WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 We are the largest brewer in Latin America and Brazil’s largest private consumer goods company. We have operations in 14 countries around the Americas which involve the production and sale of beers, soft drinks, other non-alcoholic drinks, malt and by-products. We are proud that four of our beer brands are among the 20 most-consumed brands in the world: Skol, Brahma, Stella Artois and Antarctica. We are a part of the biggest platform for the worldwide production and sale of beer, as a result of the transaction we entered into in 2004 which created InBev.

Our business model is based on the view that consumers are the reason for everything we do and because of that, they must receive our full attention. We build strong brands to win preference for our products. We have Brazil’s largest beverages portfolio, containing winning brands in the beer (such as Skol, Brahma, Antarctica and Bohemia), soft drinks (notably Guaraná Antarctica, Pepsi-Cola and H2OH!), isotonics (Gatorade), tea (Lipton) and bottled water (Fratelli Vita) segments. We are also market leaders in Argentina with Quilmes Cristal, in Bolivia (Paceña), in Paraguay (Brahma) and Uruguay (Pilsen).

Additional levers that are critical for building our results are: growth of revenues, financial discipline, point of sale execution, people and culture.

In 2007, our sales volume totaled 142.9 million hectoliters, with net revenues of R$ 19.6 billion, representing organic growth of 5.8% and 10.4%, respectively, over the previous year, excluding the impact of acquisitions, the sale of assets or currency translation. Our EBITDA was R$8.7 millions, 16.0% higher than in 2006. The Company’s market capitalization was R$ 79 billion on December 31, 2007. WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Table of contents

2 / Financial Highlights

4 / Message to shareholders

6 / Map of operations

8 / Creating Value through our Brands

14 / Beer Brazil

18 / Soft Drinks & Nanc Brazil

20 / Quinsa

22 / Hispanic Latin America excluding Quinsa (HILA-Ex)

24 / North America

28 / Our Business Model

32 / AmBev’s People and Culture

36 / Social Responsibility

38 / Environmental Responsibility

42 / Corporate Governance

44 / Shares as an investment

46 / Recognition and Awards

47 / Our Team

49 / Financial Statements WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Financial Highlights

Net revenues (R$ million) Net earnings (R$ million) EBITDA and Margin 19,648 2,816 2,806 17,614 8,667 15,959 7,445 6,305 12,007 1,546 1,412 4,537 44.1% 8,684 1,162 42.3% 3,072 39.5% 37.8% 35.4% 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

EBITDA EBITDA MARGIN

Net Revenues breakdown

Beer Brazil 52%

Soft drinks Malt and by-products Brazil Brazil North America 1% 11% 19%

Quinsa 14%

HILA-ex 3%

2 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 MAIN INDICATORS

Amounts expressed in million Reais 2003 2004 2005 2006 2007 Change (%) (except where indicated) 07/06 (**) Income Statement Net Sales 8,684 12,007 15,959 17,614 19,648 10.4% Gross Profit 4,640 7,226 10,216 11,665 13,102 11.4% Selling, General and Administrative Expenses 2,334 3,611 5,174 5,409 5,859 3.3% EBIT 2,306 3,615 5,043 6,256 7,243 18.5% Net Income 1,412 1,162 1,546 2,806 2,816 0.4% Balance Sheet Total Assets 14,830 33,017 33,493 35,561 35,476 (0.2%) Cash and Cash Equivalents 2,534 1,505 1,096 1,539 2,308 50.0% Total Debt 5,980 7,811 7,204 9,567 9,852 3.0% Shareholders’ Equity 4,363 16,995 19,867 19,268 17,420 (9.6%) Cash Flow and Profitability EBITDA 3,072 4,537 6,305 7,445 8,667 16.0% EBITDA Margin 35.4% 37.8% 39.5% 42.3% 44.1% 2.1 p.p. Capital Expenditures 862 1,274 1,370 1,425 1,631 14.5% Return on Equity 32.4% 6.8% 7.8% 14.6% 16.2% 1.6 p.p. Share Information (R$/ share) Book Value (*) 9.59 25.93 30.40 30.24 28.30 (6.4%) Earnings per share (*) 3.10 1.77 2.37 4.40 4.57 4.1% Dividends (ON) – R$/share 2.09 1.93 1.90 2.80 3.00 7.1% Dividends (PN) – R$/ share 2.30 2.13 2.09 3.08 3.30 7.1% Dividends paid 71% 114% 84% 66% 68% 2.0 p.p. Capitalization Market Capitalization 26,392 40,424 53,646 64,109 79,071 23.3% Net Debt 3,447 6,305 6,107 7,802 7,369 (5.5%) Minority Interest 196 213 123 223 187 (16.1%) Outstanding Shares (million) (*) 455.0 655.5 653.5 637.2 615.6 (3.4%) ADR’s Equivalent (million) (*) 455.0 655.5 653.5 637.2 615.6 (3.4%)

(*) Values adjusted for the share bonus issued on May 31, 2005 and, in 2006 and 2007, by the grouping of shares (in the proportion of 100 existing shares to 1 new share).

(**) The changes in the income lines are always presented on an organic basis – that is, excluding the impacts of acquisitions or the sale of assets and the impact of the translation of currencies in the consolidation process.

Annual Report 2007 3 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Message to Shareholders

The attention that we pay to our relationship with consumers once again led to an increase in our market leadership in the countries where we operate. Each year we improve our brand-building strategies, delivering products to consumers that are in line with their values and expectations. This is carried out through a permanent innovation process that distinguishes us and that adds value to our brands and our results. Important strategic levers which also support this behavior are: people and culture, financial discipline, efficient execution and cost management.

Besides investing in our brands, organic growth initiatives and strategic acquisitions have also triggered our record results. Consolidated sales volumes rose 5.8%, to 142.9 million hectoliters, while net revenues totaled R$ 19.6 million, or 10.4% higher than the previous year. EBITDA rose 16.0%, to R$ 8.7 billion, with a 44.1% margin — the highest ever recorded in the beverage industry worldwide. Net income, which was R$ 2.8 billion, reflected the increase in the amortization of goodwill and losses in currency translation of investments we made outside of Brazil.

During 2007, we acquired two companies: Cintra in Brazil, and Lakeport in Canada, which helped the expansion of our market, especially in the Ontario region. At the beginning of 2008, we also concluded the acquisition of minority interests in Quinsa, and we now own 99.56% of the company’s voting capital. In addition, during the year, we invested R$ 1,630.9 million to increase production lines, purchase commercial assets and build a glass plant, which will be launched at the beginning of 2008.

All of our operations grew, led by Brazil with a 69.4% contribution to EBITDA and 16.8% growth in cash generation. The volumes increased in a consistent manner: 5.5% in beer and 10.6% in soft drinks.

Quinsa posted an EBITDA result that was 22.3% higher than the previous year, even with the negative impact of cost inflation, higher salaries and an energy crisis. The performance reflects solid growth of volume, of 9.7% per year.

HILA-ex reported a negative EBITDA of R$ 20.1 million, which represents a R$ 41.8 million improvement compared to the previous year. This improvement was a result of the repositioning of our brands to better face local market conditions.

In North America, EBITDA rose by 6.4%, mainly due to improvements in production processes and the adoption of a number of initiatives seeking cost reductions. In an environment notable for strong price competition, the Lakeport acquisition strengthened our position to compete in the market.

We maintained our strategy of distributing excess cash generated by our operations, which is a result of our focus on cash flow and working capital management. During the year we returned R$ 3.1 billion

4 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 to shareholders by buying back shares and R$ 2 billion through dividends and interest on own capital (representing 70.9% of net income). Total payout was R$ 5.1 billion, 42% over the amount paid in 2006.

The results in 2007, are explained by above all, the effort of our people, who are never satisfied with the results obtained, who are passionate about what we do, and who dream impossible dreams — always striving to over perform.

Behind the results, we have a fantastic team that works hard to make those impossible dreams come true. Our people are determined, focused and know how to deliver. They grow by accepting tough goals and never give up. Even when trends in the market are going against us, our people have the ability to overcome. That is who we are and is our major strength.

Carlos Brito Co-chairman of the Board of Directors

Victorio Carlos De Marchi Co-chairman of the Board of Directors

Annual Report 2007 5 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Map of Operations

North America – represents the operations of Canada’s Labatt Brewing Company Limited (“Labatt”)

Net Revenues (R$ million): 3,826 CANADA EBITDA (R$ million): 1,538 EBITDA Margin (%): 40.2% Beer market (mm HL): 22.88 Per capita consumption (liters): 69.7 Total beer sales (million HL) - Domestic: 9.7 Total beer sales (million HL) - Exports: 1.8 Beer installed capacity (million HL): 14.9

DOMINICAN REPUBLIC GUATEMALA EL SALVADOR VENEZUELA

NICARAGUA BRAZIL ECUADOR Brazil – comprises (i) Beer Brazil; PERU (ii) Soft Drinks and Nanc (Non-Alcoholic and Non-Carbonated) and (iii) the sale of Malt BOLIVIA and By-products

Net sales 12,455 EBITDA (R$million): 6,014 EBITDA Margin: 48.3% PARAGUAY Beer market (mm HL): 103.8 Per capita consumption (liters): 56.0 URUGUAY Total beer sales (million HL): 70.1 Total soft drink sales (million HL): 24.5 ARGENTINA Beer installed capacity (million HL): 118.1 CHILE Soft drink installed capacity (million HL): 66.5

6 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Hispanic Latin America (HILA) – (i) QUINSA consists of AmBev’s stake in (i) Quilmes Industrial. Quinsa, S.A. (“Quinsa”) and (ii) Operations in Hispanic Net Revenues (R$ million): 2,687 Bolivia Latin America, excluding Quinsa (HILA-Ex) EBITDA (R$ million): 1,135 Beer market (mm HL): 3.2 EBITDA Margin (%): 42.3% Per capita consumption (liters): 32.4 Beer market (million HL): 27.8 Beer installed capacity (m HL): 4.1 Total beer sales (million HL): 18.3 Total soft drink sales (million HL): 12.2 Paraguay Beer market (mm HL): 2.3 Argentina Per capita consumption (liters): 37.1 Beer market (million HL): 15.9 Beer installed capacity (million HL): 3.2 Per capita consumption (liters): 41.4 Beer installed capacity (million HL): 15.7 Chile Soft drink installed capacity (million HL): 18.8 Beer market (mm HL): 5.6 Per capita consumption (liters): 33.7 Uruguay Beer installed capacity (m HL): 1.1 Beer market (million HL): 0.8 Per capita consumption (liters): 24.3 Beer installed capacity (million HL): 1.3 Soft drink installed capacity (million HL): 0.7

(ii) HILA-Ex El Salvador Peru Beer market (mm HL): 0.8 Beer market (mm HL): 10.4 Net Revenues (million HL): 681 Per capita consumption (liters): 13.0 Per capita consumption (liters): 38.0 EBITDA (R$ million): (20) Installed capacity (million HL): - Beer installed capacity (million HL): 1.0 EBITDA Margin (%): -3% Soft drink installed capacity (million HL): 4.9 Beer market (million HL): 45.6 Guatemala Total beer sales (million HL): 3.0 Beer market (mm HL): 1.3 Dominican Republic Total soft drink sales (million HL): 3.2 Per capita consumption (liters): 18.0 Beer market (mm HL): 3.6 Beer installed capacity (million HL): 1.4 Per capita consumption (liters): 36.3 Ecuador Beer installed capacity (million HL): 1.0 Beer market (mm HL): 2.7 Nicaragua Soft drink installed capacity (million HL): 3.2 Per capita consumption (liters): 28.0 Beer market (mm HL): 0.8 Beer installed capacity (million HL): 1.0 Per capita consumption (liters): 13.0 Venezuela Installed capacity (m HL): – Beer market (mm HL): 26.0 Per capita consumption (liters): 93.0 Beer installed capacity (million HL): 2.8

Source: AmBev

Annual Report 2007 7 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Creating value through our brands

Our portfolio unites tradition and modern trends, develop products which satisfy the expectations using a clear strategy of value creation with our of the public we want to reach. Even more than brands being part of the lives of consumers. For that, we understand the importance of identifying us, the consumer is the boss, the reason we are in aspirations, anticipating trends and discovering business, so we must understand him and stay new directions. very close to him in order to build a long lasting relationship. Values Without losing the heritage and values of our main brands — such as Bohemia, Antarctica, In an increasingly more computerized and global Brahma, Original and Quilmes – we also act in a way society, we seek to identify the values that that guarantees our businesses’ continuous motivate consumers without leaving aside growth. This effort involves a structured market influences deriving from regional and age intelligence system and the use of marketing and characteristics. Our day-to-day activities involve communication techniques that enable our brands a series of surveys regarding lifestyles, consumption to become benchmarks — even icons — and habits, aspirations and values in all of the regions move up in consumer preference. where we operate. Just in Brazil, we interview more than 2,500 people each month. This These actions do not merely encompass new information, coupled with the exchange of products, flavors, line extensions, packaging information between different countries, serves and promotions. Our market surveys go beyond as the basis to improve our products and develop just identifying consumption habits, consumer the brands that place us in the same league as the expectations and new opportunities to grow world’s top beverage brewers. our volumes. We strive to ensure that our brands represent We are market leaders in a number of countries, these values, translated into characteristics committed to constant innovation while remaining identified by different consumers. They emphasize in touch with the reality and complexities of the concepts such as youth, lightness and irreverence modern world. Our marketing mission is to (Skol), friendship, progress and celebration understand the needs of consumers and the (Brahma), beer tasting and knowledge (Bohemia), different realities they are living. We try to quality (Antarctica), the search for perfection understand their experiences in order to enter into (Stella Artois), tenaciousness and friendship peoples’ lives, understand their values, their (Quilmes), among others. priorities and their consumption occasions; thus, together with other areas of the Company, we

8 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Innovation

These brand concepts inspire our innovations. Through them, we try to always surprise our consumers, whether through our communication – on TV, in new media or points of sale — or new products, liquids or innovative packaging.

One example of the effort to understand and satisfy consumers was the launch of the Brahma Fresh beer, exclusively for the states of Brazil’s Northeast Region. This is a refreshing pilsen beer, smoother and with a lighter and brighter color than the traditional Brahma, developed to satisfy regional tastes. Moreover, we turned Bohemia Confraria, an abbey beer, into a permanent line product; we created new flavors for H2OH! and Gatorade; we innovated with Guaraná Antarctica Ice; and introduced Quilmes Bock and Stout, in Argentina, and Alexander Keith’s Red Amber Ale, in Canada.

The instinct for innovation that is inherent in our actions can also be seen in: (i) our packaging, such as the 18-pack for Skol introduced in 2007, or the launch of Bohemia Dark in a long neck (355 ml) and can (350 ml) presentations, always seeking to satisfy our consumers’ desires; (ii) in the communication media and techniques we use, such as the Mystery of the Round Code, a distinctive media strategy with selected interventions, inviting Skol consumers to participate in the development of the campaign, or the Quilmes Friend’s Day promotion, which led to the posting of over 1.5 million videos on the Internet by consumers interacting with friends; (iii) in the various brand events such as, for example, Skol Beats, Quilmes Rock and Boteco Bohemia, that each year are increasingly present in the lives of our consumers, bringing them new experiences; (iv) in the development of new consumption occasions, as demonstrated by the growing success of our draft beer and draft beer express kiosks; and (v) in the training actions to our points of sale, such as for example the Draft Beer Real Academy, which trained over 2,000 bars and restaurants throughout Brazil.

10 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Our main brands Liber and Kronenbier – Non-alcoholic beers that Soft drinks increase consumption occasions. Liber is produced through technology that is new to Latin America, Guaraná Antarctica – The second best selling Beer which includes the use of special equipment soft drink in Brazil, with the unique flavor of the to fully extract alcohol from the beverage guaraná fruit that is grown in the Amazon Region. Skol – Brazilian market leader, innovation is one of its main attributes. It was the first beer launched Caracu - A black beer that is a type of stout, with Pepsi-Cola – We are the second largest PepsiCo in a can in the country, and also introduced the a full-bodied flavor, it has been produced since bottler in the world. We produce and distribute long neck concept and other new ideas into the 1899. Because it is not filtered, this product soft drinks in a number of companies in South and Brazilian market, such as Skol Geladona is more nutritious, containing yeast and proteins. Central America with a product line that includes (packaging that maintains the liquid colder for the traditional Pepsi-Cola, Pepsi-Twist, with its cola longer periods of time) and a heat sensitive label. Quilmes – Argentina’s best-selling beer. It is and lemon taste, Pepsi X, the first energetic soft produced in more than 15 versions, with Quilmes drink in the world, and Pepsi Max, with maximum Brahma – The brand that is synonymous with the Cristal being particularly noteworthy. Launched in taste and no sugar. gathering of friends and having fun, has been 1888, in 2007 it gained stout and bock versions. produced since 1888. Besides Brazil, it is also the H2OH! – Is slightly carbonated and contains no leading brand in Paraguay and is present in more Pilsen and Patrícia – Benchmark beers in the sugar. It was developed in partnership with than 30 countries in the Americas and Europe. Uruguayan market. They are full-bodied, strong PepsiCo, initially with a lemon flavor. In 2007 it In 2007, the brand gained a special adaptation for and have a slightly bitter flavor. also began to be offered with a tangerine flavor. the Northeast Region of Brazil — Brahma Fresh, clearer and lighter than the traditional version. Brahva – Sold in Central American countries, We also produce Sukita, an orange drink, Soda it maintains the same flavor, bright, transparency Limonada and Tônica Antarctica. Antarctica – A classic Pilsen-type beer, produced and purity of Brahma. In 2007, it gained an Extra since 1885, combining tradition and quality. version. It consolidated its position in the Brazilian market Isotonics through the BOA campaign and bar. Labatt Blue – The best-selling Canadian beer in the world. Launched in 1951 with Labatt Pilsener, Gatorade – The best selling isotonic sports Bohemia – Brazil’s first beer, produced since it was baptized as “Blue” by fans of the Winnipeg beverage in the world, also part of our alliance with 1853, is the leader of the premium segment. Blue Bombers football team. PepsiCo. Besides the Pilsen-type, it comes in other wheat versions (Bohemia Weiss), as schwarzbier (Bohemia Kokanee – A brand with a strong presence in Escura) and abbey (Bohemia Confraria) beers. British Columbia (Canada). It is produced in the Teas Kootenays Mountains. Kokanee delivers a smooth, Original – A premium beverage with pronounced clean and lightly hopped taste. Lipton Iced Tea – Ready-to-drink tea segment flavor, destined for people who appreciate and world leader, produced under franchise license value a traditional taste, superior quality beer. Alexander Keith’s – The most popular beer in Brazil. Created in 1906, it preserves the original formula in Nova Scotia (Canada), with a singular slightly and monolucid paper label as of today. floral hop character with a sweet flavor delivery. In 2007, the line was extended with the Water Serramalte – A full-bodied beer with an extra introduction of Red Amber Ale. dose of malt in its composition and that has Fratelli Vita – Lightness is one of its main a longer production process. It has been produced Lakeport – A Canadian brand that was added to qualities, due to the low level of dissolved salts. since 1953. our portfolio in 2007. It is presented in a number of versions, such as pilsen, lager, ale, ice and red. Polar – A beer with a smooth aroma and slightly bitter taste, with distribution concentrated in the Stella Artois – An InBev international brand, South of Brazil. a super-premium beer first created in Belgium in 1366, with a balanced and strong taste. It also is produced in Brazil and Argentina, with very high quality ingredients, sustained by concepts such as inestimable value and the striving for perfection.

Annual Report 2007 13 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Beer Brazil

Mainstream

The positive macroeconomic situation, with growth of disposable income, helped drive beer volumes in Brazil. The increase was 5.5% for the year, with 70.1 million hectoliters and a market share that reached 68.6%, according to data from Nielsen. Net Revenues totaled R$ 10.2 billion, an increase of 11.7%. EBITDA totaled R$ 5.2 billion, up 15.4%. Our hedge policy continues being important in allowing us to keep costs under control and protect us from commodity price pressures. Moreover, a well-managed commercial plan has let us optimize investments and maximize profits.

During the year we acquired the Cintra breweries, with the prime objective of expanding our production capacity and thus address the growing demand for beer and soft drinks. Neither the brand nor the distribution assets were included in the operation.

Our growth was especially due to our efforts to target consumers and build brands. The launch of Brahma Fresh was in step with this concept, with development of a beer especially for the Northeast Region that is clearer and lighter than the original.

For its part, Brahma won over the public in 2007 with the “Zeca-feira” national campaign. Starring musician Zeca Pagodinho, the project reinforced the identification of Brazilians with soccer, emphasizing the importance of meeting with friends in the middle of the week.

Another successful campaign was Skol’s “Código Redondo” (Round Code). In the midst of a climate of distress, suspense and good humor, the public was invited to try to discover what was the secret of the quality of the beer, recognized as being innovative, irreverent and young at heart. We developed an 18-can package for the brand, and in January 2008 we launched a heat-sensitive Skol can in the Rio de Janeiro market, the first to be marketed in Brazil: it announces when the beer is at the correct temperature to be consumed.

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Premium

We are expanding the share of premium and super-premium beers in our operations in Brazil. In 2007, for example, we transformed Bohemia Confraria — which previously was only available for short periods of time — into a production line product. We also launched the Bohemia Escura in a long neck bottle (355 ml) and in a can (350 ml). And for Stella Artois, we emphasized the brand’s inestimable value and sophistication.

16 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Imports

We also created tasting opportunities for consumers. During the year, we inaugurated an Importation Center that is responsible for bringing into the country different beers from around the world, such as Spaten, Löwenbräu, Franziskaner Weissbier and Beck’s from Germany; Leffe, Hoegaarden and Belle-Vue from Belgium; and Quilmes from Argentina and Norteña, Patrícia and Pilsen from Uruguay.

Annual Report 2007 17 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Soft drinks and Nanc Brazil

As of December 2007, we registered our historically best-ever Brazilian soft drink market share according to Nielsen data — 17.5%, which represented 0.4 percentage points over December 2006. Volumes were up 10.6%, totaling 24.5 million hectoliters. Net revenues rose 16.6% to R$ 2.1 billion and the EBITDA was R$ 782.6 million, a 28.8% increase, with a 37.1% margin.

This performance is explained by the strong growth and development of the industry together with increased market share, which was driven by innovations we made during the year. It also reflects a reduction in the cost per hectoliter produced, an effect generated by gains obtained through raw material hedges (sugar) and the appreciation of the Brazilian currency, the Real, against the U.S. dollar.

In a market that is growing mainly as a result of innovation, strong brands are the main underpinning of Other innovations were introduced under the the sustainability of our business, through a portfolio that combines soft drinks and non-carbonated Lipton tea lines, adding a green tea flavor, and the beverages for different consumption situations. Gatorade isotonic line, which gained the açai palm flavor (Açaí-Guaraná) in honor of the Pan The main highlight in 2007 was the performance of H2OH!, a carbonated water with a fruity taste and American Games that were held in Rio de Janeiro zero sugar, launched in 2006 in a lemon version for just a few regions. Besides expanding distribution to in 2007, and the Red version, as an extension the entire country, we introduced a version with a tangerine flavor. H2OH! is a market success, with of the Cool line for fans of radical sports. a 10% increase in market share because it couples health and a natural product concept. Other innovations were introduced into Another big success in 2007 was the launch of Guaraná Antarctica Ice, based on one of the main packaging. The 1.5 and 2.5 liter versions began to attributes of the soft drink that is the unconditional leader of this taste segment: the refreshing quality be distributed throughout Brazil. Furthermore, we of a genuinely Brazilian product, with its unique and authentic flavor. Initially conceived as an in-out launched a 3.3-liter PET bottle. It is the largest launch, maintained in the market for a limited period of time and only during the summer, it wound up bottle in the market, developed for big families joining the product line and was supported by a young and irreverent promotional campaign. And in or occasions when there is a lot of consumption. partnership with Kibon, we created Picolé Guaraná Antarctica, a popsicle that also has become a successful extension of the line. We also intensified actions in neighborhood supermarkets, strengthening our relationship programs with this channel. The actions involved investments in infrastructure and training, seeking more integrated development of the soft drink category and greater space on supermarket shelves.

Annual Report 2007 19 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Quinsa

Our third major market encompasses the operations in Argentina, Uruguay, Paraguay, Bolivia and Chile. The Quinsa region grew in 2007, driven by market share gains and the good performance of premium brands.

Total volume expanded by 6.8% for beer and 14.3% for Soft Drinks and NANC. Net revenues totaled R$ 2.7 billion, increasing more than the sales volume (21.5%), a reflection of the boost in prices over the year and also a more favorable product mix. The record performance was obtained despite the sale of three beer brands in Argentina in December 2006, as part of the commitment AmBev had made during the Quinsa acquisition process.

Our performance in the region is especially sustained by the Quilmes brand, which alone has over 50% market share in Argentina. We believe this is exceptional performance, reflecting the full range of effort involving this century-old brand, identified through its values of sociability, joviality, humor and sturdy behavior that is aimed at different consumer social and age brackets. During the year, we expanded our line of dark beers in stout and bock versions, positioned in the premium segment, with the objective of accompanying the evolution of our consumers and being present on different consumption occasions. The total increase of premium beers during 2007 was 62% (with 85% growth of dark beers and 77% for Stella Artois compared to the previous year).

The Quilmes platform ensures its positioning on various fronts. During the year, we organized Quilmes Rock, the largest rock festival in Latin America — that attracted 200,000 people — using a line of communication aimed at young consumers who appreciate this rhythm. Simultaneously, we sponsored the national rugby team as well as the Argentine national soccer team, which indicated Quilmes’ capacity to be present in the lives of all Argentines.

Another highlight during the year was the performance of the Stella Artois premium beer in Argentina, becoming its fifth largest market in the world. We launched Patagônia in the same segment; it is a limited edition, selected distribution red beer that is produced from hops grown in the extreme south of the country. And for the Gatorade isotonic line, we innovated by introducing sugarless Propel Fitness Water.

The identification of the consumers with our brands also occurs in Bolivia, through Paceña, a national point of reference; in Uruguay, with Pilsen; and in Paraguay, with Brahma – which boasts the largest market share of the brand in the world.

20 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 HILA-Ex

HILA-Ex (Hispanic Latin America) encompasses Venezuela, Peru, Ecuador, Guatemala, the Dominican Republic, Nicaragua and El Salvador. In 2007, a very competitive market and economic decline in Venezuela, with a large increase in the informal market, influenced sales performance in the division, which posted a 4.6% drop in beer and 12.6% in soft drinks. As of the third quarter, significant advances were observed in operations in the Dominican Republic and Central America along with recovery of market share in Peru.

The Soft Drink and NANC unit’s volumes declined mainly due to brand repositioning in some markets. This impact was in part compensated through cost savings, the result of favorable changes in the packaging mix. Regarding planning for 2008, we continue striving for better positioning and packaging options for our brands in the region.

For beer, our Brahma brand maintained significant market share in Peru, Ecuador and the Dominican Republic, positioned with strong popular appeal as a widespread product. We were innovative in these markets, introducing coolers and distinctive materials at points of sale, along with the launch of shrink packaging and with the brands´ logos. We also began offering Brahma Light, Budweiser and Budweiser Light in the Dominican Republic. In Guatemala, where we participate through the Brahva brand, we launched an Extra version.

Powerful campaigns emphasizing innovative character and a smart choice became the subject of talks in bars in these countries. We also increased coverage of points of sale, preparing for growth that has been seen already in the Dominican Republic, for example, where we gained 10 points of market share.

The improvement in EBITDA, which went from a negative R$ 63.9 million to a negative R$ 20.1 million, reflects financial discipline and savings in administrative expenses resulting from operational restructuring. We initiated activities in the region in 2003 – except for Venezuela, where we began in 1994.

We continue building our businesses in the region. Our beer volumes are growing, we are reducing fixed costs and nearing achievement of neutral EBITDA and cash flow. In order to meet our long-term targets, we will continue to consolidate our growth levers, building brands, managing revenues and costs and applying financial discipline.

Annual Report 2007 23 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 North America

Our operations in Canada represent AmBev’s second largest market. This is a mature market, with a continuing market share challenge. In 2007, despite good performance of the economy – especially in the West as a result of the higher prices of oil – beer sales increased only slightly, in a climate of tough competition.

Viewed from this aspect, our sales were very good, with reported volumes up 5% over the previous year. This performance is explained by the slight market expansion and the advance of our three main Canadian brands: Budweiser, Stella Artois and Alexander Keith’s. The volume suffered an organic decline of 0.8% compared to 2006.

EBITDA totaled R$ 1.5 billion, which was 6.4% over 2006, with a 40.2% margin (38.6% the previous year). The performance especially reflects the introduction of our expense management culture and cost management discipline.

Furthermore, Lakeport was fully incorporated into Labatt during the year. We invested CAD$ 208.5 million in this acquisition, adding product lines and brands in the Ontario (Great Lakes) region value- added segment.

24 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 A several number of marketing initiatives and innovations stood out during the year. Two successful actions involved Lakeport itself: a package presentation of 28 bottles of Lakeport Pilsener, Honey Lager and Light, leading to a 1.8 percentage point increase in market share; and the launch of Lakeport Red, a more full-bodied beer. Along the same line, we introduced Alexander Keith’s Red Amber Ale, which surpassed the sales volume in Ontario by 73% and Alberta by 71%, compared to the initial plan for the launch.

Actions on behalf of Kokanee involved brand reinforcement, and the highlight was the launch of Kokanee Kube, a thermal backpack that associates the beverage with the cold Canadian climate and the sensation of refreshment, making it the perfect beverage for outdoor activities.

For Stella Artois, we promoted a brand-testing initiative, demonstrating the nine-step ritual for serving a glass of beer with perfection and thus seducing consumers.

Moreover, we ran a number of promotions on behalf of Labatt Blue: these included the sponsorship of events throughout the summer season, the launch of an 18-unit packaging presentation and “The Good Stuff” campaign focused on the ties between faithful consumers with their favorite retail outlets. Through these initiatives, we sought to reinforce the beer’s customized positioning as a day-by-day way of commemorating traditions.

And through Bud Light, which we produce in Canada under license from Anheuser-Busch, we strengthened our ties with consumers through sports sponsorship, with the National Hockey League being a prime example. The brand has grown at an average annual rate of 42% in the past three years.

Annual Report 2007 27 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Our business model

Our business has grown constantly and in a Management skills are another important element sustainable manner because we apply a structured in our culture. They are based on: ethics; work process. We are clearly focused on three performance assessments based exclusively things: People, Brands and Management. These on results; encouragement for thinking and acting aspects guarantee our ability to supply innovative as owners of the business; leading through products that satisfy consumers, our efficiency and personal example; and valuing experience the capacity to create value and deliver results. on the field.

Brands Growth of revenues

We invest in the long-term development of our We permanently strive to grow our net revenues. brands in order to maintain them as market In order to do this, we make it a priority to take benchmarks. To do this, we enter consumers’ lives, advantage of opportunities in the following aspects: seeking to better understand their values, their preferences and their expectations. We also invest • Brand management: We build strong brands, in creative campaigns so our brands remain on top based on deep understanding of our consumers, of consumers’ memories. We consistently strive to seeking long-term growth; strengthen the ties with consumers and enhance the value of our brands. • Market share: our commitment is to maintain and strengthen our leadership in the markets where we operate, and to evaluate opportunities People and Culture of entering into new markets in the Americas where we currently do not operate; Highly qualified, motivated and committed people are one of our main distinguishing characteristics. • Per capita consumption: based on an extensive We administer the hiring and training of our research and constant market monitoring, focused people because we want to have top on consumer behavior and consumption professionals. Through a variable compensation occasions, we seek to increase per capita program, we created a stock participation plan consumption in our markets; and and financial incentives in order to achieve better results. • Consumer share of wallet: we try to maximize the consumers’ share of wallet of our products.

28 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Distribution execution Operating cash flow (R$ millions)

The distribution of domestic beer brands to hundreds of thousands of points of sales is our business’ most complex feature. Over the past few years, we have centralized our direct distribution operations in the 8,667

large cities while, at the same time, we are strengthening our outsourced distribution system. 7,919 7,445

In Brazil, we maintain a multi-brand network with distribution committed for delivering results in favor 6,305 5,985 of all of our portfolio. Through the AmBev Excellence Program, we encourage constant improvement of our retailers, establishing performance standards and stimulating an exchange of information on best 4,357 4,150 practices. 3,419

Point of sale execution, for us, is of fundamental importance for the success of our business. We help our clients display the products in the best possible way, organize their inventories, decorate their establishments and manage their income and expenses. We pioneered the introduction of coolers to points of sale in our markets so that the beverages reached consumers at the ideal temperature. The coolers also are efficient marketing tools because they are decorated with images related to our

main brands. 2004 2005 2006 2007

Cash flow EBITDA Cost efficiency

We adopted the Zero Base Budget (ZBB) model that stimulates commitment to the control of expenses Pay-out (R$ billions) and costs without any relationship to the previous year. We establish challenging targets and each team is responsible for its own budget. Each cost center has an owner, and achieving the targets is rewarded 3.1 through a variable compensation system. The areas that do not reach their budget, loose their right to a bonus. 1.8 1.6 0.4 Financial discipline

We have adopted a policy of not retaining unnecessary cash. After allocating the funds necessary for operations and capital expenditures, we decide upon the distribution of dividends and share buy-backs to return to the shareholders the operational cash flow generated. 1,3 2,3 1,8 2,0

As a result of this model, we posted another year of record cash flow generation in 2007 — R$ 8.6 billion. And we returned R$ 5.1 billion to shareholders, of which R$ 2.0 billion was in dividends 2004 2005 2006 2007 and R$ 3.1 billion through the buy-back of shares. Share buy-back Dividends

Annual Report 2007 31 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 AmBev’s People

32 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 We continuously invest in our people, because we believe in their talent and capacity to assimilate and disseminate the AmBev culture and overcome challenges. We encourage the teams to think – and act – like owners of the business and we offer them opportunities for professional and personal growth, such as recognition for their efforts, persistence and entrepreneurial spirit.

At the end of 2007, our team consisted of 35,593 employees – of whom nearly 80% were under 35 years old – conducted by a meritocracy model that encompasses fixed salaries, variable compensation, professional training and qualification programs, quality of life and a series of benefits.

When we hire people, we give priority to those will live in communities near our units, especially for operational positions. For other jobs, we try to fill vacancies by promoting interns.

We run three strategic programs to attract talented employees: the Trainee Program, which in 2007 selected 35 young people to begin training in 2008; the Talents Program, which assigns high potential candidates with a solid educational background to specific departments in the Company, which selected 66 people during the year; and the Intern Program, which makes it possible for college students within a year and a half after graduation to have their first contact with a professional life. In 2007, more than 300 interns participated in the Program and many of them have now joined our team.

AmBev People Brazil 21,085 Quinsa 7,077 HILA-ex 4,209 North America 3,222 Total 35,593

Annual Report 2007 33 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 The belief that training is an ongoing process Practice of Leadership – To foster alignment Market Drive – Fosters the relationship and the is part of our culture. Thus, we adopted the with, and define the profile of the AmBev leader. synchronization with the market, the distributors, annual people cycle, which includes the definition Towards this end, six programs were taught to 217 the resellers, the communities and the end clients. of targets and their ramifications, the evaluation professionals totaling 773 hours in 2007. of competencies and the process of our teams’ Besides all of the training sessions, taught to over orientation and development. Operational Excellence – Ensures a training 18,000 persons over 75,000 hours in 2007 the dynamic for the development of technical AmBev University is responsible for management The AmBev University (UA), which is based on this knowledge required of job positions. In 2007, and dissemination of the best practices adopted cycle, prepares training and graduate programs to there were a total of 37available programs totaling in all the Company’s units. To do this, it organizes ensure the permanent improvement of our people. 18,357 persons and 68,773 hours. an annual meeting during which selected projects are presented. During the year, the Best Practices UA’s activities extend to all operational units and Management System – Disseminates and ensures Program received 318 entries from regional offices levels through outside and in-company training the longevity of the management practices and tools in Brazil and Latin America (Hila-ex), with six courses. These courses are either taught live that make up the business chain and the systemic initiatives winning awards. or based on modern e-learning tools (UA on-line) approach. This axis is responsible for the Green Belts and corporate television (TV AmBev). Taking and Black Belts (Six Sigma) programs that involved advantage of this structure, the university runs 51 59 people and 554 hours in 2007. programs, divided into 251 courses with five basic topics that are adequate for all functions and AmBev Culture – Expands the references about hierarchical levels. what the Company is and how it acts. In 2007, the six programs taught under this axis totaled 2,490 hours.

34 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Compensation and benefits

Our compensation and benefits policy includes payment of fixed salaries, which are based on annual market surveys, and variable compensation, on two levels. Operational employees participate in the Profit Sharing Plan (PLR) whereas all others, at the supervisor level, are involved in a variable compensation program through which the amount of the bonus is linked to the achievement of individual and group targets in each operation. We also offer a Stock Options Program for top management.

Our benefit policy is also in line with the concept of valuing teamwork. It includes customized medical and dental plans that extend to dependents, an optional private pension plan, reimbursement of the expense of school materials for employees and their children, a Christmas hamper and toys for employees’ children, and a reimbursement of up to 70% of the cost of undergraduate and postgraduate college courses without a defined ceiling, among others.

Quality of life, health and safety

We look after the health and safety of our people. Through our "Vida Legal" program, sponsored by the Antonio Helena Zerrener Foundation (FAHZ), all employees have access to preventive health programs and help for purchasing school materials, Christmas baskets and toys for their children. Regarding safety, some areas do gymnastics during or after working hours in order to prevent any possible fisical problem.

Also regarding safety, we follow up a Safety Master Plan to ensure that the Internal Accident Prevention Committees (CIPAs), the Specialized Safety Group, the Workplace Medicine Service Group and also manager and supervisors are constantly involved with the subject.

The industrial units and distribution centers obey the Safety and Occupational Health guidelines that, among other topics, deal with permissions to carry out risky operations, route inspections, power blockages and minimum safety requirements for service suppliers.

In the sales & distribution areas, we also promote the Traffic Peace program that seeks to ensure the physical integrity of our professionals, managing rates of safety and reducing traffic accidents. Since it was introduced in Brazil in August 2003, the Program has been of fundamental importance, making it possible to achieve a nearly 70% reduction in the number of accidents with lost time within the Company.

We also operate the Safety First program and apply a Safety Master Plan to all of our manufacturing units in Latin America, created to disseminate and manage pre-defined safety topics sent to us on a bimonthly basis by InBev.

Moreover, all of the units organize an Internal Workplace Accident Prevention Week (SIPAT) each year. Beginning in 2007 in the CDDs, the SIPAT began to include the issues of the environment and responsible consumption as topics to be discussed.

As a result of these actions, in 2007 the Company registered 234 accidents with lost time, which was 18% lower than the previous year. The Seriousness Rate (TG) was 168 in 2007 (314 the previous year), representing a 44% decline over the number of days lost and 100% of the number of days debited due to work-related action. As a result of our history of reducing accidents since 2004, we were able to reduce our accident insurance bracket from 3% to 2%.

Annual Report 2007 35 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Social Responsibility

We understand that in order to grow in a sustainable Responsible consumption During 2007, we ran the second edition of the manner it is necessary not only to obtain profits Good People program, through which all of our and pay dividends to shareholders but also We have been exercising our role as a good Brazilian units opened their doors to employees to create value for society. This behavior guides our corporate citizen by conducting, since 2001, and guests to discuss responsible consumption and relationship with the different stakeholders related actions designed to orient the population about watch an educational film, “Drink or Drive: make to our business — consumers, customers, suppliers, the risks associated with the improper use of the right choice,” prepared by the Center resellers, communities, government and society. alcohol. They are part of the AmBev Responsible of Information on Health and Alcohol (Cisa). Consumption Program, a pioneering effort in The initiative mobilized 45,000 persons in our We try to insert the three dimensions of sustainability Brazil, guided by the premises offered by the World units. They blitzed universities, distributing bumper – economic, environmental and social – throughout Health Organization (WHO): awareness of the risks stickers displaying a boomerang — the symbol of our business chain, from increasing the production of drinking and driving, and encouragement of the program — and the message “It’s more fun to of inputs supplied by farmers to post-consumption, compliance with the law that prohibits the sale of go and then return.” These stickers also were represented by responsible alcoholic beverage alcoholic beverages to minors. displayed on our own fleet of vehicles. consumption and recycling programs. We also launched the Bar de Responsa (Responsible Bar) program, distributing posters and handbills so that bar owners could multiply the massage, “Alcoholic beverages only for adults and those who do not drive.” The action involved bars in São Paulo (SP), Brasília (DF) and Porto Alegre (RS).

During the year we donated 19,200 breath analyzers to traffic agencies and federal, state and municipal government entities, including the Federal Highway Police (Ministry of Justice) and Denatran (Ministry of the Cities). Since the program was initiated we have donated some 50,000 breath analyzers.

36 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Community Letra Foundation that helps children, teenagers and young people in São Paulo and Rio de Janeiro through programs that seek to sustain a new way of teaching of knowledge, culture and the rights of citizenship; Our external investments also are based on the The Criar Institute of TV, Cinema and New Media Outlets, which helps insert underprivileged youths from capacity to add value to the communities with the municipality of São Paulo into the job market through technical and socio-cultural training; and the which we have relationships. In 2007, we Esporte Clube Cidadão (Citizen Sports Club) program, developed by the YMCA of Porto Alegre and the modernized our internal processes and excellence Dunga Citizen Development Institute to foster citizenship through group sports. Furthermore, the Antônio programs in order to strengthen the social and and Helena Zerrener Foundation (FAHZ), which is one of our controlling shareholders, runs the Walter environmental responsibilities of our people in the Belian Technical School and the Santa Helena Hospital. industrial units, Direct Distribution Centers and resellers, getting closer on a day-to-day basis to the people who reside near us. Recycling

In the Amazon Region, in partnership with the We support initiatives that encourage recycling in the communities in which we are present and in our state government, we fostered the renewal and marketing actions and events, and we sponsor the Solidarity Recycling Program - Cooperatives. In 2007, expansion of guaraná plantations, supplying we continued with and improved on this latter program, now celebrating its fifth anniversary. Developed farmers with seedlings and supporting alternative in partnership with the Recicloteca NOG – which is maintained by AmBev and, since 2007, also by Business sources of income. We promote and organize Commitment to Recycling (Cempre) and the Rio de Janeiro State Federation of Industry — the initiative a Guaraná Day each year and, since 2006, we have is designed to develop and appreciate the work of collectors of recyclable materials, organized into groups been teaching training cycles in partnership with and minimizing the environmental impact of the disposal of solid wastes. During the year, we reinforced the German Technical Cooperation Agency (GTZ). our efforts on behalf of the management of waste collectors’ activities. A total of 36 waste collector groups During Guaraná Day, technical lectures are given have already participated in the Program from nine Brazilian states. The groups in the Program in 2007 and farmers visits AmBev’s Fazenda Santa Helena, collected nearly 1,000 tons of recyclable materials. to learn about the techniques and equipment that will lead to better Guaraná cultivation practices.

In the South Region of Brazil, we promote Field Days, during which our employees, farmers, members of cooperatives and Embrapa technicians meet to obtain greater understanding about malt growing processes and new technologies that are available.

Our policy to stimulate the development of communities includes donation of funds for maintaining outside social projects. In 2007, we used the law of tax incentives to support a number of non-governmental organizations that are active in training young people. This includes the Gol de

Annual Report 2007 37 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Environmental Responsibility

In line with AmBev’s guidelines, our Environmental Energy consumption per hectoliter Energy Policy calls for Companywide efforts to reduce the produced (MJ/hl) environmental impact of its operations and the In 2007, we used 104.68 megajoules of direct energy achieving of greater eco-efficiency results in all of per hectoliter produced, an amount 2.86% lower its activities, products and services. We use an than the previous year, when it was 107.79. 113.8 108.7 109.1 107.8

Environmental Management System (SGA) with 104.68 standardized and documented procedures, This result stemmed from, among other factors, personnel training and operating controls that the application of a number of energy efficiency allows us to act in a manner that prevents projects, including the installation of natural gas potential environmental risks. reducers, high-performance boilers and energy reducers for the liquefaction of carbon gas. Internal environmental committees (CIMAs) are in place at all units, designed to train our people With the beginning of the operation of two new and to monitor the main eco-efficiency indicators, biomass units – Juatuba (MG) and Cebrasa (GO) – such as water consumption, the use of renewable our energy heat matrix during the year was energy sources and the reutilization of by-products. comprised of 52% natural gas, 22% fuel oil and 26% biomass. The alternative fuels already have been adopted in seven of the Company’s facilities

Materials 2003 2004 2005 2006 2007 in Brazil and were responsible for savings of 48,171 tons of fuel oil in 2007. Our commitment to reducing environmental Energy consumption (Kwh/HI) impacts and at the same time maintaining our competitiveness is also expressed in the search for 9.13 9.10 8.80 the efficiency in the use of raw materials such as 8.76 8.54 malt, corn, wheat, rice and hops. We seek to adopt the best processes, technologies and materials and we train our teams to develop packaging that satisfies the expectations for consumers while, simultaneously, minimizing the impact on the environment. As a result of this work, over the past three years we have been able to reduce the consumption of glass by 12%, the consumption of some types of plastics by 11.37% and the consumption of cellulose-based packaging by 5.88%. 2003 2004 2005 2006 2007

38 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Annual Report 2007 39 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 40 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Atmospheric emissions

The emission of greenhouse gases is inherent to our activities. In 2007, the total per hectoliter produced Water consumption was 6.38 kilos, a 29.3% reduction over 2002. (liter/liter of beer)

To minimize these emissions, we work on developing projects that use alternative fuels and reduce energy consumption, including the use of biogas derived from the anaerobic effluent treatment process and, 4.88

whenever possible, the substitution of fossil fuels by biomass. 4.37 4.30 4.21 4.18

AmBev was the first company in the beverage sector to receive official UN certification through the Clean Development Mechanism (CDM) for a project at its factory in Viamão (RS). The company, which had received Federal Government approval in July 2007, is complying with the final stage of UN registration and already is authorized to sell valid carbon credits, in line with the Kyoto Protocol. The Federal Government also approved two other projects, at the Teresina (PI) and Agudos (SP) factories.

Water

We use water in a sustainable manner, focused on the continuous reduction of consumption, recycling and reuse of the resource. In step with these proposals, we are known worldwide for the production

of beverages with low relative use of water. The global benchmark is 3.25 liters of water for the 2003 2004 2005 2006 2007 production of one liter of beer. Some of our units are reference facilities, such as at Brasília (DF) and Curitiba (PR), where we respectively reach indices of 3.26 and 3.33. Our average was close to the global index in 2007: 4.19 liters of water per liter of beverage, including units in Brazil and HILA-ex. Revenues through the sale of solid wastes Effluents and wastes 98.2% 98.1% 96.8% 96.5% We treat 100% of our industrial effluents. Industrial effluent treatment stations (IETS) are installed 95.8% at 95% of our units — the exceptions are Curitiba (PR) and Camaçari (BA), which send the material for treatment by outside stations.

In the management of solid wastes, besides constantly striving to reduce the quantity produced, we foster recovery, reuse and recycling. In 2007, we reutilized 98.2% of industrial wastes, which are sold in order to increase the Company’s revenues and reduce environmental impacts.

Paper and pulp from labels are used to produce paper and cardboard; malt bagasse, wet and dry ferment and hops go toward the production of animal feed; and the mud from effluent treatment is used as organic fertilizer and manure. 2003 2004 2005 2006 2007

Annual Report 2007 41 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Corporate Governance

Our Board of Directors encourages the Executive Directors to foster and maintain an ethical culture. This stimulates responsible business conduct by all of AmBev’s people.

The experience of the members of the Board of Directors and the Executive Directors assures that we maintain competitiveness and meet long-term objectives. Our governance standards are further characterized by alignment of the objectives of our shareholders and our executives – guaranteed, among other means, by the variable compensation system linked to challenging targets – and by the shareholders’ agreement.

The controlling block is made up of two enterprises that together own 89% of the voting capital and 70.1% of the Company’s total capital: InBev and the Antonio and Helena Zerrenner Foundation (FAHZ). The shareholders’ agreement, valid until 2019, provides to FAHZ the right to veto issues related to dividends, investments, acquisitions and the issue of new debt, among others.

Share ownership (*) ON % PN % Total % Outstanding Outstanding Outstanding InBev 253,527,737 73.7% 122,065,577 44.9% 375,593,314 61.0% FAHZ 55,964,558 16.3% - 0.0% 55,964,558 9.1% Market 34,371,321 10.0% 149,629,191 55.1% 184,000,512 29.9% Outstanding 343,863,616 100.0% 271,694,768 100.0% 615,558,384 100.0% Treasury 1,191,112 7,667,740 8,858,852 TOTAL 345,054,728 279,362,508 624,417,236 Free float BOVESPA 30,522,738 8.9% 97,503,309 35.9% 128,026,047 20.8% Free float NYSE 3,848,583 1.1% 52,125,882 19.2% 55,974,465 9.1%

(*) On December 31, 2007

42 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Board of Directors • Analyzes and monitors the Company’s position Fiscal Committee through assessment of results, market development Is made up of nine members and two alternates, and permanent internal and external benchmarking; Its main attributes are to supervise the who determine the Company’s strategic direction. administration, analyze and issue opinions on the They are responsible for nominating the executive • Analyzes, monitors and proposes the uniform Company’s financial statements. None of its directors and for ensuring that AmBev’s values, application of good practices; members are on the Board of Directors or are an ethics and culture are practiced and disseminated Executive Officer, while one of them represents among AmBev’s people. They all are company • Analyzes and monitors the performance of the minority shareholders. The committee also fulfills shareholders and none of them exercise an Company’s brands and innovation strategies; and the functions of the Audit Committee as related to executive position, thus ensuring that the the Sarbanes-Oxley Act, as far as permitted under company’s main governance bodies have greater • Analyzes, monitors and proposes to the Board Brazilian law, and its independence is guaranteed independence and freedom. Members of the suggestions regarding significant legal, tax and by the election of independent members with board are elected at General Shareholders regulatory issues. 1-year terms of office and with reelection Meetings for a term of three years and may be permitted. reelected. Executive Directors The following committees support the Board: Code of Conduct Are responsible for proposing medium and long- Finance Committee – It helps follow up the term plans to the Board of Directors and We are governed by a Code of Business Conduct, annual investment plan, analyzes growth managing the company’s businesses; there are 13 to which we are committed through the signing of opportunities, capital structure, cash flow, directors, with terms of three years each, who can a term of responsibility. Any violation of the financial risk management and treasury policy. be reelected. Our directors are experienced document may be reported to the Ethics professionals who understand the beer and soft Committee made up of the general director for Operations, People and Management drink markets and have worked in the company, Latin America and the directors of Finance, People, Committee – It assists the Board of Directors on average, for approximately 10 years. Legal Affairs, Corporate Relations and the Internal in the following topics: Communication manager.

• Proposes medium and long-term plans to the Contact with the committee can be made through Board of Directors; e-mail and the AmBev People self-service terminal that is available at all units. As of 2007, it also • Analyzes, proposes and monitors the Company’s could be made through telephone, using a toll- annual performance objectives, as well as the free 0800 number. All employees, customers, budgets that are required to achieve these goals; resellers and suppliers can access the channels; all denunciations made through these channels must be investigated within eight weeks.

Annual Report 2007 43 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Shares as an Investment

Our shares are traded on the São Paulo Stock Exchange (ticker symbols AMBV3 and AMBV4) and, as American Depositary Receipts (ADRs), on the New York Stock Exchange-NYSE (ticker symbols ABV and ABVc).

On the BOVESPA, our shares closed 2007 quoted at R$128.65 (AMBV4) and R$125.00 (AMBV3), an increase respectively of 22.1% and 32.6% over 2006, already including the adjustments referring to the share grouping which took place in August 2007. Trades with preferred shares (PN) totaled R$ 12.6 billion and common shares totaled R$ 1.8 billion.

On the NYSE in 2007, our ADRs appreciated 45.6% for preferred shares (ABV) and 54.9% for common shares (ABVc) Total trading volume was US$ 151.8 million and US$ 5.0 million respectively.

On the Brazilian stock exchange, we were honored during the 40th anniversary celebration of the BOVESPA Index (Ibovespa) because our shares were present in all of the index’s theoretical portfolios since it was created in 1968. Besides AmBev, only two other companies have had shares as part of the Brazilian capital market’s main index since the beginning.

Share reverse split

On August 2, we grouped shares issued by the Company, in the proportion of 100 existing shares for 1 new share. The shares, now grouped, began to be traded for a unitary price and no longer in lots of 1,000 shares. The Special Shareholders’ Meeting held June 29, 2007 approved the share reverse split.

Shareholders’ remuneration

Our bylaws call for minimum of mandatory dividends representing 35% of the Company’s annual net income, as established by the accounting rules of Brazilian company legislation, including amounts paid as interest on shareholder equity. During 2007, approximately R$ 2.0 billion was distributed in the form of dividends, including interest on shareholder equity. The amount was 70.9% of the net income reported for the fiscal year. Moreover, we returned to the shareholders R$ 3.1 billion in repurchased shares totaling a payout of R$ 5.1 billion.

44 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 AMBV x IBOVESPA - 5 years

500% 467% AMBV4 450% AMBV3 400% IBOV 350%

300%

250% 214% 200% 180% 150%

100%

50%

0%

-50% jul.07 jan.03 jan.04 jul.04 jan.05 jul.05 jan.06 jul.06 jan.07 jul.03 mar.05 mar.07 mar.03 may.03 sep.03 nov.03 mar.04 may.04 sep.04 nov.04 may.05 sep.05 nov.05 mar.06 may.06 sep.06 nov.06 may.07 sep.07 nov.07

ABV x Dow Jones - 5 years

650% ABV 600% ABV/C 550% 528% S&P 500 500% 450% 428% 400% 350% 300% 250% 200% 150% 100% 67% 50% 0% -50% jul.07 jan.03 jul.03 jan.04 jul.04 jan.05 jul.05 jan.06 jul.06 jan.07 may.03 may.04 mar.05 sep.05 nov.05 mar.06 may.06 sep.06 nov.06 mar.07 sep.07 mar.03 sep.03 nov.03 mar.04 sep.04 nov.04 may.05 may.07 nov.07

Annual Report 2007 45 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Recognition and Awards

Valor Social (Social Value) – Awarded by the Valor Econômico newspaper in the Respect for the Environment category, which recognizes companies that consider a commitment toward society and sustainable development to be part of their excellence and management criteria.

Best and Biggest Prize – Organized by Exame magazine, it lists the 500 largest companies in Brazil and the best in each sector that is representative of the Brazilian economy.

Best Companies in Which to Work – The classification, organized and published by Você S.A. and Exame magazines, shows the 500 best companies in Brazil, as well as the largest and best in each important sector of the Brazilian economy.

Great Place to Work – Published by Época magazine, recognizes the companies that are standouts in Our performance during 2007 led the field of personnel management. Meritocracy and transparency in the workplace were the attributes to the winning of a number of that led us to be selected first on the list. recognitions and awards, of which the following were highlights: The Sesi Workplace Quality Prize – Highlights companies that contribute toward social development and improvement of their employee’s quality of life as well as the rationalization of the use of natural resources in their facilities. Some 2,500 companies from around the country participated in the 2007 edition of the Prize.

Most Admired Companies – A highlight in the alcoholic and non- alcoholic beverages category due to our efforts in the field of social responsibility, ethical behavior and commitment to human resources. Organized by Carta Capital magazine, the list is based on a survey conducted of the main executives of companies in the sector.

Environmental Merit Certificate – Awarded during the seminar on Experiences in the Management of Water Resources by Hydrographic Basin put on in December by the Intermunicipal Committee of the Piracicaba, Capivari and Jundiaí Rivers Basin.

Fiec Environmental Prize – Awarded by the Ceará Federation of Industry in the Cleaner Production and Water Reutilization Category.

State of Goiás Environmental Management Prize – Second place in the Industrial Activity category and third place in the Food Activities category.

Ecology and Environmentalism Prize – Awarded by the Municipal Chamber of Curitiba (PR).

46 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Our 1/ 2/ 3/ 4/

Team 5/ 6/ 7/ 8/

9/ 10/ 11/ 12/

Board of Directors

Co-Chairmen and Members 13/ 14/ 15/ 16/ 1/ Victório Carlos De Marchi 2/ Carlos Alves de Brito

Board Members Marcel Herrmann Telles Carlos Alberto da Veiga Sicupira José Heitor Attilio Gracioso Roberto Herbster Gusmão Vicente Falconi Campos Luis Felipe Pedreira Dutra Leite Officers Johan M.J.J. Van Biesbroeck 3/ Luiz Fernando Ziegler de Saint Edmond 10/ Nicolás Ernesto Bamberg Alternate Members Chief Executive Officer for Latin America Industrial Executive Officer Jorge Paulo Lemann Roberto Moses Thompson Motta 4/ Bernardo Paiva 11/ Michel Dimitrios Doukeris Chief Executive Officer for North America Soft Drinks Executive Officer

Fiscal Committee 5/ João Maurício Giffoni de Castro Neves 12/ Milton Seligman Chief Executive Officer for Quinsa Corporate Affairs Executive Officer Members Alcides Lopes Tápias 6/ Graham David Staley 13/ Pedro de Abreu Mariani Álvaro Antônio Cardoso de Souza Chief Financial and Investor Relations General Counsel Aloisio Macário Ferreira de Souza Executive Officer 14/ Olivier Lambrecht Alternate Members 7/ Ricardo Tadeu Almeida Cabral de Soares People and Management Executive Officer Ary Waddington Sales Executive Officer Emmanuel Sotelino Schifferle 15/ Jean-Yves Rotte-Geoffroy Ernesto Rubens Gelbcke 8/ Ricardo Manuel Frangatos Pires Moreira IT and Shared Services Executive Officer Executive Officer for Hispanic Latin America 16/ Rodrigo Figueiredo de Souza 9/ Carlos Eduardo Klutzenschell Lisboa Logistics and Supplies Executive Officer Marketing Executive Officer

Annual Report 2007 47 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Financial Statements

50 / Management Report

62 / Independent Auditor’s Report

63 / Conselho Fiscal Report

64 / Balance Sheet

66 / Income Statement

67 / Statement of Changes in Shareholders’ Equity

68 / Statement of Changes in Financial Position

70 / Consolidated Statement Of Cash Flow

72 / Notes to the Financial Statements

110 / Information to Shareholders WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Management Report Message to Shareholders

Our continued strategy of strong market execution, brand HILA-ex reported a small EBITDA loss of R$20.1 million, OVERVIEW OF COMPANHIA building, cost efficiency and financial discipline once again which represents a R$41.8 million gain comparing to last DE BEBIDAS DAS AMÉRICAS – yielded solid and consistent results for 2007. Consolidated year. Luiz Fernando Edmond, CEO for Latin America, AMBEV EBITDA increased 16% organically, reaching R$8,666.9 comments: “We are building a strong business, with the million with an organic growth in EBITDA margin of 210 discipline that it requires. We are going consistently With operations in 14 countries of the Americas, AmBev is bps. All regions positively contributed for this increase. towards neutral EBITDA and cash flow, which is part of our the fifth world’s largest brewer and the leader in Latin long term strategy.” America. AmBev’s operations consist of the production and A good macroeconomic environment helped boosting trading of beer, soft drinks, other non-alcoholic beverages volumes in Brazil, for both beer and soft drinks, which EBITDA for our North American operations reached and malt and are divided into three business segments: delivered organic growth of 5.5% and 10.6%, respectively. R$1,537.5 million, 6.4% higher than 2006 on an organic Top line kept growing beyond inflation, while costs grew basis, with a 270 bps increase in margin. Bernardo Paiva, • Brazil Operations, represented by sales of (i) beer below it, assuring better gross margins. SG&A grew 7.9%, CEO for North America, adds: “2007 was a difficult year, (“Beer Brazil”); (ii) carbonated soft drinks (“CSD”) and excluding depreciation and amortization, prinarily driven with low market growth and fierce competition. But our non-alcoholic, non-carbonated (“Nanc”) beverages; and by inflation, higher volumes and higher direct distribution. excelence on managing costs and also the Lakeport (iii) malt and by-products; All in, EBITDA showed an organic increased of 15.4% for acquisition were very important to drive better results • Hispanic Latin America (HILA), divided in two units: beer and 28.8% for CSD&Nanc. “Our hedging policy was with EBITDA gains and margin expansion. We keep (i) Quinsa, comprised of operations in Argentina, Bolivia, very important to maintain the cost under control and focused on building brand equity and committed to long Chile, Paraguay and Uruguay, and (ii) Hila excluding protect us against the sudden hikes in the market. Also, a term profitability”. Quinsa (Hila-ex), comprised of operations in El Salvador, very well managed comercial plan allowed us to optimize Equator, Guatemala, Nicaragua, Peru, Dominican investments and maximize profitability”, says Luiz Our payout strategy remains the same, reinforcing our Republic and Venezuela; and Fernando Edmond, CEO for Latin America. committed to distributing our excess cash to our • North America, represented by Labatt Brewing shareholders. In 2007, we distributed R$2.0 billion in Company Limited (“Labatt”) operations, including beer Quinsa keeps growing steadily, in spite of a challeging dividends, including interest on own capital, and R$3.1 domestic sales in Canada and exports to the United environment. Beer business posted 6.8% higher volumes billion in buybacks. States (“USA”). and 20.2% increased EBITDA, with 90bps of better margins, all on an organic basis. Organic results for “We are very pleased with 2007 results and highly Major AmBev’s brands include Skol (the third most CSD&Nanc showed volume growth of 14.3% and EBITDA confident that 2008 will be another good year. Once again, consumed beer in the world), Brahma, Antarctica, growth of 40.3%, reaching 130bps of margin expansion. I thank our People, who cultivate the ownership culture, Bohemia, Original, Quilmes, Labatt Blue, Brahva and Consolidated Quinsa reached 42.3% EBITDA margins. is hard working, bold, disciplined and conscient that Guaraná Antarctica. In addition, AmBev is PepsiCo’s largest teamwork is what assures us such a strong performance”, bottling company outside of the USA. Through a “A strong volume growth and an excelent performance of completes Luiz Fernando Edmond, CEO for Latin America. franchising agreement, the Company produces, sells and our premium brands compensated some cost pressures distributes Pepsi products in Brazil and other Latin due to higher salaries, energy costs and commodities American countries, including Pepsi, H2OH!, Lipton Ice Tea prices, assuring us another great year”, says João Castro and Gatorade. Neves, Quinsa’s CEO. AmBev’s credit risk as debt issuer in domestic and foreign currency is investment grade according to Standard and Poor’s and Fitch Ratings.

50 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 ECONOMIC ENVIRONMENT On March, 2007, AmBev’s subsidiary Labatt Brewing Company We sponsor one of the largest Recycling Center in Latin America The disposable income of consumers has been growing over Limited (“Labatt”), acquired all Lakeport Brewing Income Fund and reuse more than 98% of industrial residues as by-products, the last years in Brazil, AmBev’s major market. Such growth (“Lakeport”) units, following a Support Agreement with which generated, in 2007, a revenue of R$66.7 million.* is one of the factors which contributes to the organic volume Lakeport. Labatt paid a price of CDN$28.00 per unit of growth in Beer Brazil (+5.5%) and CSD & Nanc (+10.6%). Lakeport, reaching a total value of CDN$201.4 million. As a result of this work, we were awarded with the “Valor Social” prize, sponsored by Valor Econômico newspaper, In Canada, AmBev’s second largest market, the economy ENVIRONMENT in the “Respect to Environment” category. This prize has also been showing a good performance, especially in AmBev develops its economic activities in an eco-efficient awards companies that consider social responsibility and the West, where high oil prices have sustained a strong manner, recycling and removing the minimum from the sustainability as criterias for excellence in management. growth pace in the local market. nature aiming at preserving our natural resources. At the The efforts on managing by-products, integrated to the same time AmBev searches for an increased Environmental Management System adopted by all AmBev In Argentina, AmBev’s third largest market, strong market competitiveness in beverage production, it uses units, was a highlight for AmBev when comparing to growth is helping to boost sales. Volumes in Quinsa, whose technologies, raw materials and processes to minimize others competitors for the prize. main operation is in Argentina, increased organically by environmental impact. Thus, the Company establishes eco- *Brasil and Hila-ex figures 6.8% for beer and 14.3% for CSD&Nanc in 2007. efficiency indicators which are systemically monitored. We are a reference in the rational use of water. The units of HUMAN RESOURCES INVESTMENTS Curitiba (PR), Brasília (DF), Camaçari (BA) and Agudos (SP), AmBev ended 2007 with approximately 37.2 thousand In 2007, AmBev invested R$1,630.9 million. The Company which have respectively used 3.37, 3.26, 3.44 and 3.61 employees: 22.8 thousand in Brazil; 2.9 thousand in invested in the increase of production lines, in commercial liters of water for the production of one liter of beer, must Canada, 6.9 thousand in Quinsa’s units and 4.6 thousand assets purchase and in a glass plant, which will start its be highlighted. The savings from the reduction in water in HILA-ex. operations in 2008. consumption in 2007 could supply a population of 210,000 inhabitants for the period of 1 month. AmBev is constantly investing in the development of its INVESTMENTS IN SUBSIDIARIES human resources. In 2007, AmBev University (AU) carried In 2007, AmBev acquired 100% of Goldensand – Due to projects in developing alternative energy sources, out specific trainings (technical, behavioral and foreign Comércio e Serviços, Sociedade Unipessoal, Lda. 37% of the heat energy usage in 2007 came from language ones) for more than 18,000 employees and (“Goldensand”), the controlling shareholder of Cervejarias renewable sources. The CDM project (Clean Development distributors, totaling more than 75,000. Cintra Indústria e Comércio Ltda. (“Cintra”). The total Mechanism), developed in one of our plants, was the first transaction value was approximately US$ 150 million, not in the Brazilian beverage industry to be certified by FAHZ also offers the Vida Legal program, which encourage including the brands and distribution assets of Cintra, UNFCC (United Nations Framework Climate Change). healthy habits, preventive measures and treatment for which were included in the business in 2008. The main Two other CDM projects were already approved by the chronic diseases within its employees and their families. reason for this transaction was to expand our production Brazilian government. capacity issues, through the acquisition of the two Cintra plants, to meet the continuing increase in demand in the beer and soft drink markets. AmBev reinforces that there are no plans inplace for the Cintra brand to be discontinued and that it will maintain the respective investments in line with the last quarters.

AmBev Annual Report 2007 51 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 DIVIDENDS AND SHARES FINANCIAL HIGHLIGHTS 2007 AmBev’s Bylaws provides for a minimum mandatory dividend of 35% of the Company’s annual net income, as set forth in The following financial and operational information, unless otherwise stated, is presented on a consolidated basis and in the accounting principles of the Brazilian Corporate Law, million Reais, pursuant to the Brazilian Corporate Law. All comparisons, unless otherwise stated, refers to 2006. including amounts paid as interest on own capital. In the civil year of 2007, R$2,0 million in dividends were Our press release segregates the impact of organic changes from those arising from changes in scope or currency distributed, including interest on on capital. The amount translation. Scopes represent the impact of acquisitions and divestitures and the start-up or termination of activities. allocated represents 70.9% of the net income reported for 2007 fiscal year. • AmBev’s consolidated EBITDA reached R$8,666.9 million in 2007, growing 16.0% organically. • According to ACNielsen, AmBev’s market share in Brazilian beer market in 2007 was 67.8% (2006: 68.8%). Beer Brazil In addition to the profit allocation, the Company returned segment’s volume grew 5.5%, on an organic basis, and the revenue per hectoliter reached R$144.9. to its shareholders R$3,1 million through its share buyback • CSD & Nanc EBITDA margin reached 37.1%, an increase of 350 basis points, which kept AmBev as an industry program, with a total payout of R$5,1 million. benchmark. The EBITDA recorded for the segment was R$782.6 million, 28.8% above 2006. • Quinsa business posted an EBITDA of R$1,135.3 million, reflecting strong growth for both beer and CSD divisions. Effective August, 2007, AmBev conducted a reverse split of • HILA-ex delivered a negative EBITDA of R$20.1 million, representing an organic growth of R$41.8 million in the quarter the Company’s shares in the proportion of 100 existing and getting close to break-even. shares to 1 new share. Since August 2, 2007, the • Labatt contributed with an EBITDA of R$1,537.5 million, growing its margins by 270 basis points. Company’s shares are traded based on a per share price instead of in round lots of 1,000 shares. The reverse stock % AS % FINANCIAL HIGHLIGHTS - AMBEV CONSOLIDATED 2006 2007 REPORTED ORGANIC split was approved in the Extraordinary General Meeting Total volumes 1 28,148.0 142,916.1 11.5% 5.8% held on June 29, 2007. Beer 9 3,974.0 102,990.3 9.6% 4.6% CSD and NANC 3 4,174.0 3 9,925.9 16.8% 9.0% In 2007, nearly R$12.6 billion in preferred shares and Net sales 1 7,613.7 1 9,648.2 11.6% 10.4% R$1.8 billion in common shares were traded. At the end of Gross profit 1 1,665.0 1 3,102.2 12.3% 11.4% the year, the shares were quoted at R$128.65 (AMBV4) Gross margin 66.2% 66.7% 50 bps 60 bps and R$125.00 (AMBV3), respectively 22.1% and 32.6% EBITDA 7 ,444.6 8 ,666.9 16.4% 16.0% higher than 2006, considering the due adjustments EBITDA margin 42.3% 44.1% 180 bps 210 bps pursuant to the reverse stock split ocurred in 2007. NET INCOME 2 ,806.3 2 ,816.4 0.4% No. of share outstanding (millions) 637.2 615.6 -3.4% EPS (R$/SHARES) 4.40 4.58 3.9% EPS excl. goodwill amortization (R$/shares) 6.42 7.41 15.5% (1) Per share calculation is based on outstanding shares (total existing shares excluding shares held in treasury).

52 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 FINANCIAL HIGHLIGHTS BY BUSINESS SEGMENT The tables below show the consolidated financial highlights per business segment. The results presented refer to the 12 month-periods ended on December 31, 2007 and 2006.

AmBev Consolidated Results Currency Organic % As % R$ million YTD 06 Scope Translation Growth YTD 07 Reported Organic Volume ('000 hl) 87,726. 7 931.3 5 ,949.6 94,607.6 7.8% 6.8% Net Revenues 10,963.1 6 3.2 1,428.3 12,454.5 13.6% 13.0% COGS (3,492.2) ( 32.9) (377.4) (3,902.5) 11.7% 10.8% Gross Profit 7,470.9 3 0.3 1,050.9 8 ,552.0 14.5% 14.1% Gross Margin 68.1% 68.7% 50 bps 60 bps SG&A Total (3,038.3) (228.3) (191.8) (3,458.5) 13.8% 6.3% EBIT 4,432.5 (198.0) 8 59.0 5 ,093.6 14.9% 19.4% EBIT Margin 40.4% 40.9% 50 bps 230 bps EBITDA 5,153.7 (3.5) 8 64.0 6 ,014.2 16.7% 16.8% EBITDA Margin 47.0% 48.3% 130 bps 160 bps

Quinsa Consolidated Results Currency Organic % As % R$ million YTD 06 Scope Translation Growth YTD 07 Reported Organic Volume ('000 hl) 22,566.0 5 ,833.0 - 2,125.2 30,524.2 35.3% 9.7% Net Revenues 2,004.3 564.8 (301.3) 419.1 2 ,686.8 34.1% 21.5% COGS ( 808.8) (238.0) 122.2 (163.6) (1,088.2) 34.5% 20.8% Gross Profit 1,195.5 326.8 (179.1) 255.4 1 ,598.6 33.7% 21.9% Gross Margin 59.6% - 59.5% -10 bps 20 bps SG&A Total ( 485.0) (152.0) 7 5.8 (99.2) (660.3) 36.2% 20.8% EBIT 7 10.5 174.8(103.3) 156.2 938.2 32.1% 22.7% EBIT Margin 35.4% - 34.9% -50 bps 30 bps EBITDA 8 55.1 222.3 (127.4) 185.4 1 ,135.3 32.8% 22.3% EBITDA Margin 42.7% - 42.3% -40 bps 30 bps

Hila-ex Consolidated Results Currency Organic % As % R$ million YTD 06 Scope Translation Growth YTD 07 Reported Organic Volume ('000 hl) 6,891.7 - (613.9) 6,277.8 -8.9% -8.9% Net Revenues 7 58.1 - ( 72.4) (5.1) 680.6 -10.2% -0.7% COGS (457.4) - 39.3 2 2.9 (395.2) -13.6% -5.0% Gross Profit 3 00.7 (33.2) 1 7.9 285.4 -5.1% 5.9% Gross Margin 39.7% 41.9% 230 bps 260 bps SG&A Total (470.6) - 42.7 2 5.1 (402.8) -14.4% -5.3% EBIT (169.9) - 9 .5 4 3.0 (117.4) NM NM EBIT Margin -22.4% -17.2% 520 bps 560 bps EBITDA (63.9) - 1 .9 4 1.8 (20.1) NM NM EBITDA Margin -8.4% -3.0% 550 bps 550 bps

AmBev Annual Report 2007 53 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 North America Results Currency Organic % As % R$ million YTD 06 Scope Translation Growth YTD 07 Reported Organic Volume ('000 hl) 10,963.7 632.8 - (89.9) 11,506.6 5.0% -0.8% Net Revenues 3,888.2 186.6 (229.4) (19.2) 3,826.2 -1.6% -0.5% COGS ( 1,190.2) ( 66.3) 69.4 2 7.1 ( 1,160.1) -2.5% -2.3% Gross Profit 2,697.9 120.3 (160.0) 7.9 2,666.1 -1.2% 0.3% Gross Margin 69.4% 69.7% 30 bps 50 bps SG&A Total ( 1,414.8) ( 90.7) 79.1 8 8.7 ( 1,337.7) -5.5% -6.3% EBIT 1,283.1 29.7 (80.9) 9 6.61,328.5 3.5% 7.5% EBIT Margin 33.0% 34.7% 170 bps 270 bps EBITDA 1,499.6 35.8(93.1) 9 5.2 1,537.5 2.5%6.4% EBITDA Margin 38.6% 40.2% 160 bps 270 bps

BRAZILIAN OPERATIONS

Beer Brazil Results Currency Organic % As % R$ million YTD 06 Scope Translation Growth YTD 07 Reported Organic Volume ('000 hl) 65,654.7 858.5 - 3,611.3 70,124.5 6.8% 5.5% Net Revenues 9,045.0 58.3 - 1,054.8 10,158.1 12.3% 11.7% COGS (2,573.6) (30.4) - (205.8) (2,809.8) 9.2% 8.0% Gross Profit 6,471.5 27.9 - 849.0 7,348.4 13.6% 13.1% Gross Margin 71.5% - - 72.3% 80 bps 90 bps SG&A Total (2,549.7) (176.9) - (155.0) (2,881.6) 13.0% 6.1% EBIT 3,921.8 (149.0) - 694.0 4,466.7 13.9% 17.7% EBIT Margin 43.4% - - - 44.0% 60 bps 230 bps EBITDA 4,478.6 (3.3) - 690.7 5,166.0 15.3% 15.4% EBITDA Margin 49.5% - - - 50.9% 130 bps 170 bps

CSD&Nanc Brazil Results Currency Organic % As % R$ million YTD 06 Scope Translation Growth YTD 07 Reported Organic Volume ('000 hl) 22,072.0 72.8 - 2,338.3 24,483.1 10.9% 10.6% Net Revenues 1,806.4 4.8 - 299.7 2,110.9 16.9% 16.6% COGS (877.8) (2.4) - (96.2) (976.5) 11.2% 11.0% Gross Profit 928.5 2.4 - 203.5 1,134.4 22.2% 21.9% Gross Margin 51.4% - - - 53.7% 230 bps 230 bps SG&A Total (485.2) (51.4) - (36.6) (573.2) 18.1% 7.5% EBIT 443.3 (49.0) - 166.9 561.2 26.6% 37.6% EBIT Margin 24.5% - - - 26.6% 200 bps 440 bps EBITDA 607.7 (0.2) - 175.1 782.6 28.8% 28.8% EBITDA Margin 33.6% - - - 37.1% 340 bps 350 bps

54 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Other Products Brazil Results Currency Organic % As % R$ million YTD 06 Scope Translation Growth YTD 07 Reported Organic Volume ('000 hl) ------Net Revenues 111.6 - - 73.9 185.5 66.1% 66.1% COGS (40.8) - - (75.5) (116.2) 185.0% 185.0% Gross Profit 70.9 - - (1.6) 69.3 -2.3% -2.3% Gross Margin 63.5% - - - 37.3% NM NM SG&A Total (3.4) - - (0.2) (3.6) 5.8% 5.8% EBIT 67.4 - - (1.8) 65.6 -2.7% -2.7% EBIT Margin 60.4% - - - 35.4% NM NM EBITDA 67.4 - - (1.8) 65.6 -2.7% -2.7% EBITDA Margin 60.4% - - - 35.4% NM NM

ANALYSIS OF THE FINANCIAL CSD & Non-Alcoholic and Non-Carbonated • Beer and soft drinks organic volume growth, 6.8% and PERFORMANCE IN 2007 Beverages (Nanc) 14.3%, respectively; the consolidated volume grew 9.7% Net revenues generated by CSD & Nanc in 2006 grew • An organic growth of 8.3% in revenues per hectoliter, NET REVENUES 16.6% organically, reaching R$2,110.9 million. The main reaching R$88.0. Net revenues increased organically 10.4% in 2007, elements contributing to this growth were: reaching R$19,648.2 million. • An organic growth of 10.6% in the sales volume, HILA-Ex reflecting (i) slight share growth in the soft drinks AmBev’s operations in Northern Latin America presented BRAZIL OPERATIONS market (2007: 17.1%; 2006: 17.0%), supported by our an organic revenue decrease of 0.7% in 2007, Net revenues generated by AmBev’s main business unit, innovations during the year; and (ii) market growth. accumulating R$680.6 million. The main reasons for the represented by Beer, CSD and Nanc beverages operations • An organic increase in revenues per hectoliter of 5.4%, decreasing revenue were (i) a 8.9% loss in volumes, mostly in Brazil, grew organically 13.0%, reaching R$12,454.5 reaching R$86.2. This increase was positively impacted in soft drinks and (ii) a 9.0% organic increase of the million. The performance of each operation is by the price repositioning implemented during 2007; revenue per hectoliter. demonstrated below. and (ii) a favorable change in product mix. North America Beer Malt and By-products Labatt’s operations in North America contributed with Net revenues from beer sales in Brazil climbed organically Malt and by-products sales in Brazil presented a gain of R$3,826.2 million for AmBev’s consolidated revenues, a 11.7% in 2007, accumulating R$10,158.1 million. Major 66.1% in revenues, accumulating R$185.5 million in 2007. 0.5% organic decrease comparing to 2006. This result is elements contributing to this growth were: explained by: • An organic growth of 5.5% in sales volume reflecting Quinsa • Labatt’s sales volume decrease of 0.8% in the strong execution and market growth. The operations in Quinsa, leading brewer in the Southern Canadian market. • An organic growth of 5.8% in revenues per hectoliter, Cone, contributed with R$2,686.8 million to the • Decrease in exports of Labatt to the USA increased 0.9%. which reached R$144.9. This increase was a result of (i) Company’s consolidated revenues, yielding an organic • 0.8% organic increase in the revenue per hectoliter of the price increase in january 2007; (ii) the continuing growth of 21.5%. The main reasons for the increased the domestic sales. growth of the premium segment; and (iii) sales revenues were: • 8.4% decrease in the revenue per hectoliter in export sales. expansion through AmBev’s direct distribution structure.

AmBev Annual Report 2007 55 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 COST OF GOODS SOLD Quinsa Brazil AmBev’s cost of goods sold in 2007 grew 8.3% organically, The operations in Quinsa accumulated R$1,088.2 million Sales, general and administrative expenses in Brazil accumulating R$6,546,0 million. of COGS in 2007, representing a 20.8% organic growth. amounted to R$3,458.5 million in 2007, increasing 6.3% The main effects explaining this increase are: organically. Brazil The cost of goods sold in Brazil business unit accumulated • 9.7% organic increase in the volume sold, being 6.8% Beer R$3,902.5 million, increasing 10.8% organically. growth in beer and 14.3% in CSD&Nanc. Sales, general and administrative expenses reached • 7.8% increase in COGS/hl, being 6.5% in beer and 8.7% R$2,881.6 million, climbing 6.1% organically. The main Beer in CSD&Nanc. The main reasons for this increase were (i) elements that resulted in the increase in such operating The COGS for the beer sales operations in Brazil increased higher commodities prices, (ii) impacts from the energy expenses were: 8.0% organically, reaching R$2,809.8 million. The COGS crisis mainly in Argentina, and (iii) higher labor costs. per hectoliter presented an organic growth of 2.4%, • Increase of AmBev’s direct distribution structure. amounting to R$40.1. The main factors that led to this HILA-Ex • Growth of fixed expenses in line with inflation. increase were (i) losses in packaging mix (higher can sales), The COGS in AmBev’s operations in Northern Latin • A 5.5% organic increase in volumes, which generates (ii) higher raw material costs, such as corn, (iii) higher one America decreased 5.0% organically, reaching R$395.2 increases in expenses, such as freights. way bottle price, (iv) inflation impact on direct labor cost, million. The main effect leading to this decline was the which were partially offset by (v) FX gains through our 8.9% lower volumes. CSD & Nanc hedging policy and (vi) lower logistics costs. Sales, general and administrative expenses for the CSD & North America Nanc segment accumulated R$573.2 million, an organic CSD & Nanc Labatt’s cost of goods sold recorded R$1,160.1 million in increase of 7.5%. The main elements that generated the The COGS for the CSD & Nanc segment in Brazil increased 2007, decreasing 2.3%. The reduction was a combination increase of such operating expenses were: 11.0% organically, reaching R$976.5 million. The COGS of 0.8% lower volumes and 1.5% decrease in production per hectoliter increased 0.3%, totaling R$39.9, positively costs per unit. • Increase of AmBev’s direct distribution structure. impacted by (i) gains through our hedging contracts and (ii) • Growth of fixed expenses in line with inflation. fixed cost dilution and negatively impacted by (iii) losses GROSS PROFIT • A 10.6% organic increase in volumes, which generates with packaging mix, (iv) higher labor and logistics cost. AmBev’s gross profit was R$13,102.2 million in 2007, increases in expenses, such as freights. representing a 11.4% organic increase. Malt and By-products Malt and By-products The sale of malt and by-products in Brazil had an increase SALES, GENERAL AND ADMINISTRATIVE Malt and by-products operations generated sales, general in the cost of goods sold of 185.0%, accumulating EXPENSES and administrative expenses of R$3.6 million in 2007, R$116.2 million. AmBev’s sales, general and administrative expenses increasing 5.8%. amounted to R$5,859.3 million in 2007, a 3.3% organic increase.

The analysis of such expenses at each business unit is shown below.

56 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Quinsa TAX, LABOR CONTINGENCIES AND OTHERS Sales, general and administrative in Quinsa, accumulated Net provisions for contingencies and others recorded a R$25.1 million expense, compared to an income of R$111.8 in R$660.3 million, increasing 20.8%. This increase is 2006. The amount verified in 2006 was impacted by reversals in the amount of R$314.9 million related to PIS and mostly explained by higher transportation and labor COFINS tax claims, as we obtained a favorable ruling regarding these. costs and higher marketing expenses to support the launch of some innovations. OTHER OPERATING INCOME AND EXPENSES The net balance of other operating income and expenses in 2007 represented a loss of R$1,483.1 million, 55.3% above HILA-Ex the loss recorded in 2006. The breakdown of the main entries is shown as follows: Sales, general and administrative expenses for AmBev’s operations in Northern Latin America amounted to • A gain of R$226.5 million referring to capital increase resulting from fiscal incentives granted to AmBev’s subsidiaries in R$402.8 million, an organic decrease of 5.3%, primarily a Brazil, compared to a gain of R$165.4 million in 2006. result of lower expenses due to lower volumes and gains • An expense of R$227.5 million derived from exchange rate variation in subsidiaries abroad, compared to a gain of through ZBB(Zero Base Budget) initiatives. R$79.4 million in 2006. • An expense of R$1,560.3 million related to goodwill amortization, compared to an expense of R$1,283.0 million in 2006. Such North America increase primarily is a result of (i) Lakeport and Cintra acquisitions and (ii) higher goodwill amortization for Labatt in 2007. Labatt’s sales, general and administrative expenses amounted to R$1,337.7 million, showing a 6.3% organic Earnings Before Interest and Taxes, equivalent to the operating result before financial income and expenses, provisions decrease. Such decrease is primarily a result of overheads and contingencies, and other operating income and expenses. savings, due to continued focus on ZBB and some cost Earnings Before Interest, Taxes, Depreciation and Amortization, equivalent to the EBIT before depreciation and initiatives launched at The Beer Store (TBS).. amortization expenses.

OPERATING RESULT BEFORE FINANCIAL FINANCIAL INCOME INCOME AND EXPENSES, PROVISIONS The Company’s net financial result in 2007 was negative at R$1,253.0 million, compared to a loss in 2006 of R$1,078.3 AND CONTINGENCIES AND OTHER million. The table below points out the main entries of Company’s financial results: OPERATING INCOME AND EXPENSES AThe Company presented a solid operating performance Breakdown of Net Financial Result R$ million YTD 07 YTD 06 in 2007, evidencing not only a significant organic growth FINANCIAL INCOME of its sales, but also additional efficiency gains, which Financial income on cash and cash equivalents 95.3 111.1 resulted in margin expansion exceeding Company’s Foreign exchange gains (losses) on assets ( 52.3) (15.5) exemplary levels. Interest income on stock ownership plan 7 .7 10.0 Interest and Foreign Exchange gains (losses) on intercompany loans - - In 2007, AmBev posted a 18.5% organic increase of EBIT to Interest on taxes, contributions and judicial deposits 48.0 29.8 R$7,242.9 million. The EBIT margin over net revenues reached Other 23.1 33.0 36.9%, 260 basis points organically higher than 2006. TOTAL 121.8 1 6 8 .4 FINANCIAL EXPENSE Interest expense on local currency debt 340.9 191.5 The Company’s EBITDA reached R$8,666.9 million, a 16% Interest and Foreign Exchange gains (losses) on intercompany loans ( 0.0) 1.8 organic increase. EBITDA margin over net revenues was Interest expense on foreign currency debt 624.7 523.8 44.1%, 210 basis points organically higher than 2006. Foreign exchange (gains) losses on debt (475.6) (204.6) Net losses from derivative instruments 653.4 496.3 Taxes on financial transactions 121.2 131.8 Interest on contingencies and other 64.1 59.9 Other 46.2 46.3 TOTAL 1,374.8 1 , 2 4 6 .7 NET FINANCIAL RESULT (1,253.0) (1,078.3)

AmBev Annual Report 2007 57 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 The Company points out that, in accordance with the accounting practices adopted in Brazil, the liabilities related to swap and derivatives operations must be accounted by the interest curve set forth in its respective contracts; the assets referring to these same type of operations must be accounted at the lowest value between the market value and the curve mentioned. The Company’s total indebtedness decreased R$285.6 million compared to 2006 while its cash and cash equivalents increased R$769.3 million, highlighting the Company’s strong cash generation in 2007. As a result, there was an decrease of R$432.4 million in AmBev’s net debt. The Company estimates that the ratio between its net debt and the accumulated EBITDA over the past 12 months is 0.85x.

The table below details AmBev’s consolidated debt profile:

2007 2007 2006 2006 Debt Breakdown Short Long 2007 Short Long 2006 R$ million Term Term Total Term Term Total Local Currency 378.5 4,411.0 4,789.5 400.4 3,178.2 3,578.7 Foreign Currency 2,097.8 2,964.9 5,062.7 1,704.2 4,283.7 5,987.9 Consolidated Debt 2,476.3 7,375.9 9,852.2 2,104.6 7,461.9 9,566.6 Cash and Equivalents - - 2,308.2 - - 1,538.9 Short-Term Investiments - - 174.8 - - 226.1 Net Debt - - 7,369.1 - - 7,801.5

OTHER NON-OPERATING INCOME AND EXPENSES The net balance of other non-operating income and expenses resulted in a gain of R$40.4 million in 2007, compared to a loss in 2006 of R$28.8 million.

This difference is primarily explained by:

• Gains on assets sale in the amount of R$38.9 million, compared to a gain of R$4.4 million in 2006. • Provision for losses on fixed assets in the amount of R$0.4 million, compared to provisions of R$18.0 million in 2006.

58 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 INCOME TAX AND SOCIAL CONTRIBUTION In 2007, the net result for income and social contribution taxes was an expense of R$1,592.8 million. At the nominal rate of 34%, the provision for income and social contribution taxes would have been of R$1,515.2 million. The effective provision reconciliation with the provision at the nominal rate is shown in the table below:

Income Tax and Social Contribution R$ million YTD 07 YTD 06 Net income before taxes and profit sharing 4,526.0 4,307.3 Provision for Profit Sharing & Bonuses (69.4) (194.4) Net income before income tax, social contribution and minorities 4,456.6 4,112.8 Income tax and social contribution at nominal tax rate (34%) ( 1,515.2) (1,398.4) Adjustments to effective rate: Interest on own capital 368.6 500.9 Losses from foreign subsidiaries not subjected to tax 25.3 42.4 Equity gains from subsidiaries 78.1 58.5 Amortization of non-deductible goodwill (485.7) (395.4) Exchange variations over investments (81.0) (33.8) Permanent additions/reductions and other 17.1 (89.5) Total income taxes and social contribution (1,592.8) (1,315.3) Effective income tax and social contribution rate 35.7% 32.0%

InBev Brasil Incorporation Fiscal benefit Adjustment Fiscal benefit for InBev Brasil incorporation 350.8 350.8 Total income taxes and social contribution excluding fiscal benefit effect (1,242.1) (964.5) Effective income tax and social contribution rate adjusted for fiscal benefit 30.3% 25.6%

EMPLOYEES AND MANAGEMENT PROFIT SHARING In 2007, expenses derived from the provision for employees and management profit sharing was R$69.4 million. This amount integrates the Company’s variable compensation policy, according to which approximately more than 20,000 employees have a significant portion of their compensation subject to meeting aggressive performance targets.

In 2006, Company’s employees and management profit sharing was R$194.4 million.

MINORITY INTEREST Minority interest expenses accumulated R$47.3 million in 2007, primarily due to Quinsa minorities.

AmBev Annual Report 2007 59 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 NET INCOME AmBev’s net income was R$2,816.4 million in 2007, an 0.4% increase compared to 2006. The income per share was R$4.58, representing an 3.9% increase. Excluding goodwill amortization, the amount jumps to R$7.41, a 15.5% increase.

RECONCILIATION BETWEEN EBITDA AND NET INCOME Both EBITDA and EBIT are measures utilized by the AmBev’s management to demonstrate the Company’s performance.

EBITDA is calculated excluding from Net income the following effects: (i) Provision for Income Tax and Social Contribution; (ii) Provision for Profit Sharing & Bonuses; (iii) Minority Interest; (iv) Non-Operating Income (Expenses); (v) Net Financial Result; (vi) Equity income; (vii) Other Operating Income (Expenses); (viii) Provisions, Net; and (ix) Depreciation & Amortization.

EBITDA and EBIT are not accounting measures utilized in accounting practices in neither in Brazil nor in the United States of America (US GAAP), not meaning the cash flow for the presented periods and should not be considered as an alternative to Net income as a measure of operational performance nor an alternative to Cash Flow as a measure of liquidity. EBITDA and EBIT does not have a standard calculation method and our definition of EBITDA and EBIT may not be comparable to others companies definition of EBITDA and EBIT.

Reconciliation - Net Income to EBITDA YTD 07 YTD 06 Net income 2,816.4 2,806.3 Provision for Income Tax/Social Contrib. 1,592.8 1,315.3 Provision for Profit Sharing & Bonuses 69.4 194.4 Minority Interest 47.3 (8.7) Income Before Taxes 4,526.0 4,307.2 Non-Operating Income (Expense) (40.4) 28.8 Net Financial Result 1,253.0 1,078.3 Equity on earnings (losses) of investees (3.9) (1.4) Other Operating Income (Expense) 1,483.1 955.1 Provisions for Contingencies 25.1 (111.8) EBIT 7,242.9 6,256.3 Depreciation & Amortization 1,424.0 1,188.4 EBITDA 8,666.9 7,444.6

60 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 RELATIONSHIP WITH INDEPENDENT AUDITORS Our policy in relation to our independent auditors when providing services not connected with external audit is based on the principles that preserve the auditor’s independence. These principles are defined as follows: a) The auditor must not audit his/her own work; b) The auditor must not perform managerial functions; and c) The auditor must not advocate the interests of clients.

We have adopted pre-approval policies and procedures under which all audit and non-audit services provided by contracted external auditors must be pre- cleared by the Conselho Fiscal, which performs the duties of an audit committee for the purposes of the Sarbanes-Oxley Act of 2002, in accordance with Rule 10A-3(c). The Conselho Fiscal adopts a list of services and amount limits for contracting for each external auditor under terms included in a Basic List, which is in turn approved by the Board of Directors. Any services provided from such List are deemed “pre-approved” for purposes of the Sarbanes-Oxley Act of 2002. On a quarterly basis, the Board of Directors and the Conselho Fiscal will receive from the Chief Financial Officer a summary report on the progress of the pre-approved services rendered and the corresponding fees duly authorized. Any services which are not included in the Basic List require a prior favorable opinion of our Conselho Fiscal and the approval of our Board of Directors. Our policy also contains a list of services which cannot be rendered by our external auditors.

AmBev Annual Report 2007 61 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Independent Auditors’ Report

To The Board of Directors and Shareholders Companhia de Bebidas das Américas - AmBev São Paulo - SP

1. We have examined the accompanying balance sheet of Companhia de Bebidas das Américas - AmBev (“the Company”) and the consolidated balance sheet of the Company and its subsidiaries as of December 31, 2007, and the related statements of income, changes in shareholders’ equity and changes in financial position for the year then ended, which are the responsibility of its management. Our responsibility is to express an opinion on these financial statements.

2. Our examination was conducted in accordance with auditing standards generally accepted in Brazil and included: (a) planning of the audit work, considering the materiality of the balances, the volume of transactions and the accounting systems and internal accounting controls of the Company and its subsidiaries; (b) verification, on a test basis, of the evidence and records which support the amounts and accounting information disclosed; and (c) evaluation of the most significant accounting policies and estimates adopted by Company management and its subsidiaries, as well as the presentation of the financial statements taken as a whole.

3. In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Companhia de Bebidas das Américas – AmBev and the consolidated financial position of the Company and its subsidiaries as of December 31, 2007, and the results of its operations, changes in its shareholders’ equity and changes in its financial position for the year then ended, in conformity with accounting practices adopted in Brazil.

4. Our examination was conducted with the purpose of issuing an opinion on the financial statements taken as a whole. The consolidated statement of cash flows represents additional information to those statements, which is not required under the accounting practices adopted in Brazil, and is presented in order to allow an additional analysis. This additional information was submitted to the same audit procedures applied to the financial statements and, in our opinion, is fairly presented, in all material respects, in relation to the financial statements for the year ended December 31, 2007, taken as a whole.

5. The financial statements related to the year ended December 31, 2006, presented for comparative purposes, were audited by other independent auditors, whose report was issued without qualifications, dated on February 26, 2007.

February 22, 2008

KPMG Auditores Independentes CRC 2SP014428/O-6

Pedro Augusto de Melo Guilherme Nunes Accountant CRC 1SP113939/O-8 Accountant CRC 1SP195631/O-1

62 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Conselho Fiscal Report

The Conselho Fiscal of Companhia de Bebidas das Américas – AmBev (“Company”), in compliance with the atributions provided in the Company´s Bylaws and paragraphs of the Article 163 of Law 6,404 dated December 15th, 1976, examined: (i) the report issued by KPMG AUDITORES INDEPENDENTES, and (ii) the Company´s performance report prepared by its Investor Relations Manager, with the presence of the Chief Financial Officer and Investor Relations Executive Officer for Latin America. Based on the documents examined and clarifications made, the Fiscal Committee´s members undersigned hereinbelow, approved in General Meeting the Management Annual Report and the Financial Statements for the year ended on December 31, 2007.

São Paulo, February 22nd, 2008

Alcides Lopes Tápias

Aloisio Macário Ferreira de Souza

Álvaro Cardoso de Sousa

Ernesto Gelbcke (Alternate Member)

Ary Waddington (Alternate Member)

Emanuel Sotelino Schifferle (Alternate Member) WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Balance Sheet For the years ended December 31, 2007 and 2006 (in millions of Brazilian reais)

PARENT COMPANY CONSOLIDATED TOTAL ASSETS 2007 2006 2007 2006 Cash & Cash Equivalents 920.8 601.7 2,308.2 1,538.9 Securities - - 174.8 226.1 Trade Accounts Receivable 952.8 848.6 1,623.1 1,542.7 Inventories 604.9 589.9 1,457.8 1,363.9 Finished goods 158.1 143.6 362.6 319.2 Work in progress 56.4 45.6 87.2 69.6 Raw materials 214.1 235.9 660.8 618.7 Production materials 110.6 110.4 236.6 235.6 Warehouse and other supplies 66.8 63.9 138.3 136.6 Provision for losses (1.1) (9.5) (27.7) (15.8) Recoverable taxes (note 3-a) 514.1 419.2 739.3 687.7 Dividends and/or interest attributed to shareholders’ equity 106.4 27.6 - 2.7 Deferred income and social contribution taxes (note 14-c) 535.9 550.5 649.7 610.0 Prepaid expenses 273.8 270.3 331.6 316.8 Deferred income from financial instruments 96.4 37.3 126.4 66.9 Other assets 96.1 123.5 469.5 461.9

TOTAL CURRENT ASSETS 4,101.2 3,468.6 7,880.4 6,817.6

NON-CURRENT ASSETS Accounts receivable from related parties (note 4) 940.3 864.6 0.7 - Judicial deposits and tax incentives 281.7 249.8 405.6 353.0 Advances to employees for purchase of shares 41.3 72.6 41.6 72.8 Financial investments - - 240.6 - Deferred income and social contribution taxes (note 14-c) 2,335.3 2,851.1 3,036.8 3,566.7 Assets held for sale (note 6-a) 68.2 82.9 103.0 86.0 Prepaid expenses 121.6 132.9 123.3 134.3 Asset surplus – AmBev Institute 18.5 17.0 18.5 17.0 Recoverable taxes (note 3-a) 184.6 140.0 207.3 158.9 Deferred income from financial investments - - 145.2 44.4 Other assets 4.3 18.8 24.8 131.3

TOTAL NON-CURRENT ASSETS 3,995.8 4,429.7 4,347.4 4,564.4

Investments Interest in direct and indirect associated companies – Goodwill (note 5-a) 17,336.1 21,203.7 15,002.5 17,990.4 Other Investments 15.9 11.4 40.4 35.6 17,352.0 21,215.1 15,042.9 18,026.0

Property, plant and equipment (note 6) 2,606.9 2,265.1 5,593.3 5,338.9 Intangible assets (note 6) 328.5 346.5 388.2 385.0 Deferred charges (note 7) 2,177.1 353.4 2,223.6 429.0

TOTAL PERMANENT ASSETS 22,464.5 24,180.1 23,248.0 24,178.9

TOTAL NON-CURRENT ASSETS 26,460.3 28,609.8 27,595.4 28,743.3

TOTAL ASSETS 30,561.5 32,078.4 35,475.8 35,560.9 The notes are an integral part of the financial statements.

64 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 PARENT COMPANY CONSOLIDATED TOTAL LIABILITIES & SHAREHOLDERS' EQUITY 2007 2006 2007 2006 Trade accounts payable 1,083.6 620.4 2,129.1 1,384.1 Loans and financings (note 8) 1,201.2 1,239.8 2,420.8 2,038.7 Debentures (note 8) 55.5 65.9 55.5 65.9 Payroll. profit sharing and related charges 199.3 261.0 402.4 480.3 Dividends payable 33.6 106.8 36.4 109.0 Income and social contribution taxes 303.9 113.8 720.9 366.3 Other taxes. charges and contributions 751.4 704.2 1,261.0 1,239.0 Accounts payable to related parties (note 4) 1,212.5 2,424.5 8.5 3.3 Unrealized losses on derivatives 546.7 379.6 709.3 405.3 Accounts payable - marketing 170.2 194.2 181.2 204.1 Provision for restructuring - - 25.4 41.0 Other liabilities 153.9 163.7 535.7 507.4

TOTAL CURRENT LIABILITIES 5,711.8 6,273.9 8,486.1 6,844.4

NON-CURRENT LIABILITIES Loans and financing (note 8) 2,633.5 2,675.5 5,310.8 5,396.9 Debentures (note 8) 2,065.1 2,065.1 2,065.1 2,065.1 Sales tax deferrals (note 8-c) 450.2 405.7 617.4 405.7 Provisions for contingencies (note 9) 386.6 421.7 808.4 579.1 Accounts payable to related parties (note 4) 1,375.6 705.5 - - Provision for medical assistance, benefits and others (note 10) 97.4 87.4 224.2 326.6 Deferred income and social contribution taxes (note 14-c) 18.6 22.8 131.5 131.4 Other account payables - parent company 244.0 - - - Deferred income of debt swap operations, net - - - 88.4 Other liabilities 0.5 0.4 68.6 82.6

TOTAL LONG-TERM LIABILITIES 7,271.5 6,384.1 9,226.0 9,075.8 Future taxable income 158.3 152.3 156.5 149.9

TOTAL NON-CURRENT LIABILITIES 7,429.8 6,536.4 9,382.5 9,225.7 Minority interests - - 187.3 222.7

SHAREHOLDERS’ EQUITY Subscribed and paid-in capital (note 11-a) 6,105.2 5,716.1 6,105.2 5,716.1 Capital reserve 9,952.6 12,870.6 9,952.6 12,870.6 Profit reserves Legal 208.8 208.8 208.8 208.8 Statutory 2,312.2 1,413.3 2,312.2 1,413.3 Treasury shares (note 11-g) (1,158.9) (940.7) (1,158.9) (940.7)

SHAREHOLDERS’ EQUITY 17,419.9 19,268.1 17,419.9 19,268.1

TOTAL LIABILITIES 30,561.5 32,078.4 35,475.8 35,560.9 The notes are an integral part of the financial statements.

AmBev Annual Report 2007 65 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Income Statement For the years ended December 31, 2007 and 2006. (in millions of Brazilian reais)

PARENT COMPANY CONSOLIDATED 2007 2006 2007 2006 GROSS INCOME Gross sales and/or services 25,433.9 22,452.1 37,016.2 32,487.8

SALES DEDUCTIONS Gross sales deductions (13,722.9) (12,072.8) (17,368.0) (14,874.1)

NET SALES AND/OR SERVICES 11,711.0 10,379.3 19,648.2 17,613.7 Cost of sales and/or services (4,213.7) (3,848.9) (6,546.0) (5,948.7)

GROSS PROFIT 7,497.3 6,530.4 13,102.2 11,665.0

OPERATING INCOME (EXPENSES) Selling (1,985.7) (1,775.1) (4,109.0) (3,866.7) Administrative (438.8) (459.0) (787.9) (775.5) Tax. labor and other contingencies 3.2 92.0 (25.1) 111.8 Management fees (13.5) 4.2 (13.5) 4.3 Depreciation. amortization and depletion (727.2) (549.5) (948.8) (770.8) Financial income (note 13-d) 281.3 189.5 121.8 168.4 Financial expenses (note 13-d) (1,058.1) (953.5) (1,374.8) (1,246.7) Equity Accounting Result (note 5-a) (139.2) 143.3 3.9 1.4 Other operating income (expenses) (note 16) 34.2 98.2 (1,483.2) (955.1) (4,043.8) (3,209.9) (8,616.6) (7,328.9)

OPERATING INCOME 3,453.5 3,320.5 4,485.6 4,336.1 Non-operating results (note 17) 8.7 6.8 40.4 (28.8)

INCOME BEFORE TAXES/PROFIT SHARING (NOTE 14) 3,462.2 3,327.3 4,526.0 4,307.3 Income tax and social contribution (94.7) 63.6 (963.6) (688.8) Deferred income tax and social contribution (520.2) (460.4) (629.3) (626.5)

INCOME BEFORE STATUTORY PROFIT SHARING/CONTRIBUTIONS 2,847.3 2,930.5 2,933.1 2,992.0 Statutory profit sharing/contributions (30.9) (124.2) (69.4) (194.4)

INCOME BEFORE MINORITY INTERESTS 2,816.4 2,806.3 2,863.7 2,797.6 Minority interests - - (47.3) 8.7

PROFIT/LOSS FOR THE YEAR 2,816.4 2,806.3 2,816.4 2,806.3 Number of outstanding shares excluding treasury shares (in thousands) 624.4 64,458.2 Net income per group of 1 thousand shares for the end of the period in R$ reais 4,510.57 43.54 Net income per group of 1 thousand shares for the end of the period in R$ reais. excluding shares held in treasury 4,592.09 44.04

The notes are an integral part of the financial statements.

66 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Statement of Changes in Shareholder´s Equity For the years ended December 31, 2007 and 2006 (in millions of Brazilian reais)

PROFIT RESERVES SUBSCRIBED AND CAPITAL STATUTORY RESERVES LEGAL SHARES IN ACCUMULATED TOTAL PAID-IN CAPITAL RESERVE INVESTMENTS RESERVES TREASURY EARNINGS DECEMBER 31ST. 2005 5,691.4 13,889.5 471.0 208.8 (393.4) - 19,867.3 Capital increase upon capitalization of exercise of options of stock ownership plan 3.4 (3.4) - Capital increase through capitalization of reserves 21.3 (21.3) - Advance for future capital increase related to stock ownership plan 3.4 3.4 Repurchase of own shares for treasury - (1,762.3) (1,762.3) Cancellation of treasury shares (1,046.2) 1.046.2 - Transfer of treasury shares to stock ownership plan (67.2) - 168.8 101.6 Subsidy of financing and fiscal incentives 115.8 115.8 Net Income 2,806.3 2,806.3 Appropriation of net income Statutory reserve 1,333.2 (1,333.2) - Interim interest attributed to shareholders´equity (1,473.1) (1,473.1) Supplemental dividends (390.9) (390.9)

DECEMBER 31ST. 2006 5,716.1 12,870.6 1,413.3 208.8 (940.7) - 19,268.1 Capital increase upon capitalization of exercise of options of stock ownership plan 128.3 128.3 Capital increase upon capitalization of reserves 260.8 (260.8) - Repurchase of own shares for treasury (3,082.6) (3,082.6) Goodwill on subscribed Capital (8.1) (8.1) Cancellation of treasury shares (2,760.4) 2,760.4 - Transfer or treasury shares to stock ownership plan (38.2) 104.0 65.8 Subsidy of financing and fiscal incentives 149.5 149.5 Appropriation of net income 2,816.4 2,816.4 Statutory reserve 898.9 (898.9) - Interim interest attributed to shareholders´equity (1,084.0) (1,084.0) Interim dividends - (841.8) (841.8) Dividends and interest attributed to shareholders’ equity prescribed 8.3 8.3

DECEMBER 31ST. 2007 6,105.2 9,952.6 2,312.2 208.8 (1,158.9) 0.0 17,419.9 The notes are an integral part of the financial statements.

AmBev Annual Report 2007 67 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Statement of Changes in the Financial Position For the years ended December 31, 2007 and 2006 (in millions of Brazilian reais)

PARENT COMPANY CONSOLIDATED 2007 2006 2007 2006 SOURCE OF FUNDS - OPERATIONS Net income 2,816.4 2,806.3 2,816.4 2,806.3 Items not affecting working capital Equity in results of affiliates 139.2 (143.3) (3.9) (1.4) Deferred income tax and social contribution taxes 520.2 460.4 629.3 626.5 Gain on the settlement of tax incentives (34.4) (39.9) (34.4) (39.9) Amortization of goodwill and negative goodwill. net 158.7 107.5 1,560.3 1,283.0 Depreciation and amortization 876.3 685.6 1,424.0 1,188.4 Tax. labor and other contingencies (3.2) (92.0) 25.1 (111.8) Financial charges on tax and fiscal contingencies 70.6 31.7 39.6 36.7 Provision for losses on permanent assets (14.6) (6.3) 14.6 8.7 Financial charges and variations on the stock ownership plan (7.7) (9.8) (7.8) (10.0) Exchange Rate variation and financial charges on long term loans (334.4) (341.3) (484.0) (470.3) Gain / Loss of interest in subsidiary (1.7) 0.7 (3.2) (6.1) Interest of minority shareholders - - 47.3 (8.7) Exchange rate variation on foreign subsidiaries 88.5 17.8 227.6 (79.4) Subsidy for investments of subsidiary (212.9) (160.0) - - Net book value of disposal of property. plant and equipment and investments 952.8 127.6 187.0 288.6 Capital refund by subsidiary - 297.8 - - Dividends from subsidiary 963.4 1,060.9 - - 5,977.2 4,803.7 6,437.9 5,510.6 FROM SHAREHOLDERS Capital increase 128.3 - 128.3 - Tax incentives 149.5 115.5 149.5 268.4 Advances to employees for the purchase of shares 96.6 51.3 38.9 78.5 Sale of treasury shares to employees under the stock ownership plan - 105.3 65.8 105.3 Dividends and interest attributed to shareholder´s equity prescribed 8.3 - 8.3 -

FROM THIRD PARTIES Prepaid expenses 11.3 - 11.1 - Other taxes and charges recoverable - 62.4 - 66.6 Accounts receivable from affiliated companies 670.1 - Accrued liabilities for contingencies and other 146.5 - Other accounts receivable and others 233.1 - - Debentures - 2,065.1 - 2,065.1 Financings 371.2 - 644.0 - Other accounts payable 251.5 3.2 - 4.3

TOTAL SOURCE OF FUNDS 7,897.1 7,206.5 7,630.3 8,098.8

The notes are an integral part of the financial statements.

68 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 PARENT COMPANY CONSOLIDADO 2007 2006 2007 2006 USE OF FUNDS Changes in long-term receivables Compulsory and judicial deposits 13.4 46.8 34.4 61.4 Accounts receivable from affiliated companies - 0.7 - Other taxes and charges recoverable 44.5 31.8 147.7 - Prepaid expenses - 20.9 - 20.9 Other - 10.6 629.8 36.9

Changes in long-term liabilities Financings - 667.9 - 185.9 Tax deferral - - Accounts payable - associated companies 75.7 6.7 Other accounts payable - 245.5 176.6 Tax. labor and other contingencies 121.1 215.9 - 264.3

Permanent assets Investments. including goodwill and negative goodwill 421.1 2,742.3 453.0 2,731.0 Property. plant and equipment 1,005.0 812.9 1,630.9 1,425.7 Deferred charges 13.2 11.9 15.5 18.7

Capital transactions Share buyback 3,082.6 1,762.3 3,090.6 1,762.3 Proposed and paid dividends 1,925.8 1,864.0 1,925.8 1,864.0 Charge in the capital of minority shareholders - 35.3 0.5

TOTAL USE OF FUNDS 6,702.4 8,194.0 8,209.2 8,548.2

INCREASE / DECREASE IN WORKING CAPITAL 1,194.7 (987.5) (578.9) (449.4)

Current assets at the end of the period 4,101.2 3,468.6 7,880.4 6,817.6 Current assets at the beginning of the period 3,468.6 2,760.8 6,817.6 5,474.7 632.6 707.8 1,062.8 1,342.9

Current liabilities at the end of the period 5,711.8 6,273.9 8,486.1 6,844.4 Current liabilities at the beginning of the period 6,273.9 4,578.6 6,844.4 5,052.1 (562.1) 1,695.3 1,641.7 1,792.3

NET CHANGES IN WORKING CAPITAL 1,194.7 (987.5) (578.9) (449.4)

The notes are an integral part of the financial statements.

AmBev Annual Report 2007 69 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Consolidated Statement of Cash Flow For the years ended December 31, 2007 and 2006 (in millions of Brazilian reais)

2007 2006 OPERATING ACTIVITIES Net income for the year 2,816.4 2,806.3 Expenses (revenues) that do not affect cash and cash equivalents Depreciation and amortization 1,424.0 1,188.4 Tax. labor and other contingencies 25.1 (111.8) Financial charges on tax and fiscal contingencies 82.9 36.7 Gain on settlement of tax incentives (34.4) (39.9) Provision for losses in inventories and permanent assets (10.2) 11.8 Provision for restructuring 5.6 18.8 Reversal of the provision for losses on investments (3.2) (22.0) Financial charges and variations on taxes and contributions 8.0 1.4 Loss in the disposal of permanent assets 83.0 163.4 Financial charges and variations on stock plans (7.7) (10.0) Exchange rate variation and charges on financings 343.2 424.2 Deferred income tax and social contribution taxes 629.3 626.5 Exchange variation with no impact on working capital 227.5 (79.4) Goodwill amortization. net of realized negative goodwill 1,560.3 1,283.0 Minority shareholders interest 47.3 (8.7) Equity accounting results (3.9) (1.4) Unrealized losses on derivatives 119.8 260.5 Untimely credit recovery (32.1) (24.0) Loss (Gain) of interest in subsidiaries (3.2) (5.5) Write-off of irrecoverable IPI/ICMS 17.4 -

(Increase) reduction in assets accounts Trade accounts receivable (165.2) (166.2) Taxes recoverable (49.8) (14.5) Other (40.3) (232.1) Inventories (148.9) (142.8) Judicial deposits (16.1) (63.2)

Increase (reduction) in liabilities Suppliers 843.4 286.8 Salaries. profit sharing and social charges (62.1) 20.7 Income tax. social contribution and other taxes 253.9 36.9 Disbursements linked to provision for contingencies (170.7) (268.2) Other taxes and contributions to be paid 52.8 93.7 Other 126.5 (84.2)

CASH GENERATION FROM OPERATING ACTIVITIES 7,918.6 5,985.2

INVESTMENT ACTIVITIES Financial investments. with over 90 day-term maturity (224.2) 180.6 Securities and collateral - 0.1 Disposal of investments - - Investments acquisition (430.1) (2,639.2) Disposal of property. plant and equipment 107.5 117.6 Acquisition of property. plant and equipment (1,630.9) (1,425.7) Opening cash – New company consolidation 3.5 - Capital increase in subsidiary (12.7) - Expenditures in the deferred charges composition (15.5) (18.7)

USE OF CASH IN INVESTMENT ACTIVITIES (2,202.4) (3,785.3)

The notes are an integral part of the financial statements.

70 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 2007 2006 FINANCING ACTIVITIES Financings Fund raising 9,428.5 9,344.8 Amortization (9,384.7) (7,386.3) Variation in minority shareholders’ equity (4.9) 53.0 Capital subscriptions 128.3 3.4 Financed sale of shares 54.5 72.5 Repurchase of shares (3,094.3) (1,765.1) Payment of dividends (1,952.6) (1,790.8)

USE OF CASH IN FINANCING ACTIVITIES (4,825.2) (1,468.5) Exchange rate effect on cash (121.7) (29.8)

INCREASE IN CASH AND CASH EQUIVALENTS 769.3 701.6 Initial balance of cash and cash equivalents 1,538.9 837.3 Final balance of cash and cash equivalents 2,308.2 1,538.9

INCREASE IN CASH AND CASH EQUIVALENTS 769.3 701.6

Additional cash flow information: Payment of interest on loans 816.0 603.1 Payment of income tax and social contribution on net income 631.8 585.3

The notes are an integral part of the financial statements.

AmBev Annual Report 2007 71 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

1. OUR GROUP AND OPERATIONS counsels. Since BAH was already a wholly-owned subsidiary provision for contingencies and deferred income tax, which of AmBev, there was no issuance of shares in the merger. resulted in the reduction of the initial goodwill, in an a) Overview amount of R$185.6 in Goldensand and of R$8.0 in Cintra. Companhia de Bebidas das Américas - AmBev (referred as (ii) Acquisition of Lakeport Brewing Income Fund The adjusted consolidated opening balance sheet of “Company” or “AmBev” or “Parent Company”), headquar- (“Lakeport”) by Labatt Canada Goldensand is as follows: tered in São Paulo, produces and sells beer, draft beer, soft On March 30, 2007, Labatt Canada acquired 91.43% of 04.17.07 drinks, other non-alcoholic beverages and malt, either Lakeport’s Units, and paid for the Units the amount of Current assets 32.7 directly or by participating in other companies in Brazil and CAD$208.5 (equivalent to R$376.4 on December 31, Long-term assets 141.3 elsewhere in the Americas. 2007), recording a goodwill of CAD$205.9 (equivalent to Property, plant and equipment 154.5 The Company maintains a franchising agreement with R$371.8 on December 31, 2007), which is being amortized Current liabilities 58.3 PepsiCo International, Inc. (“PepsiCo”) to bottle, sell and on a straight-line basis in the course of 10 years. Long-term liabilities 345.7 distribute Pepsi products in Brazil and in other Latin American Subsequent to the compulsory acquisition of the non- Provision for contingencies 251.0 countries, including Lipton Ice Tea, Gatorade, the isotonic tendered Units, Lakeport will become a wholly-owned Minority interest (*) (6.6) sports drink, and H2OH!. subsidiary of Labatt Canada’s. Labatt Canada will then make Shareholders’ equity (319.9) The Company maintains a licensing agreement with application to have the Units delisted from the Toronto (*) Indirect interest of Monthiers, a wholly-owned Anheuser-Busch, Inc., through its subsidiary Labatt Brewing Stock Exchange and will take steps to notify and obtain subsidiary of AmBev. Company Limited (“Labatt Canada”), to produce, bottle, sell appropriate orders to permit it to cease being a reporting and distribute Budweiser products in Canada. In addition, issuer under Canadian securities legislation. (iv) Acquisition of 20% of the common shares of the the Company produces and distributes Stella Artois under subsidiary Compañia Cervecera AmBev Ecuador S.A. license of Interbrew International B.V. (“InBev”) in Brazil, (iii) Sale and purchase agreement related to Cervejaria (“AmBevEcuador”) Canada, Argentina, and other countries and, by means of a Cintra Indústria e Comércio Ltda. (“Cintra”) On March 5, 2007, the Company, through its subsidiary license granted to InBev, it distributes Brahma in the United On March 28, 2007, the Company announced the Monthiers S.A. (“Monthiers”), acquired 120,500 common States and in certain countries of Europe, Asia and Africa. execution of the purchase and sale agreement of the total shares of AmBev Ecuador from Freeville Management Ltd., The Company’s shares are traded on the São Paulo Stock quotas of Goldensand Comércio e Serviços Ltda. for the amount of US$1.3, representing an interest increase Exchange – BOVESPA and on the New York Stock Exchange ("Goldensand"), Cintra’s parent company, owing 95.89% of 20% in its capital stock. As a result, the Company – NYSE, as American Depositary Receipts - ADRs. of the total shares. The amount paid for the purchase was increased its interest in the capital of AmBevEcuador from R$43.2 and resulted in goodwill initially calculated in the 80% to 100% and recorded goodwill of R$0.8. b) Main events occurred in the periods of 2007 and amount of R$548.7, which is being amortized in 10 years. of 2006 (v) Acquisition of control of Quilmes Industrial S.A. ((i) Merger of the subsidiary Beverage Associates Holding In addition, the Company, through a subsidiary, also (“Quinsa”) Ltd. (“BAH”) acquired 4.11% of Cintra’s shares at the acquisition price of On August 8, 2006, the Company closed the transaction On June 29, 2007, the subsidiary BAH was merged into R$6.5, resulting in goodwill of R$21.0, which is being with Beverage Associates Corp. (“BAC”), the other joint AmBev, with the purpose of simplifying the corporate amortized in 10 years. These transactions did not include controlling shareholders of Quinsa, announced on April 13, structure and reducing costs in both companies involved. the acquisition of Cintra’s brands and distribution assets. 2006, acquiring all the shares of Beverage Associates Holding The goodwill amortization recorded by AmBev, based on Ltd. (“BAH”), at the total amount of R$2,738.8, resulting in future profitability, after the merger, is being considered as On September 30, 2007, the Company performed a goodwill in the amount of R$2,331.1. Upon the closing of deductible for tax purposes, pursuant to the legislation in detailed analysis of assets and liabilities acquired from these the transaction, AmBev’s interest in Quinsa’s capital stock force, and based on the opinion of the Company's legal companies and recorded adjustments, mainly to the increased from 56.83% to 91.36%.

72 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 (vi) Alliance with Romero Group a) Accounting estimates • Short-term investments On March 9, 2006, the Company announced an alliance with Short-term investments, mainly represented by marketable the corporate group Romero, entered into by means of a sale The preparation of the financial statements requires securities, government bonds and bank deposit certificates, agreement of 25% of the capital stock of its indirect management to make estimates and assumptions that in addition to those denominated in foreign currency, are subsidiary Compañia Cervecera AmBev Perú S.A.C. (“AmBev affect the reported amount of certain assets, liabilities and presented at cost value, plus, when applicable, income Peru”) to Ransa Comercial S.A., a company integrating other transactions. This includes several estimates relating earned “pro rata temporis”; when necessary, the Company Romero Group. On July 14, 2006, the Company closed the to the useful life of property, plant and equipment, records a provision for the reduction to market values. transaction for the amount of R$8.2.The shareholders’ provisions for contingent liabilities, for the calculation of Additionally, the quotas of investment funds are valued at agreement set forth an additional call option in favor of projections to determine the recovery of property, plant market value, and when applicable, the Company records a Romero Group for 5% of the capital stock. and equipment, intangible, deferred charges and deferred provision with the purpose of deferring the unrealized On September 22, 2006, the call option of 5% of the capital income tax asset balances, and relating to the variable income. stock was exercised at the amount of R$1.7, and the interest determination of the income tax provision, which, of Romero Group in the capital stock of AmBev Peru although represent the best estimate of management, The consolidated balance of short-term investments as of increased from 25% to 30%. actual values may differ from such estimates. December 31, 2007, includes deposits in bank accounts and The Company’s management reviews these estimates on financial investments, associated (as warranties) with the a quarterly basis and believes that there are no issuance of foreign debt bonds of subsidiaries, in the amount 2. PRESENTATION OF THE significant variations. of R$19.3 (R$34.6 on December 31, 2006). FINANCIAL STATEMENTS AND SIGNIFICANT b) Determination of net income • Trade accounts receivable ACCOUNTING PRACTICES Trade accounts receivable are stated at the invoiced amount Revenues and expenses are recognized on an accrual basis. including the respective sales taxes. The individual and consolidated financial statements were Sales revenues and their respective costs are recorded when prepared in accordance with the accounting practices set all risks and benefits related to products sold are transferred forth in the Brazilian Corporate Law and with the rules issued to customers. Sales revenues are not recorded if there is a by the Brazilian Securities and Exchange Commission – CVM. significant uncertainty regarding its realization. These financial statements do not reflect the amendments enacted by Law 11,638/07, as mentioned in Note 20 (a). c) Current and Non-current Assets The Company is presenting, as additional information, the Statement of Cash Flow, prepared in accordance with NPC • Cash and cash equivalents 20 – Statement of Cash Flow, issued by IBRACON - Brazilian Cash and cash equivalents, represented by amounts with Institute of Independent Auditors. immediate settlement and with maturity date until 90 days, are represented at the acquisition cost, plus income earned until the balance sheet date and readjusted, when applicable, at its equivalent market value.

AmBev Annual Report 2007 73 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

The allowance for doubtful accounts is recorded in an amount considered enough by management to cover probable losses the term limits established in the legislation. in the realization of credits, as follows: The deferred charges asset is comprised mainly by expenses Parent Company Consolidated incurred throughout the pre-operating phase, goodwill from 2007 2006 2007 2006 the acquisition of subsidiaries merged by the Company and Opening balance 134.1 125.9 185.6 169.7 expenses from implementation and expansion (see Note 7). Constitution 75.1 51.2 100.5 78.6 Reversal/utilization (70.5) (43.0) (94.6) (61.5) The amortization of the deferred charges is calculated by the Exchange rate variation (*) - - (5.4) (1.2) straight-line method, up to 10 years, as from the date the Closing balance 138.7 134.1 186.1 185.6 operating activities startup, when related to expenses from (*) Exchange rate variation related to the allowance for doubtful accounts of foreign companies. the pre-operating phase and as from the following month to the merger, when related to goodwill. • Inventories Inventories are stated at the average cost of purchases or Goodwill in investments, substantiated in the surplus value of e) Translation of the financial statements of production, adjusted, when necessary, by the provision for the fixed asset, is amortized based on the expected useful subsidiaries located abroad reduction at realizable values. life of the fixed asset of the subsidiary, while goodwill (or negative goodwill) attributed to the expected future results Malt operations located in Argentina and Uruguay use the Inventories cost includes purchase, transportation and is amortized within the maximun term of ten years and US dollar as their functional currency, as their revenues and warehouse costs. For finished goods and work in progress recorded in item “Other operating expenses”. Negative cash flows are considerably pegged to such a currency. The products, costs include general manufacturing expenses goodwill in investments, attributed to various economic financial statements of subsidiaries located abroad are related to the production based on the normal operational reasons, will only be realized upon the eventual sale or write- prepared based on the local currency, as well as on the capacity. off of investments. functional currency.

• Other assets Property, plant and equipment are stated at acquisition cost Assets, liabilities and shareholders’ equity of the subsidiaries Other current and non-current assets are presented at cost, and include interest from the financing incurred during the located abroad are translated into reais at the exchange rates including, when applicable, the income earned to the end construction of certain qualified assets. Maintenance and effective on the date of the financial statements. The income of the year. When necessary, a reserve for reduction to repair expenses, when incurred, are recorded as expenses. statement is translated and maintained in reais at the average market value is recorded. Losses with bottles and crates during production are included exchange rates of each month. in the cost of goods sold. Other losses in the realization of the d) Permanent assets property, plant and equipment are evaluated by the The difference between the net income determined at the Company management and, when applicable, a provision is exchange rates on the date of the financial statements and Investments in subsidiaries and in jointly-controlled recorded. Depreciation is calculated by the straight-line that ascertained at the average exchange rates of the period subsidiaries are evaluated by the equity accounting method method, considering the useful and economic life of the is recorded in “Other operating income”. and, during its first evaluation, the accounting practices assets, at the annual rates mentioned in Note 6. adopted are standardized to those adopted by the Company. The parity between local currency and the US Dollar (“US$”) The accounting value of these investments includes the Intangible assets are stated at acquisition cost, and are was used for the translation of the financial statements of breakdown of the acquisition costs in equity value, goodwill composed mainly of the distribution areas of former resellers subsidiaries located abroad, at the rates below. The exchange or negative goodwill. acquired by the Company, with a view to perform direct sales rate from US Dollars to Brazilian Real (“R$”) used on and distribution. Amortization is calculated by the straight- December 31, 2007 was R$1.7713 (R$2.138 on December line method, at the annual rates mentioned in Note 6, within 31, 2006).

74 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Currency Name Country Initial Rate Final Rate i) Provision for contingencies and liabilities related DOP Dominican peso Dominican Republic 33.7751 34.1666 to legal proceedings GTQ Quetzal Guatemala 7.5962 7.6310 PEN Peruvian sol Peru 3.1970 2.9940 The provision for contingencies is reassessed by monetary VEB Bolívar Venezuela 2,150.00 2,150.00 correction and relates to labor, tax, civil and commercial ARS Peso Argentina 3.07 3.15 issues claimed at the administrative and judicial levels, BOB Boliviano Bolivia 8.03 7.67 based on the estimated losses established by the Company’s PYG Guarani Paraguay 5,173.04 4,849.90 and subsidiaries internal and external legal counsel, in the UYU Uruguayan peso Uruguay 24.47 21.55 cases in which such losses are considered probable. CLP Chilean Peso Chile 534.43 495.82 The parity between Canadian Dollars (“CAD”) and Reais was used for the translation of Labatt Canada’s financial Tax reductions, obtained based on judicial decisions statements at the rate of R$1.80561 on December 31, 2007 (R$1.83582 on December 31, 2006) derived from lawsuits filed by the Company and its subsidiaries against the tax authorities are subject to f) Current and non-current liabilities provisioning until they are ultimately ruled in favor of the Company and its subsidiaries. These are stated at known or calculable values, plus, when applicable, the corresponding charges and monetary variations accrued until the date of the financial statements. j) Fiscal incentives g) Operations with derivatives of currencies and interest – Financial items The Company and its subsidiaries have certain state fiscal incentive programs in the form of deferred tax payments, The Company keeps derivative instruments with the purpose of hedging its consolidated risk exposure of currencies and interest. with partial or full reductions of these. In some States the Pursuant to the CVM rules, operations “not designated as hedges for accounting purposes” are valued at the lowest amount grace periods and reductions are not conditional. between their cost values, accrued based on the agreement conditions between the Company and third parties (“paper curve”), and their market value, and recorded in the item “Gains on unrealized derivatives” or “Losses on unrealized derivatives”. For However, when the conditions exist, they refer to facts under the operations designated as hedge operations, the recognition is performed based on the amortized cost. The nominal amounts the Company’s control. The benefit related to the reduction of the forward and swap operations of currencies and interest are not recorded in the balance sheet. of these tax payments is recorded as reserve for fiscal incentives and accounted for in the shareholders' equity of h) Operations with derivatives of currencies and commodities – Operating items the Company and its subsidiaries, on an accrual basis, or upon the compliance by the companies of the main The Company keeps derivative instruments with the purpose of hedging its consolidated exposure to costs of raw materials to obligations established by the state programs, in order to be acquired and operating expenses whose prices are pegged to the price variation of currencies and commodities. receive the benefit granted.

The net results of these derivatives instruments, designated as hedges are valued at market value, deferred and recorded in the Company’s balance sheet in the item “Other assets and liabilities”, and recognized in profit and loss when the hedged is recorded in the profit and loss. Raw materials are recorded in profit and loss when the sale of the product is recorded in the item “Cost of goods sold”. In the case of expenses, the result will be recorded when expenses are recorded in the item “Operating expenses” in profit and loss.

AmBev Annual Report 2007 75 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

In the Company’s financial statements, benefit related to its m) Consolidated financial statements n) Transactions with related parties subsidiaries is recorded in the item “Other operating income” and amounted to R$212.9 in the Parent Company and The consolidated financial statements include the financial Transactions with related parties are carried out under usual R$226.5 in the consolidated, financial statements (R$160.0 statements of the Company and its direct and indirect market conditions and include, among others, the buying and R$165.4, respectively, on December 31, 2006). subsidiaries, as mentioned in Note 5 (c) and (d). The and selling of raw materials such as malt, concentrates, accounting policies were applied uniformly to the labels, corks, bottles and various finished goods. k) Income and social contribution taxes consolidated companies and are consistent with those applied in the previous year. Loan agreements among the Company's subsidiaries in Brazil The income and social contribution taxes are calculated at have undetermined maturity terms and are subject to the rates set forth in the applicable legislation. Charges Until August 2006, the Company proportionally consolidated financial charges, except for certain agreements with related to income tax and social contribution are recorded the Quinsa’s financials statements which, from September subsidiaries, in which the Company holds 100% of the on the accrual basis, plus the deferred income tax 2006, started being fully consolidated. capital stock, which are not subject to financial charges. calculated on the temporary differences between the accounting and tax basis of assets and liabilities. In addition, the Company consolidates the net liabilities and Agreements involving the Company's foreign subsidiaries are the results of Agrega Inteligência em Compras Ltda. usually monetarily restated based on the US dollar variation, The Company also records a deferred income tax (“Agrega”) and Ice Tea do Brasil Ltda. (“ITB”), proportionally plus annual interest up to 10%. corresponding to the future tax benefit on tax losses to its stake in the accounting statements of these companies. carryforward and negative basis of social contribution o) Reclassifications where these benefits are expected to be realized, within On December 31, 2007, total net liabilities recorded by the maximum term of 10 years, based on the future AmBev relative to these companies amounted to (R$2.1) and With the purpose of improving the presentation of certain results projection. net results totaled R$3.7 ((R$5.8) and (R$3.4), respectively, amounts and transactions in the financial statements, as well on December 31, 2006). as maintaining the comparability between the periods, the l) Actuarial assets and liabilities related to benefits Company made the following reclassifications on December to employees The Company also consolidated the financial statements of 31, 2006: (i) from Equity Accounting Results to Other the fund Taurus Investment SPC (“Taurus Investment”), an Operating Income, in the amount of R$160.0 at the Parent The Company and its subsidiaries record the actuarial assets investment fund fully and directly controlled through the Company, related to equity gains, in order to align the and liabilities related to benefits to employees in accordance Company’s subsidiaries. On December 31, 2007 and 2006, treatment adopted for the Consolidated; (ii) additional with the CVM Resolution no. 371, dated December 13, 2000. the balances presented in the consolidated financial reclassification of judicial Deposits from assets to liabilities, statements related to the fund corresponded, primarily, to as a reduction to Provision for contingencies, in the amounts The actuarial gains and losses are recorded as income or short-term investments and operations with derivative of R$72.9 at the Parent Company and R$84.3 at the expense, based on unrecognized gains and losses which instruments used to mitigate the Company’s exposure to Consolidated; and (iii) from Suppliers to Accounts payable to exceed, in each period, the higher amount between (a) 10% variations in the prices of commodities, interest rates and related parties, related to accounts payable to FAHZ and of the present value of the actuarial liability and (b) 10% of exchange rates. Inbev, in the amounts of R$1.4 and R$3.3, respectively. the fair value of the plan assets, amortized by the estimated future average time of service of the plan participants.

76 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 3. RECOVERABLE TAXES AND TAXES PAYABLE a) Breakdown of recoverable taxes – Current and non-current:

Parent Company Consolidated Short-term Long-term Short-term Long-term 2007 2006 2007 2006 2007 2006 2007 2006 IPI 16.1 31.9 - - 26.3 43.5 - - ICMS 122.5 116.1 130.8 107.8 132.7 127.6 137.4 111.5 PIS / COFINS 48.5 49.5 29.8 8.5 57.9 55.5 30.8 9.0 IRRF 17.7 10.7 - - 35.1 27.8 - - IRPJ / CSLL 294.9 197.5 6.3 6.1 372.3 328.3 14.7 14.2 Other Taxes 14.4 13.5 17.7 17.6 14.7 14.0 24.4 24.2 Foreign Companies taxes - - - - 100.3 91.0 - - TOTAL 514.1 419.2 184.6 140.0 739.3 687.7 207.3 158.9

b) Breakdown of taxes payable - current:

Parent Company Consolidated 2007 2006 2007 2006 Abbreviations used: IPI 73.2 77.3 77.0 79.5 IPI – Exice Tax ICMS 622.5 561.7 643.0 577.3 ICMS – Value-Added Tax PIS / COFINS 16.1 26.4 18.8 27.0 PIS – Social Integration Program IRRF 7.6 2.6 8.6 3.1 COFINS – Contribution for Social Security Financing Other Domestic Taxes 32.0 36.2 55.5 58.6 IRRF – Withholding Income Tax Foreign Companies taxes - - 458.1 493.5 IRPJ – Corporate Income Tax TOTAL 751.4 704.2 1,261.0 1,239.0 CSLL – Social Contribution on Net Income

AmBev Annual Report 2007 77 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

4. TRANSACTIONS WITH RELATED PARTIES

Balances on December 31, 2007 2007 Transactions Intercompany Intercompany Net Accounts Accounts loans loans Net financial Companies receivable payable receivable payable sales result AmBev (*) 880.8 (1,602.4) 59.5 (985.7) 454.1 (202.2) AmBev International 261.3----1.5 Arosuco 0.1 (73.7) - - 652.6 Aspen - - 87.7 (220.2) - (11.8) Brahmaco 0.9 (0.9) 218.4 (211.1) - 0.7 Brahma Venezuela 1.2 (22.6) 70.9 - - (4.1) Cintra 0.5 (1.2) - (2.7) 31.2 - CRBS S.A. 122.7 - 0.2 (24.9) - - Cympay 68.5 (32.7) 1.4 - 102.6 1.9 Dunvegan S.A. 108.7 (0.9) 360.8 (719.0) - (28.8) Eagle - (868.0) 0.2 (2.6) - Fratelli Vita 3.7 (2.4) 266.2 (90.0) 54.5 (15.4) Goldensand - - - (86.2) - (7.4) Jalua Spain S.L. - - 430.2 (544.3) - 27.1 Labatt Canadá 1.1 (5.0) - (0.3) 13.0 - Malteria Uruguai S.A. 104.1 (79.1) - - 302.4 (8.2) Malteria Pampa S.A. 71.5 (40.4) 0.5 - 142.6 (90) Monthiers 546.6 - 1.459.0 - - 313.2 Quinsa - (3.9) - - 17.6 - Skol - - 0.2 (18.5) - - Taurus Investments 588.3----(74.6) Other domestic (19.8) 80.0 (104.7) 9.4 5.7 Other international 5.4 (15.9) - (21.0) - 1.7 TOTAL 2,765.4 (2,768.9) 3,035.2 (3,031.2) 1,780.0 (0.7) Balances on December 31, 2006 2006 Transactions Intercompany Intercompany Net Accounts Accounts loans loans Net financial Companies receivable payable receivable payable sales result AmBev (*) 791.5 (1,678.2) 73.1 (1,451.8) 398.3 (76.6) Arosuco 8.6 (0.3) 471.0 (0.4) 549.1 0.3 Aspen - - 327, 7 (471.1) - 0.7 Brahmaco 1.1 (1.1) 252.7 (244.6) - (0.1) Brahma Venezuela 0.3 (14.5) 81.0 - 74.6 (1.7) CRBS S.A. 122.7 - 0.2 (22.6) - - Cympay 76.8 - 1.5 - 98.1 0.2 Dunvegan S.A. 131.2 (1.1) 643.7 (1,065.7) - 88.6 Eagle - (868.1) 0.2 (2.0) - - Fratelli Vita 4.0 (6.0) 230.2 (80.3) 21.6 (17.1) Jalua Spain S.L. - - 529.6 (616.9) - 46.1 Labatt Canadá 1.1 (10.0) - - - - Malteria Uruguai S.A. 33.3 (34.2) - - 135.3 - Malteria Pampa S.A. 12.0 (0.1) 0.4 - 118.7 - Monthiers 698.8 - 1,495.3 - - (27.0) Quinsa 3.0 (1.3) - - 14.8 - Skol - - (18.6) - - Taurus Investments 738.3----(9.7) Other domestic 6.9 (5.6) 72.3 (176.7) 1.5 (1.6) Other international 1.4 (6.4) - (24.2) - (1.0) TOTAL 2,631.0 (2,626.9) 4,178.9 (4,174.9) 1,412.0 1.1 (*) AmBev has amounts recorded under “Accounts receivable and payable” with its shareholders FAHZ and InBev, whose financial statements are not part of the Company's consolidated information, and, therefore, balances were not eliminated.

Names used: Cerveceria y Maltería Paysandú (“Cympay”) Fratelli Vita Bebidas S/A (“Fratelli Vita”) AmBev International Finance Co. Ltd. (“AmBev International”) Cervejarias Reunidas Skol-Caracu S.A. (“Skol”) Fundação Antônio e Helena Zerrenner – Instituição Nacional de Arosuco Aromas e Sucos Ltda. (“Arosuco”) Cervejarias Cintra Ltda. (“Cintra”) Beneficência (“FAHZ”) Aspen Equities Corporation (“Aspen”) Compañia Brahma Venezuela S.A (“Brahma Venezuela”) InBev NV/SA (“InBev”) Brahmaco International Limited (“Brahmaco”) Eagle Distribuidora de Bebidas S.A. (“Eagle”) 78 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 5. INVESTMENT IN DIRECT SUBSIDIARIES a) Changes in investments in direct subsidiaries, including goodwill and negative goodwill:

Investment Goodwill Total Balance on December 31, 2005 19,619.4 14.6 19,634.0 Equity in the results of subsidiaries (i) 143.3 - 143.3 Reversal of provision for losses on investments 12.4 - 12.4 Goodwill amortization - (107.5) (107.5) Loss of interest in subsidiary (0.7) - (0.7) Dividends received and receivable (1,060.9) - (1,060.9) Exchange variation in subsidiary abroad (17.9) - (17.9) Gains and equity additions on subsidiaries 160.0 - 160.0 Capital contribution Agrega 2.2 - 2.2 Capital reduction Anep (300.0) - (300.0) Acquisition of investments (Note 1 (b)(v)) 407.7 2,331.1 2,738.8 Balance on December 31, 2006 18,965.5 2,238.2 21,203.7 Equity in the results of subsidiaries (i) (139.2) - (139.2) Reversal of provision for losses on investments 3.4 - 3.4 Transfer of goodwill for the merger of BAH to Deferred Assets - (2,136.8) (2,136.8) Goldensand acquisition (505.5) 548.7 43.2 Goodwill amortization - (122.9) (122.9) Recalculation of goodwill on Goldensand acquisition (Note 1 (b)(iii)) 185.6 (185.6) - Dividends received and receivable (963.4) - (963.4) Exchange variation in subsidiary abroad (88.3) - (88.3) Gains and equity additions on subsidiaries 212.9 - 212.9 Disposal of investments (v) (790.0) - (790.0) Merger of Miranda Correa (46.3) - (46.3) Transfer of goodwill for the merger of Miranda Correa to Deferred Assets - (2.5) (2.5) Capital contribution (iii) 73.1 - 73.1 Capital reduction (ii) (156.5) - (156.5) Gain of interest in subsidiary (iv) 1.7 - 1.7 Balance on December 31, 2007 16,753.0 339.1 17,092.1 On December 31, 2007, the balance of Investment in subsidiaries includes the balance of Provision for unsecured liabilities relating to Goldensand in the amount of R$244.0 recorded, at the Parent Company, in Non-current liabilities.

(i) This result comprises goodwill amortization recorded in Labatt ApS and relating to Labatt Canada, in the amount of R$1,129.448 (R$969.8 on December 31, 2006). (ii) Capital reduction in the jointly-owned subsidiary Agrega and in the subsidiary Fratelli Vita. (iii) Capital contribution carried out in the jointly-owned subsidiary Agrega and in the subsidiary Goldensand. (iv) Gain resulting from the percentage variation in the subsidiaries CRBS and Fratelli Vita. (v) Disposal of investment in Miranda Correa, CRBS and Skol.

AmBev Annual Report 2007 79 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

b) Goodwill and negative goodwill – Consolidated: Accumulated 2007 2006 Cost Amortization Carrying amount Carrying amount Goodwill Labatt Canadá 16,383.3 (3,134.2) 13,249.1 14,378.6 Lakeport 371.8 (27.9) 343.9 - Quinsa 1,029.9 (521.5) 508.4 635.4 QIB 93.4 (43.4) 50.0 59.8 BAH (i) - - - 2,233.9 Goldensand (ii) 363.1 (24.2) 338.9 - Cintra (ii) 13.1 (0.9) 12.2 - Cympay 26.6 (18.7) 7.9 10.3 Embodom 224.1 (82.7) 141.4 163.5 Malteria Pampa 28.1 (26.1) 2.0 4.8 Indústrias Del Atlântico 5.0 (2.0) 3.0 3.6 Miranda Correa (i) - - - 3.1 AmBev Ecuador 0.8 - 0.8 - Subsidiaries of Labatt Canada 2,983.3 (2,955.5) 27.8 29.8 Subsidiaries of Quinsa 783.4 (475.4) 308.0 475.7 22,305.9 (7,312.5) 14,993.4 17,998.5 Negative Goodwill AmBev Ecuador (18.6) 8.2 (10.4) (12.3) 22,287.3 (7,304.3) 14,983.0 17,986.2 i) With the merger of the subsidiaries BAH and Miranda Correa, the residual balance of goodwill, based on the expectation of future results, was reclassified to deferred charges (see Note 7). (ii) See Note 1 (b) (iii).

On December 31, 2007, the Company presents in the balance sheet (Parent Company) the residual goodwill balance of R$339,1 (R$2,238.2 on December 31, 2006) in the following subsidiaries: R$338.9 and R$0.2, in Goldensand and Malteria Pampa, respectively.

80 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 c) Information on direct subsidiaries: 2007 Adjusted Equity in Shareholders’ income for Investment earnings (losses) Subsidiary Interest % Equity the period (i) of investees (i) Agrega 50.00 7.1 7.0 3.6 3.5 AmBev Bebidas (ii) 99.50 253.9 13.6 252.6 13.6 AmBev International 100 1.3 1.3 1.3 1.3 Anep 100 102.2 31.0 102.2 31.0 Arosuco 99.70 624.3 356.1 585.0 349.1 BAH (iii) - - 56.6 - 56.6 BSA Bebidas 100 10.3 - 10.3 - CRBS (v) - - - - 2.1 Dahlen S.A. 100 38.3 (1.9) 38.3 (1.9) Eagle 99.96 1,835.6 (380.7) 1,835.1 (380.6) Fazenda do Poço 91.41 0.6 - 0.6 - Fratelli Vita 77.97 428.6 86.6 331.8 65.1 Goldensand 100 (244.0) 3.4 - - Hohneck 50.69 983.9 (101.4) 498.8 (51.3) Labatt ApS 99.99 12,447.6 (363.2) 12,447.4 (363.1) Lambic Holding 87.10 353.6 48.0 308.0 41.8 Malteria Pampa 60.00 181.4 59.7 103.4 39.3 Miranda Correa (iv) - - - - 17.9 Quinsa 34.53 1,386.1 394.8 478.6 80.3 Skol (v) - - - - (43.9) 16,997.0 (139.2)

2006 Adjusted Equity in Shareholders’ income for Investment earnings (losses) Subsidiary Interest % Equity the period (i) of investees (i) Agrega 50.00 0.1 (4.5) - (2.2) AmBev Bebidas (ii) 99.50 240.2 (2.5) 239.0 (2.4) Anep 100 115.3 19.8 115.3 19.7 Arosuco 99.70 457.4 294.9 424.5 291.0 BAH (iii) 100 448.6 48.0 448.6 48.0 BSA Bebidas 100 10.3 - 10.3 - CRBS (v) 99.65 179.2 1.9 178.5 1.9 Dahlen 100 40.2 8.6 40.3 8.6 Eagle 99.96 2.216.3 (159.8) 2.215.7 (159.0) Fazenda do Poço 91.41 0.6 (3.2) 0.6 (2.9) Fratelli Vita 77.84 491.4 64.0 382.5 49.8 Honeck 50.69 1.085.3 (80.1) 550.2 (40.6) Labatt ApS 99.99 13,279.1 (142.1) 13,278.9 (142.0) Lambic Holding 87.10 305.6 55.6 266.2 48.4 Malteria Pampa 60.00 196.5 43.6 117.9 26.1 Miranda Correa (iv) 100 43.5 32.1 43.5 32.1 Skol (v) 99.96 653.8 (33.2) 653.5 (33.2) 18,965.5 143.3

(i) Certain amounts may not correspond directly to the interest percentages, due to the unrealized profits among the companies of the group. (ii) New corporate name of Pepsi-Cola Engarrafadora Ltda. (iii) Company merged into AmBev on June 29, 2007. (iv) Company merged into AmBev Bebidas on November 30, 2007. (v) See Note 5 (a) (v).

AmBev Annual Report 2007 81 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

d) Significant relevant indirect interest in subsidiaries:

Total percentage of indirect holding - % Company 2007 2006 Abroad Quinsa 91.36 91.36 Jalua Spain S.L. 100.00 100.00 Monthiers 100.00 100.00 Aspen Equities Corp. 100.00 100.00

6. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS a) Composition Parent Company 2007 2006 Accumulated Carrying Carrying Annual Depreciation Cost depreciation Amount Amount rates (i) Property, Plant and Equipment Land 94.4 - 94.4 92.0 Buildings and constructions 1,440.8 (747.3) 693.5 589.8 4.0% Machinery and equipment 4,112.1 (3,158.8) 953.3 577.2 10.0% Offsite goods/equipment 1,368.4 (727.1) 641.3 619.4 20.0% Other fixed assets 53.3 (38.0) 15.3 15.0 19.84%(ii) Construction in progress 209.1 - 209.1 371.7 7,278.1 (4,671.2) 2,606.9 2,265.1 Intangible assets 1,209.1 (880.6) 328.5 346.5 20.0%

Consolidated 2007 2006 Accumulated Carrying Carrying Annual Depreciation Cost depreciation Amount Amount rates (i) Property, Plant and Equipment Land 284.7 - 284.7 324.8 Buildings and constructions 2,814.5 (1,348.6) 1,465.9 1,424.5 4.0% Machinery and equipment 8,841.1 (6,528.9) 2,312.2 2,052.9 10.0% Offsite goods/equipment 2,298.1 (1,285.3) 1,012.8 1,012.8 20.0% Other fixed assets 309.9 (220.0) 89.9 45.2 19.98%(ii) Construction in progress 427.8 - 427.8 478.7 14,976.1 (9,382.8) 5,593.3 5,338.9 Intangible assets 1,342.0 (953.8) 388.2 385.0 20.0%

82 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 (i) Depreciation rates may increase from 50% to 100%, due to the number of production shifts in which the asset is used. (ii) Weighted average depreciation rate on December 31, 2007 and 2006.

As of December 31, 2007, the Company and its subsidiaries held fixed assets for sale at the carrying amount of R$68.2 in the Parent Company and R$103.0 in the Consolidated (R$82.9 and R$86.0, in the Parent Company and in the Consolidated, respectively, on December 31, 2006), which are classified under non- current assets, net of a provision for potential losses on realization, at the amount of R$36.2 in the Parent Company and R$37.4 in the Consolidated (R$48.2 in the Parent Company and R$50.4 in the Consolidated, respectively, on December 31, 2006). b) Assets granted as collateral for bank loans As a result of bank loans contracted by the Company and its subsidiaries, on December 31, 2007, there are assets including property, with a net book value totaling R$608.8 (R$454.3 on December 31, 2006), which have been granted as collateral for bank loans. Such restriction has no impact on the use of such assets and on the Company's operations.

7. DEFERRED CHARGES

Parent Company 2007 2006 Accumulated Carrying Carrying Cost Amortization Amount Amount Pre-operating expenses 204.0 (146.6) 57.4 39.4 Implementation and expansion expenses 48.3 (45.6) 2.7 3.8 Goodwill - future profitability (i): BAH 2,331.1 (416.4) 1,914.8 - CBB 702.8 (595.0) 107.8 178.0 Astra 109.1 (54.5) 54.6 67.0 Miranda Correa 5.5 (3.0) 2.5 - Other goodwill 44.0 (31.6) 12.4 20.2 Other deferred expenses 123.3 (98.4) 24.9 45.0 3,568.1 (1,391.0) 2,177.1 353.4

Consolidated 2007 2006 Accumulated Carrying Carrying Cost Amortization Amount Amount Pre-operating expenses 286.9 (195.7) 91.2 92.0 Implementation and expansion expenses 53.7 (49.0) 4.7 5.8 Goodwill - future profitability (i): BAH 2,331.1 (416.4) 1,914.7 - CBB 702.8 (595.0) 107.8 178.0 Astra 109.1 (54.5) 54.6 67.0 Miranda Correa 5.5 (3.0) 2.5 - Other goodwill 44.0 (31.6) 12.4 20.5 Other deferred expenses 162.5 (126.8) 35.7 65.7 3,695.6 (1,472.0) 2,223.6 429.0 (i) Goodwill classified as deferred charges (resulting from merged subsidiaries) is based on the future profitability of operations which sustained its generation.

AmBev Annual Report 2007 83 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

8. LOANS, FINANCING AND DEBENTURES

Weighted Parent Company Final Average Current Non-current Type and purpose maturity Rate Currency 2007 2006 2007 2006 Brazilian Reais ICMS tax incentives Dec/2017 3.34% R$ 45.4 102.4 169.6 160.5 Investments in permanent assets Dec/2011 TJLP + 3.86% R$ 163.4 167.1 194.8 331.7 Working capital Jan/2008 103.50% CDI R$ 46.8 - - - Agro-industrial credit Dec/2009 94.00% CDI R$ - - 85.3 - Agro-industrial credit Apr/2009 TR + 9.00% R$ - - 391.4 - In foreign currency Working capital Jan/2008 6.47% USD 24.8 - - - Working capital Jan/2008 5.26% EUR 438.8 - - - Working capital Mar/2008 2.18% YEN 379.0 901.0 - - Import financing Mar/2008 5.80% USD 50.7 - - - Bond 2011 Dec/ 2011 10.50% USD 4.6 5.5 885.6 1,069.0 Bond 2013 Sep/ 2013 8.75% USD 26.8 32.4 885.6 1,069.0 Investment in permanent assets Jan/ 2011 9.89% UMBNDES 20.9 31.4 21.2 45.3 Total loans and financings 1,201.2 1,239.8 2,633.5 2,675.5 DDebentures 2009 (Note 8 (f)) Jul/ 2009 101.75% CDI R$ 21.9 25.9 817.0 817.0 Debentures 2012 (Note 8 (f)) Jul/ 2012 102.50% CDI R$ 33.6 40.0 1,248.1 1,248.1 Total debentures 55.5 65.9 2,065.1 2,065.1 Total 1,256.7 1,305.7 4,698.6 4,740.6

Weighted Consolidated Final Average Current Non-current Type and purpose maturity Rate Currency 2007 2006 2007 2006 In reais ICMS tax incentives Dec/2017 3.34% R$ 45.5 103.6 174.1 161.9 Investments in permanent assets Dec/2011 TJLP + 3.86% R$ 190.6 167.1 204.3 331.7 Working capital Jan/2012 14.28% R$ 74.6 63.8 1,190.9 619.5 Agro-industrial credit Dec/2009 94.00% CDI R$ - - 85.3 - Agro-industrial credit Apr/2009 TR + 9.00% R$ - - 391.3 - Bond 2017 (Note 8(g)) Jul/2017 9.50% R$ 12.3 - 300.0 -

84 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Weighted Consolidated Final Average Current Non-current Type and purpose maturity Rate Currency 2007 2006 2007 2006 In foreign currency Working capital Sep/2011 6.34% USD 84.6 118.2 46.5 94.1 Working capital Jan/2008 5.26% EUR 438.8 - - - Working capital Mar/2008 2.18% YEN 379.1 901.0 - - Working capital Oct/2012 BA + 0.35% CAD - 16.0 325.0 605.8 Working capital Jan/2008 12.60% ARS 36.3 37.8 - - Working capital Feb/2008 8.34% UYU 4.6 10.9 - - Working capital Sep/2008 12.02% VEB 117.6 57.9 - 87.4 Working capital Dec/2008 7.69% DOP 103.4 80.6 - 10.0 Working capital Aug/2011 7.59% GTQ 16.0 19.4 35.9 44.8 Working capital Oct/2010 6.60% PEN 85.3 49.3 114.5 183.9 Working capital Nov/2008 6.88% BOB 28.7 22.7 - - Bond 2011 Dec/2011 10.50% USD 4.6 5.5 885.6 1,069.0 Bond 2013 Sep/2013 8.75% USD 26.8 32.4 885.6 1,069.0 Import financing Oct/2011 5.49% USD 101.4 41.9 3.5 8.1 Investment in permanent assets Mar/2012 7.28% USD 68.8 149.6 227.6 379.4 Investment in permanent assets Jun/2012 10.25% DOP 9.6 - 36.3 62.0 Investment in permanent assets Nov/2008 12.10% ARS 132.9 106.3 - 19.4 Investment in permanent assets Jan/2011 9.89% UMBNDES 20.9 31.3 21.1 45.4 Notes – Series A (Note 8 (d) ii) Jul/ 2008 6.56% USD 287.1 - - 345.1 Notes – Series B (Note 8 (d) ii) Jul/ 2008 6.07% CAD 90.3 - - 91.8 Senior Notes – BRI (Note 8 (d)) Dec/ 2011 7.50% CAD - - 160.3 163.0 Others Mar/2012 12.17% ARS 8.9 4.5 12.0 5.3 Others Jun/2008 5.19% PYG 49.2 - - - Others Dec/2016 5.88% USD 2.9 18.9 211.0 0.3 Total loans and financings 2,420.8 2,038.7 5,310.8 5,396.9 Debentures 2009 (Note 8(f)) Jul/2009 101.75% CDI R$ 21.9 25.9 817.1 817.1 Debentures 2012 (Note 8(f)) Jul/2012 102.50% CDI R$ 33.6 40.0 1,248.0 1,248.0 Total debentures 55.5 65.9 2,065.1 2,065.1 Total 2,476.3 2,104.6 7,375.9 7,462.0 Abbreviations used: • EUR - European Community Euro • YEN - Japanese Yen • ARS - Argentine Peso • BOB - Bolivian Peso • UYU - Uruguayan Peso • PYG - Paraguayan Guarani • BA - Bankers Acceptance – Corresponding to 4.786% p.a. as of 12.31.07 • TJLP - Long-Term Interest Rate - Corresponding to 6.25% p.a. on 12.31.07 • CDI - Interbank Deposit Certificate - corresponding to 11.12% p.a. on 12.31.07 • UMBNDES - Rate incurring on BNDES financing pegged to Currency Basket

AmBev Annual Report 2007 85 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

a) Guarantees Loans and financings for expansion, construction of new plants and purchase of equipment are guaranteed by plants real estate mortgage and collateral of equipment. See Note 6(b).

AmBev’s subsidiaries, except for Labatt and Quinsa operations, hold debt and raw materials purchase agreements secured by AmBev’s aval or guarantees. b) Maturities

As of December 31, 2007, long-term loans, financings and debentures fall due as follows:

Parent Company Consolidated 2009 1,403.1 1,495.8 2010 105.4 248.9 2011 896.7 1,803.3 2012 1,248.0 2,271.7 2013 onwards 1,045.3 1,556.2 4,698.5 7,375.9 c) ICMS sales tax incentives

Parent Company Consolidated 2007 2006 2007 2006 Current liabilities Financings 45.4 102.4 45.5 103.6 Sales tax deferrals 22.4 16.5 24.1 16.5

Non-current liabilities Financings 169.6 160.5 174.1 161.9 Sales tax deferrals 450.2 405.7 617.4 405.7

Balances classified as Financings refer to programs offered by certain Brazilian states, through which a percentage of the ICMS sales tax due is financed by the financial agent associated to the Government, on average for a six-year period as from the original ICMS maturity date.

Other balances related to “sales tax deferrals” result from deferral of ICMS payment due for terms of up to twelve years, as part of incentive programs to the industry. The deferred percentages may be stated during the program or vary regressively, from 75% in the first year to 40% in the final year. The deferred amounts are partially indexed by 60% to 80% of a general price index. The sales tax deferral is recorded as current liabilities under the item "Other taxes and contributions payable”.

86 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 d) Labatt Canada

(i) Working capital On June 26, 2006, a R$717.2 loan was contracted, with semiannual interest amortization at the fixed rate of 15.88% p.a. and maturity date on June 20, 2011.

On January 14, 2007, a R$473.7 loan was contracted, with semiannual interest amortization at the fixed rate of 12.13% p.a. and maturity date on January 18, 2012.

(ii) Senior notes On July 23, 1998, Labatt Canada entered into a loan agreement at the amount of US$162 million represented by Series A Bank Notes (Notes – Series A) and CAD$50 million represented by Series B Bank Notes (Notes – Series B), contracted from a group of institutional investors. The Notes are subject to the fixed interest rates at (a) 6.56% p.a., over the portion in US dollars and at (b) 6.07% p.a. over the Canadian dollars.

On June 15, 2001, Brewers Retail Inc (“BRI”), company proportionally consolidated by Labatt Canada, entered into a loan agreement for CAD$200 million, by means of Senior Notes (“Senior Notes – BRI”), with a group of institutional investors. e) Contractual clauses

As of December 31, 2007, the Company and its subsidiaries are either in compliance with the contractual clauses of its significant loan and financing operations, or the counterparty acknowledges and agrees with the eventual breach. f) Debentures

On July 1, 2006, the Company issued two series of simple debentures, non-convertible into shares: the first series (“Debenture 2009) at the equivalent amount of R$817.0, incurring 101.75% interest of CDI p.a., amortized quarterly as from October 1, 2006, and with final maturity in July 2009, and the second series (“Debenture 2012”) at the equivalent amount of R$1,248.0, incurring 102.50% interest of CDI p.a., amortized quarterly as from October 1, 2006, and with final maturity in July 2012. The funds raised with the issuance of debentures were used to pay the acquisition of BAC’s shares issued by Quinsa. g) Bond 2017

On July 24, 2007, AmBev, through its wholly-owned subsidiary AmBev International Finance Co. Ltd (“AmBev International”), issued R$300.0 (“Bond 2017”) in bonds denominated in reais with a fixed interest rate of 9.50% per year, amortized on a half-yearly basis, and maturity on July 24, 2017. These bonds will be fully and unconditionally guaranteed by AmBev. The payments of interest and principal will be in US Dollars, based on the exchange rate of the respective payment day.

AmBev Annual Report 2007 87 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

9. CONTINGENCIES

Parent Company 2007 2006 Provisions Judicial Net Net Deposit Provisions Provisions PIS and COFINS 40.4 (40.4) - - ICMS and IPI 168.5 (1.6) 166.9 158.3 IRPJ and CSLL 56.4 (0.4) 56.0 46.9 Labor claims 208.8 (129.6) 79.1 85.9 Other 90.8 (6.3) 84.6 130.6 Total 564.9 (178.3) 386.6 421.7

Consolidated 2007 2006 Provisions Judicial Net Net Deposit Provisions Provisions PIS and COFINS 70.6 (53.9) 16.7 14.4 ICMS and IPI 430.9 (1.5) 429.4 177.5 IRPJ and CSLL 80.4 (0.4) 80.0 67.1 Labor claims 273.2 (135.3) 137.9 135.1 Other 152.6 (8.2) 144.4 185.0 Total 1,007.7 (199.3) 808.4 579.1

Parent Company Exchange Balance on variation/Monetary Balance on 12.31.06 Accruals Reversals Payments restatement 12.31.07 PIS and COFINS 72.9 (35.1) - 2.6 40.4 ICMS and IPI 168.9 28.5 (54.2) (6.5) 31.8 168.5 IRPJ and CSLL 47.2 0.6 (1.5) (0.1) 10.2 56.4 Labor claims 187.8 103.9 (31.8) (51.1) - 208.8 Other 141.2 26.5 (17.7) (63.4) 4.2 90.8 Total Contingencies 618.0 159.5 (140.3) (121.1) 48.8 564.9 (-)Judicial deposits (56.8) (178.3) Total contingencies, net 421.7 102.7 (68.4) (108.0) 38.6 386.6

88 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Consolidated Exchange Balance on Acquisition variation/Monetary Balance on 12.31.06 Cintra Accruals Reversals Payments restatement 12.31.07 PIS and COFINS 98.6 7.2 0.6 (41.2) 5.3 70.5 ICMS and IPI 188.2 239.7 41.7 (63.4) (12.3) 37.0 430.9 IRPJ and CSLL 67.5 - 6.6 (7.9) (0.2) 14.4 80.4 Labor claims 245.5 0.7 149.5 (59.5) (61.7) (1.2) 273.3 Other 196.8 3.4 75.8 (44.1) (77.0) (2.3) 152.6 Total contingências 796.6 251.0 274.2 (216.1) (151.2) 53.2 1,007.7 (-)Judicial (217.5) (1.0) (58.0) 77.2 13.6 (13.6) (199.3) Total contingencies, net 579.1 250.0 216.2 (138.9) (137.6) 39.6 808.4

Main liabilities related to fiscal claims and provisions for contingencies: a) PIS and COFINS

The Company and its subsidiaries proposed specific lawsuits with the purpose of ensuring the right to pay PIS and COFINS on sales revenues, exonerating it from the payment of these contributions on other revenues under the terms provided for by Law 9,718/98. Following the enactment of Law no. 10,637/02 and Law no. 10,833/03, the Company and its subsidiaries began to pay these taxes, as established by prevailing laws. Some lawsuits were judged definitively by the Federal Supreme Court and the provisions related to these lawsuits already solved were reversed when the final decision was issued. b) ICMS and IPI

The Company has several administrative and judicial proceedings related to ICMS and IPI taxes. The reasons for these litigations are, among others, compensations, fulfillment of judicial injunctions exempting from tax payment, and tax credits taken. The amounts of contingencies related to ICMS and IPI increased significantly after the acquisition of Cintra. c) Labor

The Company and its subsidiaries are involved in approximately 4,100 labor proceedings, considered as probable losses, with former employees, mainly related to overtime, dismissals, termination pays and benefits, among others. d) Other lawsuits

The Company and its subsidiaries have received notice of infraction and/or NFLDs (Tax Delinquency Notices) brought by the Brazilian Institute of Social Security – INSS. These lawsuits question, among other issues, the collection of contribution on PLR (Profit Sharing) payments, as well as the withholding of this contributions on payments to service suppliers.

AmBev Annual Report 2007 89 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

The Company and its subsidiaries are involved in some lawsuits brought by former distributors who have their contracts terminated. Most of these lawsuits are still being analyzed at first court; only some of them are at superior Courts.

The Company and its subsidiaries have other ongoing lawsuits for which, in the opinion of its legal counsels, the risk of loss is possible but not probable. For the lawsuits shown below, the Company’s management understands there is no need for provision:

Parent Company Consolidated 2007 2006 2007 2006 PIS and Cofins 236.1 224.7 289.8 277.0 ICMS and IPI 644.3 823.4 768.3 973.3 IRPJ and CSLL 524.9 421.4 3,319.0 3,051.3 Labor claims 84.9 105.6 95.7 118.9 Civil claims 192.0 944.1 239.3 998.5 Other 234.6 396.6 317.8 457.5 Total 1,916.8 2,915.8 5,029.9 5,876.5

On December 31, 2007, the Company and its subsidiaries do not have contingent assets for which the probability of success is probable to be disclosed. a) Profits generated abroad

During 2004 and 2005, the Company and its subsidiaries received tax assessments, related to the tax authorities’ understanding about the Brazilian laws in connection with taxation in Brazil of profits obtained by subsidiaries or affiliated companies domiciled abroad.

Based on the opinion of its legal advisors, the Company’s management understands that these tax assessments were made based on incorrect analysis of the laws mentioned above, because among other factors: (i) it considers the assumption of availability, which did not exist in prevailing laws in the period referring to the tax assessment; (ii) it disregards the existence of a treaty entered into between Brazil and Spain to avoid double taxation; and (iii) by mistake in the ascertainment of amounts supposedly due.

The Company, based on the opinion of its legal advisors did not make provisions in relation to these tax assessments, which totaled R$4,443.7 on December 31, 2007. Considering these factors, as well as the fact that the issue has not been subject-matter of examination yet on highest stage by the Judiciary Court, the Company, based on the opinion of its legal advisors, considered that the amount of R$3,014.9 involves a risk of possible loss, while the amount of R$1,428.8 represents a risk of remote loss. b) Labatt Canada

Certain beer and alcoholic beverage producers of the United States, Canada and Europe were involved in collective suits for seeking damages over the alleged marketing of alcoholic beverages to underage consumers. Labatt Canada was involved in three of these lawsuits, and for two of them it was excluded as the defendant. Labatt Canada will strongly continue to defend against these lawsuits and, at this time, it is not possible to estimate the probability of loss or estimate its amount.

90 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Additionally, Labatt Canada was assessed by the Canadian Government due to the interest rate, debits, fees and other transactions with related parties in the past.

The total amount of the exposure may reach CAD$230.0, equivalent to R$415.3 on December 31, 2007 (CAD$200.0 equivalent to R$367.2 on December 31, 2006). In the event Labatt Canada is required to pay these amounts, CAD$120.0 will be reimbursed by InBev, equivalent to R$216.7. The remaining amount of CAD$110.0, equivalent to R$198.6, is recorded in Labatt Canada, under the account “Other Current Liabilities” c) Stock subscription bonus

Certain holders of the Company’s subscription bonus issued in 1996 for exercise in 2003 proposed lawsuits to subscribe correspondent shares in an amount lower than the Company considers as established upon the bonus issuance, and also to receive dividends correspondent to these shares since 2003 (in a current amount of approximately R$92.5), besides the legal fees.

In case the Company loses the totality of these lawsuits, the issuance of 5,536,919 preferred shares and 1,376,344 common shares would be necessary, receiving in counterentry funds significantly lower than the shares’ market value.

10. SOCIAL PROGRAMS a) IAPP - Instituto AmBev de Previdência Privada (AmBev Private Pension Plan Institute)

AmBev and its subsidiaries in Brazil sponsor two types of pension plans: a defined contribution plan (open to new participants) and a defined benefit plan (closed to new participants since May 1998), with the possibility of migrating from the defined benefit plan to the defined contribution plan. These plans are funded by the participants and by the sponsor, and managed by the IAPP. The main purpose of these plans is to supplement the retirement benefits of employees and management. In the year ended on December 31, 2007, the Company and its subsidiaries made contributions of R$6.1 (R$5.7 on December 31, 2006) to IAPP.

Based on the independent actuary report, IAPP’s plans position on December 31 is the following:

2007 2006 Assets fair value 982.3 857.7 Present value of the actuarial liability (602.9) (555.3) Asset surplus - IAPP 379.4 302.4

The surplus of assets of IAPP is recorded by the Company in its financial statements, on December 31, 2007, under "Other assets”, at the amount of R$18.5 (R$17.0 on December 31, 2006), amount estimated as the maximum limit of its future utilization, and also considering the legal restrictions that prevent the return of a possible outstanding asset surplus, in the event of a winding up of the IAPP and for which there was no use by means of payment of pension plan benefits.

AmBev Annual Report 2007 91 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

b) Medical assistance benefits and others provided directly by the Company and subsidiaries

The Company and its subsidiaries directly provide medical assistance, reimbursement of medicine expenses and other benefits to retired employees, and such benefits are not being granted to new retirements. On December 31, 2007, the balances of R$97.4 and R$224.2 of the Parent Company and the Consolidated, respectively (R$87.4 and R$326.6 of the Parent Company and the Consolidated, respectively, on December 31, 2006), are recognized in the Company’s financial statements as “Other”, in Long-term Liabilities, at the following amounts:

Pension Post-retirement Plan Benefit Labatt Labatt AmBev Total Present value of the actuarial liability 1,859.9 279.6 163.8 2,303.3 Assets fair value (1,640.6) - - (1,640.6) Plan’s Deficit 219.3 279.6 163.8 662.7 Non-amortized actuarial adjustments (346.8) (70.2) (66.4) (483.4) Subtotal (127.5) 209.4 97.4 179.3 Distributors plan (i) - - - 44.9 Total (127.5) 209.4 97.4 224.2

(i) The liability regarding the distributors plan represents the pro rata interest of Labatt Canada on the liabilities of these plans that shall be financed by Labatt Canada through the allocation of service costs from these associated companies.

Changes in the provision for medical assistance benefits and others, as per the independent actuary report, were as follows:

AmBev Labatt Total Balance on December 31, 2006 87.4 239.2 326.6 Financial charges/incurred expenses 17.4 159.9 177.3 Exchange rate variation - (3.8) (3.8) Actuarial adjustment - (90.6) (90.6) Payment of benefits (7.4) (177.9) (185.3) Balance on December 31, 2007 97.4 126.8 224.2

92 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 c) Fundação Antônio e Helena Zerrenner Instituição Nacional de Beneficência – FAHZ.

The FAHZ’s primary objectives are to provide the sponsor’s employees and managers with medical/hospital and dental assistance, to sponsor professional specialization and graduation courses, and to maintain facilities that provide aid and assistance to the elderly, through direct actions or financial agreements with other entities.

Changes in the FAHZ’s actuarial liabilities, as per the independent actuary report, were as follows:

Balance on December 31, 2006 215.8 Incurred financial charges 36.8 Payment of benefits (27.7) Balance on December 31, 2007 224,9

The actuarial liabilities related to the benefits provided by FAHZ were fully offset by its assets on December 31, 2007 at the same date, and the assets surplus was not recorded by the Company in its financial statements, due to the possibility of destination of its use for purposes other than exclusively related to the payment of benefits. d) Actuarial assumptions

The medium and long-term assumptions, adopted by the independent actuary when calculating the actuarial liabilities, were as follows:

Annual percentage (in nominal terms) AmBev Labatt 2007 2006 2007 2006 Discount rate 10.8 10.8 5.3 5.0 Rate of return expected from assets 9.6 13.9 7.4 7.4 Increase of the compensation component 7.1 7.1 3.0 3.0 Increase of medical services costs 7.1 6.5 8.5 2.5

AmBev Annual Report 2007 93 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

11. SHAREHOLDERS' EQUITY a) Subscribed and paid-in capital stock

On December 31, 2007, the Company’s capital stock, at the amount of R$6,105.2, was represented by 624,417 thousand shares of which 345,055 thousand are common shares and 279,362 thousand are preferred shares, all of them non-par registered shares. At the Extraordinary General Meeting held on June 29, 2007, the Company’s shareholders approved the reverse split of shares comprising AmBev’s capital stock at a ratio of 100 existing shares for 1 share after the reverse split, without altering the capital stock. Since the Company’s ADRs also represent 100 shares, these will be traded without changes, and each ADR will represent 1 preferred or common share, as the case may be.

At the Meeting of the Board of Directors held on June 26, 2007, the Company increased its capital by R$128.3, upon the issuance of 43,427 thousand common shares and 79,944 thousand preferred shares, due to the resolutions at the Annual and Extraordinary General Meetings held on April 27, 2007.

On May 8, 2007, the Company increased its capital stock in the amount of R$12.0, without the issuance of new shares, upon the capitalization of the Tax Incentive reserve – Income Tax Reinvestment.

At the Annual and Extraordinary General Meeting held on April 27, 2007, the Company carried out the following capital increases: (i) R$74.6, without the issuance of new shares, upon the capitalization of 30% of the fiscal benefit earned by the Company through the partial amortization of the special goodwill reserve; and (ii) R$174.2, upon the issuance of 118.857 thousands of common shares and 55.148 thousands of preferred shares, paid up through the partial capitalization of the fiscal benefit earned by the Company through the partial amortization of the Special Goodwill Reserve. b) Changes of shares of the subscribed capital occurred during 2007:

Number of shares – per thousand shares Description Preferred Common Total On December 31, 2006 29,957.173 34,501,039 64,458,212 Increases: Extraordinary General Meeting held on 04.27.07 55,148 118,857 174,005 Board of Directors Meeting held on 06.26.07 79,944 43,427 123,371 Cancellations: Extraordinary General Meeting held on 04.09. 07 (1,192,508) (65,367) (1,257,875) Extraordinary General Meeting held on 06.29. 07 (963,506) (92,484) (1,055,990) Balance on July 31, 2007 27,936,251 34,505,472 62,441,723 Reverse split (*) (27,656,889) (34,160,417) (61,817,306) On December 31, 2007 279,362 345,055 624,417 (*) Reverse split in the proportion of 100 for 1 – see Note

94 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 c) Authorized capital

The Company is authorized to increase its capital stock up to 700,000 thousand shares, regardless of by-law amendment, upon the Board of Directors’ resolution, which shall resolve on the payment conditions, characteristics of shares to be issued and issuance price, and shall also establish whether the capital stock shall be increased by means of public or private subscription. d) Appropriation of the income for the year and constitution of statutory reserves

The Company’s by-law determines the following appropriation of the net income for the year, after the deductions set forth by law: i. 35% percentage for the payment of mandatory dividends to all its shareholders. Pursuant to Law, preferred shares shall receive a dividend 10% higher than common shares. ii. An amount not higher than 68.875% of the net income, to set up the investments reserve, for the purpose of financing the expansion of the activities of the Company and its subsidiaries, even for the subscription of capital increases or creation of new projects. This reserve shall not exceed 80% of the capital stock. Should it reach this limit, it shall be incumbent upon the General Meeting to resolve on the balance, thus distributing it to shareholders or increasing the Company’s capital. iii. Distribution to the employees of up to 10% of the net income for the year, based on predetermined criteria. To the managers it shall be attributed an amount equal to the maximum legal limit.

The profit sharing is conditioned to reaching group and individual targets previously established by the Board of Directors at the beginning of the year. e) Proposed dividends

Calculation of the percentage of dividends approved by the Board of Directors on net income for the years ended on December 31: 2007 2006 Net income for the year 2,816.4 2,806.3 Legal reserve (5%) (i) -- Dividends calculation basis 2,816.4 2,806.3 Dividends/Interest attributed to shareholders’ equity paid 1,925.8 1,473.1 (-) Withholding income tax (316.2) (173.6) Total of distributed dividends 1,609.6 1,299.5 Percentage of dividends on the calculation basis - % 57.15 46.31 Net dividends per thousand outstanding shares (excluding treasury shares) Common 1,867.36 17.77 Preferred 2,054.10 19.54 (i) The legal reserve was no longer set up, pursuant to the corporate legislation, which establishes that such reserve may stop being constituted when, added to the capital reserves, exceeds thirty per cent (30%) of the Company’s capital stock.

AmBev Annual Report 2007 95 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

f) Interest attributed to shareholders’ equity

Companies legally have the option to distribute to the shareholders interest calculated based on TJLP on shareholders’ equity, and such interest, which is tax deductible, can be considered as part of the mandatory dividends when distributed. Although such interest is recorded in the accounting and fiscal books as financial revenue, when declared by subsidiaries and associated companies, and as financial expenses, at the occurrence of the allocation of the amounts to be paid to the shareholders, it is reclassified to shareholders' equity and presented as dividends, to reflect the essence of the transaction. Thus, the interest attributed to shareholders’ equity is considered as dividends received and paid and are not recorded in the statement of income. Consequently, in these financial statements, the aforementioned records are reclassified, i.e., the interest on the capital received or to be received are credited to the investments account and the interest on the capital paid or to be paid are debited from the retained earnings.

The interest attributed to shareholders’ equity and dividends not claimed in 3 years, counted from the payment beginning date, prescribe and are reverted in favor of the Company (Law no. 6,404/76, Article 287, subsection II, item a). g) Treasury shares

During the year ended December 31, 2007, the Company acquired 21,884 thousand preferred shares at the weighted average cost of R$122.00, the maximum cost being R$145.00, and the minimum cost being R$102.00, and 2,267 thousand common shares at the weighted average cost of R$114.44, the maximum cost being R$137.00 and the minimum cost being R$92.10.

Changes in the Company’s treasury shares during the year ended December 31, 2007 were as follows:

Number of shares – per thousand shares Millions of Description Preferred Common Total R$ On December 31, 2006 704,125 34,694 738,819 940.7 Reverse split (*) (697,084) (34,347) (731,431) Movements occurred in the year: Share buyback related to the Plan 917 278 1,195 117.3 Share acquisitions - Market 21,884 2,267 24,151 2,955.8 Cancellation of shares (21,560) (1,578) (23,138) (2,760.4) Transfer of shares to shareholders of the shares Plan (614) (123) (737) (94.5) On December 31, 2007 7,668 (1,191) 8,859 1,158.9 (*) Reverse split at the ratio of 100 per 1 – See Note 11 (a)

On December 12, 2007, the closing of the share buyback program launched on August 20, 2007 was approved. On this same date, the Company launched a new buyback program to acquire common and preferred shares issued by itself, up to the amount of R$500.0, to be ended on December 6, 2008, in compliance with CVM Instruction no. 10/80 and its subsequent amendments.

96 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 12. STOCK OWNERSHIP PLAN (“PLAN”)

AmBev maintains a plan for purchase of shares by employees, in order to align the interests of shareholders with those of employees. The Plan is managed by the Board of Directors. The Board of Directors periodically creates share acquisition plans, defining the terms and categories of employees to be benefited, and determines the price for which the shares will be purchased.

The options granted as from 2006 have a vesting period of 5 years and expire 10 years after the grant date. Should the existing labor agreement come to an end, the rights to the stock options expire under certain conditions. Regarding the shares purchased by the employees, the Company has the right to buy them back based on the Plan’s clauses.

The beneficiaries of share purchase rights granted as from 2003 are no longer entitled to advances for the purchase of shares. On December 31, 2007, the outstanding balance of advances to employees for the purchase of shares refers to the plans granted before 2003, and amounts to R$41.6 in the consolidated (R$72.7 on December 31, 2006). The loans are guaranteed by the shares purchased.

Movements in outstanding share options for the year ended on December 31, 2007 were as follows:

Share purchase option – per thousand shares 2007 2006 Description Preferred Common Preferred Common Balance of share purchase options exercisable at the beginning of the year 237,478 33,825 365,101 73,020 Reverse split (*) (235,103) (33,487) - - Movements occurred during the year: Exercised (614) (123) (155,553) (31,110) Cancelled (350) (60) (41,576) (8,085) Granted 583 - 69,506 - Balance of share purchase options exercisable at the end of the year 1,994 155 237,478 33,825 (*) Reverse split at the ratio of 100 per 1 – See Note 11 (a)

AmBev Annual Report 2007 97 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

13. TREASURY a) Overview

The Company and its subsidiaries hold certain amounts of cash and cash equivalents in foreign currency, and carry out currency and interest swap operations and currency commodities and forward operations to hedge against the effects of exchange rate variations on the consolidated exposure to foreign currency, interest rate fluctuations, and changes in raw materials prices, particularly aluminum, sugar and wheat. The instruments mentioned above are contracted for hedging purposes, which does not prevent that redemptions may occur at any time, although the Company really intends to maintain them until the end of the underlying operation (hedged item). b) Derivative instruments

The Company, in order to reduce the risks of exposure to certain fluctuations in exchange rates, interest and commodities, contracts derivative instruments. On December 31, 2007, the amounts contracted as derivative instruments are as follows:

Description 2007 2006 Currency hedge (i) Reais/US$ 2,412.6 3,086.5 Reais/Yen 339.4 622.0 Reais/Euros 494.7 - Peruvian Sol/US$ 55.1 78.3 CAD/US$ 159.6 249.1 CAD/R$ 1,485.3 825.4

Interest rate hedge (i) CDI x Fixed Rate 700.8 (137.5) Fixed Rate / Canadian Bankers Acceptance 751.3 508.4

Commodities hedge (i) Aluminum 314.2 314.2 Sugar 94.0 126.6 Wheat (23.9) (76.8)

Corn - 2.2 6,783.1 5,598.4

(i) The amount of the above operations were determined based on the market value of financial instruments of currency, interest rate and commodities hedge

98 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 As of December 31, 2007, unrealized gains on variable income on derivative operations were limited to the lower value between the “curve” of the instruments and the respective market value, in accordance with the Brazilian Corporation Law.

Had the Company recorded its derivative instruments at market value, it would have recorded, for the year ended on December 31, 2007, an additional gain of R$164.8 (R$141.7 on December 31, 2006), presented as follows:

Unrealized variable Financial instruments Book value Market gains Public bonds 67.7 80.5 12.8 Swaps/forwards (322.5) (316.8) 5.7 Forward R$ x CAD Labatt Canada 145.1 288.0 142.9 Cross Currency Swap Labatt Canada (*) (139.2) (135.8) 3.4 (248.9) (84.1) 164.8 (*) Swaps for the conversion of the Notes issued at fixed interest in US dollars to fluctuating interest in Canadian dollars. ii. Commodities and currency hedge These operations have the specific purpose of reducing the Company’s exposure to the fluctuation of raw material prices denominated in foreign currency to be acquired. The net results of such operations, determined at cost value (corresponding to its market value), are deferred and recognized in the statement of income, when the sale of the corresponding product occurs. During the year ended December 31, 2007, the effect relating to the commodities and currency hedge operations recorded in the statement of income as “Cost of goods sold” was:

Decrease/(Increase) in the cost of Description goods sold Currency hedge (195.9) Hedge of aluminum 12.5 Hedge of sugar (53.9) Hedge of wheat (4.4) (241.7)

On December 31, 2007, unrealized losses in the amount of R$126.4 were deferred, in “Other assets”. Such loss shall be recognized at debit of the Company’s results: with the amount of R$119.5 in “Cost of goods sold”, when the corresponding finished products are sold and the remaining balance in operating expense, as this is hedge of expenses.

AmBev Annual Report 2007 99 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

c) Financial liabilities

The Company’s financial liabilities, mainly represented by bonds and financing operations, are recorded at cost value, monetarily restated at initial interest rates contracted, plus monetary and exchange variations, according to closing indexes for each period.

Had the Company used a method where its financial liabilities are recognized at market value, it would have recognized an additional loss, before income and social contribution taxes, of approximately R$466.5, on December 31, 2007 (R$580.9 on December 31, 2006), as presented below:

Financial liabilities Book value Market value Difference Series A Notes (i) 287.1 289.6 (2.5) Series B Notes (ii) 90.3 90.7 (0.4) Senior Notes – BRI (iii) 160.3 171.7 (11.4) International financings (other currencies) (iv) 1,828.9 1,828.9 - Financings in Reais 1,485.1 1,599.2 (114.1) Agro-industrial credit (iv) 476.7 476.7 - BNDES/FINEP/EGF (iv) 394.9 394.9 - Resolution 63 / Compror 63 (iv) 893.3 893.3 - Bond 2017 312.4 273.3 39.1 Bond 2011 and Bond 2013 1,802.7 2,179.9 (377.2) Debentures 2,120.5 2,120.5 - 9,852.2 10,318.7 (466.5) (i) Series A Bank Notes entered into by Labatt Canada in US dollars. (ii) Series B Bank Notes entered into by Labatt Canada in Canadian dollars. (iii) Private Bonds entered into by Brewers Retail Inc. (BRI) and proportionally consolidated by Labatt Canada in Canadian dollars. (iv) Loans for which book value and market value are similar.

The criterion used to determine the market value of the bonds was based on quotations of investment brokers, on quotations of banks which provide services to AmBev and Labatt Canada and on the secondary market value of bonds on the reference date as of December 31, 2007, approximately 116.75% of face value for Bond 2011, 116.67% for Bond 2013 and 86.91% for Bond 2017 (120.75% for Bond 2011 and 117.13% for Bond 2013, on December 31, 2006); to the Series A Notes and Series B Notes of Labatt Canada, the prices were determined based on the discounted cash flow at present value, by using market rates available for Labatt Canada for similar instruments.

100 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 d) Financial income and expenses Parent Company Consolidated 2007 2006 2007 2006 Financial income Exchange variation on financial investments - - (52.3) (15.5) Interest on cash and cash equivalents 25.0 56.1 95.3 111.1 Financial charges on taxes, contributions and judicial deposits 16.0 24.9 48.0 29.9 Interest on advances to employees for the purchase of shares 7.7 9.8 7.7 10.0 Interest and exchange variation on loans 215.4 76.6 - - Other 17.2 22.1 23.1 32.9 281.3 189.5 121.8 168.4 Financial expenses Exchange variation on financings 462.0 263.9 475.6 204.6 Net losses on derivative instruments (726.7) (585.8) (653.4) (496.3) Interest on debts in foreign currency (270.1) (267.8) (624.7) (523.8) Interest on debts in reais (333.5) (190.5) (340.9) (191.5) Interest and exchange rate variation on loans - - - (1.8) Taxes on financial transactions (100.2) (99.2) (121.2) (131.8) Financial charges on contingencies and other (49.2) (50.2) (64.1) (59.8) Other (40.4) (23.9) (46.1) (46.3)

(1,058.1) (953.5) (1,374.8) (1,246.7) Net financial income (776.8) (764.0) (1,253.0) (1,078.3)

e) Concentration of credit risk

A substantial part of the Company’s sales is related to distributors, supermarkets and retailers, within a broad distribution network. Credit risk is reduced because of the large spread in the number of customers and control procedures to monitor this risk. Historically, the Company does not record significant losses on receivables from customers.

In order to minimize the credit risk of its investments, the Company has adopted procedures for the allocation of cash and investments, taking into consideration limits and credit analysis of financial institutions, not allowing credit concentration, i.e., the credit risk is monitored and minimized as the negotiations are carried out only with a select group of counterparties highly qualified.

At Labatt Canada, compensation agreements are entered into with its counterparties, allowing it to settle derivative financial assets and liabilities in the event of default.

AmBev Annual Report 2007 101 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

14. INCOME TAX AND SOCIAL CONTRIBUTION a) Reconciliation of consolidated income and social contribution taxes expenses with their nominal amounts rates

Year ended on December 31 2007 2006 Consolidated net income before income and social 4,526.0 4,307.3 Statutory profit sharing and contributions (69.4) (194.4) Consolidated net income before income and social contribution taxes and minority interest 4,456.6 4,112.9 Expense with income and social contribution taxes at nominal rates (34%) (1,515.2) (1,398.4) Adjustments to obtain the effective rate resulting from permanent differences: Goodwill amortization, non-deductible portion (i) (485.7) (395.4) Foreign subsidiaries’ income not subject to taxation 25.3 42.4 Interest attributed to shareholders’ equity (Note 11 (f)) 368.6 500.9 Equity gains in subsidiaries 78.1 58.5 Exchange variation on investments (81.0) (33.8) Permanent additions and exclusions and other 17.0 (89.5) Income and social contribution taxes expenses (1,592.9) (1,315.3) (i) The amortization of non-deductible goodwill comprises the effects of the goodwill balance recorded in Labatt ApS in relation to Labatt Canada, totaling R$1,129.4 in the period ended December 31, 2007 (R$969.8 on December 31, 2006), generating a tax effect as it is not deductible, totaling R$384.0 (R$329.7 in December 2006). b) Breakdown of benefit (expenses) of income and social contribution taxes on net income Parent Company Consolidated 2007 2006 2007 2006 Current (94.7) 63.6 (963.6) (688.8) Deferred (520.2) (460.4) (629.3) (626.5) Total (614.9) (396.8) (1,592.9) (1,315.3) c) Deferred taxes balances

Deferred income and social contribution taxes are recorded to reflect future tax effects on temporary differences between the fiscal and the accounting basis of assets and liabilities.

According to CVM Instruction 371, dated June 27, 2002, the Company, based on the expectation of future taxable profits, determined by technical studies approved by the management, also recognized deferred tax assets related to tax losses carryforward and negative basis of social contribution, which do not expire and whose utilization is limited to 30% of annual taxable income. The deferred tax assets accounting balance is reviewed periodically and projections are evaluated annually. Should there be relevant factors, which may modify those projections, they are evaluated by the Company during the fiscal year.

102 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 The deferred income and social contribution taxes were calculated based on:

Parent Company Consolidated 2007 2006 2007 2006 Current assets Tax losses carryforwards 60.0 69.1 157.0 98.3 Temporary differences Goodwill future profitability – Mergers 350.8 350.8 350.8 350.8 Provision for interests on shareholders’ equity - 22.1 - 22.1 Provision for restructuring - - 11.5 26.8 Provision for employees profit sharing 29.4 54.0 32.3 57.4 Provision for marketing and selling expenses 57.9 54.5 57.9 54.6 Others 37.8 - 40.2 - 535.9 550.5 649.7 610.0

Long-term assets Tax losses carryforwards 107.9 232.0 624.7 771.0 Temporary differences Non-deductible provisions 174.2 248.9 277.3 307.0 Provision for losses on tax incentives 3.1 3.1 7.6 7.6 Goodwill future profitability – Mergers 1,822.5 2,115.7 1,822.5 2,115.7 Provision for benefits to employees 33.1 29.7 68.8 82.2 Provision for losses on properties held for sale 12.3 16.5 12.7 17.2 Provision for losses on hedge 159.9 130.9 159.9 130.9 Allowance for doubtful accounts 9.0 10.3 10.5 11.2 Others 13.3 64.0 52.8 123.9 2,335.3 2,851.1 3,036.8 3,566.7 Long-term liabilities Temporary differences Accelerated depreciation - - 34.3 47.8 Others 18.6 22.8 97.2 83.6 18.6 22.8 131.5 131.4

Management considers that the deferred tax assets on temporary differences will be realized proportionally to the ultimate conclusion of contingencies and events that originated them.

Based on technical studies of projections of future taxable income determined according to CVM Instruction 371, the Company estimates to recover the deferred tax assets on tax losses carryforwards of the parent company and subsidiaries located in Brazil and abroad, in the following years:

AmBev Annual Report 2007 103 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

Amounts in millions of Reais 2009 2010 2011 2012 Total 297 243 24 61 625

The balance of deferred income tax assets as of December 31, 2007 includes the total effect of tax losses carryforward of Brazilian subsidiaries, including the balance from the acquisition of Cervejarias Cintra Indústria e Comércio Ltda, ocurred in May 2007, which have no expiration dates and are available for offset against future taxable income. Part of the tax benefit corresponding to the tax losses carryforward of subsidiaries abroad was not recorded as an asset, as management cannot determine whether its realization is probable. Since the income and social contribution taxes derive not only from taxable income, but also depend on the Company’s tax and corporate structure, the existence of non-taxable income, non-deductible expenses, tax exemptions and incentives, and other variables, there is no relevant correlation between the Company’s net income and the determination of income and social contribution taxes. Therefore, we recommend that the utilization of deferred income and social contribution taxes should not be taken as an indicator of the Company’s future profits.

15. COMMITMENTS WITH SUPPLIERS

The Company holds agreements with certain suppliers to acquire certain quantities of materials that are important for the production and packaging processes, such as plastics for PET bottles, aluminum, natural gas and property, plant and equipment.

The Company has commitments assumed with suppliers for 2008, 2009, 2010 and 2011, already contracted on December 31, 2007, at the amounts of R$1,777.3, R$884.2, R$898.2 and R$7.3, respectively, (R$457.9 for 2008 and R$229.3 for 2009, on December 31, 2006).

104 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 16. OPERATING INCOME (EXPENSES), NET

Parent Company Consolidated 2007 2006 2007 2006 Operating income Subsidy for investments of subsidiary 212.9 160.0 226.5 165.3 Exchange rate variation on investments overseas - - - 79.4 Tax recovery 26.2 24.0 32.1 24.0 Discount on the advanced settlement of tax benefit 34.4 39.9 34.4 39.9 Reversal of provision for losses from investments 3.4 12.3 3.2 21.9 Other 28.3 - 42.5 12.7 305.2 236.2 338.7 343.2 Operating Expenses Goodwill amortization (122.8) (107.5) (1,500.6) (1,283.0) Additional goodwill amortization (i) (35.8) - (59.6) - Exchange variation on investments abroad (88.3) (17.9) (227.5) - Write-off of IPI/ICMS non-recoverable (13.9) - (17.4) - Taxes on other revenues (3.3) (4.4) (3.3) (4.4) Other (6.9) (8.2) (13.5) (10.9) (271.0) (138.0) (1,821.9) (1,298.3) Other operating income (expenses), net 34.2 98.2 (1,483.2) (955.1) (i) The Company reviewed, based on the projection of future results of Quinsa, the period for goodwill amortization related to this investment, changing the amortization period from 10 to 7 years.

AmBev Annual Report 2007 105 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

17. NON-OPERATING INCOME (EXPENSES), NET

Parent Company Consolidated 2007 2006 2007 2006 Non-operating income Gain from the disposal of investments - - - 10.2 Gain from the interest in investees 1.7 - 3.2 5.6 Gain from the disposal of property, plant and equipment - - 31.3 4.8 Gain from the disposal of real estate held for sale 8.4 - 7.6 - Reversal of provision for losses in other investments - 12.3 3.2 - Other - 0.5 3.6 6.1 10.1 12.8 48.9 26.7 Non-operating expenses Loss in the interest in investees - (0.7) - - Provision for losses on permanent assets (0.3) - (0.4) (17.9) Loss in the disposal of permanent assets (1.0) (4.6) - - Loss from disposal of properties held for sale - (0.3) - (0.3) Provision for restructuring - - (5.6) (18.9) Other (0.1) (0.4) (2.5) (18.4) (1.4) (6.0) (8.5) (55.5) Total non-operating income (expenses), net 8.7 6.8 40.4 (28.8)

18. INSURANCE

The Company and its subsidiaries maintain standard programs of security, training, environment and quality in all its units, in order, among other purposes, to reduce the risks of accidents. In addition, it maintains insurance agreements, with coverage determined by experts taking into consideration the nature and degree of risks, for amounts deemed sufficient to cover occasional significant losses on its assets and liabilities. Due to their nature, risk assumptions are not included in the scope of a financial statements audit and, therefore, were not examined by our independent auditors.

106 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 19. ENVIRONMENT

In 2007, the Company and its subsidiaries invested, in constructions and equipment related to the environment, the amount of R$32.4 and R$48.5 respectively, related to water/effluent treatment and disposal of residues (R$43.4 and R$50.6 in 2006, respectively).

20. SUBSEQUENT EVENTS a) Law Nº 11,638 – amendment to the Brazilian Corporate Law Law No. 11,638 published in the Official Federal Gazette on December 28, 2007 changed a number of provisions in Law Nº 6,404 (Brazilian Corporate Law). These changes came into effect on January 1, 2008.

Among the major changes introduced, we highlight the following issues that in our assessment may change the presentation of our financial statements and the criteria for determination of our financial position and earnings as from the year ending 2008:

• The mandatory disclosure of the Statement of Changes in Financial Position was eliminated and will be replaced by the Statement of Cash Flows, already disclosed by the Company as a complementary information. Additionally, the Statement of Added-Value was also introduced as a mandatory disclosure and will be disclosed by the Company as from 2008.

• Intangible assets and rights were segregated from the tangible ones, and permanent assets are now classified into investments, property, plant and equipment, intangible items and deferred charges. This change was already incorporated in the financial statements for the year ended 31 December 2007.

• The caption "Equity valuation adjustments" was created under Shareholders' Equity. Any counterparties to increases or decreases in the amount assigned to asset and liabilities items, arising from its market price valuation, will be considered as adjustments to equity while not computed in the income statement for the year in accordance with the accrual basis.

• Pre-operating expenses and restructuring costs effectively contributing to the increase in earnings for more than one fiscal year and not representing just a decrease in costs or addition to the operating efficiency will be classified as Deferred Charges.

• Tax incentives will no longer be classified as a capital reserve, and will now be recognized in the income statement for the year. In view of determination by the Management bodies, the General Shareholders' Meeting may assign part of the profit corresponding to these incentives for recognition of a Fiscal Incentives Reserve, to be created as part of the profit reserves and that may be excluded from the mandatory dividend calculation basis.

AmBev Annual Report 2007 107 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Notes to the Financial Statements Amounts in millions of Brazilian reais, unless otherwise stated

• Additionally, the criteria for valuation of assets and liabilities were changed, with the following issues worth mentioning:

· Asset and liabilities items arising from long-term operations, as well as significant short-term operations, will be adjusted at present value, in accordance with international accounting standards;

· The recovery amount of property, plant and equipment, intangible assets and deferred charges assets and rights shall be periodically evaluated so that the company may record potential losses or carry out a review of the depreciation rates, amortization, and depletion criteria;

· Rights classified under intangible assets shall be evaluated based on the cost incurred upon purchase deducted from the balance of the respective amortization account;

· "Available-for-sale" or "Held-for-Trading" financial instruments will now be evaluated at market value;

· All other financial instruments shall be evaluated based on their updated cost or adjusted in accordance with the probable realizable value, if lower.

• In Transformation, Incorporation, Merger or Spin-off operations between independent parties in which there is an effective transfer of control, the valuation of assets and liabilities must be at market value.

• Interest in debentures, held by employees and management, even if as financial instruments, or as employees assistance institutions or pension funds, not characterized as expenses, shall be included in the statement of income for the year.

• Elimination of the possibility to record revaluation reserves for corporations. The new Law granted an option to companies to either maintain any existing balances and recognize these balances under the current rules or reverse these balances until the end of the year 2008.

The Company's Management is analyzing the effects that the aforementioned changes will have on its shareholders' equity and earnings for 2008, and it will also consider the guidance and definitions to be issued by the regulatory bodies. Management currently understands it is not possible to determine the effects of these changes on the income statement or shareholders' equity for the year ended December 31, 2007.

108 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 b) Acquisition of Interest – Lambic Holding S.A.

On January 24, 2008, the Company, through its subsidiary Cervejarias Reunidas Skol Caracu S.A., paid the company Lince Netherlands BV the amount of US$46.0 (the equivalent to R$82.3), related to the acquisition of 12.901% of the shares of the Argentinean company Lambic Holding S.A. c) Outcome of the public tender offer for Quinsa’s shares

The Company announced on February 12, 2008 the closure of the public voluntary tender offer to acquire 5,483,950 Class A shares and up to 8,800,060 Class B shares (including Class B shares issued as American Depositary Shares (“ADS”)) issued by its subsidiary Quilmes Industrial (Quinsa), Société Anonyme (“Quinsa”), which represent the outstanding Class A and Class B shares (including Class B shares held as ADS) not owned by AmBev or by its subsidiaries.

AmBev has accepted the purchase of 3,136,001 Class A shares, and 8,239,536.867 Class B shares (including 7,236,336.867 Class B shares held as ADS) issued by Quinsa, representing 57% of Quinsa’s Class A shares and 94% of Quinsa’s Class B shares not owned by AmBev or by its subsidiaries, that were successfully tendered and not withdrawn.

With the settlement of the offering, which took place on February 15, 2008, AmBev’s interest in Quinsa’s voting capital will be of 99.56%, holding a 99.26% economic interest.

AmBev Annual Report 2007 109 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Information to Shareholders

Shares outstanding (31/12/07) Declared cash dividends Earnings Generated First Payment Date R$/share Share type 615,558,384 shares 2nd half 2003 13-Oct-2003 1.87 (preferred) 1.70 (common) 1st half 2004 25-Mar-04 0.68 (preferred) Stock exchange 0.61 (common) 2nd half 2004 8-Oct-2004 0.58 (preferred) Bolsa de Valores de São Paulo (Bovespa) 0.53 (common) 1st half 2005 15-Feb-2005 1.72 (preferred) Ticker symbols: AMBV3 (ON); AMBV4 (PN) 1.56 (common) 2nd half 2005 30-Sep-2005 1.07 (preferred) Main indexes where AmBev stock participates 0.97 (common) 29-Dec-2005 0.84 (preferred) IBX and IBOVESPA 0.76 (common) 1st half 2006 31-Mar-06 0.63 (preferred) 0.58 (common) New York Stock Exchange (NYSE) 2nd half 2006 30-Jun-06 0.61 (preferred) 0.55 (common) Ticker symbols: ABVc (ON); ABV (PN) 30-Oct-2006 0.61 (preferred) 0.55 (common) 28-Dec-2006 0.74 (preferred) Dividend policy 0.67 (common) 1st half 2007 30-Mar-07 0.73 (preferred) AmBev´s by-laws provide for a minimum mandatory 0.66 (common) dividend of 35% of the company´s annual net 29-Jun-07 0.30 (preferred) income, as determined by Brazilian Corporate Law 0.28 (common) Accounting Principles. The mandatory dividend 2nd half 2007 10-Oct-07 1.59 (preferred) includes amounts paid as interest attributable to 1.45 (common) shareholder´s equity. 18-Dec-07 0.45 (preferred) 0.41 (common) As per Brazilian Corporate Law, dividend payments to preferred shareholders must be 10% greater than Share price performance those made to common shareholders. Share price 31-Dec-05 31-Dec-06 31-Dec-2007 06x05 07x06 AMBV4 (PN) - R$ 89.76 105.35 128.65 17.4% 22.1% AMBV3 (ON) - R$ 75.14 94.22 125.00 25.4% 32.7% IBOVESPA – R$ 33,455.94 44,473.71 63,886.10 32.9% 43.6% ABV (PN) – US$ 38.05 48.80 71.03 28.3% 45.6% ABVc (ON) – US$ 32.70 43.90 68.00 34.3% 54.9% S&P 500 – US$ 1,248.29 1,418.30 1,468.36 13.6% 3.5%

110 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Ratings Investors website Agency Local Currency Foreign Currency Outlook Last Rating Rating update Our investor website has additional company Moody´s Baa1 Baa3 Positive 14/04/2008 financial and operating information, as well as Fitch BBB BBB Stable 05/09/2007 conference calls transcripts. Investors may also S&P BBB BBB Positive 02/08/2006 register to automatically receive press releases by email and be notified of company presentations and events. Shareholder account assistance Independent Auditors in 2007 www.ambev-ir.com For address changes, dividend checks, account KPMG consolidations, direct deposit of dividends, Rua Dr. Renato Paes de Barros, 33 registration changes, lost stock certificates, stock São Paulo, SP 04530-904, Brazil Publications holdings and dividend and cash investment plans, Phone: +55 (11) 2183-3000 please contact: Fax: +55 (11) 2183-3001 The company´s Annual Report, Proxy Statement and 20-F form reports are available free of charge from the Investor Relations Department, detailed Retail shareholders in Brazil AmBev – Corporate offices above. If you are receiving duplicated or unwanted copies of our Annual Report, please contact the Nilson Casemiro Rua Dr. Renato Paes de Barros, 1.017 – 4th floor Investor Relations Department. Phone: + 55 (11) 2122-1402 São Paulo, SP 04530-000, Brazil E-mail: [email protected] Phone: +55 (11) 2122-1200 Fax: +55 (11) 2122-1526 Send us your comments

Depositary bank in Brazil We value your feedback on this annual report. Information resources Please send us your coments to [email protected]. Banco Itaú Phone: + 55 (11) 5029-7780 Please direct all requests for information to:

AmBev – Investor Relations Department Depositary bank and Rua Dr. Renato Paes de Barros, 1.017 – 4º andar transfer agent in the USA São Paulo, SP 04530-000, Brazil Bank of New York Phone: +55 (11) 2122-1414/1415 101 Barclay Street E-mail: [email protected] New York, NY 10286 Phone: +1 (888) 269-2377 E-mail: [email protected]

AmBev Relatório Anual 2007 111 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 Créditos

Texto Christina Brentano

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Fotos AmBev WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9 WorldReginfo - e26712cf-72ef-4e3e-8246-187860ddb2a9