Financial_Report_2009

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ƵƷ. Interest-bearing loans and borrowings

This note provides information about the contractual terms of the company’s interest-bearing loans and borrowings. For more information about the company’s exposure to interest rate and foreign currency risk, refer to Note ƵƼRisks arising from financialbinstruments.

Non-current liabilities

Current liabilities

The current and non-current interest-bearing loans and borrowings amount to ƷƼ ƳƹƷm USbdollar at year end ƵƳƳƼ, compared to ƸƼbƶƵƹmbUSbdollar at year-end ƵƳƳƻ.

To finance the acquisition of Anheuser-Busch, ABbInBev entered into a ƷƸ billion USbdollar senior debt facilities agreement (of which ƷƷbbillionbUSbdollar was ultimately drawn) and a Ƽ.ƻ billion USbdollar bridge facility agreement, enabling us to consummate the acquisition, including the payment of ƸƵ.Ƹ billion USbdollar to shareholders of Anheuser-Busch, refinancing certain Anheuser-Busch indebtedness, payment of all transaction charges, fees and expenses and accrued but unpaid interest to be paid on Anheuser-Busch’s outstanding indebtedness, which together amounted to approximately ƸƷ.ƻbillion USbdollar.

On ƴƻ December ƵƳƳƻ, ABbInBev repaid the debt it had incurred under the bridge facility with the net proceeds of the rights offering and cash proceeds it received from pre-hedging the foreign exchange rate between the euro and the USbdollar in connection with the rights offering.

As of ƶƴbDecember ƵƳƳƼ, the amounts outstanding under ABbInBev’s ƷƸ billion USbdollar senior debt facilities (of which ƷƷbbillion USbdollar was ultimately drawn) entered into in connection with the Anheuser-Busch acquisition had been reduced to ƴƺ.ƵbbillionbUSbdollar. ABbInBev refinanced the debt incurred under the senior facility and other indebtedness with cash generated from its operations, with the proceeds of disposals and with the proceeds of the debt capital market offerings as shown below.

On ƴƵ January ƵƳƳƼ, ABbInBev issued three series of notes in an aggregate principal amount of Ƹ.Ƴ billion USbdollar, consisting of ƴ.ƵƸbbillionbUSbdollar aggregate principal amount of notes due ƵƳƴƷ, Ƶ.Ƹ billion USbdollar aggregate principal amount of notes due ƵƳƴƼ and ƴ.ƵƸbbillionbUSbdollar aggregate principal amount of notes due ƵƳƶƼ bearing interest at a rate of ƺ.ƵƳ%, ƺ.ƺƸ% and ƻ.ƵƳ%, respectively. The net proceeds from the January Notes offering were used to repay Ƹ.Ƴbillion USbdollar of the senior facility.

In the first half of ƵƳƳƼ, ABbInBev completed the issuance of eight series of notes, consisting of ƺƸƳm euro aggregate principal amount of notes due ƵƳƴƶ, ƺƸƳm euro aggregate principal amount of notes due ƵƳƴƷ, ƹƳƳm euro aggregate principal amount of notes due ƵƳƴƺ, ƸƸƳm pound sterling aggregate principal amount of notes due ƵƳƵƷ, ƹƳƳm Swiss franc aggregate principal amount notes due ƵƳƴƷ, ƵƸƳm euro aggregate principal amount of notes due June ƵƳƴƸ and ƺƸƳm pound sterling aggregate principal amount of notes due June ƵƳƴƺ bearing interest at a rate of ƺ.ƶƺƸ%, ƹ.Ƹƺ%, ƻ.ƹƵƸ%, Ƽ.ƺƸ%, Ʒ.Ƹ%, Ƹ.ƺƸ% and ƹ.Ƹ%, respectively and a note consisting of ƸƳm euro aggregate principal amount of notes due ƵƳƴƷand bearing interest at a floating rate of ƶmonth EURIBOR plus ƶ.ƼƳ%. The net proceeds from the notes were used to repay approximately Ƶ.Ƹbillion USbdollar of the senior facility and approximately ƴ.ƴbbillion USbdollar of other short-term indebtedness.

On ƴƷMay ƵƳƳƼ, ABbInBev issued three series of notes in an aggregate principal amount of ƶ.Ƴbillion USbdollar, consisting of ƴ.ƸƸbbillion USbdollar aggregate principal amount of notes due ƵƳƴƷ, ƴ.Ƴ billion USbdollar aggregate principal amount of notes due ƵƳƴƼ and ƷƸƳmbUSbdollar aggregate principal amount of notes due ƵƳƶƼ bearing interest at a rate of Ƹ.ƶƺƸ%, ƹ.ƻƺƸ% and ƻ.Ƴ%, respectively. The net proceeds from the May notes offering were used to repay approximately ƶbillion USbdollar of the senior facility.

On Ƶ September ƵƳƳƼ, ABbInBev issued notes in an aggregate principal amount of Ƶ.Ƴ billion Brazilian real due in ƵƳƴƵ. The notes bear interest at a floating rate of ƴƴƷ% of CDI, the monthly Brazilian interbank lending rate. The net proceeds of the September notes offering were used to repay approximately ƴbillion USbdollar of senior facility.

On ƴƷ October ƵƳƳƼ, ABbInBev issued four series of notes in an aggregate principal amount of Ƹ.Ƹ billion USbdollar, consisting of ƴ.Ƹ billion USbdollar aggregate principal amount of notes due ƵƳƴƵ, ƴ.ƵƸ billion USbdollar aggregate principal amount of notes duebƵƳƴƸ, Ƶ.ƵƸ billion USbdollar aggregate principal amount of notes due ƵƳƵƳ and ƸƳƳm USbdollar aggregate principal amount of notesbdue ƵƳƷƳbearing interest at a rate of ƶ.Ƴ%, Ʒ.ƴƵƸ%, Ƹ.ƶƺƸ%, and ƹ.ƶƺƸ% respectively. The net proceeds from the October notes offering were used to repay approximately Ƹ.Ƹbillion USbdollar of the senior facility.

Terms and debt repayment schedule at ƶƴbDecember ƵƳƳƼ

Terms and debt repayment schedule at ƶƴbDecember ƵƳƳƻ

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Finance lease liabilities

ABbInBev’s net debt decreased to ƷƸ ƴƺƷm USbdollar as of December ƵƳƳƼ, from Ƹƹ ƹƹƳm USbdollar as of December ƵƳƳƻ. Net debt is defined as non-current and current interest-bearing loans and borrowings and bank overdrafts minus debt securities and cash. Net debt is a financial performance indicator that is used by ABbInBev’s management to highlight changes in the company’s overall liquidity position. The company believes that net debt is meaningful for investors as it is one of the primary measures ABbInBev’s management uses when evaluating its progress towards deleveraging.

The following table provides a reconciliation of ABbInBev’s net debt as of the dates indicated:

Apart from operating results net of capital expenditures, the net debt is impacted by the net proceeds from the sale of associates, subsidiaries and assets (ƺ ƶƺƵm USbdollar), dividend payments to shareholders of ABbInBev (ƸƼƻm USbdollar); dividend payments to non-controlling shareholders of AmBev (ƹƻƳm USbdollar); the payment to former shareholders of Anheuser-Busch and transaction costs (ƸƺƼm USbdollar); and the impact of changes in foreign exchange rates (ƻƼƺm USbdollar increase of net debt).

ƵƸ. Employee benefits

ABbInBev sponsors various post-employment benefit plans worldwide. These include pension plans, both defined contribution plans, and defined benefit plans, and other post-employment benefits (OPEB). In accordance with IAS ƴƼEmployee Benefits post-employment benefit plans are classified as either defined contribution plans or defined benefit plans.

Defined contribution plans

For defined contribution plans, ABbInBev pays contributions to publicly or privately administered pension funds or insurance contracts. Once the contributions have been paid, the group has no further payment obligation. The regular contribution expenses constitute an expense for the year in which they are due. For ƵƳƳƼ, benefits paid for defined contribution plans for the company amounted to ƷƶmbUSbdollar compared to ƴƺm USbdollar for ƵƳƳƻ.

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The changes in the fair value of plan assets are as follows:

The acquisition through business combinations in ƵƳƳƻstems from the acquisition of Anheuser-Busch.

Actual return on plans assets amounted to a gain of ƺƴƶm USbdollar in ƵƳƳƼcompared to a loss of ƶƷƷm USbdollar in ƵƳƳƻ. This is mostly driven by investment returns in excess of long-term expectations in the UK, US, Belgium, Brazil and Canada.

The decrease in contributions by ABbInBev (ƴƺƶm USbdollar in ƵƳƳƼ versus ƵƳƺm USbdollar in ƵƳƳƻ) is primarily explained by lower contributions in the Canadian plans.

As part of the Anheuser-Busch integration into ABbInBev, a curtailment has been recognized following the amendment of certain US pensions and post-retirement healthcare benefits. The effects of these changes are being recorded through the income statement and led to an additional income amount of ƵƷƳm USbdollar being recognized in ƵƳƳƼ. This income amount has been partially offset by the increase in expense relating to the first full-year inclusion of Anheuser-Busch’s benefit obligations.

The expense recognized in the income statement with regard to defined benefit plans can be detailed as follows:

The employee benefit expense is included in the following line items of the income statement:

Weighted average assumptions used in computing the benefit obligations at the balance sheet date are as follows:

Weighted average assumptions used in computing the net periodic pension cost for the year are as follows:

Several factors are considered in developing the estimate for the long-term expected rate of return on plan assets. For the defined benefit plans, these include historical rates of return of broad equity and bond indices and projected long-term rates of return from pension investment consultants; taking into account different markets where ABbInBev has plan assets.

Assumed medical cost trend rates have a significant effect on the amounts recognized in profit or loss. A one percentage point change in the assumed medical cost trend rates would have the following effects (note that a positive amount refers to a decrease in the obligations or cost while a negative amount refers to an increase in the obligations or cost):

Medical cost trend rate

In line with the IAS ƴ Presentation of Financial Statements disclosure requirements on key sources of estimation uncertainty ABbInBev has included the results of its sensitivity analysis with regard to the discount rate, the future salary increase and the longevitybassumptions.

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Discount rate

Future salary increase

Longevity

The above are purely hypothetical changes in individual assumptions holding all other assumptions constant: economic conditions and changes therein will often affect multiple assumptions at the same time and the effects of changes in key assumptions are not linear. Therefore, the above information is not necessarily a reasonable representation of future results.

The fair value of plan assets at ƶƴbDecember consists of the following:

The change in allocation of the fair value of plan assets from ƵƳƳƻ is mainly due to the favorability of exchange rate differences for Brazilian plans compared to the USbdollar.

The plan assets include indirect investments in ordinary shares issued by the company for a total fair value of ƴm USbdollar. The expected rates of return on individual categories of plan assets are determined by reference to relevant indices based on advice of external valuation experts. The overall expected rate of return is calculated by weighting the individual rates in accordance with the anticipated share in the total investment portfolio.

The five-year history of the present value of the defined benefit obligations, the fair value of the plan assets and the deficit in the plans is as follows:

ABbInBev expects to contribute approximately ƵƻƳm USbdollar for its funded defined benefit plans and Ƽƶm USbdollar in benefit payments to its unfunded defined benefit plans and post-retirement medical plans in ƵƳƴƳ.

Ƶƹ. Share-based payments

Different share option programs allow company senior management and members of the board of directors to acquire shares of ABbInBev or AmBev. ABbInBev has three primary share-based compensation plans, the long-term incentive warrant plan (“LTI Warrant Plan”), established in ƴƼƼƼ, the share-based compensation plan (“Share-Based Compensation Plan”), established in ƵƳƳƹ (and amended as from ƵƳƴƳ) and the discretionary long-term incentive stock-option plan (“LTI Stock Option Plan”), established in ƵƳƳƼ. For all plans, the fair value of share-based payment compensation is estimated at grant date, using the binomial Hull model, modified to reflect the IFRS ƵShare-based Payment requirement that assumptions about forfeiture before the end of the vesting period cannot impact the fair value of the option.

Share-based compensation plan

Since ƵƳƳƹ, the Share-Based Compensation Plan provides that members of ABbInBev’s executive board of management and certain other senior employees are granted bonuses, half of which is settled in shares to be held for three years, the shares being valued at their market price at the time of grant. With respect to the other half of the bonus, participants may elect to receive cash or to invest all or half of the remaining part of their bonus in shares to be held for five years. Such voluntary deferral leads to a company option match, which vests after five years, provided that predefined financial targets are met or exceeded. If the remaining half is completely invested in shares, the number of matching options granted will be equal to Ʒ.ƹtimes the number of shares corresponding to the gross amount of the bonus invested. If the remaining half is invested at ƸƳ% in shares, the number of matching options granted will be equal to Ƶ.ƶ times the number of shares corresponding to the gross amount of the bonus invested. Upon exercise, holders of the matching options may be entitled to receive from ABbInBev a cash payment equal to the dividends declared since the options were granted. The fair value of the matching options is estimated at the grant date using a binomial Hull model, and is expensed over the vesting period. These options have a life of ƴƳyears.

As from ƴ January ƵƳƴƳ, the structure of the Share-Based Compensation Plan for certain executives, including the executive board of management and other senior management in the general headquarters, has been modified. These executives will receive their bonus in cash but will have the choice to invest some or all of the value of their bonus in ABbInBev shares with a five-year vesting period, referred to as bonus shares. The company will match such voluntary investment by granting three matching shares for each bonus share voluntarily invested, up to a limited total percentage of each executive’s bonus. From ƴJanuary ƵƳƴƴ, the new plan structure will apply to all other senior management.

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During ƵƳƳƼ, ABbInBev issued Ƴ.Ʒm of matching options representing a fair value of approximately Ƹ.ƻm USbdollar in relation to the bonus of ƵƳƳƻ, and ƶ.ƻm of matching options representing a fair value of approximately ƸƸ.ƺm USbdollar in relation to the bonus for the first half of ƵƳƳƼ. The options granted under the bonus plan and issued during ƵƳƳƼcliff vest after Ƹyears.

Long-term incentive plan

The company has issued warrants, or rights to subscribe for newly issued shares, under the LTI plan for the benefit of directors and, until ƵƳƳƹ, members of the executive board of management and other senior employees. Since ƵƳƳƺ, members of the executive board of management and other employees are no longer eligible to receive warrants under the LTI plan, but instead receive a portion of their compensation in the form of shares and options granted under the Share-Based Compensation Plan. Each LTI warrant gives its holder the right to subscribe for one newly issued share. The exercise price of LTI warrants is equal to the average price of the company’s shares on the regulated market of Euronext Brussels during the ƶƳ days preceding their issue date. LTI warrants granted in the years prior to ƵƳƳƺ have a duration of ƴƳ years and from ƵƳƳƺ (and in ƵƳƳƶ) have a duration of Ƹ years. LTI warrants are subject to a vesting period ranging from one to three years.

During ƵƳƳƼ, Ƴ.Ƶm warrants were granted to members of the board of directors. Furthermore, and in order to compensate for the dilutive effect of the right issue, Ƴ.Ʒm warrants were granted to current members and Ƴ.ƹm warrants were granted to former members of the board of directors. These warrants vest in equal annual installments over a three-year period (one third on ƴJanuary of ƵƳƴƴ, one third on ƴJanuary ƵƳƴƵand one third on ƴJanuary ƵƳƴƶ) and represent a fair value of approximately ƴƹm USbdollar.

Discretionary long-term incentive stock-option plan

As from ƴJuly ƵƳƳƼ, senior employees are eligible for a discretionary annual long-term incentive to be paid out in LTI stock options (or, in future, similar share-based instruments), depending on management’s assessment of the employee’s performance and future potential.

In December ƵƳƳƼABbInBev issued ƴ.ƹm discretionary LTI stock options with an estimated fair value of Ƶƶ.Ʒm USbdollar.

In addition to awards granted under the plans described above, the company offered stock options to a small group of senior executives in November ƵƳƳƻ and April ƵƳƳƼ. ABbInBev believes that the selected executives will help implement a successful integration of Anheuser-Busch Companies, Inc., which will underpin ABbInBev’s ability to quickly deleverage. The number of options offered was Ƶƻ.Ʒm in ƵƳƳƻand Ʒ.Ƽm in ƵƳƳƼ, representing a combined fair value of approximately ƷƳƵ.ƹm USbdollar. One-half of the stock options granted in November ƵƳƳƻ have a life of ƴƳ years as from granting and vest on ƴ January ƵƳƴƷ; the other half has a life of ƴƸ years as from granting and vest on ƴJanuary ƵƳƴƼ. The stock options granted in April ƵƳƳƼ have a life of ƴƳyears as from granting and vest on ƴbJanuarybƵƳƴƷ. Vesting is conditional upon achievement of certain predefined financial targets.

In order to encourage management mobility, in particular for the benefit of executives moving to the United States, an options exchange program was executed in ƵƳƳƼ whereby Ʒ.Ʒm unvested options were exchanged against Ƶ.ƻm restricted shares that will remain locked-up until ƶƴbDecember ƵƳƴƻ. Ʒƺm USbdollar of cost was reported in ƵƳƳƼ related to the acceleration of the IFRS Ƶ cost following this exchange in accordance with IFRSƵ – refer to Note ƻ Non-recurring items. Furthermore, to encourage management mobility, certain options granted have been modified whereby the dividend protected feature of these options have been cancelled and replaced by the issuance of Ƹ.ƺm options representing the economic value of the dividend protection feature. As there was no change between the fair value of the original award immediately before the modification and the fair value of the modified award immediately after the modification, no additional expense was recorded as a result of the modification.

As per the terms of the Anheuser-Busch merger agreement, the company offered Ƹ.Ƽm options with a fair value of Ƹƹ.Ƶm USbdollar following the approval of the ABbInBev shareholders meeting of April ƵƳƳƼ. Furthermore the company offered in December ƵƳƳƼ ƶm options with an estimated fair value of ƷƵ.ƹm USbdollar.

During ƵƳƳƼ, a limited number of Anheuser-Busch shareholders who are part of the senior management of Anheuser-Busch were given the opportunity to purchase ABbInBev shares (Ƴ.ƹm) at a discount of ƴƹ.ƺ% provided that they stay in service for another fivebyears. The fair value of this transaction amounts to approximately ƶm USbdollar and is expensed over the five-year service period.