Notes

October 24, 2002

Some reasons to consider a short postion

1. Revenues are 15.55 per share. Current price (50.50) is 3.25X est F2002 revenues. Most of the early to mid 90’s, BUD traded at levels well under 2X revenues. This changed in the late 90’s. Something to watch, as this short position is not no- brainer stuff like the telecom in 2000.

2. BUD is trading at 10X book value, compared to the early 1990’s when it traded at 3 to 5X book value.

3. Trading at 17X cash flow

4. Long Term Debt to Equity is 150 %

Tice wrote today that BUD has always been a high multiple with an optimistic growth rate, yet they believe it has always been a slow grower (easy to verify, isn’t it ?). An under-funded pension plan will make earnings harder to grow (according to Tice), even more difficult with the high earnings assumptions.

According to Tice , BUD is under funded by $ 217 million, which is -10.6 % and -0.50 % of market cap and –5.9% of EBITDA. BUD is using the following actuarial assumptions : expected return 10.00 %, discount rate 7.50 %,

According to Tice the retirement plan is under-funded by 11 % in 2001, whereas it was over-funded in 2002 by 21 %.

BUD L/T growth rate according to First Call Median is 11.0 %

Tice feels that this pension burden will burden the long term growth rate.

Our opinion is that BUD is using way to high of an expected return rate on its retirement plan. The rate should probably be in the area of 7.50 % and not 10.0 %. We have not calculated what effect that would have on eps if it were brought down. Keep in mind that Warren Buffett has recently lowered Berkshire Hathaway’s expected pension plan rate of return to 6.50 %.