Anheuser-Busch Companies 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
MARCH
31, 2007
|
|
|
|
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.
Yes
x
No o
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).
Yes
o
No
x
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 - 759,797,680 shares as of March 31, 2007.
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Balance Sheet (Unaudited)
|
March
31,
|
|
Dec.
31,
|
|
|
2007
|
|
2006
|
|
Assets
|
|
|
|
|
Current
Assets:
|
|
|
|
|
Cash
|
$274.1
|
|
$219.2
|
|
Accounts
receivable
|
949.1
|
|
720.2
|
|
Inventories
|
802.7
|
|
694.9
|
|
Other
current
assets
|
207.3
|
|
195.2
|
|
Total
current
assets
|
2,233.2
|
|
1,829.5
|
|
Investments
in affiliated companies
|
3,803.1
|
|
3,680.3
|
|
Plant
and
equipment, net
|
8,872.6
|
|
8,916.1
|
|
Intangible
assets, including goodwill of $1,085.5 and $1,077.8
|
1,441.0
|
|
1,367.2
|
|
Other
assets
|
611.9
|
|
584.1
|
|
Total
Assets
|
$16,961.8
|
|
$16,377.2
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders Equity
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
payable
|
$1,279.6
|
|
$1,426.3
|
|
Accrued
salaries, wages and benefits
|
274.7
|
|
342.8
|
|
Accrued
taxes
|
362.2
|
|
133.9
|
|
Accrued
interest
|
122.5
|
|
124.2
|
|
Other
current
liabilities
|
243.2
|
|
218.9
|
|
Total
current
liabilities
|
2,282.2
|
|
2,246.1
|
|
Retirement
benefits
|
1,166.6
|
|
1,191.5
|
|
Debt
|
8,276.2
|
|
7,653.5
|
|
Deferred
income taxes
|
1,181.1
|
|
1,194.5
|
|
Other
long-term liabilities
|
237.7
|
|
152.9
|
|
Shareholders
Equity:
|
|
|
|
|
Common
stock
|
1,476.9
|
|
1,473.7
|
|
Capital
in
excess of par value
|
3,057.1
|
|
2,962.5
|
|
Retained
earnings
|
17,033.0
|
|
16,741.0
|
|
Treasury
stock, at cost
|
(16,479.8
|
) |
(16,007.7
|
) |
Accumulated
non-owner changes in equity
|
(1,269.2
|
) |
(1,230.8
|
) |
Total
Shareholders Equity
|
3,818.0
|
|
3,938.7
|
|
Commitments
and contingencies
|
-
|
|
-
|
|
Total
Liabilities and Shareholders Equity
|
$16,961.8
|
|
$16,377.2
|
|
|
|
|
|
|
See
the
accompanying footnotes on pages 5 to 11.
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Statement of Income (Unaudited)
|
First
Quarter
Ended
March
31,
|
|
|
2007
|
|
2006
|
|
Gross
sales
|
$4,405.6
|
|
$4,296.3
|
|
Excise
taxes
|
(547.2
|
)
|
(540.7
|
) |
Net
Sales
|
3,858.4
|
|
3,755.6
|
|
Cost
of
sales
|
(2,474.7
|
) |
(2,417.7
|
) |
Gross
Profit
|
1,383.7
|
|
1,337.9
|
|
Marketing,
distribution and administrative expenses
|
(665.7
|
) |
(615.7
|
) |
Operating
income
|
718.0
|
|
722.2
|
|
Interest
expense
|
(119.9
|
) |
(115.1
|
) |
Interest
capitalized
|
3.5
|
|
4.0
|
|
Interest
income
|
0.5
|
|
0.6
|
|
Other
income
/ (expense), net
|
(5.9
|
) |
3.7
|
|
Income
before
income taxes
|
596.2
|
|
615.4
|
|
Provision
for
income taxes
|
(238.1
|
) |
(238.6
|
) |
Equity
income, net of tax
|
159.4
|
|
122.4
|
|
Net
income
|
$517.5
|
|
$499.2
|
|
|
|
|
|
|
Basic
earnings per share
|
$.68
|
|
$.64
|
|
Diluted
earnings per share
|
$.67
|
|
$.64
|
|
See
the
accompanying footnotes on pages 5 to 11.
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Statement of Cash Flows (Unaudited)
|
Three
Months
Ended
March
31,
|
|
|
2007
|
|
2006
|
|
Cash
flow
from operating activities:
|
|
|
|
|
Net
income
|
$517.5
|
|
$499.2
|
|
Adjustments
to reconcile net income to cash provided by
operating
activities:
|
|
|
|
|
Depreciation
and amortization
|
246.0
|
|
245.5
|
|
Decrease
in
deferred income taxes
|
(21.9
|
) |
(17.3
|
) |
Stock-based
compensation expense
|
15.1
|
|
17.1
|
|
Undistributed
earnings of affiliated companies
|
(159.4
|
) |
(122.4
|
) |
Other,
net
|
(40.9
|
) |
(180.9
|
) |
Operating
cash flow before the change in working capital
|
556.4
|
|
441.2
|
|
(Increase)
/
Decrease in working capital
|
(240.4
|
) |
5.8
|
|
Cash
provided
by operating activities
|
316.0
|
|
447.0
|
|
|
|
|
|
|
Cash
flow
from investing activities:
|
|
|
|
|
Capital
expenditures
|
(154.4
|
) |
(159.1
|
) |
Acquisitions
|
(83.5
|
) |
--
|
|
Cash
used for
investing activities
|
(237.9
|
) |
(159.1
|
) |
|
|
|
|
|
Cash
flow
from financing activities:
|
|
|
|
|
Increase
in
debt
|
585.1
|
|
299.3
|
|
Decrease
in
debt
|
(0.7
|
) |
(143.2
|
) |
Dividends
paid to shareholders
|
(225.5
|
) |
(209.8
|
) |
Acquisition
of treasury stock
|
(477.4
|
) |
(259.7
|
) |
Shares
issued
under stock plans
|
95.3
|
|
12.2
|
|
Cash
used for
financing activities
|
(23.2
|
) |
(301.2
|
) |
Net
increase
/ (decrease) in cash during the period
|
54.9
|
|
(13.3
|
) |
Cash,
beginning of period
|
219.2
|
|
225.8
|
|
Cash,
end of
period
|
$274.1
|
|
$212.5
|
|
See
the
accompanying footnotes on pages 5 to 11.
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, 2006.
2. |
Business
Segments Information
|
Comparative
business segment information for the first quarter ended March 31 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Beer
|
|
International
Beer
|
|
Packaging
|
|
Entertainment
|
|
Corporate
and
Elims
|
|
Consolidated
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Sales
|
|
|
$3,463.5
|
|
|
279.5
|
|
|
604.5
|
|
|
185.0
|
|
|
(126.9
|
)
|
|
$4,405.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Intersegment
|
|
|
$0.8
|
|
|
0.3
|
|
|
232.0
|
|
|
--
|
|
|
(233.1
|
)
|
|
--
|
|
-
External
|
|
|
$2,959.4
|
|
|
235.3
|
|
|
372.5
|
|
|
185.0
|
|
|
106.2
|
|
|
$3,858.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Before
Income
Taxes
|
|
|
$762.1
|
|
|
17.6
|
|
|
44.5
|
|
|
(18.5
|
)
|
|
(209.5
|
)
|
|
$596.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Income
|
|
|
$0.1
|
|
|
159.3
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
$159.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
$472.6
|
|
|
170.2
|
|
|
27.6
|
|
|
(11.5
|
)
|
|
(141.4
|
)
|
|
$517.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Sales
|
|
|
$3,357.7
|
|
|
257.1
|
|
|
629.4
|
|
|
170.7
|
|
|
(118.6
|
)
|
|
$4,296.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Intersegment
|
|
|
$0.7
|
|
|
--
|
|
|
225.9
|
|
|
--
|
|
|
(226.6
|
)
|
|
--
|
|
-
External
|
|
|
$2,856.5
|
|
|
216.9
|
|
|
403.5
|
|
|
170.7
|
|
|
108.0
|
|
|
$3,755.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Before
Income
Taxes
|
|
|
$774.2
|
|
|
22.1
|
|
|
38.7
|
|
|
(17.6
|
)
|
|
(202.0
|
)
|
|
$615.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Income
|
|
|
$0.6
|
|
|
121.8
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
$122.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
$480.6
|
|
|
135.5
|
|
|
24.0
|
|
|
(10.9
|
)
|
|
(130.0
|
)
|
|
$499.2
|
|
In
2007, the
company changed reporting responsibility for certain administrative and
technology support costs from Corporate to the U.S. beer segment. 2006 segment
results have been updated to conform to this reporting convention.
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 at a price equal to the closing composite tape on the New York Stock
Exchange on the date the option is granted. At March 31, 2007, existing stock
plans authorized issuance of 112 million shares of common stock. The company
issues new shares when options are exercised under employee stock option plans.
Under the plan for the board of directors, shares are issued from treasury
stock.
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. Unrecognized pretax stock compensation cost
as
of March 31, 2007 was $82 million, and is expected to be recognized over a
weighted average life of approximately 1.5 years.
The
following table
provides additional information regarding options outstanding and options that
were exercisable as of March 31, 2007 (options and in the money values 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
|
4.5
|
|
1.4
years
|
$27.92
|
$100.5
|
|
4.5
|
|
$27.92
|
$100.5
|
|
$30-39
|
7.1
|
|
2.6
years
|
$37.84
|
88.7
|
|
7.1
|
|
$37.84
|
88.7
|
|
$40-49
|
57.4
|
|
6.1
years
|
$46.48
|
242.5
|
|
41.5
|
|
$46.92
|
115.9
|
|
$50-53
|
27.9
|
|
6.5
years
|
$51.29
|
2.2
|
|
24.1
|
|
$51.44
|
2.2
|
|
$20-53
|
96.9
|
|
5.7
years
|
$46.37
|
$433.9
|
|
77.2
|
|
$46.39
|
$307.3
|
|
Anheuser-Busch
accounts for its derivatives in accordance with FAS 133, “Accounting for
Derivatives and Other Hedging Instruments.” For cash flow hedges, the company
defers in accumulated non-owner changes in shareholders equity the portion
of
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 effective gains and losses from derivatives which were recognized in
earnings during the first quarter (in millions). These gains and losses largely
offset price or value changes in the company’s hedged exposures.
First
Quarter
|
2007
|
|
|
2006
|
Gains
|
|
Losses
|
|
|
Gains
|
|
Losses
|
$3.7
|
|
$5.1
|
|
|
$0.5
|
|
$26.7
|
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 $0.9 million for the first quarter of 2007 compared to net
ineffective pretax losses of $0.7 million for the first quarter of 2006.
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 quarter ended March 31 are shown below
(millions of shares):
|
First
Quarter
|
|
2007
|
|
2006
|
Basic
weighted average shares outstanding
|
763.5
|
|
776.1
|
Diluted
weighted average shares outstanding
|
773.3
|
|
780.2
|
The
company’s
inventories were comprised of the following as of March 31, 2007 and December
31, 2006 (in millions).
|
|
March
31,
|
|
Dec.
31,
|
|
|
|
2007
|
|
2006
|
|
Raw
Materials
|
|
|
|
|
|
|
|
Work-in-Process
|
|
|
118.5
|
|
|
110.8
|
|
Finished
Goods
|
|
|
285.2
|
|
|
198.5
|
|
Total
Inventories
|
|
|
|
|
|
|
|
7. |
Nonowner
Changes in Shareholders Equity
|
The
components of
accumulated nonowner changes in shareholders equity, net of applicable taxes,
as
of March 31, 2007 and December 31, 2006 follow (in millions):
|
|
March
31,
|
|
Dec.
31,
|
|
|
|
2007
|
|
2006
|
|
Foreign
currency translation loss
|
|
|
|
)
|
|
|
)
|
Deferred
hedging gains
|
|
|
5.2
|
|
|
2.1
|
|
Deferred
securities valuation gains
|
|
|
0.9
|
|
|
1.3
|
|
Deferred
retirement benefits costs
|
|
|
(782.0
|
)
|
|
(782.0
|
)
|
Accumulated
nonowner changes in shareholders equity
|
|
|
|
)
|
|
|
)
|
Net
income plus
nonowner changes in shareholders equity, net of applicable taxes, for the
quarter ended March 31 follows (in millions):
|
|
First
Quarter
|
|
|
|
2007
|
|
2006
|
|
Net
income
|
|
|
|
|
|
|
|
Foreign
currency translation gains / (losses)
|
|
|
(41.1
|
)
|
|
34.5
|
|
Net
change in
deferred hedging gains / (losses)
|
|
|
3.1
|
|
|
(0.6
|
)
|
Net
change in
deferred securities valuation gains / (losses)
|
|
|
(0.4
|
)
|
|
0.4
|
|
Net
income
plus nonowner changes in shareholders equity
|
|
|
|
|
|
|
|
Following
is
goodwill by business segment, as of March 31, 2007 and December 31, 2006
(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 first quarter 2007 results from fluctuations
in
foreign currency exchange rates.
|
|
|
March
31,
2007
|
|
|
Dec.
31,
2006
|
|
Domestic
Beer
|
|
|
$21.2
|
|
|
|
$21.2
|
|
|
International
Beer
|
|
|
1,282.1
|
|
|
|
1,283.0
|
|
|
Packaging
|
|
|
21.9
|
|
|
|
21.9
|
|
|
Entertainment
|
|
|
288.3
|
|
|
|
288.3
|
|
|
Total
goodwill
|
|
|
$1,613.5
|
|
|
|
$1,614.4
|
|
|
9. |
Pension
and Retirement Health Care
Expense
|
The
components of
quarterly expense for pensions and retirement health care benefits are shown
below for the first quarter of 2007 and 2006 (in millions):
|
Pensions
|
Retirement
Health
Care
|
|
2007
|
2006
|
2007
|
2006
|
Service
cost
(benefits earned during the period)
|
$25.1
|
$26.6
|
$6.5
|
$6.2
|
Interest
cost
on benefit obligation
|
44.6
|
42.5
|
10.9
|
8.7
|
Assumed
return on plan assets
|
(52.1)
|
(49.6)
|
--
|
--
|
Amortization
of prior service cost and net actuarial losses
|
21.3
|
28.5
|
4.1
|
1.3
|
FAS
88
Settlement
|
19.0
|
--
|
--
|
--
|
Expense
for
defined benefit plans
|
57.9
|
48.0
|
21.5
|
16.2
|
Cash
contributed to multi-employer plans
|
4.2
|
3.9
|
--
|
--
|
Cash
contributed to defined contribution plans
|
5.2
|
4.7
|
--
|
--
|
Total
quarterly expense
|
$67.3
|
$56.6
|
$21.5
|
$16.2
|
In
order to enhance
the funded status of its defined benefit pension plans, the company made
discretionary pension contributions of $85 million in January 2007 and $214
million in January 2006. These contributions were in addition to the company’s
required pension funding.
In
the first
quarter, the company recognized previously deferred actuarial losses resulting
from the retirement of certain executive officers in the fourth quarter 2006,
in
accordance with FAS 88, “Employers’ Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans.” The company recognized the FAS 88 impact in
the first quarter of 2007 because these individuals retired subsequent to the
company’s pension accounting measurement date of October 1, 2006.
10. |
Uncertain
Tax Positions
|
Effective
January
1, 2007, Anheuser-Busch adopted FASB Interpretation No. 48 (FIN 48), “Accounting
for Uncertainty in Income Taxes.” On adoption, the company had $96.8 million in
gross unrecognized tax benefits, resulting in $45.9 million of net uncertain
tax
benefit positions that would reduce the company’s effective income tax rate if
recognized. To comply with FIN 48, Anheuser-Busch reclassified $102.6 million
of
tax liabilities from current to noncurrent on the balance sheet and also
separately recognized $53.1 million of deferred tax assets which had previously
been netted against tax liabilities. The company made no adjustments to retained
earnings related to the adoption and anticipates no significant changes to
the
amount of unrecognized tax benefits in the next 12 months.
The
company’s
policy is to accrue interest related to potential underpayment of income taxes
within the provision for income taxes. The liability for accrued interest
totaled $7.8 million as of January 1, 2007. Interest is computed on the
difference between the company’s uncertain tax benefit positions under FIN 48
and the amount deducted or expected to be deducted in the company’s tax
returns.
The
principal
jurisdictions for which Anheuser-Busch files income tax returns are U.S. federal
and the various city, state, and international locations where the company
has
operations. The company participates in the IRS Compliance Assurance
Process
program
for the
examination of U.S. federal income tax returns, and examinations are
substantively complete through 2005. City and state examinations are
substantially complete through 2001. The status of international tax
examinations varies by jurisdiction. The company does not anticipate any
material adjustments to its financial statements resulting from tax examinations
currently in progress.
11. |
Equity
Investment in Grupo Modelo
|
Summary
financial
information for Anheuser-Busch’s equity investee Grupo Modelo for the first
quarter of 2007 and 2006 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.
|
First
Quarter
Ended
March
31,
|
|
2007
|
|
2006
|
Cash
and
marketable securities
|
$2,020.3
|
|
|
$1,790.5
|
|
Other
current
assets
|
$1,361.8
|
|
|
$989.4
|
|
Non-current
assets
|
$4,715.9
|
|
|
$4,644.3
|
|
Current
liabilities
|
$623.3
|
|
|
$382.2
|
|
Non-current
liabilities
|
$323.9
|
|
|
$367.0
|
|
Gross
sales
|
$1,431.0
|
|
|
$1,233.0
|
|
Net
sales
|
$1,332.4
|
|
|
$1,142.4
|
|
Gross
profit
|
$716.3
|
|
|
$605.4
|
|
Minority
interest
|
$43.5
|
|
|
$0.3
|
|
Net
income
|
$312.7
|
|
|
$241.9
|
|
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 first quarter ended March 31, 2007, compared to the first quarter
ended March 31, 2006, and the year ended December 31, 2006. 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, 2006.
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
Anheuser-Busch
reported improved sales and earnings for the first quarter 2007, with
consolidated net sales increasing 2.7% and diluted earnings per share up 4.7%.
The company is encouraged by its progress on key initiatives during the first
quarter. Domestic beer price increases and discount reductions were successfully
implemented earlier this year and the pricing environment continues to be
favorable. Cost reduction efforts have lessened the impact of ongoing cost
pressures and consolidated gross profit margin improved during the quarter.
The
transition of the InBev European brands into Anheuser-Busch’s wholesaler system
is ahead of schedule and good progress has been made implementing other import
and energy drink alliances. The international segment, led by Grupo Modelo,
continues to make a significant contribution to earnings growth.
These
factors,
combined
with marketing and selling initiatives, provide a good foundation for
accelerated earnings growth in 2007.
Beer
Sales Results
Following
is a
summary and discussion of the company’s beer volume and sales results for the
first quarter 2007 compared with the first quarter 2006.
Beer
Volume
(millions of barrels)
|
|
First
Quarter
|
|
2007
vs.
2006
|
|
2007
|
|
2006
|
|
Barrels
|
|
%
|
Domestic
|
25.7
|
|
25.6
|
|
Up
0.1
|
|
Up
0.5%
|
International
|
5.2
|
|
4.8
|
|
Up
0.4
|
|
Up
8.7%
|
Worldwide
A-B
Brands
|
30.9
|
|
30.4
|
|
Up
0.5
|
|
Up
1.8%
|
Equity
Partner Brands
|
6.7
|
|
6.4
|
|
Up
0.3
|
|
Up
4.1%
|
Total
Brands
|
37.6
|
|
36.8
|
|
Up
0.8
|
|
Up
2.2%
|
Domestic
beer
volume represents beer shipped within the U.S., which includes both the
company’s domestically-produced brands and imported brands. U.S. beer
shipments-to-wholesalers increased 0.5% for the first quarter 2007, with
acquired and import brands contributing 1.2 points to overall growth.
Sales-to-retailers were up 0.1%, including a contribution of 1.7 points of
growth from acquired and import brands. Wholesaler inventories at the end of
the
quarter were about one-half of a day lower than the first quarter 2006. In
February the company became the exclusive importer of select InBev European
brands.
The
company’s
estimated domestic market share (excluding exports) for the first quarter 2007
was 50.2%, compared to prior year market share of 50.9%. 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, increased 8.7% for the first quarter 2007 driven
primarily by sales in China and Canada. Worldwide Anheuser-Busch brands volume
is comprised of domestic volume and international volume and rose 1.8%, to
30.9
million barrels.
Equity
partner
brands volume, representing the company’s share of its equity partners’ volume
reported on a one-month lag, increased 4.1% for the first quarter of 2007 due
to
increased volume from Grupo Modelo and Tsingtao.
Total
brands
volume, which combines worldwide Anheuser-Busch brand volume with equity partner
brands volume was up 2.2%, to 37.6 million barrels in the first quarter.
First
Quarter 2007 Financial Results
Following
is a
summary and discussion of key operating results for the first quarter 2007
versus 2006.
$
in
millions, except per share
|
First
Quarter
|
|
2007
vs.
2006
|
|
2007
|
|
2006
|
|
$
|
|
%
|
Gross
Sales
|
$4,406
|
|
$4,296
|
|
Up
$110
|
|
Up
2.5%
|
Net
Sales
|
$3,858
|
|
$3,756
|
|
Up
$102
|
|
Up
2.7%
|
Income
Before
Income Taxes
|
$596
|
|
$615
|
|
Dn
$19
|
|
Dn
3.1%
|
Equity
Income
|
$159
|
|
$122
|
|
Up
$37
|
|
Up
30.3%
|
Net
Income
|
$518
|
|
$499
|
|
Up
$19
|
|
Up
3.7%
|
Diluted
Earnings per Share
|
$.67
|
|
$.64
|
|
Up
$.03
|
|
Up
4.7%
|
Anheuser-Busch
reported gross sales of $4.4 billion during the first quarter 2007, an increase
of 2.5%. Net sales were $3.9 billion, an increase of 2.7%. The difference
between gross and net sales in 2007 reflects beer excise taxes of $548 million.
The
increases in
both gross and net sales were due to sales increases for U.S. and international
beer and entertainment operations. U.S. beer segment net sales increased 3.6%
on
improved revenue per barrel and increased sales volume. International beer
net
sales increased 8.5% primarily due to volume increases in China and Canada.
Packaging operations net sales declined 7.7% due to lower can and recycling
volume, while entertainment segment sales were up 8.4% on increased attendance
and higher ticket pricing.
U.S.
beer revenue
per barrel was up 2.3% on successful implementation of price increases and
discount reductions on the majority of the company’s domestic volume during the
first quarter and favorable mix from import sales. Revenue per barrel growth
accounted for $88 million of the first quarter U.S. beer net sales growth,
while
higher volume contributed $15 million. Revenue per barrel is calculated as
net
sales generated by the
company’s
U.S. 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.
Cost
of sales for
the first quarter 2007 was $2.5 billion, an increase of $57 million, or 2.4%.
The increase in cost of sales is primarily attributable to increased costs
associated with higher U.S. and international beer volume of $34 million and
$8
million, respectively, increased costs for U.S. beer packaging materials, and
higher labor and operating costs for entertainment operations, partially offset
by lower energy costs and lower cost of sales for packaging operations due
to
lower volume. Consolidated gross profit as a percentage of net sales was 35.9%
for the first quarter, up 30 basis points.
Marketing,
distribution and administrative expenses were $666 million, an increase of
$50
million, or 8.1% for the first quarter. This increase is due to higher U.S.
beer
marketing costs, both to support trademark brands and incremental marketing
and
selling expense on the company’s new import beer portfolio, increased marketing
costs in China, higher delivery costs for company-owned beer wholesalerships,
and increased administrative expenses. Administrative expenses for the first
quarter include a FAS 88 charge and an asset disposition gain.
Operating
income
was $718 million, a decrease of $4 million, or 0.6% for the first quarter 2007
due to higher cost of sales and marketing expense offsetting increases in net
sales. Operating margin for the quarter decreased 60 basis points, to 18.6%.
Interest
expense
less interest income was $119 million for the first quarter 2007, an increase
of
$5 million, or 4% due to higher average interest rates partially offset by
lower
average debt outstanding. Interest capitalized of $3.5 million in the first
quarter 2007 was down slightly due to the timing of qualifying capital spending.
Other
income/expense, net reflects the impact of numerous items not directly related
to the company’s operations. For the first quarter of 2007, the company had
other expense of $6 million, compared to other income of $4 million in 2006.
Income
before
income taxes for the first quarter 2007 was $596 million, a decrease of $19
million, or 3.1% due primarily to lower profits in U.S. and international beer
and higher net interest expense. U.S. beer pretax profits declined $12 million
primarily due to higher packaging materials and marketing expenses offsetting
improved revenue per barrel and higher beer volume. International beer pretax
income was down $5 million primarily due to lower results in the United Kingdom,
partially offset by increased profits in China and
Canada.
Packaging
segment pretax profits were up $6 million on increased profits from all of
its
business, led by aluminum recycling operations. Entertainment segment pretax
results were down slightly versus prior year.
Equity
income
increased $37 million, or 30% in the first quarter 2007 primarily from improved
Grupo Modelo earnings from higher domestic volume and benefits associated with
the new Crown import and distribution joint venture. Equity income includes
a
$17 million benefit from the return of an advertising fund that was part of
a
prior import contract, partially offset by a timing change in the recognition
of
Modelo’s export sales to the U.S.
Anheuser-Busch’s
effective tax rate was 39.9% in the first quarter 2007, an increase of 110
basis
points primarily due to higher taxes on foreign earnings. Net income of $518
million in the first quarter of 2007 represented an increase of $18 million,
or
3.7%. Diluted earnings per share were $.67, up $.03 from prior year, or 4.7%.
Earnings per share benefited from the repurchase of more than nine million
shares in the first quarter under the company’s on-going share repurchase
program.
Liquidity
and Financial Condition
Cash
at March 31,
2007 was $274 million, an increase of $55 million from the December 31, 2006
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 $556
million for the first quarter 2007, an increase of $115 million due primarily
to
the difference in first quarter discretionary contributions made to the
company’s defined benefit pension plans. In 2007, the company contributed $85
million compared to $214 million in 2006. Discretionary pension contributions
are made in addition to the company’s required annual pension funding, which is
estimated to be $58 million in 2007. Working capital increased $240 million
due
to first quarter 2007 bonus payments and higher inventories and
receivables.
There
have been only normal and recurring changes in the company’s cash commitments
since December 31, 2006.
Capital
expenditures during the first quarter 2007 were $154 million, compared to $159
million for the first quarter 2006. Full year 2007 capital expenditures are
expected to be approximately $950 million. Acquisition spending for the first
quarter relates primarily to the acquisition by company-owned beer wholesale
operations of exclusive distribution rights for the InBev European brand
portfolio in certain markets.
At
its April 2007
meeting, the Board of Directors declared a regular quarterly dividend of $.295
per share on outstanding shares of the company’s common stock, payable
June 11, 2007 to shareholders of record May 9, 2007. The dividend rate for
the comparable 2006 period was $.27 per share.
The
company’s debt
balance increased a net $623 million since December 31, 2006, compared to a
net
increase of $155 million during the first quarter 2006. The details of the
quarterly changes in debt are outlined below (in millions).
Description
|
|
Amount
|
|
Interest
Rate
(Fixed Unless Noted)
|
First
Three Months of 2007
|
|
|
|
|
Increases:
|
|
|
|
|
|
U.S.
Dollar
Notes
|
|
$317.3
|
|
$300.0
at
5.6% and $17.3 at 5.54%
|
|
Commercial
Paper
|
|
264.2
|
|
5.38%
Wtd.
avg., floating
|
|
Other,
net
|
|
41.9
|
|
Various
|
|
Total
increases
|
|
623.4
|
|
|
Decreases:
|
|
|
|
|
|
Other,
net
|
|
(0.7
|
) |
Various
|
|
Net
increase
in debt
|
|
$622.7
|
|
|
|
|
|
|
|
First
Three Months of 2006
|
|
|
|
|
Increases:
|
|
|
|
|
|
U.S.
Dollar
Debentures
|
|
$300.0
|
|
5.75%
|
|
Other,
net
|
|
1.0
|
|
Various
|
|
Total
increases
|
|
301.0
|
|
|
Decreases:
|
|
|
|
|
|
Commercial
Paper
|
|
(136.9
|
) |
4.53%
Wtd.
avg., floating
|
|
Other,
net
|
|
(8.8
|
) |
Various
|
|
Total
decreases
|
|
(145.7
|
) |
|
|
Net
increase
in debt
|
|
$155.3
|
|
|
The
company has
$1.1 billion of debt available for issuance through existing SEC shelf
registrations.
The
company’s
commercial paper borrowings of $923 million at March 31, 2007 were 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 company’s quarter-end interest rate for commercial paper
borrowing was 5.39%.
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, 2006, 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.
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 March 31, 2007 and have
concluded that they are effective as of March 31, 2007 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
On
September 19,
2006, one of the Company’s cansheet suppliers, Novelis Corporation (“Novelis”),
instituted a lawsuit seeking relief from continued performance of its
obligations under its cansheet supply agreement with the Company. This action
is
being heard in federal court in the Northern District of Ohio. 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
On
January 3, 2007,
the company issued out of treasury shares a total of 3,900 shares of the
Company’s common stock ($1 par value) to four members of the Board of Directors
of the company in lieu of cash for all or a portion of those members’ 2007
annual retainer fee pursuant to the company’s Non-Employee Director Elective
Stock Acquisition Plan. These transactions were exempt from registration and
prospectus delivery requirements of the Securities Act of 1933 pursuant to
Section 4(2) of the Act.
Following
are the
Company’s monthly common stock purchases during the first quarter 2007 (in
millions, except per share):
|
Shares
|
|
Avg.
Price
|
Shares
Remaining Authorized Under Disclosed Repurchase Programs at December
31,
2006
|
114.7
|
|
|
|
|
|
|
Share
Repurchases
|
|
|
|
January
|
2.4
|
|
$50.12
|
February
|
3.6
|
|
$50.49
|
March
|
3.4
|
|
$49.30
|
Total
First
Quarter 2007 Repurchases
|
9.4
|
|
|
|
|
|
|
Shares
Remaining Authorized Under Disclosed Repurchase Programs at March
31,
2007
|
105.3
|
|
|
All
shares are
repurchased under Board of Directors authorization. In December 2006, the Board
authorized a new program to repurchase 100 million shares. This program is
in
addition to the program to repurchase 100 million shares that was authorized
in
March 2003. There is no prescribed termination date for any stock repurchase
program. The numbers of shares shown include shares delivered to the company
to
exercise stock options.
Item
4. Submission
of Matters to a Vote of Security Holders
At
the Annual
Meeting of Stockholders of the Company held April 25, 2007, the following
matters were voted on:
1. |
Election
of
August A. Busch III, August A. Busch IV, Carlos Fernandez G., James
R.
Jones, Andrew C. Taylor and Douglas A. Warner III to serve as directors
of
the company for a term of one year.
|
|
For
|
|
Withheld
|
|
|
|
August
A.
Busch III
|
654,652,737
|
|
17,512,601
|
|
|
|
August
A.
Busch IV
|
654,083,409
|
|
18,081,929
|
|
|
|
Carlos
Fernandez G.
|
638,730,334
|
|
33,435,004
|
|
|
|
James
R.
Jones
|
655,982,782
|
|
16,182,556
|
|
|
|
Andrew
C.
Taylor
|
655,103,978
|
|
17,061,360
|
|
|
|
Douglas
A.
Warner III
|
654,985,139
|
|
17,180,199
|
|
|
|
2. |
Approve
the
2007 Equity and Incentive Plan
|
For
|
477,488,405
|
|
Against
|
79,492,619
|
|
Abstain
|
8,164,390
|
|
Non-Votes
|
107,019,924
|
|
3. |
Approve
the
Global Employee Stock Purchase Plan
|
For
|
540,633,403
|
|
Against
|
18,177,431
|
|
Abstain
|
6,334,879
|
|
Non-Votes
|
107,019,625
|
|
4. |
Approve
the
appointment of PricewaterhouseCoopers LLP as independent registered
public
accounting firm for 2007
|
For
|
661,143,563
|
|
Against
|
5,734,567
|
|
Abstain
|
5,287,208
|
|
Non-Votes
|
0
|
|
Item
6. Exhibits
Exhibit
|
|
Description
|
|
|
|
10.32
|
|
Form
of
Notice of Award and Information Memorandum under Anheuser-Busch Companies,
Inc. 2006 Restricted Plan for Non-Employee Directors.
|
|
|
|
10.33
|
|
Form
of
Notice of Award and Information Memorandum under Anheuser-Busch Companies,
Inc. 2006 Restricted Stock Plan for Non-Employee Director who is
a citizen
of Mexico.
|
|
|
|
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)
April
27,
2007
|
|
|
|
|
|
|
|
/s/
John F.
Kelly |
|
|
John
F.
Kelly
Vice
President and Controller
(Chief
Accounting Officer)
April
27,
2007
|