DBRS Confirms Anheuser-Busch Co. at A(high)p and R-1(low)p

Dominion Bond Rating Service (“DBRS”) has today confirmed the ratings of Anheuser-Busch Companies, Inc. (“Anheuser-Busch” or the “Company”) as indicated above.

Although industry trends in the North American beer market have been challenging, Anheuser-Busch maintains a strong earnings profile due its dominant market position in the U.S. (49%), a significant scale advantage over its competitors, a primarily dedicated wholesaler network, and the strength of the Budweiser and Bud Light brands.

Earnings have come under pressure over the past 12 months from the following: (1) domestic beer demand in the U.S. has declined due to a consumer shift towards imported beers, spirits, and wine products; (2) competition within the beer industry has intensified, with stronger and more focused competitors in SABMiller plc, Molson Coors Brewing Company, and InBev SA; and (3) rising energy, glass, and aluminum prices. As a result, domestic revenues and EBITDA margins declined significantly for the 12 months to September 30, 2005, compared to F2004 [by 200 basis points (bps) and 300 bps, respectively], weakening cash flow and coverage ratios. Notwithstanding the above, earnings are expected to steadily recover and grow at a robust pace over the long term due to the Company’s strong operating profile, newer sales initiatives (such as the Budweiser Select brand and increased promotions) that have helped revive volume growth in recent months, and continued expansion of the Company’s presence in China and other developing markets.

While credit ratios have tightened from historical levels, they remain adequate for the rating and the Company continues to have flexibility through its sizeable free cash flow. Excess cash, however, will likely continue to be used towards substantial dividend payouts and share repurchases, limiting future debt reduction activity. Management is expected to remain committed to a target cash flow-to-debt ratio in the high 0.30 to 0.40 times range, which should be achievable despite the absence of debt reduction as earnings are expected to recover over time. At their current state, both the earnings and financial risk profiles are acceptable for the assigned ratings, but further and more prolonged earnings weakness would pressure the ratings.

Note:
p - This rating is based on public information.