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

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007MARCH 31, 2008
   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM          TO

COMMISSION FILE NUMBER:   1-7823

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

DELAWARE
43-1162835
(State 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
No  o

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
Accelerated Filer  o
Non-Accelerated Filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o
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 – 749,568,124713,074,864 shares as of June 30, 2007.March 31, 2008.



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


  March 31,  Dec. 31, 
  2008  2007 
Assets      
Current Assets:      
Cash
 $217.8  $283.2 
Accounts receivable
  1,001.6   805.2 
Inventories
  818.3   723.5 
Other current assets
  222.0   212.6 
Total current assets
  2,259.7   2,024.5 
Investments in affiliated companies  4,231.4   4,019.5 
Plant and equipment, net  8,765.1   8,833.5 
Intangible assets, including goodwill of $1,160.3 and $1,134.6  1,556.0   1,547.9 
Other assets  739.0   729.6 
Total Assets
 $17,551.2  $17,155.0 
         
         
Liabilities and Shareholders Equity        
Current Liabilities:        
Accounts payable
 $1,405.6  $1,464.5 
Accrued salaries, wages and benefits
  313.3   374.3 
Accrued taxes
  387.9   106.2 
Accrued interest
  125.6   136.4 
Other current liabilities
  309.6   222.4 
Total current liabilities
  2,542.0   2,303.8 
Retirement benefits  1,015.4   1,002.5 
Debt  9,281.0   9,140.3 
Deferred income taxes  1,323.1   1,314.6 
Other long-term liabilities  241.1   242.2 
Shareholders Equity:        
Common stock, $1.00 par value, authorized 1.6 billion shares
  1,483.4   1,482.5 
Capital in excess of par value
  3,423.6   3,382.1 
Retained earnings
  18,198.5   17,923.9 
Treasury stock, at cost
  (19,165.3)  (18,714.7)
Accumulated non-owner changes in equity
  (791.6)  (922.2)
Total Shareholders Equity
  3,148.6   3,151.6 
Commitments and contingencies  --   -- 
Total Liabilities and Shareholders Equity
 $17,551.2  $17,155.0 
         
In millions, except per share
 
June 30,
2007
  
Dec. 31,
2006
 
Assets      
Current Assets:      
Cash
  $303.1   $219.2 
Accounts receivable
  1,046.7   720.2 
Inventories
  699.6   694.9 
Other current assets
  203.6   195.2 
Total current assets
  2,253.0   1,829.5 
Investments in affiliated companies  3,721.2   3,680.3 
Plant and equipment, net  8,830.2   8,916.1 
Intangible assets, including goodwill of $1,094.4 and $1,077.8  1,451.3   1,367.2 
Other assets  610.4   584.1 
Total Assets
  $16,866.1   $16,377.2 
         
         
Liabilities and Shareholders Equity        
Current Liabilities:        
Accounts payable
  $1,400.8   $1,426.3 
Accrued salaries, wages and benefits
  301.2   342.8 
Accrued taxes
  309.6   133.9 
Accrued interest
  131.6   124.2 
Other current liabilities
  282.0   218.9 
Total current liabilities
  2,425.2   2,246.1 
Retirement benefits  1,153.4   1,191.5 
Debt  7,953.9   7,653.5 
Deferred income taxes  1,187.0   1,194.5 
Other long-term liabilities  238.0   152.9 
Shareholders Equity:        
Common stock, $1.00 par value, authorized 1.6 billion shares
  1,479.7   1,473.7 
Capital in excess of par value
  3,178.4   2,962.5 
Retained earnings
  17,487.4   16,741.0 
Treasury stock, at cost
  (17,138.9)  (16,007.7)
Accumulated non-owner changes in equity
  (1,098.0)  (1,230.8)
Total Shareholders Equity
  3,908.6   3,938.7 
Commitments and contingencies  --      --    
Total Liabilities and Shareholders Equity
  $16,866.1   $16,377.2 
         

See the accompanying footnotes on pages 5 to 12.11.

Anheuser-Busch Companies, Inc. and Subsidiaries
Consolidated Statement of Income (Unaudited)
  
Second Quarter
Ended June 30,
  
Six Months
Ended June 30,
 
In millions, except per share
 2007  2006  2007  2006 
Gross sales  $5,126.2   $4,854.0   $9,531.8   $9,150.3 
Excise taxes
  (610.8)  (598.0)  (1,158.0)  (1,138.7)
Net Sales  4,515.4   4,256.0   8,373.8   8,011.6 
Cost of sales
  (2,857.9)  (2,660.7)  (5,332.6)  (5,078.4)
Gross profit  1,657.5   1,595.3   3,041.2   2,933.2 
Marketing, distribution and
administrative expenses
  (756.2)  (714.3)  (1,421.9)  (1,330.0)
Operating income  901.3   881.0   1,619.3   1,603.2 
Interest expense
  (119.7)  (115.2)  (239.6)  (230.3)
Interest capitalized
  4.2   5.0   7.7   9.0 
Interest income
  1.5   0.2   2.0   0.8 
Other income/(expense), net
  9.6   (6.8)  3.7   (3.1)
Income before income taxes  796.9   764.2   1,393.1   1,379.6 
Provision for income taxes
  (314.6)  (296.8)  (552.7)  (535.4)
Equity income, net of tax  194.7   170.4   354.1   292.8 
Net income  $677.0   $637.8   $1,194.5   $1,137.0 
                 
Basic earnings per share  $.90   $.83   $1.57   $1.47 
Diluted earnings per share  $.88   $.82   $1.55   $1.46 
                 
                 
Weighted average shares outstanding                
Basic
  754.8   769.8   759.2   773.0 
Diluted
  765.1   777.0   770.3   778.8 
                 

 
See the accompanying footnotes on pages 5 to 12.

Anheuser-Busch Companies, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
  Six Months 
In millions
 Ended June 30, 
  2007  2006 
Cash flow from operating activities:      
Net income
  $1,194.5   $1,137.0 
Adjustments to reconcile net income to cash provided by
operating activities:
        
Depreciation and amortization
  494.2   490.0 
Decrease in deferred income taxes
  (39.2)  (34.7)
Stock-based compensation expense
  31.3   35.1 
Undistributed earnings of affiliated companies
  49.0   (52.8)
Gain on sale of business
  (16.0)  --     
Other, net
  16.8   (139.3)
Operating cash flow before the change in working capital
  1,730.6   1,435.3 
        Increase in working capital
  (117.5)  (55.8)
Cash provided by operating activities
  1,613.1   1,379.5 
         
Cash flow from investing activities:        
Capital expenditures
  (346.2)  (318.1)
Acquisitions
  (84.6)  (82.3)
Proceeds from sale of business
  16.2   --    
Cash used for investing activities
  (414.6)  (400.4)
         
Cash flow from financing activities:        
Increase in debt
  333.2   300.9 
Decrease in debt
  (71.5)  (437.9)
Dividends paid to shareholders
  (448.1)  (417.8)
Acquisition of treasury stock
  (1,131.4)  (467.8)
Shares issued under stock plans
  203.2   40.2 
Cash used for financing activities
  (1,114.6)  (982.4)
Net increase / (decrease) in cash during the period  83.9   (3.3)
Cash, beginning of period  219.2   225.8 
Cash, end of period  $303.1   $222.5 
         
  
First Quarter
Ended March 31,
 
  2008  2007 
Gross sales $4,654.7  $4,405.6 
Excise taxes
  (555.5)  (547.2)
Net Sales  4,099.2   3,858.4 
Cost of sales
  (2,630.1)  (2,474.7)
Gross Profit
  1,469.1   1,383.7 
Marketing, distribution and administrative expenses
  (706.3)  (665.7)
Operating income  762.8   718.0 
Interest expense
  (129.1)  (119.9)
Interest capitalized
  4.9   3.5 
Interest income
  1.1   0.5 
Other expense, net
  (4.9)  (5.9)
Income before income taxes  634.8   596.2 
Provision for income taxes
  (249.9)  (238.1)
Equity income, net of tax  126.0   159.4 
Net income $510.9  $517.5 
         
Basic earnings per share $.71  $.68 
Diluted earnings per share $.71  $.67 
         


See the accompanying footnotes on pages 5 to 12.11.




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

 
Notes
  
Three Months
Ended March 31,
 
  2008  2007 
Cash flow from operating activities:      
Net income
 $510.9  $517.5 
Adjustments to reconcile net income to cash provided by
operating activities:
        
Depreciation and amortization
  253.3   246.0 
Decrease in deferred income taxes
  (9.6)  (21.9)
Stock-based compensation expense
  14.4   15.1 
Undistributed earnings of affiliated companies
  (126.0)  (159.4)
Other, net
  12.6   (40.9)
Operating cash flow before the change in working capital
  655.6   556.4 
Increase in working capital
  (44.9)  (240.4)
Cash provided by operating activities
  610.7   316.0 
         
Cash flow from investing activities:        
Capital expenditures
  (150.3)  (154.4)
Acquisitions
  (1.5)  (83.5)
Cash used for investing activities
  (151.8)  (237.9)
         
Cash flow from financing activities:        
Increase in debt
  353.3   585.1 
Decrease in debt
  (218.9)  (0.7)
Dividends paid to shareholders
  (236.3)  (225.5)
Acquisition of treasury stock
  (458.7)  (477.4)
Shares issued under stock plans
  36.3   95.3 
Cash used for financing activities
  (524.3)  (23.2)
Net increase / (decrease) in cash during the period  (65.4)  54.9 
Cash, beginning of period  283.2   219.2 
Cash, end of period $217.8  $274.1 
         

See the accompanying footnotes on pages 5 to Unaudited Consolidated Financial Statements11.


 
1. Unaudited Financial Statements

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, 2006.2007.

2.  Business Segments Information
2. Business Segments Information
Comparative business segments information for the secondfirst quarter and first six months ended June 30March 31 (in millions):
 
 
 2nd Quarter
 
 
U.S. Beer
 
International
Beer
 
 
Packaging
 
 
Entertainment
 
Corporate
& Elims
 
 
Consolidated
       2007
      
Gross Sales$3,749.1349.3744.9400.6(117.7)$5,126.2
Net Sales:      
 - Intersegment$0.90.2249.7-(250.8)$ -
 - External$3,208.1278.4495.2400.6133.1$4,515.4
Income Before
 Income Taxes
$795.828.655.0113.9(196.4)$796.9
Equity Income$1.5193.2---$194.7
Net Income$494.9210.934.170.6(133.5)$677.0
       
     2006
      
Gross Sales$3,528.5339.9714.7369.4(98.5)$4,854.0
Net Sales:      
 - Intersegment$0.8-243.3-(244.1) $ -
 - External$3,001.8267.7471.4369.4145.7$4,256.0
Income Before
 Income Taxes
$783.326.045.2108.5(198.8)$764.2
Equity Income$1.1169.3---$170.4
Net Income$486.8185.428.067.3(129.7)$637.8

First Six
Months
 
 
U.S. Beer
 
International
Beer
 
 
Packaging
 
 
Entertainment
 
Corporate
& Elims
 
 
Consolidated
 
U.S.
Beer
 
International
Beer
 
 
Packaging
 
 
Entertainment
 
Corporate
and Elims
 
 
Consolidated
2008      
Gross Sales$3,574.7337.8644.5221.6(123.9)$4,654.7
Net Sales:      
- Intersegment$0.80.1242.0--(242.9)--
- External$3,065.9290.2402.5221.6119.0$4,099.2
Income Before
Income Taxes
 
$775.5
 
37.5
 
39.9
 
(6.1)
 
(212.0)
 
$634.8
Equity Income$(0.4)126.4------$126.0
Net Income$480.4149.724.7(3.8)(140.1)$510.9
      
2007
       
Gross Sales$7,212.6628.81,349.4585.6(244.6)$9,531.8$3,457.4285.6604.5185.0(126.9)$4,405.6
Net Sales:       
- Intersegment$1.70.5481.7-(483.9)$-$0.80.3232.0--(233.1)--
- External$6,167.5513.7867.7585.6239.3$8,373.8$2,953.3241.4372.5185.0106.2$3,858.4
Income Before
Income Taxes
$1,557.946.299.595.4(405.9)$1,393.1
 
$758.0
 
19.1
 
44.5
 
(18.5)
 
(206.9)
 
$596.2
Equity Income$1.6352.5-$354.1$0.1159.3------$159.4
Net Income$967.5381.161.759.1(274.9)$1,194.5$470.1171.127.6(11.5)(139.8)$517.5
 
2006
 
Gross Sales$6,886.2597.01,344.1540.1(217.1)$9,150.3
Net Sales:     
- Intersegment$1.5-469.2-(470.7)$ -
- External$5,858.3484.6874.9540.1253.7$8,011.6
Income Before
Income Taxes
$1,557.548.183.990.9(400.8)$1,379.6
Equity Income$1.7291.1-$292.8
Net Income$967.4320.952.056.4(259.7)$1,137.0

In 2007,2008, the company changed reporting responsibility for beer sales in the Caribbean region from U.S. Beer to International Beer and also reassigned certain administrative and technology support costs frombetween Corporate to theand U.S. beer segment. 2006 segmentBeer. Segment results for 2007 have been updated to conform to thisthe revised reporting convention.conventions.

 
3. Stock Compensation

3.  Stock Compensation
Under the terms of the company’s stock option plans, officers, certain other employees and non-employeenonemployee directors may be granted options to purchase the company’s common stock at a price equal to the closing composite tape on the New York Stock Exchange closing composite tape on the date the option is granted.  Options generally vest over three years and have a maximum term of 10 years. At June 30, 2007,March 31, 2008, existing stock compensation plans authorized the issuance of 140135 million shares of common stock. The company has the choice of issuingissues either new shares or from treasury stockshares when options are exercised under employee stock compensation plans. Under the plan for the board of directors, shares are issued from treasury stock.
For financial reporting purposes, stock compensation expense is included in cost of sales and marketing, distribution and administrative expenses, depending on where the recipient’s cash compensation is reported, and is classified as a corporate item for business segments reporting.
Unrecognized pretax stock compensation expensecost as of June 30, 2007 totaled $87March 31, 2008 was $102 million, which willand is expected to be recognized over a weighted average periodlife of approximately 1.5 years.
The following table provides additional information regarding options outstanding and options that were exercisable as of June 30, 2007March 31, 2008 (options and in-the-moneyin 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
$20 - $293.51.3 years$28.78$80.63.5$28.78$80.6
$30 - $396.72.3 years$37.8494.16.7$37.8494.1
$40 - $4956.25.9 years$46.49332.140.3$46.95171.9
$50 - $5327.76.3 years$51.2925.624.0$51.4425.6
$20 - $5394.15.6 years$46.64$532.474.5$46.74$372.2

 Options Outstanding Options 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
$20-292.20.6 years$29.92$38.8 2.2$29.92$38.8
$30-395.11.6 years$37.83$48.6 5.1$37.83$48.6
$40-4954.95.2 years$46.53$112.3 45.4$46.73$84.9
$50-5337.46.6 years$51.45--- 27.6$51.29---
$20-5399.65.4 years$47.56$199.7 80.3$47.27$172.3

4.  Derivatives
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-ownernonowner changes in shareholders equity the effective portion of cash flow hedgingderivatives gains and losses (those that equal the change in cost of the underlying hedged transactions.transactions). 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 secondfirst quarter and first six months (in millions). These gains and losses effectivelylargely offset price or value changes in the cost or value of the company’s hedged exposures.
Second Quarter First Six Months
2007 2006 2007 2006
GainsLosses GainsLosses GainsLosses GainsLosses
$2.8$4.3 --$14.2 $6.5$9.4 $0.5$40.9

First Quarter
2008  2007
Gains Losses  Gains Losses
$5.5 $4.5  $3.7 $5.1

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 losses due to this hedge ineffectiveness of $2.3$6.5 million for the secondfirst quarter of 20072008 compared to net ineffective pretax lossesgains of $0.7$0.9 million for the secondfirst quarter of 2006.  For the first six months, the company recognized net ineffective losses of $1.4 million in both 2007 and 2006.2007.

5.  Earnings Per Share
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.
Weighted-average common shares outstanding for the second quarter and first six months ended June 30March 31 are shown below (millions of shares):
 Second Quarter First Six Months
 2007 2006 2007 2006
Basic weighted average shares754.8 769.8 759.2 773.0
Diluted weighted average shares765.1 777.0 770.3 778.8
6. Non-Owner Changes in Shareholders Equity
The components of accumulated non-owner changes in shareholders equity, net of applicable taxes, as of June 30, 2007 and December 31, 2006 follow (in millions):
 June 30, 2007 Dec. 31, 2006
Foreign currency translation loss$(346.3) $(452.2)
Deferred hedging gains / (losses)(1.8) 2.1
Deferred securities valuation gains1.1 1.3
Deferred retirement benefits costs(751.0) (782.0)
  Accumulated non-owner changes in shareholders equity$(1,098.0) $(1,230.8)

Combined net income and non-owner changes in shareholders equity, net of applicable taxes, for the second quarter and first six months ended June 30 follows (in millions):
 Second Quarter First Six Months
 2007 2006 2007 2006
Net income$677.0 $637.8 $1,194.5 $1,137.0
Foreign currency translation gains / (losses)147.0 (236.6) 105.9 (202.1)
Net change in deferred hedging losses(7.0) (2.8) (3.9) (3.4)
Net change in deferred securities valuation0.2 0.6 (0.2) 1.0
Change in deferred retirement benefits costs31.0 -- 31.0 --
 
Combined net income and non-owner
changes in shareholders equity
 
$848.2
 
 
$399.0
 
 
$1,327.3
 
 
$932.5
 First Quarter
 2008 2007
Basic weighted average shares outstanding716.7 763.5
Diluted weighted average shares outstanding721.6 773.3






In its 2006 annual report on Form 10-K, the company disclosed combined net income and non-owner changes in shareholders equity of $1,648.2 million, which included the impact of recognizing certain deferred retirement benefits costs in accordance with FAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.”  Excluding these costs, combined net income and non-owner changes in shareholders equity for the year ended December 31, 2006 would have been $2,060.2 million.  The company plans to report combined net income and non-owner changes in shareholders equity for 2006 excluding the impact of FAS 158 adoption when it publishes its 2007 annual report on Form 10-K.
7. Inventories
6.  Inventories
The company’s inventories were comprised of the following as of June 30, 2007March 31, 2008 and December 31, 20062007 (in millions).
  March 31,  Dec. 31, 
  2008  2007 
Raw Materials $387.8  $365.4 
Work-in-Process  134.9   109.9 
Finished Goods  295.6   248.2 
  Total Inventories $818.3  $723.5 
 June 30, 2007 Dec. 31, 2006
Raw Materials$295.3 $385.6
Work-in-Process120.1 110.8
Finished Goods284.2 198.5
  Total Inventories$699.6 $694.9

7.  Nonowner Changes in Shareholders Equity
The components of accumulated nonowner changes in shareholders equity, net of applicable taxes, as of March 31, 2008 and December 31, 2007 follow (in millions):
  March 31,  Dec. 31, 
  2008  2007 
Foreign currency translation loss $(239.6) $(347.0)
Deferred hedging gains  11.0   0.1 
Deferred securities valuation gains  2.1   1.0 
Deferred retirement benefits costs  (565.1)  (576.3)
  Accumulated nonowner changes in shareholders equity $(791.6) $(922.2)

Net income plus nonowner changes in shareholders equity, net of applicable taxes, for the quarter ended March 31 follows (in millions):
  First Quarter 
  2008  2007 
Net income $510.9  $517.5 
Foreign currency translation gains / (losses)  107.4   (41.1)
Net change in deferred hedging gains  10.9   3.1 
Net change in deferred securities valuation gains / (losses)  1.1   (0.4)
Net change in deferred retirement benefits  11.2   -- 
Net income plus nonowner changes in shareholders equity $641.5  $479.1 



 
8. Goodwill

8.  Goodwill
Following is goodwill by business segment, as of June 30, 2007March 31, 2008 and December 31, 20062007 (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 six months 2007 is primarily due toquarter 2008 results from fluctuations in foreign currency exchange rates.
 June 30, 2007 Dec. 31, 2006
Domestic Beer$21.2 $21.2
International Beer1,311.6 1,283.0
Packaging21.9 21.9
Entertainment288.3 288.3
Total goodwill$1,643.0 $1,614.4

  
March 31,
2008
  
Dec. 31,
2007
 
Domestic Beer $21.2  $21.2 
International Beer  1,379.1   1,343.3 
Packaging  21.9   21.9 
Entertainment  288.3   288.3 
Total goodwill $1,710.5  $1,674.7 

9.  Pension and Retirement Health Care Expense
9. Pension and Postretirement Health Care Expense
The components of quarterly expense for pensions and postretirementretirement health care benefits are shown below for the secondfirst quarter of 2008 and first six months of 2007 and 2006 (in millions). In order to enhance the funded status of its defined benefit pension plans, the company made discretionary pension contributions of $85 million and $214 million in January 2007 and 2006, respectively. These contributions are in addition to the company’s required pension funding for those years.:
  
Pensions
  
Retirement
Health Care
 
  2008  2007  2008  2007 
Service cost (benefits earned during the period) $24.9  $25.1  $7.5  $6.5 
Interest cost on benefit obligation  47.5   44.6   12.1   10.9 
Assumed return on plan assets  (55.4)  (52.1)  ---   --- 
Amortization of prior service cost and net actuarial losses  15.0   21.3   4.6   4.1 
FAS 88 Settlement  ---   19.0   --   -- 
Expense for defined benefit plans
  32.0   57.9   24.2   21.5 
Cash contributed to multi-employer plans  4.1   4.2   ---   --- 
Cash contributed to defined contribution plans  5.4   5.2   ---   --- 
Total quarterly expense
 $41.5  $67.3  $24.2  $21.5 



In the first quarter 2007, 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.
 Pensions
 Second QuarterFirst Six Months
 2007200620072006
Service cost (benefits earned during the period)$25.0$26.5$50.1$53.1
Interest cost on benefit obligation44.742.589.385.0
Assumed return on plan assets(52.2)(49.6)(104.3)(99.2)
Amortization of prior service cost and net actuarial
losses
 
21.4
 
28.5
 
42.7
 
57.0
FAS 88 Settlement----19.0--
 Expense for defined benefit plans38.947.996.895.9
Cash contributed to multi-employer plans4.04.08.27.9
Cash contributed to defined contribution plans5.15.010.39.7
 Total expense$48.0$56.9$115.3$113.5

 Postretirement Health Care
 Second QuarterFirst Six Months
 2007200620072006
Service cost (benefits earned during the period)$6.9$6.1$13.4$12.3
Interest cost on benefit obligation11.78.722.617.4
Amortization of prior service cost and net actuarial
losses
 
4.1
 
1.4
 
8.2
 
2.7
 Total expense$22.7$16.2$44.2$32.4
10.  Equity Investment in Grupo Modelo


10. Equity Investment in Grupo Modelo
Summary financial information for Anheuser-Busch’s equity investee Grupo Modelo for the secondfirst quarter of 2008 and first six months of 2007 and 2006 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.
 Results of Operations
 Second Quarter  First Six Months
 2007 2006  2007 2006
Gross sales$1,843.8 $1,473.5  $3,274.8 $2,706.5
Net sales$1,743.6 $1,374.3  $3,076.0 $2,516.7
Gross profit$947.1 $733.5  $1,663.4 $1,338.9
Minority interest expense$67.0 $0.5  $110.4 $0.8
Net income$380.1 $331.8  $692.8 $573.7
         
 As of June 30   
 2007 2006     
Cash / marketable securities$1,573.6 $1,617.6     
Other current assets$1,506.8 $946.7     
Non-current assets$4,937.7 $4,281.6     
Current liabilities$623.9 $466.1     
Non-current liabilities$368.8 $353.1     

In June 2007, Grupo Modelo restructured its distribution operations in Mexico City and recognized related costs in its month of June results.  Anheuser-Busch reports its equity share of Modelo results on a one-month lag basis, and as such will report its share of Modelo’s June results, including the related restructuring costs, in the company’s third quarter.
11. 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 adoption, there have been no material changes in the amount of unrecognized tax benefits since adoption, and the company anticipates no significant changes 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 program for the examination of U.S. federal income tax returns, and examinations are substantively complete through 2006.  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.
  
First Quarter
Ended March 31,
 
  2008  2007 
Net sales $1,045.2  $962.6 
Gross profit $663.5  $609.3 
Minority interest $0.8  $4.3 
Net income $255.2  $312.7 





11.  Fair Value Measurements
Effective in the first quarter 2008, the company adopted FAS No. 157, “Fair Value Measurements.”  FAS 157 requires specific disclosures regarding assets and liabilities measured at fair value, including the primary sources and potentially the inputs used to determine fair value, depending on the type and reliability of those inputs.  Currently, the disclosures prescribed by FAS 157 apply only to financial assets and liabilities. Applicability to nonfinancial assets and liabilities is effective in the first quarter 2009.
The company accounts for financial derivatives at fair value and at March 31, 2008 had derivatives-based assets (amounts due from counterparties) of $27.3 million and liabilities (amounts due to counterparties) of $9.4 million reported on the balance sheet. The liabilities are reported in other current liabilities while $25.6 million of the assets are reported in other current assets with the remaining $1.7 million reported in other assets.  The fair values of derivatives are determined either through quoted prices in active markets for exchange traded derivatives, which for Anheuser-Busch are primarily commodity derivatives, or through pricing from brokers who develop values based on inputs observable in active markets, such as interest rates and currency volatilities. The fair value of derivatives based on market quoted pricing was $24.0 million as of March 31, 2008, while the fair value related to broker quoted pricing was $12.7 million.
Anheuser-Busch also uses fair value measurements when it periodically evaluates the recoverability of goodwill and other intangible assets, and when preparing annual fair value disclosures regarding the company’s long-term debt portfolio.




 

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 secondfirst quarter and six months ended June 30, 2007,March 31, 2008, compared to the secondfirst quarter and first six months ended June 30, 2006,March 31, 2007, and the year ended December 31, 2006.2007.  This discussion should be read in conjunction with the consolidated financial statements and notes included in the company's annual report to shareholders for the year ended December 31, 2006.2007.
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
Anheuser-Busch reported that secondoperations achieved solid results in the first quarter 20072008, growing net sales, increased 6.1%operating income and diluted earnings per share increased 7.3%.  For the first six months of 2007, net sales increased 4.5% and diluted earnings per share increased 6.2%. Led by6% over last year. The company successfully implemented U.S. beer operations, all of the company’s business segments reported improved earnings in the second quarter and Anheuser-Busch is on track to deliver accelerating earnings growth in the second half of the year. The positive outlook is based on a favorable pricing environment, the company’s broadened U.S. beer portfolio that provides access to high-margin growth opportunities, successful productivity improvement initiatives that are mitigating cost pressures and enhanced earnings contributions from the international beer segment, led by Grupo Modelo. Anheuser-Busch continues to target long term earnings per share growth in the 7% to 10% range,price increases and expects the company’s 2007 earningsgood revenue per share increase to exceed this range.
The second quarters of both 2007 and 2006 include one-time items that impact the comparability of reported operating results. In the second quarter of 2007, the company recorded a $16 million pretax gain ($.01 per share) on the sale of its remaining interestbarrel performance in its Spanish theme park investment and in the second quarter of 2006, Anheuser-Busch recognized a $7.8 million tax provision benefit due to the2008. Cost reduction of deferred income taxes resulting from state tax legislation in Texas.  Excludingefforts are significantly mitigating the impact of these one-time items from both years, whichindustry-wide cost pressures. Marketing and sales support for core beer brands is being increased, and although U.S. beer sales-to-retailers results were below expectations, the company believes allows a better comparison ofis optimistic concerning the outlook for beer sales during the key summer selling season.



underlying operating results, diluted earnings per share increased 7.4% for the second quarter and 6.2% for the first six months (see additional discussion on pages 17 through 19).

Beer Sales Results
Following is a summary and discussion of the company’s beer volume and sales results for the secondfirst quarter and2008 compared with the first six months of 2007 versus comparable 2006 periods.quarter 2007.
Reported Beer Volume (millions of barrels) for Periods Ended June 30
Beer Volume (millions of barrels)
Beer Volume (millions of barrels)
Second Quarter
 
Six Months
First Quarter
  2008 vs. 2007
  
Versus 2006
   
Versus 2006
2008
  
2007
   
Barrels
  
%
2007
 
Barrels
 
%
 
2007
 
Barrels
 
%
U.S.27.5 Up 0.6 Up 2.3% 53.3 Up 0.8 Up 1.5%
Domestic 25.8   25.7  Up 0.1  Up 0.4%
International
5.9
 
Up 0.1
 
Up 1.6%
 
11.1
 
Up 0.5
 
Up 4.8%
 5.4   5.2   
Up 0.2
  
Up 3.1%
Worldwide A-B Brands
33.4 Up 0.7 Up 2.2% 64.4 Up 1.3 Up 2.0% 31.2   30.9  Up 0.3  Up 0.8%
Int’l Equity Partner Brands
9.1
 
Up 0.6
 
Up 6.8%
 
15.7
 
Up 0.8
 
Up 5.6%
Equity Partner Brands 7.3   6.7   
Up 0.6
  
Up 9.3%
Total Brands
42.5
 
Up 1.3
 
Up 3.2%
 
80.1
 
Up 2.1
 
Up 2.7%
 38.5   37.6   
Up 0.9
  
Up 2.3%
                      

U.S. beer volume represents beer shipments to wholesalers in the United States. U.S. beer volumeshipments-to-wholesalers increased 2.3%0.4% for the secondfirst quarter while sales-to-retailers increased 0.1%.  Import brands contributed 1.9 points of growth to shipments and 1.6 points to sales-to-retailers.
For the first six months of 2007, shipments-to-wholesalers increased 1.5%, and sales-to-retailers increased 0.1%2008, with acquired and import brands contributing 1.7 points of growth to shipments and 1.660 basis points to sales-to-retailers.overall growth. First quarter 2008 sales-to-retailers were down 0.7%, and sale-to-retailers for Anheuser-Busch produced brands, excluding imports, declined 1.4%. Sales-to-retailers trends have improved in April and for the first three weeks of the month are up 2% for Anheuser-Busch produced brands. Wholesaler inventories for Anheuser-Busch produced brands at the end of the secondfirst quarter were slightly higher than atapproximately the end of the second quarter 2006.
same as a year ago.  The company’s estimated U.S. beerdomestic market share (excluding exports) for the first six months of 2007quarter 2008 was 48.8%50.9%, compared to prior year market share of 48.9%50.6%. MarketDomestic 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 1.6% for the second quarter and 4.8%3.1% for the first half of 2007,quarter 2008 driven primarily by volume increasessales in China, Canada, Argentina, Mexico and Mexico, partially offset by lower volume in the United Kingdom.China. Worldwide Anheuser-Busch brands volume is comprised of U.S.domestic volume and international volume and rose 2.2% for the second quarter and 2.0% year-to-date,0.8%, to 33.431.2 million and 64.4 million barrels, respectively.barrels.
Equity partner brands volume, which representsrepresenting the company’s share of its foreign equity partners’ volume reported on a one-month lag, increased 6.8% for the second quarter of 2007, to 9.1 million

barrels, and increased 5.6%9.3% for the first six months to 15.7 million barrels,quarter of 2008 due to increased volume from Grupo Modelo and Tsingtao volume growth in both periods. Tsingtao.
Total brands volume, which combines worldwide Anheuser-Busch brand volume with equity partner brands volume was 42.5up 2.3%, to 38.5 million barrels in the second quarter and 80.1 million barrels for the six months, up 3.2% and 2.7%, respectively.first quarter.


First Quarter 2008 Financial Results
2007 Financial Results
Following is a summary and discussion of key operating results for the secondfirst quarter and first six months of 20072008 versus comparable 2006 periods.2007.
    
$ in millions, except per share
Second Quarter
 
2007 vs. 2006
 2007  2007  $      %      
Gross Sales$5,126 $4,854 Up $272 Up 5.6%
Net Sales$4,515 $4,256 Up $259 Up 6.1%
Income Before Income Taxes$797 $764 Up $33 Up 4.3%
Equity Income$195 $170 Up $25 Up 14.2%
Net Income$677 $638 Up $39 Up 6.1%
Diluted Earnings per Share$.88 $.82 Up $.06 Up 7.3%

   
$ in millions, except per share
First Six Months
 
2007 vs. 2006
 
First Quarter
  
2008 vs. 2007
 
2007  2006  $      %       
2008
  
2007
  $  % 
Gross Sales$9,532 $9,150 Up $382 Up 4.2% $4,655  $4,406  Up $249  Up 5.7% 
Net Sales$8,374 $8,012 Up $362 Up 4.5% $4,099  $3,858  Up $241  Up 6.2% 
Operating Income $763  $718  Up $45  Up 6.2% 
Income Before Income Taxes$1,393 $1,380 Up $13 Up 1.0% $635  $596  Up $39  Up 6.5% 
Equity Income$354 $293 Up $61 Up 20.9% $126  $159  Dn $33  Dn 21.0% 
Net Income$1,195 $1,137 Up $58 Up 5.1% $511  $518  Dn $7  Dn 1.3% 
Diluted Earnings per Share$1.55 $1.46 Up $.09 Up 6.2% $.71  $.67  Up $.04  Up 6.0% 

Anheuser-Busch reported gross sales of $5.1$4.7 billion during the secondfirst quarter 2007,2008, an increase of $272 million, or 5.6%5.7%.  Gross sales increased 4.2%, or $382 million, to $9.5 billion for the first six months.  Net sales were $4.5$4.1 billion, and $8.4 billion, increasesan increase of $259 million and $362 million, respectively, or 6.1% for the quarter and 4.5% year-to-date.6.2%.  The differencesdifference between gross and net sales in 2007 are due to2008 reflects beer excise taxes of $611 million$556 million.
The increases in both gross and $1.2 billion, respectively.  Thenet sales were due to sales increases were driven by higher sales for all operating segments, with the exception of a year-to-date decline in packaging segment sales. For the second quarter and first six months, respectively,business segments. U.S. beer segment net sales increased 6.9%4%, or $206 million, and 5.3%, or $309$113 million on higher volume, increasedimproved revenue per barrel, increased beer volume and higher promotional prices over the key summer holiday periods and


favorable brand mix; internationalnonbeer revenues. International beer net sales increased 4% and 6%20%, or $49 million primarily due to volume gains in China, Canada and Mexico offset by declines in the United Kingdom; packagingincreases. Packaging operations net sales increased 5% for the second quarter on8%, or $30 million due to higher aluminum can and recycling revenues, but decreased 1% for the first six months on lower can manufacturing sales; andvolume, while entertainment segment sales were up 20%, or $37 million on increased 8.4% in both periods due to increased attendance, higher ticket pricing and higher in-park spending.attendance.
U.S. beer revenue per barrel was up 3.1% in the second quarter 2007 and grew 2.7% compared to the first half of 2006, due to the2.3% on successful implementation of price increases and discount reductions on over halfthe majority of the company’s U.S. volume earlier inat the year.end of last year and during the first quarter of 2008. Revenue per barrel increasesgrowth accounted for $128$79 million and $216 million, respectively, of the increases infirst quarter U.S. beer net sales in the second quarter and first six months, whilegrowth, higher beer volume contributed $78$11 million and $93 million, respectively, to the increases for the same periods.non-beer revenues added $23 million. 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. Consistent with its pattern for pricing actions in recent years, the company expects 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 costCost of sales for the secondfirst quarter 20072008 was $2.9$2.6 billion, an increase of $197$155 million, or 7.4%, and was up $254 million, or 5%, to $5.3 billion for the first six months.6.3%. The increasesincrease in cost of sales areis primarily attributable to theincreased costs for both U.S. and international beer brewing materials, higher U.S. beer freight costs, costs associated with higher U.S. and international beer volume of $101 million and $8 million, respectively, for the second quarter and $132 million and $24 million, respectively, for the first six months.  Additional factors include increased costs for brewing and packaging materials and higher labor and operating costs for packaging and entertainment operations, partially offset by lower energy costs and lower packaging segment costs due to lower volumes. Grossoperations. Consolidated gross profit as a percentage of net sales was 36.7%35.8% for the secondfirst quarter, and 36.3% year-to-date, down 8010 basis points, and 30 basis points, respectively.primarily due to lower margins for packaging operations.
Marketing, distribution and administrative expenses were $756$706 million, an increase of $41 million, or 6.1% for the second quarter and $1.4 billion year-to-date, representing a $42 millionfirst quarter. This increase for the quarter and a $92 million increase year-to-date. The changes versus prior year periods areis due to higher marketing spending for U.S. beer marketing costs, including incremental marketing and selling expense for the company’s new import beer portfolio,trademark brands, increased marketing costs for entertainment operations,in China, higher delivery costs for company-owned beer wholesalerships and increased administrative expenses year-to-date.expenses. Administrative expenses for the first six months includequarter 2007 included a FAS 88 settlement charge and an asset disposition gain.
Operating income was $901$763 million, an increase of $20$45 million, or 2.3%6.2% for the secondfirst quarter 2007.  For2008 due to higher profits in U.S. and international beer operations plus improved results for entertainment operations, partially offset by lower packaging segment profits. Consolidated operating margin of 18.6% for the first six months of 2007, operating incomequarter was $1.6 billion, an increase of $16 million, or


1%. Operating margins declined 70 basis points for both the second quarter and first six months, to 20.0% and 19.3%, respectively.level versus prior year.
Interest expense less interest income was $118 million for the second quarter and $238$128 million for the first six monthsquarter 2008, an increase of 2007, increases versus respective 2006 periods of $3$9 million, and $8 million. The increases areor 7% primarily due to higher interest rates combined with higher average outstanding debt during the quarter and higher interest ratesbalances partially offset by lower average debt balances year-to-date. Interest income was greater in both 2007 periods versus 2006.interest rates. Interest capitalized of $4.2$4.9 million in the secondfirst quarter and $7.72008 was up $1.4 million, for the first six months was down slightlyprimarily due to the timing of qualifying capital spending and project in-service dates.
spending.  Other income/(expense),expense, net reflects the impact of numerous items not directly related to the company’s operations. For the second quarter of 2007, theThe company had other income of $9.6 million versus other expense of $6.8$5 million in 2006. Year-to-date the company recognized income of $3.72008 compared to $6 million in 2007 compared to expense of $3.1 million.  Other income for the second quarter and first six months of 2007 includes the $16.0 million gain from the sale of the company’s remaining interest in its Spanish theme park investment. For business segment reporting purposes, the gain is reported as a corporate item.2007.
Income before income taxes for the secondfirst quarter 20072008 was $797$635 million, an increase of $33 million, or 4.3%, due to improved results for all segments. Year-to-date, pretax income was $1.4 billion, an increase of $13 million or 1%, primarily due to higher earnings from the packaging and entertainment segments partially offset by lower earnings for international beer operations and higher interest and administrative expenses. U.S. beer pretax profits improved $12.5 million in the second quarter and were essentially level with 2006 for the first six months, due to higher beer sales volume and increased pricing being offset by higher marketing expenses and beer production costs. International beer pretax income increased $2.6 million in the second quarter and decreased $1.9 million year-to-date on profit growth in China, Canada and Mexico plus lower marketing costs, partially offset by lower results in the United Kingdom in the quarter, and fully offset for the six months. Packaging segment pretax profits were up $9.8 million and $15.6 million, respectively, primarily due to increased profits from can manufacturing and aluminum recycling on improved pricing partially offset by lower volume, and increased label manufacturing earnings from higher volumes. Entertainment segment pretax profits grew $5.4 million and $4.5 million, respectively, due to increased attendance, increased ticket pricing and higher in-park spending partially offset by higher park operating costs in both periods.
Equity income of $195 million for the second quarter and $354 million year-to-date increased $25 million and $61 million, respectively, reflecting the benefit of improved Grupo Modelo earnings from higher volume and benefits associated with the new Crown import and distribution joint venture.  Equity income includes


benefits of $12 million and $29 million, respectively, in the second quarter and for the first six months due to the return of advertising funds that were part of prior import contracts. The benefit for the first six months was partially offset by a timing change in the recognition of Modelo’s export sales to the U.S.
Anheuser-Busch’s effective income tax rate was 39.5% for the second quarter 2007 and 39.7% for the first six months, representing increases of 70 and 90 basis points, respectively, primarily due to higher taxes on foreign earnings and the favorable impact of the Texas state income tax legislation in 2006, partially offset by a step-up in the domestic manufacturing deduction in 2007. The effective tax rates for 2007 include a benefit from partial capital loss utilization.
Net income of $677 million in the second quarter of 2007 represented an increase of $39 million, or 6.1%.  Net6.5% due primarily to improved operating results less the increase in interest expense. Income before income grew 5.1%,taxes for U.S. beer was up $18 million, reflecting higher volume and pricing, partially offset by increased cost of sales and marketing and distribution expenses. International beer pretax income was up $18 million, primarily due to $1.2 billionincreased profits in China, Canada and improved results in the United Kingdom. Packaging segment pretax income decreased $5 million primarily due to lower earnings from recycling operations.  Entertainment segment pretax results improved $12 million from increased attendance that benefited from the Easter holiday occurring in the first quarter in 2008 versus the second quarter last year.
 Equity income decreased $33 million, or 21% in the first quarter 2008, primarily from a combination of higher materials and operating costs for Grupo Modelo partially offset by higher beer volume. Additionally, equity income for the first six monthsquarter 2007 included a $17 million benefit from the return of 2007. Dilutedan advertising fund that was part of Modelo’s former beer import contract.
Net income of $511 million in the first quarter of 2008 was down $7 million, or 1.3% while diluted earnings per share were $.88 and $1.55, respectively, for the second quarter and first six months of 2007, representing increases of 7.3% and 6.2%, respectively.  Diluted earnings$.71, up $.04, or 6% from prior year. Earnings per share benefited from the repurchase of 22.4more than nine million shares in the first six monthsquarter under the company’s on-going share repurchase program.
The company believes excluding the one-time gain from the sale of the Spanish theme park investment in 2007 and the favorable income  Anheuser-Busch’s effective tax benefit in 2006 provides more meaningful comparisons between periods. As shownrate was 39.4% in the following table, pretax income, net income and diluted earnings per share excluding these one-time items increased 2.2%, 5.9% and 7.4%, respectively for the secondfirst quarter while the effective income tax rate decreased 40 basis points.  For the first six months, income before income taxes declined 0.2%, while net income, diluted earnings per share and the effective income tax rate increased 4.9%, 6.2% and 302008, a decrease of 50 basis points respectively.primarily due to lower taxes on foreign earnings.





 
 
($ in millions, except per share)
 
Income
Before
Income
Taxes
  
Provision
for Income
Taxes
  
Net
Income
  
Diluted
Earnings
Per Share
  
Effective
Tax
Rate
 
Second Quarter
               
2007
               
Reported $796.9  $(314.6) $677.0  $0.88   39.5% 
Gain on Sale of Spanish Theme Park  (16.0)  6.1   (9.9)  (0.01)    
Excluding One-Time Item $780.9  $(308.5) $667.1  $0.87   39.5% 
                     
2006
                    
Reported $764.2  $(296.8) $637.8  $0.82   38.8% 
Texas Income Tax Legislation Benefit  --   (7.8)  (7.8)  (0.01)    
Excluding One-Time Item $764.2  $(304.6) $630.0  $0.81   39.9% 
                     
Percentage Change – 2007 vs. 2006
                    
Reported  4.3%      6.1%   7.3%  70 pts 
Excluding One-Time Items  2.2%       5.9%   7.4%  (40) pts 

First Six Months
               
2007
               
Reported $1,393.1  $(552.7) $1,194.5  $1.55   39.7% 
Gain on Sale of Spanish Theme Park  (16.0)  6.1   (9.9)  (0.01)    
Excluding One-Time Item $1,377.1  $(546.6) $1,184.6  $1.54   39.7% 
                     
2006
                    
Reported $1,379.6  $(535.4) $1,137.0  $1.46   38.8%
Texas Income Tax Legislation Benefit  --   (7.8)  (7.8)  (0.01)    
Excluding One-Time Item $1,379.6  $(543.2) $1,129.2  $1.45   39.4% 
                     
Percentage Change – 2007 vs. 2006
                    
Reported  1.0%       5.1%   6.2%  90 pts 
Excluding One-Time Items  (0.2)%       4.9%   6.2%  30 pts 
Liquidity and Financial Condition
Cash at March 31, 2008 was $218 million, a decrease of $65 million from the December 31, 2007 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 repurchasing,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.


Cash at June 30, 2007 was $303 million, an increase of $84 million from the December 31, 2006 balance.  The company generated operating cash flow before the change in working capital of $1.7 billion$656 million for the first six months of 2007,quarter 2008, an increase of $295$99 million due primarily to increased earnings, higher Grupo Modelo dividends and a lowerthe first quarter 2007 discretionary defined benefit pension contribution of $85 million. The company did not make a discretionary contribution in 2007, $85 million versus $214 million2008. Discretionary pension contributions are made in 2006. See the consolidated statement of cash flows for additional information onaddition to the company’s sourcesrequired annual pension funding. There have been only normal and usesrecurring changes in the company’s cash commitments since December 31, 2007.
Capital expenditures during the first quarter 2008 were $150 million, compared to $154 million for the first quarter 2007.  Full year 2008 capital expenditures are expected to be approximately $975 million.
At its April 2008 meeting, the Board of cash.Directors declared a regular quarterly dividend of $.33 per share on outstanding shares of the company’s common stock, payable June 9, 2008 to shareholders of record May 9, 2008. The dividend rate for the comparable 2007 period was $.295 per share.


 

The company’s debt balance increased $300a net $141 million in the first half ofsince December 31, 2007, compared to a decreasenet increase of $136$623 million in 2006.during the first quarter 2007.  The details of the quarterly changes in debt for the first half of 2007 and 2006 are summarizedoutlined below (in millions).
Description
Description
 
 
Amount
 
Interest Rate
(Fixed Unless Noted)
Description
 
 
Amount
 
Interest Rate
(Fixed Unless Noted)
First Six Months of 2007
    
First Three Months of 2008First Three Months of 2008    
Increases:Increases:    Increases:    
U.S. Dollar Notes $317.3 $300.0 at 5.6% and $17.3 at 5.54%
Industrial Revenue Bonds 12.5 Various
Other, net 42.0 VariousCommercial Paper $355.7 3.02% wtd. avg., floating
Total increases 371.8  Other, net 3.9 Various
     Total increases 359.6  
Decreases:Decreases:    Decreases:    
Commercial Paper (69.2) 5.38% Wtd. avg., floatingU.S. Dollar Notes (150.0) 5.75%
Other, net (2.2) VariousStag Brewery Capital Lease Obligation (68.3) 6.00%
Total decreases (71.4)  Other, net (0.6) Various
Net Increase in Debt $300.4   Total decreases (218.9)  
     Net increase in debt $140.7  
First Six Months of 2006
    
First Three Months of 2007First Three Months of 2007    
Increases:Increases:    Increases:    
U.S. dollar debentures $300.0 5.75%
��U.S. Dollar Notes $317.3 $300.0 at 5.6% and $17.3 at 5.54%
Other, net 6.9 VariousCommercial Paper 264.2 5.38% wtd. avg., floating
Total increases 306.9  Other, net 41.9 Various
     Total increases 623.4  
Decreases:Decreases:    Decreases:    
Commercial Paper (428.2) 4.77% Wtd. avg., floatingOther, net (0.7) Various
Other, net (14.3) Various Net increase in debt $622.7  
Total decreases (442.5)  
Net Decrease in Debt ($135.6)  

As of June 30, 2007, the company has $1.05 billion of debt available for issuance through existing SEC shelf registrations.


The company’s commercial paper obligationborrowings of $589 million$1.4 billion at June 30, 2007 isMarch 31, 2008 were classified as long-term, since commercial paper is maintained on a long-term basis with on-going support provided by the company's $2 billion revolving credit agreement. The company’s quarter-end interest ratesrate for commercial paper at June 30, 2007 and 2006 were 5.28% and 5.41%, respectively.borrowing was 2.66%.
There have been only normal and recurring changes in the company’s cash commitments since December 31, 2006.

Capital expenditures during the second quarter 2007 were $192 million, compared to $159 million for the second quarter 2006.  Capital expenditures totaled $346 million and $318 million, respectively, for the first six months of 2007 and 2006.  Full year 2007 capital expenditures are expected to be in the range of $900 to $950 million.
At its July 2007 meeting, the Board of Directors increased the company’s regular quarterly dividend rate on outstanding shares of the company’s common stock 11.9%, to $.33 per share from $.295, payable September 10, 2007, to shareholders of record August 9, 2007.
 

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. Since December 31, 2006,2007, 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.
 
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 June 30, 2007March 31, 2008 and have concluded that they are effective as of June 30, 2007March 31, 2008 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.



PART II – OTHER INFORMATION

Item 1.   Legal Proceedings
On September 19, 2006, oneFor a description of certain litigation to which the Company’s cansheet suppliers, Novelis Corporation (“Novelis”), institutedcompany is a lawsuit seeking relief from continued performance of its obligations under its cansheet supply agreement withparty, reference the Company.  This action is being heard in federal court in the Northern District of Ohio. The Company believes that the assertions of Novelis are without merit, intends to vigorously defend its rights under the cansheet supply agreement and expects to prevail in the litigation.
Reference is made to the Company'scompany’s Form 10-K for the fiscal year ended December 31, 2006, which provides a description of certain putative class action lawsuits filed against2007 and the Company.  On July 17, 2007, the U.S. Court of Appealscompany’s Form 10-Q for the Sixth Circuit dismissed the Michigan and Ohio cases on the grounds that the plaintiffs lacked standing to sue and thus that the court lacked federal jurisdiction to hear the claims.  The court also held that the plaintiffs did not plead an injury and could not plead causation because the illegal activities involved in underage drinking were an intervening legal cause and consequently that the claim asserted by the plaintiffs was not redressable in court.quarter ended September 30, 2007.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
Following are the Company’s monthly common stock purchases during the secondfirst quarter 20072008 (in millions, except per share). All shares are repurchased under Board of Directors authorization. The Board’s most recent authorizationIn December 2006, the Board authorized a new program to repurchase 100 million shares occurred in December 2006.shares. There is no prescribed termination date for this program.  The numbers of shares shown include shares delivered to the company to exercise stock options.

 Shares Avg. Price
Repurchases Remaining Authorized Under Disclosed Programs at March 31, 2007105.3  
Share Repurchases
   
April1.1 $51.08
May8.7 $50.13
June3.1 $52.48
    Total12.9  
Repurchases Remaining Authorized Under Disclosed Programs at June 30, 2007
 
92.4
  
  Shares  Avg. Price 
Shares Remaining Authorized Under Disclosed Repurchase
Programs at December 31, 2007
  61.3    
        
Share Repurchases       
January  5.2   $49.59 
February  2.8   $47.52 
March  1.3   $46.91 
    Total First Quarter 2008 Repurchases  9.3     
         
Shares Remaining Authorized Under Disclosed Repurchase
Programs at March 31, 2008
  52.0     




Item 6. Exhibits4.  Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held April 23, 2008, the following matters were voted on:

1.  Election of August A. Busch III, August A. Busch IV, Carlos Fernandez G., James R. Jones, Joyce M. Roche, Henry Hugh Shelton, Patrick T. Stokes, Andrew C. Taylor and Douglas A. Warner III to serve as directors of the company for a term of one year.

  For Withheld
 August A. Busch III607,140,355 15,847,113
 August A. Busch IV610,118,527 12,508,941
 Carlos Fernandez G.589,624,207 33,003,261
 James R. Jones610,846,385 11,781,083
 Joyce M. Roche607,368,851 15,258,617
 Henry Hugh Shelton611,040,791 11,586,677
 Patrick T. Stokes607,010,013 15,201,174
 Andrew C. Taylor608,506,479 13,704,708
 Douglas A. Warner III608,629,589 13,581,598

2.  Approve the 2008 Long-Term Equity Incentive Plan for Non-Employee Directors
For  430,311,651
Against  90,884,844
Abstain  8,210,905
Non-Votes  93,220,068

3.  Approve the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for 2008
For609,157,423
Against 7,305,910
Abstain6,164,135
Non-Votes0

4.  Stockholder Proposal concerning a report on charitable contributions
For34,390,517
Against450,167,942
Abstain45,171,959
Non-Votes92,897,050

5.  Stockholder Proposal on special shareholder meetings
For235,324,992
Against284,065,808
Abstain10,339,618
Non-Votes92,897,050

6.  Stockholder Proposal on executive compensation
For220,761,354
Against296,580,808
Abstain12,388,256
Non-Votes92,897,050


Item 6.  Exhibits

Exhibit 
Description
   
10.22
Summary of Compensation of Non-Employee Directors of Anheuser-Busch Companies, Inc.
10.332008 Long-Term Equity Incentive Plan for Non-Employee Directors (Incorporated by reference to Appendix B to the Definitive Proxy Statement for Annual Meeting of Stockholders on April 23, 2008).
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.





SignaturesSIGNATURES

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)
July 27, 2007April 25, 2008
  
  
  
 
/s/ John F. Kelly
John F. Kelly
Vice President and Controller
(Chief Accounting Officer)
July 27, 2007April 25, 2008