Fitch Initiates Anheuser-Busch Rating of 'A+'; Outlook Stable.

NEW YORK -- Fitch Ratings has initiated coverage of Anheuser-Busch Companies, Inc. (ABCI) with an 'A+' credit rating for its senior unsecured debt, which includes the company's bank facility, notes, debentures, Euro notes, and medium-term notes, and an 'F1' short-term credit rating that includes its existing commercial paper program. This rating action affects approximately $7.7 billion of debt at ABCI. The Rating Outlook is Stable.

The ABCI rating reflects the company's leading market share in the mature U.S. beer industry, strong brand names, solid operating margins, and substantial cash flow generation. These positive factors are weighed against ABCI's increasing amount of corporate debt that has been incurred to financed share repurchases, the highly competitive nature of the beer industry, global consolidation, and consumer trends favoring low-carbohydrate and healthy products.

ABCI benefits from its leading position in the U.S. Margins have steadily improved over the past 10 years due to the company's brand recognition, marketing capabilities, economies of scale, and efficient distribution system. ABCI recently announced that third-quarter earnings would be lower than expected due to cooler summer weather. Beer is a seasonal business that is dependent upon weather conditions along with many other beverage categories. Consumer trends in favor of healthy and low-carbohydrate products are a concern, but ABCI benefited from the introduction of Michelob Ultra, a low carbohydrate beer, in 2002. It is not yet clear whether or not products such as this and other light beers will continue to offset volume declines for traditional beer that may be caused by changing consumer preferences.

Aside from its equity method investments in foreign breweries, ABCI only generated about 5% of its gross sales in 2003 from international beer sales. ABCI has made numerous acquisitions and joint-venture agreements in foreign markets to expand its geographic reach into markets with more growth opportunities. However, this increases the company's exposure to acquisition and integration risks. Global competitors are also attempting to establish themselves in growing foreign markets such as China through local acquisitions. ABCI's recent acquisition of Harbin Brewery Group, China's fourth largest brewer, cost ABCI almost $700 million.

ABCI's leverage (total debt divided by earnings before interest expense, taxes, depreciation, and amortization (EBITDA)) was approximately 1.9 times (x) for the latest 12 month period ended June 30, 2004 and is at the low end for an 'A+' rating and has been gradually increasing over the past seven years. However, discretionary cash flow (cash flow from operating activities less capital expenditures and dividends) is considerable, in excess of $1.2 billion annually since 2002. Cash flow from operating activities to total debt was 37.2% for the period. Coverage (EBITDA divided by interest expense) has remained relatively stable at 10x. ABCI has a $2 billion revolver that expires in August 2008 that supports its commercial paper program. Fitch expects the company to maintain stable credit statistics and that the company would exercise discipline regarding share repurchases, particularly as it engages in competitive acquisition and investment activities.

ABCI has four business segments: domestic beer; international beer; packaging; and entertainment. The vast majority of its revenue is from the sale of domestic beer brands, which include Budweiser and Michelob. ABCI has approximately 50% market share in the U.S. beer industry. The entertainment segment includes theme parks such as Busch Gardens and Sea World.

Fitch's ratings on ABCI were initiated by Fitch as a service to the users of its ratings. The ABCI ratings are primarily based on public information.