net sales increased 13%declined 7.7% due to higher aluminumlower can volume. Entertainmentand recycling volume, while entertainment segment sales declined 2.5% due primarily to the Easter holiday occurring in the second quarter this year versus in the first quarter in 2005.were up 8.4% on increased attendance and higher ticket pricing.
DomesticU.S. beer revenue per barrel was essentially level in 2006 versus the first quarter 2005. However, revenue per barrel grew 4.3% compared to the fourth quarter of

17

2005 due to theup 2.3% on successful implementation of price increases and discount reductions on over halfthe majority of the company’s domestic volume during the first quarter.quarter and favorable mix from import sales. Revenue per barrel growth accounted for $88 million of the first quarter U.S. beer net sales growth, while higher volume contributed $15 million. Revenue per barrel is calculated as net sales generated by the
14
company’s domesticU.S. beer operations on barrels of beer sold, determined on a U.S. GAAP basis, divided by the total volume of beer shipped from the company’s breweries to U.S. wholesalers.
Cost of sales for the first quarter 20062007 was $2.4$2.5 billion, an increase of $187$57 million, or 8%2.4%. The increase in cost of sales is primarily attributable to theincreased costs associated with higher U.S. and international beer volume of $34 million and $8 million, respectively, increased costs for U.S. beer packaging materials, and energy. Grosshigher labor and operating costs for entertainment operations, partially offset by lower energy costs and lower cost of sales for packaging operations due to lower volume. Consolidated gross profit as a percentage of net sales was 35.6%35.9% for the first quarter, down 180up 30 basis points due to increased volume being offset by increased costs.points.
Marketing, distribution and administrative expenses were $616$666 million, an increase of $50 million, or 8.1% for the first quarter. This increase is due to higher U.S. beer marketing costs, both to support trademark brands and incremental marketing and selling expense on the company’s new import beer portfolio, increased marketing costs in China, higher delivery costs for company-owned beer wholesalerships, and increased administrative expenses. Administrative expenses for the first quarter include a FAS 88 charge and an asset disposition gain.
Operating income was $718 million, a decrease of $4 million, or 0.6% for the first quarter. This decrease isquarter 2007 due to lower corporate administrativehigher cost of sales and marketing expense primarily from reduced personnel related costs, partially offset by slightly higher overall marketing costs.
Operating income was $722 million, an increase of $9 million, or 1% for the first quarter 2006.offsetting increases in net sales. Operating margin for the quarter decreased 8060 basis points, to 19.2% due primarily to higher costs.18.6%.
Interest expense less interest income was $115$119 million for the first quarter 2006,2007, an increase of $2$5 million, or 1.5%4% due to slightlyhigher average interest rates partially offset by lower average outstanding debt offset by higher interest rates and lower interest income.outstanding. Interest capitalized of $4$3.5 million in the first quarter 20062007 was down $1 millionslightly due to lowerthe timing of qualifying capital spending.
Other income/expense, net reflects the impact of numerous items not directly related to the company’s operations. For the first quarter of 2006 and 2005,2007, the company had other expense of $6 million, compared to other income of $4 million and $20 million, respectively. Other income for 2005 includes the $15.4 million pretax gain from the sale of the company’s equity interest in the Spanish theme park. For business segment reporting purposes, the gain is reported as a corporate item. Excluding this gain, other income was essentially level.2006.
Income before income taxes for the first quarter 20062007 was $615$596 million, a decrease of $10$19 million, or 2%,3.1% due primarily to slightly higherlower profits in domestic beer,U.S. and international beer and packaging operations and lower corporate costs, offset by lower entertainment results due to the timing of the Easter holiday, slightly higher net interest expenseexpense. U.S. beer pretax profits declined $12 million primarily due to higher packaging materials and marketing expenses offsetting improved revenue per barrel and higher beer volume. International beer pretax income was down $5 million primarily due to lower results in the United Kingdom, partially offset by increased profits in China and

1815

lower one-time gains. Domestic beer pretax profits improved $1 million due to higher beer sales volume mostly offset by higher packaging materials, energy and plant operating costs. International beer pretax income was up $0.3 million primarily due to profit growth in Mexico and lower marketing expense, largely offset by lower operating profits in China and the United Kingdom.Canada. Packaging segment pretax profits were up $3$6 million due toon increased profits from can manufacturing.all of its business, led by aluminum recycling operations. Entertainment segment pretax results declined $11 million due to the timing of Easter, with the holiday occurring in the second quarter in 2006were down slightly versus the first quarter of 2005.prior year.
Equity income increased $16$37 million, or 30% in the first quarter 2006, reflecting the benefit of2007 primarily from improved Grupo Modelo earnings from higher domestic volume and pricing growth as well asbenefits associated with the inclusionnew Crown import and distribution joint venture. Equity income includes a $17 million benefit from the return of Tsingtao equity earningsan advertising fund that was part of a prior import contract, partially offset by a timing change in 2006. The company began applying equity accounting for Tsingtao in May 2005.the recognition of Modelo’s export sales to the U.S.
Anheuser-Busch’s effective tax rate was 38.8%39.9% in the first quarter 2006 versus 36.9% in the first quarter 2005. The effective rate for 2005 was lower than typical, reflecting a deferred income tax benefit2007, an increase of 110 basis points primarily due to higher taxes on the sale of the Spanish theme park.
foreign earnings. Net income of $499$518 million in the first quarter of 20062007 represented a decreasean increase of $1.2$18 million, or 0.2% versus the first quarter 2005.3.7%. Diluted earnings per share were $.64, unchanged$.67, up $.03 from prior year.year, or 4.7%. Earnings per share benefited from the company’s repurchase of 6more than nine million shares in the first quarter under the company’s on-going share repurchase program.
As shown in the following table, excluding the one-time gain from the sale of the Spanish theme park in 2005, which the company believes provides a more meaningful comparison between years, income before income taxes, net income and diluted earnings per share increased 1%, 4% and 5%, respectively, while the effective income tax rate increased 40 basis points.

19


                
Reconciliation of Comparative First Quarter Results
            
                
   Income            
   Before  Provision         
   Income  for Income  Net  Earnings  Effective
   Taxes  Taxes  Income  Per Share  Tax Rate
 
2006
              
 Reported $615.4  ($238.6) $499.2  $.64  38.8%
                
 
2005
              
 As Reported $644.3  ($237.4) $512.8  $.653   
 FAS 123R Impact (19.0) 6.6  (12.4) (.016)  
 Including FAS 123R 625.3  (230.8) 500.4  .637  36.9%
 Gain on Sale of Spanish Theme Park(15.4) (3.5) (18.9) (.024)  
 Excluding One-Time Gain $609.9  ($234.3) $481.5  $.61  38.4%
                
 
Percentage Change - 2006 vs. 2005
              
 Including FAS 123R -1.6%     -0.2%  -  1.9%
 Excluding One-Time Gain 0.9%     3.7%  4.9%  0.4%

Liquidity and Financial Condition

Cash at March 31, 20062007 was $213$274 million, a decreasean increase of $13$55 million from the December 31, 20052006 balance. See the consolidated statement of cash flows for detailed information. The primary source of the company’s cash flow is cash generated by operations. Principal uses of cash are capital expenditures, share repurchase, dividends and business investments. Cash generated by the company’s business segments is projected to exceed funding requirements for each segment’s anticipated capital spending. The net issuance of debt provides an additional source of cash as necessary for share repurchase, dividends and business investments. The nature, extent and timing of debt financing vary depending on the company’s evaluation of existing market conditions and other factors.
The company generated operating cash flow before the change in working capital of $441$556 million for the first quarter 2006, a decline2007, an increase of $204$115 million due primarily to the difference in first quarter discretionary contribution of $214 million in January 2006contributions made to the company’s defined benefit pension

20

plans. This contribution isIn 2007, the company contributed $85 million compared to $214 million in 2006. Discretionary pension contributions are made in addition to the company’s required annual pension funding, for 2006. Full year pension contributions for 2006 are projectedwhich is estimated to be $270 million.$58 million in 2007. Working capital increased $240 million due to first quarter 2007 bonus payments and higher inventories and
16
receivables. There have been only normal and recurring changes in the company’s cash commitments since December 31, 2005.2006.
Capital expenditures during the first quarter 20062007 were $159$154 million, compared to $277$159 million for the first quarter 2005.2006. Full year 20062007 capital expenditures are expected to be approximately $900$950 million. Acquisition spending for the first quarter relates primarily to the acquisition by company-owned beer wholesale operations of exclusive distribution rights for the InBev European brand portfolio in certain markets.
At its April 20062007 meeting, the Board of Directors declared a regular quarterly dividend of $.27$.295 per share on outstanding shares of the company’s common stock, payable June 9, 2006,11, 2007 to shareholders of record May 9, 2006.2007. The dividend rate for the comparable 20052006 period was $.245$.27 per share.
The company’s debt balance increased a net $155$623 million since December 31, 2005,2006, compared to a net increase of $307$155 million during the first quarter 2005.2006. The details of the quarterly changes in debt are outlined below.below (in millions).
Description Amount Interest Rate (Fixed Unless Noted)
First Three Months of 2007
    
Increases:    
 U.S. Dollar Notes $317.3 $300.0 at 5.6% and $17.3 at 5.54%
 Commercial Paper 264.2 5.38% Wtd. avg., floating
 Other, net 41.9 Various
 Total increases 623.4  
Decreases:    
 Other, net 
(0.7
)Various
 Net increase in debt $622.7  
     
First Three Months of 2006
    
Increases:    
 U.S. Dollar Debentures $300.0 5.75%
 Other, net 1.0 Various
 Total increases 301.0  
Decreases:    
 Commercial Paper (136.9)4.53% Wtd. avg., floating
 Other, net (8.8)Various
 Total decreases (145.7) 
 Net increase in debt $155.3  

 
Increases in debt (in millions)
    
 
Description
 
Amount
  
Interest Rate
(Fixed Unless Noted)
 
First Three Months of 2006
    
 
U.S. dollar debentures
 
$300.0
  
 
5.75%
 
Issuance discounts
 
(0.7)
 
 
 
 
N/A
 
Other, net
 
1.7
  
 
Various
 
 
$301.0
   
 
First Three Months of 2005
    
 
Commercial paper
 
$278.3
  
 
2.49% Wtd. avg., floating
 
United Kingdom brewery lease
 
52.9
  
 
6.25%
 
Other, net
 
1.2
  
 
Various
 
 
$332.4
   


2117


 
Reductions of debt (in millions)
    
Description
 
Amount
  
Interest Rate
(Fixed Unless Noted)
 
First Three Months of 2006
    
 
Commercial paper
 
$136.9
  
 
4.53% Wtd. avg., floating
 
Chinese Renminbi-denominated bank loans
 
5.8
  
 
5.4% Wtd. avg.
 
Other, net
 
3.0
  
 
Various
 
 
$145.7
   
 
First Three Months of 2005
    
 
U.S. dollar notes
 
$0.4
  
 
5.35%
 
Chinese Renminbi-denominated bank loans
 
21.6
  
 
5.41% Wtd. avg.
 
Other
 
3.4
  
 
Various
 
 
$25.4
   

The company has $1.35$1.1 billion of debt available for issuance through existing SEC shelf registrations.
The company’s commercial paper borrowings of $966$923 million at March 31, 20062007 were classified as long-term, since commercial paper is maintained on a long-term basis with on-going support provided by the company’scompany's $2 billion revolving credit agreement. The quarter endcompany’s quarter-end interest rate for commercial paper interest rateborrowing was 4.9%5.39%.

Item 3. Disclosures About Market Risks
The company’s derivatives holdings fluctuate during the year based on normal and recurring changes in purchasing and production activity. The company has experienced slightly higher derivatives use over the last few years as raw material inputs have increased in conjunction with increases in domestic beer volume. Since December 31, 2005,2006, there have been no significant changes in the company’s interest rate, foreign currency or commodity exposures. There have been no changes in the types of derivative instruments used to hedge the company’s exposures. Underlying commodity market conditions have been trending towards higher prices.


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Item 4. 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 quarter ended March 31, 20062007 and have concluded that they are effective as of March 31, 20062007 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 that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.



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PART II - OTHER INFORMATION

Item 1. Legal Proceedings
In 2005, the Company was served with a complaint brought by two individuals seeking to bring a class action on behalf of all California residents who, while they were under 21 years of age, purchased alcohol beverages manufactured by the Company and another defendant during the last four years. The suit sought disgorgement of unspecified profits earned by the Company in the past and other unspecified damages and equitable relief. By order dated January 28, 2005, the California state court granted the defendants judgment on the pleadings and dismissed the case in its entirety. The plaintiffs in that action have appealed.
Additionally, the Company has been served with similar 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 the 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, violationOn September 19, 2006, one of the state’s Sales Practice Act or other statutory provisions, nuisance, fraudulent concealment and civil conspiracy. The suit filedCompany’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. This action is being heard 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 Company removed the Ohio case to federal court in the Northern District of Ohio in June 2005, removed the West Virginia case to federal court in the Northern District of West Virginia in May 2005 and removed the Michigan case to federal court in the Eastern District of Michigan in July 2005. The Company filed motions to dismiss the Ohio and Wisconsin cases, and the Ohio federal court and the Wisconsin state court dismissed the entire cases with prejudice. The plaintiffs in the Ohio case have appealed the dismissal to the federal court of appeals. Motions to dismiss are pending in Michigan and West Virginia. Similar actions were filed by the same law firm in New York and Florida, but the Company was not served in either case, and the Florida case has been voluntarily

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dismissed by the plaintiffs.Ohio. The Company believes that it has strong legal and factual defenses to these class actions andthe assertions of Novelis are without merit, intends to vigorously defend itself vigorously.its rights under the cansheet supply agreement and expects to prevail in the litigation.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 3, 2006,2007, the company issued out of treasury shares a total of 4,4253,900 shares of the Company’s common stock ($1 par value) to four members of the Board of Directors of the company in lieu of cash for all or a portion of those members’ 20062007 annual retainer fee pursuant to the company’s Non-Employee Director Elective Stock Acquisition Plan. These transactions were exempt from registration and prospectus delivery requirements of the Securities Act of 1933 pursuant to Section 4(2) of the Act.

Following are the Company’s monthly common stock purchases during the first quarter 20062007 (in millions, except per share):
 
Shares
  
 
Avg. Price
 Shares Avg. Price
Shares Remaining Authorized Under Disclosed
Repurchase Programs at December 31, 2005
 
 
31.4
    
Shares Remaining Authorized Under Disclosed Repurchase Programs at December 31, 2006114.7  
        
Share Repurchases
        
January
 
0.4
  
 
$43.27
 2.4 $50.12
February
 
1.5
  
 
$41.13
 3.6 $50.49
March
 
4.0
  
 
$42.59
 3.4 $49.30
Total
 
5.9
  
 
$42.27
 
Shares Remaining Authorized Under Disclosed
Repurchase Programs at March 31, 2006
 
 
25.5
    
Total First Quarter 2007 Repurchases9.4  
   
Shares Remaining Authorized Under Disclosed Repurchase Programs at March 31, 2007105.3  

All shares are repurchased under Board of Directors authorization. TheIn December 2006, the Board authorized the currenta new program to repurchase 100 million shares. This program is in addition to the program to repurchase 100 million shares that was authorized in March 2003. There is no prescribed termination date for thisany stock repurchase program. The numbers of shares shown include shares delivered to the company to exercise stock options.


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Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held April 26, 2006,25, 2007, the following matters were voted on:

1.Election of August A. Busch III, August A. Busch IV, Carlos Fernandez G., James J. Forese, Vernon R. Loucks, Jr., Vilma S. Martinez, William Porter PayneJones, Andrew C. Taylor and Edward E. Whitacre, Jr.Douglas A. Warner III to serve as directors of the company for a term of three years.one year.
 For Withheld
James J. Forese659,018,017 17,406,326
Vernon R. Loucks, Jr.656,874,140 19,550,202
Vilma S. Martinez644,892,499 31,531,843
William Porter Payne657,959,181 18,465,161
Edward E. Whitacre, Jr.642,932,011 33,492,331
 For Withheld 
August A. Busch III 654,652,737  17,512,601   
August A. Busch IV 654,083,409  18,081,929   
Carlos Fernandez G. 638,730,334  33,435,004   
James R. Jones 655,982,782  16,182,556   
Andrew C. Taylor 655,103,978  17,061,360   
Douglas A. Warner III 654,985,139  17,180,199   

2.  2.Amendment ofApprove the Restated Certificate of Incorporation2007 Equity and Incentive Plan
For662,560,880477,488,405         
Against7,769,22379,492,619         
Abstain6,094,2388,164,390         
Non-Votes0107,019,924         

3.Approve the 2006 RestrictedGlobal Employee Stock Purchase Plan for Non-Employee Directors
For506,974,898540,633,403         
Against56,572,45318,177,431         
Abstain8,611,1146,334,879         
Non-Votes104,265,878107,019,625         

4.Approve the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for 20062007
For663,555,033661,143,563         
Against7,379,2515,734,567         
Abstain5,490,0595,287,208         
Non-Votes0


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Item 5. Other Information
At the Annual Meeting of Stockholders of the Company held on April 26, 2006, the stockholders approved an amendment to Article Fifth of the Company’s Restated Certificate of Incorporation to eliminate the classified board structure. The amendment results in all directors elected at the 2007 Annual Meeting of Stockholders and thereafter being elected to one-year terms, but would not shorten the existing term of any director elected prior to the 2007 Annual Meeting of Stockholders. The Certificate of Amendment of Restated Certificate of Incorporation is attached as Exhibit 3.1 to this Form 10-Q.
Also at the Annual Meeting of Stockholders held on April 26, 2006, the stockholders approved the 2006 Restricted Stock Plan for Non-Employee Directors which is referenced in Exhibit 10.24 to this Form 10-Q. This plan provides for the automatic award of 500 shares of restricted company stock at the time of each Annual Meeting of Stockholders for each non-employee director who is first elected or re-elected by the stockholders and for each non-employee director and each advisory director who continues in office. The awards are effective on the date of the Annual Meeting of Stockholders, beginning with the April 26, 2006 meeting. The forms of the Notice of Award and Information Memorandum issued under this plan are attached as Exhibits 10.25 and 10.26 to this Form 10-Q.




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Item 6. Exhibits

 
Exhibit
 
 
Description
3.1
 
Certificate of Amendment
10.24
10.32		 
Anheuser-Busch Companies, Inc. 2006 Restricted Stock 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).
10.25
Form of Notice of Award and Information Memorandum under Anheuser-Busch Companies, Inc. 2006 Restricted Plan for Non-Employee Directors.
10.26
 
10.33Form 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.
12
 
Ratio of Earnings to Fixed Charges
31.1
 
Certification of Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a) under the Exchange Act
31.2
 
Certification of Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a) under the Exchange Act
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.
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.


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SIGNATURES

Pursuant to the requirements 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)
/s/W. Randolph Baker
W. Randolph Baker
Vice President and Chief Financial Officer
(Chief Financial Officer)
April 28, 200627, 2007
 
 
 
/s/John F. Kelly
John F. Kelly
Vice President and Controller
(Chief Accounting Officer)
April 28, 200627, 2007




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