Anheuser-Busch Companies, Inc. Form 10-Q
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x |
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006
|
|
|
|
o |
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE TRANSITION PERIOD FROM
TO
|
COMMISSION
FILE NUMBER: 1-7823
ANHEUSER-BUSCH
COMPANIES, INC.
(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
|
43-1162835
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification No.)
|
One
Busch Place,
St. Louis, Missouri 63118
(Address
of
principal executive offices) (Zip Code)
(314)
577-2000
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements
for
the past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-Accelerated
Filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
$1
Par
Value Common Stock - 768,819,921 shares as of September 30, 2006.
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Balance Sheet (Unaudited)
(in
millions, except per share) |
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
Current
Assets: |
|
|
|
|
Cash
|
$191.2 |
|
$225.8 |
|
Accounts
receivable
|
903.4
|
|
681.4
|
|
Inventories
|
655.8
|
|
654.5
|
|
Other
current assets
|
197.6
|
|
197.0
|
|
Total
current assets
|
1,948.0
|
|
1,758.7
|
|
Investments
in affiliated companies
|
3,525.7
|
|
3,448.2
|
|
Plant
and equipment, net
|
8,836.0
|
|
9,041.6
|
|
Intangible
assets, including goodwill of $1,061.5 and $1,034.5
|
1,349.2
|
|
1,232.6
|
|
Other
assets
|
1,218.9
|
|
1,073.9
|
|
Total
assets
|
$16,877.8
|
|
$16,555.0
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders Equity
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
payable
|
$1,314.9
|
|
$1,249.5
|
|
Accrued
salaries, wages and benefits
|
313.8
|
|
250.9
|
|
Accrued
taxes
|
263.2
|
|
156.7
|
|
Accrued
interest
|
118.4
|
|
123.7
|
|
Other
current liabilities
|
235.1
|
|
201.8
|
|
Total
current liabilities
|
2,245.4
|
|
1,982.6
|
|
Postretirement
benefits
|
441.1
|
|
444.3
|
|
Debt
|
7,392.5
|
|
7,972.1
|
|
Deferred
income taxes
|
1,317.0
|
|
1,345.9
|
|
Other
long-term liabilities
|
1,137.6
|
|
1,130.3
|
|
Shareholders
Equity:
|
|
|
|
|
Common
stock, $1.00 par, authorized 1.6 billion shares
|
1,473.0
|
|
1,468.6
|
|
Capital
in excess of par value
|
2,870.3
|
|
2,685.9
|
|
Retained
earnings
|
16,827.5
|
|
15,698.0
|
|
Treasury
stock, at cost
|
(15,838.5
|
)
|
(15,258.9
|
)
|
Accumulated
non-owner changes in equity
|
(988.1
|
)
|
(913.8
|
)
|
Total
Shareholders Equity
|
4,344.2
|
|
3,679.8
|
|
Commitments
and contingencies
|
-
|
|
-
|
|
Total
Liabilities and Shareholders Equity
|
$16,877.8
|
|
$16,555.0
|
|
See
the
accompanying footnotes on pages 5 to 14.
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Statement of Income (Unaudited)
(in
millions, except per share)
|
Third
Quarter
Ended
Sept. 30
|
|
Nine
Months
Ended
Sept. 30
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Gross
sales
|
$4,876.5
|
|
$4,689.4
|
|
$14,026.8
|
|
$13,371.8
|
|
Excise
taxes
|
(595.8
|
)
|
(600.9
|
)
|
(1,734.5
|
)
|
(1,701.5
|
)
|
Net
sales
|
4,280.7
|
|
4,088.5
|
|
12,292.3
|
|
11,670.3
|
|
Cost
of sales
|
(2,644.6
|
)
|
(2,517.6
|
)
|
(7,723.0
|
)
|
(7,228.4
|
)
|
Gross
profit
|
1,636.1
|
|
1,570.9
|
|
4,569.3
|
|
4,441.9
|
|
Marketing,
distribution and
|
|
|
|
|
|
|
|
|
administrative
expenses
|
(738.2
|
)
|
(723.6
|
)
|
(2,068.2
|
)
|
(2,055.1
|
)
|
Litigation
settlement
|
-
|
|
(105.0
|
)
|
-
|
|
(105.0
|
)
|
Operating
income
|
897.9
|
|
742.3
|
|
2,501.1
|
|
2,281.8
|
|
Interest
expense
|
(111.3
|
)
|
(112.5
|
)
|
(341.6
|
)
|
(343.2
|
)
|
Interest
capitalized
|
4.4
|
|
4.1
|
|
13.4
|
|
14.8
|
|
Interest
income
|
0.6
|
|
0.2
|
|
1.4
|
|
2.4
|
|
Other
income/(expense), net
|
0.9
|
|
(9.8
|
)
|
(2.2
|
)
|
10.9
|
|
Income
before income taxes
|
792.5
|
|
624.3
|
|
2,172.1
|
|
1,966.7
|
|
Provision
for income taxes
|
(311.5
|
)
|
(266.6
|
)
|
(846.9
|
)
|
(758.1
|
)
|
Equity
income, net of tax
|
156.5
|
|
147.1
|
|
449.3
|
|
390.2
|
|
Net
income
|
|
|
$504.8
|
|
$1,774.5
|
|
$1,598.8
|
|
Basic
earnings per share
|
$.83
|
|
$.65
|
|
$2.30
|
|
$2.06
|
|
Diluted
earnings per share
|
$.82
|
|
$.65
|
|
$2.28
|
|
$2.04
|
|
See
the
accompanying footnotes on pages 5 to 14.
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Statement of Cash Flows (Unaudited)
(in
millions)
|
Nine
Months
|
|
Ended
Sept. 30
|
|
2006
|
|
2005
|
|
Cash
flow from operating activities:
|
|
|
|
|
Net
income
|
$1,774.5
|
|
$1,598.8
|
|
Adjustments
to reconcile net income to cash
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
Depreciation
and amortization
|
740.3
|
|
732.3
|
|
Decrease
in deferred income taxes
|
(38.8
|
)
|
(73.3
|
)
|
Stock
compensation expense
|
52.1
|
|
56.9
|
|
Undistributed
earnings of affiliated companies
|
(202.2
|
)
|
(180.2
|
)
|
Gain
on sale of business
|
-
|
|
(15.4
|
)
|
Other,
net
|
(131.2
|
)
|
125.6
|
|
Operating
cash flow before change in working capital
|
2,194.7
|
|
2,244.7
|
|
Decrease
/ (Increase) in working capital
|
30.8
|
|
(98.4
|
)
|
Cash
provided by operating activities
|
2,225.5
|
|
2,146.3
|
|
|
|
|
|
|
Cash
flow from investing activities:
|
|
|
|
|
Capital
expenditures
|
(486.5
|
)
|
(823.1
|
)
|
Acquisitions
|
(82.3
|
)
|
-
|
|
Proceeds
from sale of business
|
-
|
|
48.3
|
|
Cash
used for investing activities
|
(568.8
|
)
|
(774.8
|
)
|
|
|
|
|
|
Cash
flow from financing activities:
|
|
|
|
|
Increase
in debt
|
317.3
|
|
-
|
|
Decrease
in debt
|
(902.8
|
)
|
(320.2
|
)
|
Dividends
paid to shareholders
|
(645.0
|
)
|
(591.1
|
)
|
Acquisition
of treasury stock
|
(580.2
|
)
|
(620.4
|
)
|
Shares
issued under stock plans
|
119.4
|
|
124.0
|
|
Cash
used for financing activities
|
(1,691.3
|
)
|
(1,407.7
|
)
|
Net
decrease in cash during the period
|
(34.6
|
)
|
(36.2
|
)
|
Cash,
beginning of period
|
225.8
|
|
228.1
|
|
Cash,
end of period
|
$191.2
|
|
$191.9
|
|
See
the
accompanying footnotes on pages 5 to 14.
Anheuser-Busch
Companies, Inc. and Subsidiaries
Notes
to Unaudited Consolidated Financial Statements
1.
|
Unaudited
Financial Statements
|
The
unaudited financial statements have been prepared in accordance with U.S.
generally accepted accounting principles and applicable SEC guidelines
pertaining to quarterly financial reporting, and include all adjustments
necessary for a fair presentation. These statements should be read in
combination with the consolidated financial statements and notes included in
the
company’s annual report on Form 10-K for the year ended December 31,
2005.
2.
|
Business
Segments Information
|
Comparative
business segment information for the third quarter and nine months ended
September 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
Int'l
|
|
|
|
|
|
Corporate
|
|
|
|
Third Quarter
|
Beer
|
|
Beer
|
|
Packaging
|
|
Entertainment
|
|
and
Elims
|
|
Consolidated
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Sales
|
$3,594.2
|
|
319.1
|
|
641.8
|
|
444.4
|
|
(123.0
|
) |
$4,876.5
|
|
Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Intersegment
|
$0.7
|
|
-
|
|
240.4
|
|
-
|
|
(241.1
|
) |
$0.0
|
|
-
External
|
$3,054.9
|
|
262.0
|
|
401.4
|
|
444.4
|
|
118.0
|
|
$4,280.7
|
|
Income
Before
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
$789.7
|
|
27.3
|
|
39.0
|
|
157.3
|
|
(220.8
|
) |
$792.5
|
|
Equity
Income
|
$1.4
|
|
155.1
|
|
-
|
|
-
|
|
-
|
|
$156.5
|
|
Net
Income
|
$491.0
|
|
172.0
|
|
24.2
|
|
97.5
|
|
(147.2
|
) |
$637.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Sales
|
$3,475.2
|
|
318.9
|
|
616.1
|
|
408.4
|
|
(129.2
|
) |
$4,689.4
|
|
Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Intersegment
|
$0.7
|
|
-
|
|
238.6
|
|
-
|
|
(239.3
|
) |
$0.0
|
|
-
External
|
$2,940.2
|
|
252.3
|
|
377.5
|
|
408.4
|
|
110.1
|
|
$4,088.5
|
|
Income
Before
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
$738.8
|
|
22.3
|
|
40.3
|
|
143.5
|
|
(320.6
|
) |
$624.3
|
|
Equity
Income
|
$0.0
|
|
147.1
|
|
-
|
|
-
|
|
-
|
|
$147.1
|
|
Net
Income
|
$458.0
|
|
161.0
|
|
24.9
|
|
89.0
|
|
(228.1
|
) |
$504.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
Int'l
|
|
|
|
|
|
Corporate
|
|
|
|
Nine Months
|
Beer
|
|
Beer
|
|
Packaging
|
|
Entertainment
|
|
and
Elims
|
|
Consolidated
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Sales
|
$10,480.4
|
|
916.1
|
|
1,985.9
|
|
984.5
|
|
(340.1
|
) |
$14,026.8
|
|
Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Intersegment
|
$2.2
|
|
-
|
|
709.6
|
|
-
|
|
(711.8
|
) |
$0.0
|
|
-
External
|
$8,913.2
|
|
746.6
|
|
1,276.3
|
|
984.5
|
|
371.7
|
|
$12,292.3
|
|
Income
Before
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
$2,366.6
|
|
75.4
|
|
122.9
|
|
248.2
|
|
(641.0
|
) |
$2,172.1
|
|
Equity
Income
|
$3.1
|
|
446.2
|
|
-
|
|
-
|
|
-
|
|
$449.3
|
|
Net
Income
|
$1,470.4
|
|
492.9
|
|
76.2
|
|
153.9
|
|
(418.9
|
) |
$1,774.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Sales
|
$10,121.0
|
|
864.0
|
|
1,831.5
|
|
904.4
|
|
(349.1
|
) |
$13,371.8
|
|
Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Intersegment
|
$2.1
|
|
-
|
|
674.7
|
|
-
|
|
(676.8
|
) |
$0.0
|
|
-
External
|
$8,587.3
|
|
694.1
|
|
1,156.8
|
|
904.4
|
|
327.7
|
|
$11,670.3
|
|
Income
Before
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
$2,293.4
|
|
70.1
|
|
120.4
|
|
215.1
|
|
(732.3
|
) |
$1,966.7
|
|
Equity
Income
|
$0.0
|
|
390.2
|
|
-
|
|
-
|
|
-
|
|
$390.2
|
|
Net
Income
|
$1,421.9
|
|
433.7
|
|
74.6
|
|
133.4
|
|
(464.8
|
) |
$1,598.8
|
|
Under
the terms of the company’s stock option plans, officers, certain other employees
and non-employee directors may be granted options to purchase the company’s
common stock. Effective in September 2006, the grant price for stock options
is
the closing market price per the New York Stock Exchange Composite Tape on
the
date the options are granted. Previously, stock options were granted with an
exercise price equal to the average of the high and low market prices on the
effective date of the grant. Options generally vest over three years
and have a maximum term of 10 years. At September 30, 2006, existing stock
plans
authorized issuance of 116 million shares of common stock. The company issues
new shares when options are exercised under employee stock compensation plans.
Under the plan for the board of directors, shares are issued from treasury
stock.
Following
is a summary of stock option activity and related prices for the nine months
of
2006 (options in millions). Options granted in 2006 had a grant date fair value
of $9.39 each and were expensed when awarded.
|
Options
Outstanding
|
Wtd.
Avg.
Exercise
Price
|
Options
Exercisable
|
Wtd.
Avg.
Exercise
Price
|
Balance,
Dec. 31, 2005
|
96.5
|
$45.01
|
71.5
|
$44.06
|
Granted
|
0.1
|
$43.65
|
|
|
Exercised
|
(4.1)
|
$27.03
|
|
|
Cancelled
|
(0.7)
|
$48.67
|
|
|
Balance,
September 30, 2006
|
91.8
|
$45.78
|
67.4
|
$45.10
|
The
following table provides additional information regarding options outstanding
and options that were exercisable as of September 30, 2006 (options and
in-the-money value in millions).
|
Options
Outstanding
|
|
Options
Exercisable
|
Range
of
Exercise
Prices
|
Number
|
Wtd.
Avg.
Remaining
Life
|
Wtd.
Avg.
Exercise
Price
|
Pretax
In-The-
Money
Value
|
|
Number
|
Wtd.
Avg.
Exercise
Price
|
Pretax
In-The-
Money
Value
|
$20-29
|
7.0
|
1.8
years
|
$27.31
|
$141.4
|
|
7.0
|
$27.31
|
$141.4
|
$30-39
|
7.4
|
3.0
years
|
$37.84
|
70.5
|
|
7.4
|
$37.84
|
70.5
|
$40-49
|
49.4
|
5.9
years
|
$46.48
|
99.4
|
|
38.2
|
$47.26
|
57.7
|
$50-53
|
28.0
|
7.4
years
|
$51.29
|
--
|
|
14.8
|
$51.59
|
--
|
$20-53
|
91.8
|
5.8
years
|
$45.78
|
$311.3
|
|
67.4
|
$45.10
|
$269.6
|
Prior
to 2006, Anheuser-Busch accounted for employee stock compensation in accordance
with FAS 123, “Accounting for Stock-Based Compensation,” and elected to
recognize no expense related to employee stock compensation, since options
were
always granted with an exercise price equal to the market price of the company’s
stock on the day of grant. In December 2004, the Financial Accounting Standards
Board issued a revised and renamed standard regarding stock compensation -
FAS
123R, “Share-Based Payment.” The revised standard, which was adopted by
Anheuser-Busch in the first quarter of 2006, eliminates the disclosure-only
election under FAS 123 and requires the recognition of compensation expense
for
stock options and all other forms of equity compensation generally
based
on
the
fair value of the instruments on the date of grant. In order to enhance
comparability among all years presented and to provide the fullest understanding
of the impact that expensing stock compensation has on the company,
Anheuser-Busch has retrospectively applied the new standard to prior period
results.
The
fair value of stock compensation is recognized in expense over the vesting
period, and is determined on the date of grant using a binomial (lattice method)
option-pricing model. The company recognizes the entire fair value associated
with non-forfeitable stock options (approximately 60% of the total) in stock
compensation expense when options are granted. The remaining expense associated
with forfeitable options is recognized ratably over the three-year option
vesting period. For financial reporting purposes, stock compensation expense
is
included in cost of sales and marketing, distribution and administrative
expenses, depending on where the recipient’s cash compensation is reported, and
is classified as a corporate item for business segments reporting.
The
following table shows the fair value of stock options granted for 2005, 2004
and
2003 (in millions, except per option).
|
2005
|
2004
|
2003
|
Fair
value of each option granted
|
$8.81
|
$10.49
|
$13.58
|
Total
number of options granted
|
11.4
|
14.1
|
14.4
|
|
Total
fair value of options granted
|
$100.4
|
$147.9
|
$195.6
|
Anheuser-Busch
uses the binomial option-pricing model for the valuation of stock options
because it accommodates several inputs in order to take into account multiple
option exercise patterns, and essentially computes an overall value based on
a
weighting of the various patterns.
The
Black-Scholes pricing model was used to determine the fair value of stock
options granted in 2003. The assumptions used in developing the fair value
of
stock options granted for the years 2005, 2004 and 2003 follow. For illustrative
purposes, the expected life, risk-free rate, and fair value per option shown
are
weighted averages.
|
2005
|
2004
|
2003
|
Expected
life of option
|
5.5
yrs.
|
5.5
yrs.
|
7.0
yrs.
|
Risk-free
interest rate
|
4.4%
|
3.7%
|
4.0%
|
Expected
volatility of Anheuser-Busch stock
|
21%
|
22%
|
22%
|
Expected
dividend yield on Anheuser-Busch stock
|
2.5%
|
1.8%
|
1.7%
|
The
following illustrates the impact of stock option activity on earnings and cash
flows for the third quarter and nine months of 2006 compared to 2005 (in
millions, except per share). Unrecognized pretax stock compensation cost as
of
September 30, 2006 was $75 million, which is expected to be recognized over
a
weighted average life of approximately 1.5 years.
|
Third
Quarter
|
|
|
Nine
Months
|
|
2006
|
|
2005
|
|
|
2006
|
|
2005
|
Pretax
stock compensation expense
|
$17.1
|
|
$19.0
|
|
|
$52.1
|
|
$56.9
|
After-tax
stock compensation expense
|
$11.9
|
|
$13.4
|
|
|
$36.4
|
|
$39.2
|
Diluted
earnings per share impact
|
$.015
|
|
$.017
|
|
|
$.047
|
|
$.050
|
Cash
proceeds from stock option exercises
|
$62.0
|
|
$13.2
|
|
|
$97.3
|
|
$100.7
|
In-the-money
value of stock options exercised
|
$57.5
|
|
$12.1
|
|
|
$91.2
|
|
$99.5
|
Income
tax benefit of stock options exercised (reduction of current taxes
payable)
|
$21.5
|
|
$3.3
|
|
|
$29.7
|
|
$31.5
|
Following
are figures pertinent to operations for the third quarter and nine months of
2005, and the balance sheet as of December 31, 2005 as they were previously
reported and for the retrospective adoption of FAS 123R.
Operating
Results for Third Quarter 2005
|
Including
FAS
123R
|
|
As
Previously
Reported
|
|
|
|
|
Cost
of sales
|
$2,517.6
|
|
$2,513.8
|
Gross
profit
|
$1,570.9
|
|
$1,574.7
|
Marketing,
distribution and administrative expenses
|
$723.6
|
|
$708.4
|
Operating
income
|
$742.3
|
|
$761.3
|
Income
before income taxes
|
$624.3
|
|
$643.3
|
Provision
for income taxes
|
$266.6
|
|
$272.2
|
Net
income
|
$504.8
|
|
$518.2
|
Basic
earnings per share
|
$.65
|
|
$.67
|
Diluted
earnings per share
|
$.65
|
|
$.66
|
|
|
|
|
Operating
Results and Cash Flows for the Nine Months of 2005
|
|
|
|
Cost
of sales
|
$7,228.4
|
|
$7,217.0
|
Gross
profit
|
$4,441.9
|
|
$4,453.3
|
Marketing,
distribution and administrative expenses
|
$2,055.1
|
|
$2,009.6
|
Operating
income
|
$2,281.8
|
|
$2,338.7
|
Income
before income taxes
|
$1,966.7
|
|
$2,023.6
|
Provision
for income taxes
|
$758.1
|
|
$775.8
|
Net
income
|
$1,598.8
|
|
$1,638.0
|
Basic
earnings per share
|
$2.06
|
|
$2.11
|
Diluted
earnings per share
|
$2.04
|
|
$2.09
|
|
|
|
|
Operating
cash flow before change in working capital
|
$2,244.7
|
|
$2,266.6
|
Cash
provided by operating activities
|
$2,146.3
|
|
$2,168.2
|
Shares
issued under stock plans
|
$124.0
|
|
$102.1
|
Cash
used for financing activities
|
$1,407.7
|
|
$1,429.6
|
|
|
|
|
Balance
Sheet as of December 31, 2005
|
|
|
|
Deferred
income taxes
|
$1,345.9
|
|
$1,682.4
|
Capital
in excess of par value
|
$2,685.9
|
|
$1,601.8
|
Retained
earnings
|
$15,698.0
|
|
$16,445.6
|
Shareholders
equity
|
$3,679.8
|
|
$3,343.3
|
Anheuser-Busch
accounts for its derivatives in accordance with FAS 133, “Accounting for
Derivatives and Other Hedging Instruments,” and therefore defers in accumulated
non-owner changes in shareholders equity the portion of cash flow hedging gains
and losses that equal the change in cost of the underlying hedged transactions.
As the underlying hedged transactions occur, the associated deferred hedging
gains and losses are reclassified into earnings to match the change in cost
of
the transaction. For fair value hedges, the changes in value for both the
derivative and the underlying hedged exposure are recognized in earnings each
quarter.
Following
are pretax gains and losses from derivatives which were recognized in earnings
during the third quarter and nine months (in millions). These gains and losses
effectively offset changes in the cost or value of the company’s hedged
exposures.
Third
Quarter
|
|
Nine
Months
|
2006
|
|
2005
|
|
2006
|
|
2005
|
Gains
|
Losses
|
|
Gains
|
Losses
|
|
Gains
|
Losses
|
|
Gains
|
Losses
|
$5.4
|
$8.5
|
|
$6.6
|
$1.1
|
|
$5.9
|
$49.4
|
|
$9.0
|
$6.4
|
The
company immediately recognizes in earnings any portion of derivative gains
or
losses that are not 100% effective at offsetting price changes in the underlying
transactions. Anheuser-Busch recognized net pretax gains due to this hedge
ineffectiveness of $0.5 million and $0.1 million, respectively, for the third
quarters of 2006 and 2005. For the nine months, the company recognized net
ineffective losses of $0.9 million and $0.3 million, respectively, in 2006
and
2005.
Earnings
per share are calculated by dividing net income by weighted-average common
shares outstanding for the period. The difference between basic and diluted
weighted-average common shares is the dilutive impact of unexercised
in-the-money stock options. There were no adjustments to net income for any
period shown for purposes of calculating earnings per share.
Weighted-average
common shares outstanding for the third quarter and nine months ended September
30 are shown below (millions of shares):
|
Third
Quarter
|
|
Nine
Months
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
Basic
weighted average shares outstanding
|
769.0
|
|
776.5
|
|
771.6
|
|
777.6
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
775.9
|
|
780.8
|
|
778.0
|
|
783.2
|
6.
|
Non-Owner
Changes in Shareholders Equity
|
The
components of accumulated non-owner changes in shareholders equity, net of
deferred taxes, as of September 30, 2006 and December 31, 2005 follow (in
millions):
|
Sept.
30, 2006
|
|
Dec.
31, 2005
|
Foreign
currency translation loss
|
$(453.2)
|
|
$(382.0)
|
Deferred
hedging losses
|
(5.8)
|
|
(2.4)
|
Deferred
securities valuation gains
|
0.6
|
|
0.3
|
Minimum
pension liability
|
(529.7)
|
|
(529.7)
|
Accumulated
non-owner changes in shareholders equity
|
$(988.1)
|
|
$(913.8)
|
Net
income plus non-owner changes in shareholders equity, net of deferred taxes,
for
the third quarter and nine months ended September 30 follows (in
millions):
|
Third
Quarter
|
|
Nine
Months
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
Net
income
|
$637.5
|
|
$504.8
|
|
$1,774.5
|
|
$1,598.8
|
Foreign
currency translation gains / (losses)
|
130.9
|
|
55.6
|
|
(71.2)
|
|
129.0
|
Net
change in deferred hedging gains / (losses)
|
--
|
|
8.2
|
|
(3.4)
|
|
11.4
|
Deferred
securities valuation gains / (losses)
|
(0.7)
|
|
0.4
|
|
0.3
|
|
(95.9)
|
|
Net
income plus non-owner changes in
shareholders
equity
|
$767.7
|
|
$569.0
|
|
$1,700.2
|
|
$1,643.3
|
Following
is goodwill by business segment, as of September 30, 2006 and December 31,
2005
(in millions). Goodwill is included in either other assets or investment in
affiliated companies, as appropriate, in the consolidated balance sheet. The
change in goodwill during the nine months of 2006 is due to fluctuations in
foreign currency exchange rates.
|
Sept.
30, 2006
|
|
Dec.
31, 2005
|
Domestic
Beer
|
$21.2
|
|
$21.2
|
International
Beer
|
1,270.2
|
|
1,261.1
|
Packaging
|
21.9
|
|
21.9
|
Entertainment
|
288.3
|
|
288.3
|
Total
goodwill
|
$1,601.6
|
|
$1,592.5
|
8.
|
Pension
and Postretirement Health Care
Expense
|
The
components of quarterly expense for pensions and postretirement health care
benefits are shown below for the third quarter and nine months of 2006 and
2005
(in millions). In order to enhance the funded status of its defined benefit
pension plans, the company made a discretionary pension contribution of $214
million in January 2006. This contribution is in addition to the company’s
required pension funding for 2006.
|
Pensions
|
|
Third
Quarter
|
Nine
Months
|
|
2006
|
2005
|
2006
|
2005
|
Service
cost (benefits earned during the period)
|
$26.6
|
$22.4
|
$79.7
|
$70.9
|
Interest
cost on benefit obligation
|
42.6
|
42.0
|
127.6
|
126.4
|
Assumed
return on plan assets
|
(49.6)
|
(48.3)
|
(148.8)
|
(146.3)
|
Amortization
of prior service cost and net actuarial losses
|
28.4
|
22.3
|
85.4
|
66.3
|
Expense
for defined benefit plans
|
48.0
|
38.4
|
143.9
|
117.3
|
Cash
contributed to multi-employer plans
|
4.3
|
4.1
|
12.2
|
12.2
|
Cash
contributed to defined contribution plans
|
4.9
|
5.7
|
14.6
|
14.4
|
Total
expense
|
$57.2
|
$48.2
|
$170.7
|
$143.9
|
|
Postretirement
Health Care
|
|
Third
Quarter
|
Nine
Months
|
|
2006
|
2005
|
2006
|
2005
|
Service
cost (benefits earned during the period)
|
$6.2
|
$6.4
|
$18.5
|
$19.2
|
Interest
cost on benefit obligation
|
8.6
|
9.9
|
26.0
|
29.6
|
Amortization
of prior service cost and net actuarial losses
|
1.3
|
0.6
|
4.0
|
1.9
|
Total
expense
|
$16.1
|
$16.9
|
$48.5
|
$50.7
|
9.
|
Equity
Investment in Grupo Modelo
|
Summary
financial information for Anheuser-Busch’s equity investee Grupo Modelo for the
third quarter and nine months of 2006 and 2005 is presented below (in millions).
The amounts shown represent 100% of Modelo’s consolidated operating results and
financial position based on U.S. generally accepted accounting principles on
a
one-month lag basis, and include the impact of the company’s purchase accounting
adjustments.
|
Results
of Operations
|
|
Third
Quarter
|
Nine
Months
|
|
2006
|
|
2005
|
2006
|
|
2005
|
Gross
sales
|
$1,391.2
|
|
$1,297.9
|
$4,097.7
|
|
$3,565.3
|
Net
sales
|
$1,299.1
|
|
$1,209.6
|
$3,815.8
|
|
$3,311.6
|
Gross
profit
|
$677.2
|
|
$632.1
|
$2,016.1
|
|
$1,766.5
|
Minority
interest expense
|
$0.5
|
|
$0.4
|
$1.3
|
|
$1.2
|
Net
income
|
$296.1
|
|
$283.0
|
$869.8
|
|
$757.4
|
|
|
|
|
|
|
|
|
As
of Sept. 30
|
|
|
2006
|
|
2005
|
|
|
|
Cash
/ marketable securities
|
$1,880.5
|
|
$1,557.4
|
|
|
|
Other
current assets
|
$1,005.8
|
|
$884.8
|
|
|
|
Non-current
assets
|
$4,524.5
|
|
$4,452.8
|
|
|
|
Current
liabilities
|
$484.8
|
|
$451.5
|
|
|
|
Non-current
liabilities
|
$366.2
|
|
$414.7
|
|
|
|
Management’s
Discussion and Analysis of Operations and Financial
Condition
This
discussion summarizes the significant factors affecting the consolidated
operating results, financial condition and liquidity and cash flows of
Anheuser-Busch Companies, Inc. for the third quarter and nine months ended
September 30, 2006, compared to the third quarter and nine months ended
September 30, 2005, and the year ended December 31, 2005. This discussion should
be read in conjunction with the consolidated financial statements and notes
included in the company's annual report to shareholders for the year ended
December 31, 2005.
This
discussion contains forward-looking statements regarding the company’s
expectations concerning its future operations, earnings and prospects. On the
date the forward-looking statements are made, the statements represent the
company’s expectations, but the company’s expectations concerning its future
operations, earnings and prospects may change. The company’s expectations
involve risks and uncertainties (both favorable and unfavorable) and are based
on many assumptions that the company believes to be reasonable, but such
assumptions may ultimately prove to be inaccurate or incomplete, in whole or
in
part. Accordingly, there can be no assurances that the company’s expectations
and the forward-looking statements will be correct. Please refer to the
company’s most recent SEC Form 10-K for a description of risk factors that could
cause actual results to differ (favorably or unfavorably) from the expectations
stated in this discussion. Anheuser-Busch disclaims any obligation to update
any
of these forward-looking statements.
Results
of Operations
Effective
in the first quarter 2006, Anheuser-Busch adopted FAS 123R, “Share-Based
Payment.” FAS 123R requires the recognition of stock compensation expense for
stock options and other forms of equity compensation, based on the fair value
of
the instruments on the date of grant. In order to enhance the comparability
of
all periods presented and provide the fullest understanding of the impact that
expensing stock compensation has on the company’s financial results,
Anheuser-Busch elected to apply the modified retrospective method of adopting
FAS 123R. The company has therefore recast comparative 2005 results to
incorporate the impact of previously disclosed pro forma stock compensation
expense. The impact of adopting FAS 123R is not material to the results of
operations for any period presented. See Note 3 for additional information.
Led
by
strong domestic beer revenues and earnings, consolidated net sales for the
third
quarter and nine months increased 4.7% and 5.3%, respectively, versus prior
year, while diluted earnings per share increased 26.2% and 11.8%. Earnings
growth for the domestic beer business accelerated in the third quarter, with
segment pretax income up 7%. Beer shipments to wholesalers increased 1.1% in
the
third quarter while revenue per barrel was up 2.8% versus last year.
Productivity improvement initiatives, along with somewhat lesser energy cost
increases, have helped mitigate continuing cost pressures. In addition, the
company’s international beer segment, led by Grupo Modelo, and its entertainment
segment are having outstanding years. Anheuser-Busch expects its positive
performance to continue through the end of the year and expects earnings to
continue to improve in 2007.
Reported
earnings per share for the third quarter of 2005 and nine months of both 2006
and 2005 include one-time items that impact the comparability of operating
results between periods. In the third quarter of 2005, the company settled
litigation involving a domestic beer wholesaler and incurred a one-time pretax
charge of $105 million, which is reported as a separate line item in the income
statement. In the second quarter of both 2006 and 2005, Anheuser-Busch
experienced favorable income tax events --- in 2006, a $7.8 million benefit
from
the reduction of deferred income taxes resulting from state tax legislation
enacted in Texas; and in 2005, a similar $7.2 million favorable reduction of
deferred income taxes due to tax legislation in Ohio plus a $6.8 million
favorable settlement of certain Chilean taxes associated with the December
2004
sale of the company’s equity stake in Compañía Cervecerías Unidas S.A. (CCU). In
the first quarter of 2005, the company also reported a $15.4 million pretax
gain
on the sale of a theme park interest in Spain. Excluding the impact of these
one-time items from both years, which the company believes allows a better
comparison of underlying operating results, diluted earnings per share increased
7.9% for the third quarter and 7.1% for the nine months (see additional
discussion on pages 20 through 23).
Beer
Sales Results
Following
is a summary and discussion of the company’s beer volume and sales results for
the third quarter and nine months of 2006 versus comparable 2005 periods.
|
|
Reported
Beer Volume (millions of barrels) for Periods Ended September
30
|
|
|
Third
Quarter
|
|
Nine
Months
|
|
|
|
|
Versus
2005
|
|
|
|
Versus
2005
|
|
|
2006
|
|
Barrels
|
|
%
|
|
2006
|
|
Barrels
|
|
%
|
|
Domestic
|
27.5
|
|
Up
0.3
|
|
Up
1.1%
|
|
80.0
|
|
Up
2.0
|
|
Up
2.6%
|
|
International
|
6.5
|
|
Up
0.4
|
|
Up
5.9%
|
|
17.1
|
|
Up
1.7
|
|
Up
10.9%
|
|
Worldwide
A-B Brands
|
34.0
|
|
Up
0.7
|
|
Up
2.0%
|
|
97.1
|
|
Up
3.7
|
|
Up
4.0%
|
|
Int’l
Equity Partner Brands
|
9.2
|
|
Up
0.5
|
|
Up
6.6%
|
|
24.1
|
|
Up
4.3
|
|
Up
22.0%
|
|
Total
Brands
|
43.2
|
|
Up
1.2
|
|
Up
2.9%
|
|
121.2
|
|
Up
8.0
|
|
Up
7.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
beer shipments-to-wholesalers increased 1.1% for the third quarter while
sales-to-retailers decreased 0.4% (on a selling day adjusted basis), with
Rolling Rock, Grolsch and Tiger contributing 0.8 points of growth to both
shipments and sales-to-retailers.
Year-to-date,
shipments-to-wholesalers increased 2.6% and sales-to-retailers increased 0.9%,
with Rolling Rock, Grolsch and Tiger contributing 0.4 points of growth to
shipments and sales-to-retailers. The increase in year-to-date
sales-to-retailers was led by Bud Light, which grew over 4%. Wholesaler
inventories at the end of the third quarter were just under two days higher
than
at the end of the third quarter 2005.
The
company’s estimated domestic market share (excluding exports) for the nine
months of 2006 was 49.0%, compared to prior year market share of 48.9%. Domestic
market share is based on estimated U.S. beer industry shipment volume using
information provided by the Beer Institute and the U.S. Department of
Commerce.
International
volume, consisting of Anheuser-Busch brands produced overseas by company-owned
breweries and under license and contract brewing agreements, plus exports from
the company’s U.S. breweries to markets around the world, increased 6% for the
third quarter and 11% for the nine months of 2006. These increases are primarily
due to increased volume in China and Canada in both periods plus an increase
in
Mexico year-to-date. United Kingdom beer volume declined in the third quarter
and year-to-date.
Worldwide
Anheuser-Busch brands volume, comprised of domestic volume and international
volume, increased 2% and 4%, respectively, for the third quarter and nine months
of 2006 versus 2005, to 34 million and 97 million barrels,
respectively.
Total
brands volume, which combines worldwide Anheuser-Busch brand volume with equity
partner volume (representing the company’s share of its equity partners’ volume
on a one-month lag basis) was 43 million barrels in the third quarter 2006,
up 1
million barrels, or 3%. Total brands volume was up 7%, to 121 million barrels
for the nine months of 2006.
Equity
partner brands volume grew 7% and 22%, respectively, for the third quarter
and
nine months of 2006 due to Modelo and Tsingtao volume growth. The company began
equity accounting for Tsingtao in May 2005.
2006
Financial Results
Following
is a summary and discussion of key operating results for the third quarter
and
nine months of 2006 versus comparable 2005 periods.
|
|
|
|
|
$
in millions, except per share
|
Third
Quarter
|
|
2006
vs. 2005
|
|
|
2006
|
|
2005
|
|
$
|
|
%
|
|
Gross
Sales
|
$4,877
|
|
$4,689
|
|
Up
$188
|
|
Up
4.0%
|
|
Net
Sales
|
$4,281
|
|
$4,089
|
|
Up
$192
|
|
Up
4.7%
|
|
Income
Before Income Taxes
|
$793
|
|
$624
|
|
Up
$169
|
|
Up
26.9%
|
|
Equity
Income
|
$157
|
|
$147
|
|
Up
$10
|
|
Up
6.4%
|
|
Net
Income
|
$638
|
|
$505
|
|
Up
$133
|
|
Up
26.3%
|
|
Diluted
Earnings per Share
|
$.82
|
|
$.65
|
|
Up
$.17
|
|
Up
26.2%
|
|
|
|
|
|
|
$
in millions, except per share
|
Nine
Months
|
|
2006
vs. 2005
|
|
|
2006
|
|
2005
|
|
$
|
|
%
|
|
Gross
Sales
|
$14,027
|
|
$13,372
|
|
Up
$655
|
|
Up
4.9%
|
|
Net
Sales
|
$12,292
|
|
$11,670
|
|
Up
$622
|
|
Up
5.3%
|
|
Income
Before Income Taxes
|
$2,172
|
|
$1,967
|
|
Up
$205
|
|
Up
10.4%
|
|
Equity
Income
|
$449
|
|
$390
|
|
Up
$59
|
|
Up
15.1%
|
|
Net
Income
|
$1,775
|
|
$1,599
|
|
Up
$176
|
|
Up
11.0%
|
|
Diluted
Earnings per Share
|
$2.28
|
|
$2.04
|
|
Up
$.24
|
|
Up
11.8%
|
|
Anheuser-Busch
reported gross sales of $4.9 billion during the third quarter 2006, an increase
of $188 million, or 4%. Gross sales increased 4.9%, or $655 million, to $14
billion for the nine months. Net sales were $4.3 billion and $12.3 billion,
increases of $192 million and $622 million, respectively, or 4.7% and 5.3%
for
the two periods. The differences between gross and net sales in 2006 are due
to
beer excise taxes of $596 million and $1.7 billion, respectively.
The
increases in
both gross and net sales were driven by sales increases for all operating
segments. For the third quarter and nine months, respectively, domestic beer
segment net sales increased 3.9% and 3.8% on higher volume and increased revenue
per barrel; international beer net sales increased 3.8% and 7.6% primarily
due
to volume gains in China and Canada in both periods and in Mexico year-to-date;
packaging operations net sales increased 6.3% and 10.3% due to higher recycling
revenues; and entertainment segment sales increased 8.8% and 8.9%, respectively,
on higher attendance and increased in-park spending.
Domestic
beer revenue per barrel was up 2.8% in the third quarter 2006 and grew 1.2%
compared to the nine months of 2005, due to the successful implementation of
price increases and discount reductions on over half the company’s domestic
volume. Revenue per barrel growth includes the impact of acquired and import
brands Rolling Rock, Grolsch and Tiger. Revenue per barrel increases accounted
for $95 million and $134 million, respectively, of the increases in domestic
beer net sales in the third quarter and nine months, with higher beer volume
contributing $20 million and $192 million, respectively. Revenue per barrel
is
calculated as net sales generated by the company’s domestic beer operations on
barrels of beer sold, determined on a U.S. GAAP basis, divided by the total
volume of beer shipped to U.S. wholesalers. Consistent with the pattern for
2006
pricing actions, the company plans to implement increases on the majority of
its
beer volume in early 2007, with a few selective increases in the fourth quarter
2006. As in the past, pricing initiatives will be tailored to selected markets,
brands and packages.
The
cost of sales for the third quarter 2006 was $2.6 billion, an increase of $127
million, or 5%, and was up $495 million, or 6.8%, to $7.7 billion for the nine
months. The increases in cost of sales are primarily attributable to production
costs associated with higher beer volume worldwide, increased costs for domestic
beer packaging materials, higher energy costs and increased costs for recycling
and entertainment operations. Gross profit as a percentage of net sales was
38.2% for the third quarter and 37.2% year-to-date, down 20 basis points and
90
basis points, respectively, due primarily to lower margins for the
commodity-based packaging segment.
Marketing,
distribution and administrative expenses were $738 million for the third quarter
and $2.1 billion year-to-date, representing increases of $15 million for the
quarter and $13 million year-to-date. These increases are due to higher general
and administrative costs partially offset by lower marketing expenses and
favorable distribution costs for company-owned beer wholesale operations due
to
having one less location.
Operating
income was $898 million, an increase of $156 million, or 21% for the third
quarter 2006. Operating margin for the quarter increased 280 basis points,
to
21.0% due primarily to increased sales and the adverse impact of the litigation
settlement on 2005 results. For the nine months of 2006, operating income was
$2.5 billion, an increase of $219 million, or 9.6%, while operating margin
was
20.3%, 70 basis points higher than 2005. Excluding the litigation settlement
from 2005, operating margins increased 30 basis points and declined 20 basis
points, respectively, for the third quarter and nine months of 2006 as shown
below.
|
|
|
|
|
|
Third
Quarter
|
Nine
Months
|
|
|
2006
|
2005
|
Change
|
2006
|
2005
|
Change
|
Reported
Operating Margin
|
21.0%
|
18.2%
|
280
bps
|
20.3%
|
19.6%
|
70
bps
|
Impact
of Litigation Settlement
|
---
|
2.5
|
(250)
bps
|
---
|
0.9
|
(90)
bps
|
Excluding
Litigation Settlement
|
21.0%
|
20.7%
|
30
bps
|
20.3%
|
20.5%
|
(20)
bps
|
Interest
expense less interest income was $111 million for the third quarter and $340
million for the nine months of 2006, both amounts essentially level with
comparable 2005 periods, due to lower average outstanding debt balances mostly
offset by higher interest rates and lower interest income year-to-date. Interest
capitalized of $4.4 million in the third quarter 2006 was up slightly, and
was
down $1.4 million year-to-date, due to a mix of lower qualifying capital
spending and higher interest rates.
Other
income/expense, net reflects the impact of numerous items not directly related
to the company’s operations. For the third quarter of 2006, the company had
other income of $1 million versus other expense of $10 million in 2005.
Year-to-date the company recognized expense of $2 million in 2006 compared
to
income of $11 million in 2005. Other income for the nine months of 2005 includes
the $15.4 million gain from the sale of the company’s equity interest in the
Spanish theme park. For business segment reporting purposes, the gain is
reported as a corporate item.
Income
before income taxes for the third quarter 2006 was $793 million, an increase
of
$169 million, or 26.9%. Year-to-date, pretax income increased $205 million,
or
10.4%, to $2.2 billion. These increases are primarily due to higher profits
in
domestic beer, international beer and entertainment operations and the impact
on
2005 results of the litigation settlement. For the third quarter and nine
months, domestic beer pretax profits improved $51 million and $73 million,
due
to higher sales volume, increased pricing and lower marketing, partially offset
by higher packaging materials, energy and plant operating costs. International
beer pretax income was up $5 million for both periods due to profit growth
attributable to volume increases in China and Canada in both periods and in
Mexico year-to-date, mostly offset by lower earnings in the United Kingdom.
Profits in the United Kingdom were down primarily due to lower pricing, lower
volume and unfavorable revenue mix. Packaging segment pretax profits were down
$1 million in the quarter and up $3 million for the nine months. Lower profits
from can manufacturing offset increased bottle manufacturing profits during
the
third quarter, while increased bottle and can profits year-to-date were
partially offset by higher label manufacturing costs. Entertainment segment
pretax income grew $14 million and $33 million, respectively, due to higher
attendance and higher in-park spending, partially offset by higher park
operating costs in both periods.
Equity
income increased $10 million in the third quarter 2006 and $59 million
year-to-date, reflecting the benefit of Grupo Modelo volume growth, price
increases taken in Mexico at the beginning of the year and a lower Mexican
income tax rate, plus Tsingtao equity income growth in both periods. The company
began applying equity accounting for Tsingtao in May 2005.
Anheuser-Busch’s
effective income tax rates of 39.3% in the third quarter and 39.0% for the
nine
months of 2006 represent a decrease of 340 basis points and an increase of
50
basis points, respectively, versus 2005. The third quarter decrease is due
to
the high effective tax rate in 2005 that resulted from limited tax deductibility
available for the litigation settlement, partially offset by higher taxes on
foreign earnings in 2006. The year-to-date increase is primarily due to higher
taxes on foreign earnings in 2006 and the mix of one-time favorable deferred
tax
items in both years, including a favorable tax impact from the 2005 Spanish
theme park sale. Both the quarterly and year-to-date effective tax rates for
2006 include a benefit from partial capital loss utilization.
Net
income of $638 million in the third quarter of 2006 represented an increase
of
$133 million, or 26.3%. Net income grew 11%, to $1.8 billion for the nine months
of 2006. Diluted earnings per share were $.82 and $2.28, respectively, for
the
third quarter and nine months of 2006, representing increases of 26.2% and
11.8%, respectively. Diluted earnings per share benefited from the company’s
repurchase of 13.2 million shares in the nine months under the company’s
on-going share repurchase program.
As
shown in the following table, excluding the favorable income tax events in
2006
and 2005 and the litigation settlement and one-time gain from the sale of the
Spanish theme park in 2005, which the company believes provides more meaningful
comparisons between periods, income before income taxes, net income and diluted
earnings per share increased 8.7%, 6.7% and 7.9%, respectively for the third
quarter, while the effective income tax rate increased 100 basis points. For
the
nine months, income before income taxes, net income, diluted earnings per share
and the effective income tax rate increased 5.6%, 6.5%, 7.1% and 100 basis
points, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of Comparative Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
Provision
|
|
|
|
Diluted
|
|
|
|
|
|
Income
|
|
for
Income
|
|
Net
|
|
Earnings
|
|
Effective
|
|
Third
Quarter
|
|
Taxes
|
|
Taxes
|
|
Income
|
|
Per
Share
|
|
Tax
Rate
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
$792.5
|
|
($311.5)
|
|
$637.5
|
|
$.82
|
|
39.3%
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
As
Reported
|
|
$643.3
|
|
($272.2)
|
|
$518.2
|
|
$0.66
|
|
|
|
FAS
123R Impact
|
|
(19.0)
|
|
5.6
|
|
(13.4)
|
|
(0.017)
|
|
|
|
Including
FAS 123R
|
|
624.3
|
|
(266.6)
|
|
504.8
|
|
0.65
|
|
42.7%
|
|
Litigation
Settlement
|
|
105.0
|
|
(12.6)
|
|
92.4
|
|
0.118
|
|
|
|
Excluding
One-Time Items
|
|
$729.3
|
|
($279.2)
|
|
$597.2
|
|
$0.76
|
|
38.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
Change - 2006 vs. 2005
|
|
|
|
|
|
|
|
|
|
|
|
Including
FAS 123R
|
|
26.9%
|
|
|
|
26.3%
|
|
26.2%
|
|
-3.4%
|
|
Excluding
One-Time Items
|
|
8.7%
|
|
|
|
6.7%
|
|
7.9%
|
|
1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
$2,172.1
|
|
($846.9)
|
|
$1,774.5
|
|
$2.28
|
|
39.0%
|
|
Texas
Income Tax Legislation Benefit
|
|
|
|
(7.8)
|
|
(7.8)
|
|
(0.010)
|
|
|
|
Excluding
One-Time Items
|
|
$2,172.1
|
|
($854.7)
|
|
$1,766.7
|
|
$2.27
|
|
39.3%
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
As
Reported
|
|
$2,023.6
|
|
($775.8)
|
|
$1,638.0
|
|
$2.09
|
|
|
|
FAS
123R Impact
|
|
(56.9)
|
|
17.7
|
|
(39.2)
|
|
(.050)
|
|
|
|
Including
FAS 123R
|
|
1,966.7
|
|
(758.1)
|
|
1,598.8
|
|
2.04
|
|
38.5%
|
|
Gain
on Sale of Spanish Theme Park
|
|
(15.4)
|
|
(3.5)
|
|
(18.9)
|
|
(.024)
|
|
|
|
CCU
Sale Chile Income Tax Settlement
|
|
|
|
(6.8)
|
|
(6.8)
|
|
(.009)
|
|
|
|
Ohio
Income Tax Legislation Benefit
|
|
|
|
(7.2)
|
|
(7.2
|
) |
(.009)
|
|
|
|
Litigation
Settlement
|
|
105.0
|
|
(12.6)
|
|
92.4
|
|
.118
|
|
|
|
Excluding
One-Time Items
|
|
$2,056.3
|
|
($788.2)
|
|
$1,658.3
|
|
$2.12
|
|
38.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
Change - 2006 vs. 2005
|
|
|
|
|
|
|
|
|
|
|
|
Including
FAS 123R
|
|
10.4%
|
|
|
|
11.0%
|
|
11.8%
|
|
0.5%
|
|
Excluding
One-Time Items
|
|
5.6%
|
|
|
|
6.5%
|
|
7.1%
|
|
1.0%
|
Liquidity
and Financial Condition
Cash
at
September 30, 2006 was $191 million, a decrease of $35 million from the December
31, 2005 balance. See the consolidated statement of cash flows for detailed
information. The primary source of the company’s cash flow is cash generated by
operations. Principal uses of cash are capital expenditures, share repurchase,
dividends and business investments. Cash generated by the company’s business
segments is projected to exceed funding requirements for each segment’s
anticipated capital spending. The net issuance of debt provides an additional
source of cash as necessary for share repurchase, dividends and business
investments. The nature, extent and timing of debt financing vary depending
on
the company’s evaluation of existing market conditions and other factors.
The
company generated operating cash flow before the change in working capital
of
$2.2 billion for the nine months of 2006, a decline of $50 million due primarily
to the $214 million discretionary defined benefit pension contribution in
January 2006, partially offset by increased earnings. The discretionary
contribution is in addition to the company’s required pension funding for the
year. Full year pension contributions for 2006 are projected to be $270 million.
The company also reported a favorable change in working capital for the first
nine months of 2006 primarily due to higher accrued incentive compensation.
There
have been only normal and recurring changes in the company’s cash commitments
since December 31, 2005.
Capital
expenditures during the third quarter 2006 were $168 million, compared to $258
million for the third quarter 2005. Year-to-date capital expenditures totaled
$487 million and $823 million, respectively for 2006 and 2005. Full year 2006
capital expenditures are expected to approximate $825 million.
At
its
October 2006 meeting, the Board of Directors declared a regular quarterly
dividend of $.295 per share on outstanding shares of the company’s common stock,
payable December 11, 2006, to shareholders of record November 9, 2006.
The
company’s debt balance decreased a net $580 million during the nine months of
2006. The details of the changes in debt for 2006 and 2005 are outlined
below.
Increases
in Debt (in millions)
|
|
|
|
Description
|
Amount
|
|
Interest
Rate
(Fixed
Unless Noted)
|
Nine
Months of 2006
|
|
|
|
U.S.
Dollar Debentures
|
$300.0
|
|
5.75%
|
Industrial
Revenue Bonds
|
17.7
|
|
4.98%
Wtd. avg.
|
Other,
including issuance discounts and
|
|
|
|
related
amortization
|
7.3
|
|
Various
|
|
$325.0
|
|
|
Nine
Months of 2005
|
|
|
|
United
Kingdom Brewery Capital Lease
|
$51.5
|
|
6.25%
|
Other,
including issuance discounts and
|
|
|
|
related
amortization
|
1.3
|
|
Various
|
|
$52.8
|
|
|
Reductions
of Debt (in millions)
|
|
|
|
Description
|
Amount
|
|
Interest
Rate
(Fixed
Unless Noted)
|
Nine
Months of 2006
|
|
|
|
Commercial
Paper
|
$698.7
|
|
4.88%
Wtd. avg., floating
|
U.
S. Dollar EuroNotes
|
100.0
|
|
4.51%
|
U.
S. Dollar Notes
|
52.0
|
|
$50.0
at 5.6%; $2.0 at 5.35%
|
Net
Change in Chinese Renminbi-Denominated debt
|
31.0
|
|
5.4%
Wtd. avg.
|
Industrial
Revenue Bonds
|
20.0
|
|
6.63%
Wtd. avg.
|
Other,
net
|
2.8
|
|
Various
|
|
$904.5
|
|
|
Nine
Months of 2005
|
|
|
|
U.S.
Dollar Debentures
|
$150.0
|
|
7.25%
|
Commercial
Paper
|
127.0
|
|
2.68%
Wtd. avg., floating
|
Net
Change in Chinese Renminbi-Denominated Debt
|
39.0
|
|
5.41%
Wtd. avg.
|
U.S.
Dollar Notes
|
1.3
|
|
5.35%
|
Other,
net
|
6.2
|
|
Various
|
|
$323.5
|
|
|
The
company has $1.4 billion of debt available for issuance through existing SEC
shelf registrations. The company’s commercial paper obligation of $404 million
at September 30, 2006 is classified as long-term, since commercial paper is
maintained on a long-term basis with on-going support provided by the company's
$2 billion revolving credit agreement. The interest rates for commercial paper
were 5.45% at September 30, 2006 and 3.75% at September 30, 2005.
Other
Matters
Grupo
Modelo Joint Venture
In
July, Grupo Modelo announced the creation of a joint venture with Constellation
Brands for the importing and marketing of Modelo's beer brands in the United
States and Guam. The joint venture is expected to become operational on January
2, 2007, with the agreement running through December 31, 2016. The contract
will
renew in 10-year periods unless Modelo gives notice of cancellation prior to
the
end of year seven of any term.
New
Accounting Pronouncements
In
July
2006, the Financial Accounting Standards Board issued FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes.” The Interpretation requires
that realization of an uncertain income tax position must be “more likely than
not” (i.e., greater than 50% likelihood of receiving a benefit) before it can be
recognized in the financial statements. Further, the Interpretation prescribes
the benefit to be recorded in the financial statements as the amount most likely
to be realized assuming a review by tax authorities having all relevant
information and applying current conventions. The Interpretation also clarifies
the financial statement classification of tax-related penalties and interest
and
sets forth new disclosures regarding unrecognized tax benefits. The
Interpretation is effective in the first quarter 2007 for Anheuser-Busch and
the
company plans to adopt the Interpretation when required. The Interpretation
is
currently being evaluated by Anheuser-Busch for its full impact. At this time,
the company believes it has properly and adequately provided for all income
tax
positions and therefore expects minimal impact from adopting the Interpretation.
In
September 2006, the Financial Accounting Standards Board issued FASB No. 157,
“Fair Value Measurements.” FAS 157 is definitional and disclosure oriented and
addresses how companies should approach measuring fair value when required
by
GAAP; it does not create or modify any current GAAP requirements to apply fair
value accounting. The Standard provides a single definition for fair value
that
is to be applied consistently for all accounting applications, and also
generally describes and prioritizes according to reliability the methods and
inputs used in valuations. FAS 157 prescribes various disclosures about
financial statement categories and amounts which are measured at fair value,
if
such disclosures are not already specified elsewhere in GAAP. The new
measurement and disclosure requirements of FAS 157 are effective for
Anheuser-Busch in the first quarter 2008. The company expects no significant
impact from adopting the Standard.
In
September 2006, the Financial Accounting Standards Board issued FASB No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans.” FAS 158 focuses primarily on balance sheet reporting for the funded
status of benefit plans and requires recognition of benefit liabilities for
under-funded plans and benefit assets for over-funded plans, with offsetting
impacts to shareholders equity. These changes are required to be adopted
prospectively, effective with the company’s December 31, 2006 financial
statements. Anheuser-Busch is in a net under-funded position for its pension
and
retiree health care plans and will therefore recognize incremental retirement
benefit liabilities on adoption. The company has not yet quantified these
amounts. The new rules will also require companies to measure benefit plan
assets and liabilities and determine the discount rate for subsequent year
expense recognition as of the balance sheet date for financial reporting
purposes, thus eliminating the opportunity to use a measurement date up to
90
days prior to the balance sheet date. The effective date for this change is
delayed until year-end 2008. The company currently uses an October 1 measurement
date and will adopt a December 31 measurement date in 2008 as required.
Switching to the new measurement date will require a one-time adjustment to
retained earnings per the transition guidance in FAS 158. None of the changes
prescribed by FAS 158 will impact the company’s results of operations or cash
flows.
Item
3.
Disclosures About Market Risks
The
company’s derivatives holdings fluctuate during the year based on normal and
recurring changes in purchasing and production activity. Since December 31,
2005, there have been no significant changes in the company’s interest rate,
foreign currency or commodity exposures. There have been no changes in the
types
of derivative instruments used to hedge the company’s exposures. Underlying
commodity market conditions have been trending towards higher
prices.
Item
4. Controls and Procedures
It
is
the responsibility of the chief executive officer and chief financial officer
to
ensure the company maintains disclosure controls and procedures designed to
provide reasonable assurance that material information, both financial and
non-financial, and other information required under the securities laws to
be
disclosed is identified and communicated to senior management on a timely basis.
The company’s disclosure controls and procedures include mandatory communication
of material subsidiary events, automated accounting processing and reporting,
management review of monthly and quarterly results, periodic subsidiary business
reviews, an established system of internal controls and rotating internal
control reviews by the company’s internal auditors.
The
chief executive officer and chief financial officer evaluated the company’s
disclosure controls and procedures as of the end of the quarter ended September
30, 2006 and have concluded that they are effective as of September 30, 2006
in
providing reasonable assurance that such information is identified and
communicated on a timely basis. Additionally, there were no changes in the
company’s internal control over financial reporting during the quarter that have
materially affected, or are reasonably likely to materially affect, the
company’s internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
In
2004, the Company was served with a complaint brought by two individuals seeking
to bring a class action on behalf of all California residents who, while they
were under 21 years of age, purchased alcohol beverages manufactured by the
Company and another defendant during the last four years. The suit sought
disgorgement of unspecified profits earned by the Company in the past and other
unspecified damages and equitable relief. By order dated January 28, 2005,
the
California state court granted the defendants judgment on the pleadings and
dismissed the case in its entirety. The plaintiffs in that action appealed,
their appeal was dismissed and the action is now definitively resolved in favor
of the Company.
Additionally,
the Company has been served with similar complaints in putative class action
lawsuits in Michigan, Ohio, West Virginia and Wisconsin. In these suits, which
name a large number of other brewers and distillers, the parents of illegal
underage drinkers are suing to recover the sums that their offspring purportedly
spent illegally buying alcohol from persons or entities other than the
defendants. The claims asserted against the Company vary depending on the suit,
but include negligence, unjust enrichment, violation of the state’s Sales
Practice Act or other statutory provisions, nuisance, fraudulent concealment
and
civil conspiracy. The suit filed in Michigan includes a claim under the Michigan
Consumer Protection Act. Each suit seeks money damages, punitive damages and
injunctive and equitable relief, including so-called disgorgement of profits
allegedly attributable to illegal underage drinking. The Company removed the
Ohio case to federal court in the Northern District of Ohio in June 2005,
removed the West Virginia case to federal court in the Northern District of
West
Virginia in May 2005 and removed the Michigan case to federal court in the
Eastern District of Michigan in July 2005. The Company filed motions to dismiss
the Michigan, Ohio, West Virginia and Wisconsin cases, and the Michigan federal
court, the Ohio federal court, the West Virginia federal court and the Wisconsin
state court dismissed the entire cases with prejudice. The plaintiffs in the
Michigan and Ohio cases have appealed the dismissals to the federal court of
appeals, and the federal court of appeals is hearing the appeals on a
consolidated basis. The plaintiffs in the West Virginia case have
appealed
the dismissal to the federal court of appeals. The plaintiffs in the Wisconsin
case have appealed the dismissal to the Wisconsin state court of appeals.
Similar actions were filed by the same law firm in New York and Florida, but
the
Company was not served in either case, and the Florida case has been voluntarily
dismissed by the plaintiffs. The Company believes that it has strong legal
and
factual defenses to these class actions and intends to defend itself
vigorously.
On
September 19, 2006, one of the company's cansheet suppliers, Novelis Corporation
("Novelis"), instituted a lawsuit in federal court in the Northern District
of
Ohio, seeking relief from continued performance of its obligations under its
cansheet supply agreement with the company. On that same day, the company
instituted a declaratory judgment action in federal court in the Eastern
District of Missouri, requesting a finding that Novelis is required to continue
to comply with its obligations under the agreement. The company believes that
the assertions of Novelis are without merit, intends to vigorously defend its
rights under the cansheet supply agreement and expects to prevail in the
litigation.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
Following
are the company’s monthly common stock purchases during the third quarter 2006
(in millions, except per share). All shares are repurchased under Board of
Directors authorization. The Board authorized the current program to repurchase
100 million shares in March 2003. There is no prescribed termination date for
this program. The numbers of shares shown include shares delivered to the
company to exercise stock options.
|
Shares
|
|
Avg.
Price
|
Repurchases
Remaining Authorized Under Disclosed
Programs
at June 30, 2006
|
20.5
|
|
|
Share
Repurchases
|
|
|
|
July
|
0.1
|
|
$45.97
|
August
|
0.5
|
|
$47.87
|
September
|
1.7
|
|
$47.36
|
Total
|
2.3
|
|
|
Repurchases
Remaining Authorized Under Disclosed
Programs
at September 30, 2006
|
18.2
|
|
|
Item
6. Exhibits
10.5
|
|
Anheuser-Busch
Companies, Inc. 1998 Incentive Plan as Amended on September 27,
2006
|
|
|
|
10.24
|
|
Summary
of Executive Tax and Financial Consulting Program for Executive Officers
of the Company. |
12
|
|
Ratio
of Earnings to Fixed Charges
|
31.1
|
|
Certification
of Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a)
under
the Exchange Act
|
31.2
|
|
Certification
of Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a)
under
the Exchange Act
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
ANHEUSER-BUSCH
COMPANIES, INC.
(Registrant)
|
|
/s/ W. Randolph
Baker
|
|
W.
Randolph Baker
Vice
President and Chief Financial Officer
(Chief
Financial Officer)
October
27, 2006
|
|
|
|
|
|
|
|
/s/
John F.
Kelly |
|
John
F. Kelly
Vice
President and Controller
(Chief
Accounting Officer)
October
27, 2006
|
32