ab10q.htm
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, 2008
|
|
|
|
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)
(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 – 713,074,864 shares as of March 31, 2008.
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Balance Sheet (Unaudited)
|
|
March
31,
|
|
|
Dec.
31,
|
|
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
|
|
$ |
217.8 |
|
|
$ |
283.2 |
|
Accounts receivable
|
|
|
1,001.6 |
|
|
|
805.2 |
|
Inventories
|
|
|
818.3 |
|
|
|
723.5 |
|
Other current assets
|
|
|
222.0 |
|
|
|
212.6 |
|
Total current assets
|
|
|
2,259.7 |
|
|
|
2,024.5 |
|
Investments
in affiliated companies
|
|
|
4,231.4 |
|
|
|
4,019.5 |
|
Plant and
equipment, net
|
|
|
8,765.1 |
|
|
|
8,833.5 |
|
Intangible
assets, including goodwill of $1,160.3 and $1,134.6
|
|
|
1,556.0 |
|
|
|
1,547.9 |
|
Other
assets
|
|
|
739.0 |
|
|
|
729.6 |
|
Total Assets
|
|
$ |
17,551.2 |
|
|
$ |
17,155.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders Equity
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
1,405.6 |
|
|
$ |
1,464.5 |
|
Accrued salaries, wages and
benefits
|
|
|
313.3 |
|
|
|
374.3 |
|
Accrued taxes
|
|
|
387.9 |
|
|
|
106.2 |
|
Accrued interest
|
|
|
125.6 |
|
|
|
136.4 |
|
Other current
liabilities
|
|
|
309.6 |
|
|
|
222.4 |
|
Total current
liabilities
|
|
|
2,542.0 |
|
|
|
2,303.8 |
|
Retirement
benefits
|
|
|
1,015.4 |
|
|
|
1,002.5 |
|
Debt
|
|
|
9,281.0 |
|
|
|
9,140.3 |
|
Deferred
income taxes
|
|
|
1,323.1 |
|
|
|
1,314.6 |
|
Other
long-term liabilities
|
|
|
241.1 |
|
|
|
242.2 |
|
Shareholders
Equity:
|
|
|
|
|
|
|
|
|
Common stock, $1.00 par value,
authorized 1.6 billion shares
|
|
|
1,483.4 |
|
|
|
1,482.5 |
|
Capital in excess of par
value
|
|
|
3,423.6 |
|
|
|
3,382.1 |
|
Retained earnings
|
|
|
18,198.5 |
|
|
|
17,923.9 |
|
Treasury stock, at cost
|
|
|
(19,165.3 |
) |
|
|
(18,714.7 |
) |
Accumulated non-owner changes in
equity
|
|
|
(791.6 |
) |
|
|
(922.2 |
) |
Total Shareholders
Equity
|
|
|
3,148.6 |
|
|
|
3,151.6 |
|
Commitments
and contingencies
|
|
|
-- |
|
|
|
-- |
|
Total Liabilities and Shareholders
Equity
|
|
$ |
17,551.2 |
|
|
$ |
17,155.0 |
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
Gross
sales
|
|
$ |
4,654.7 |
|
|
$ |
4,405.6 |
|
Excise taxes
|
|
|
(555.5 |
) |
|
|
(547.2 |
) |
Net
Sales
|
|
|
4,099.2 |
|
|
|
3,858.4 |
|
Cost of sales
|
|
|
(2,630.1 |
) |
|
|
(2,474.7 |
) |
Gross Profit
|
|
|
1,469.1 |
|
|
|
1,383.7 |
|
Marketing, distribution and
administrative expenses
|
|
|
(706.3 |
) |
|
|
(665.7 |
) |
Operating
income
|
|
|
762.8 |
|
|
|
718.0 |
|
Interest expense
|
|
|
(129.1 |
) |
|
|
(119.9 |
) |
Interest capitalized
|
|
|
4.9 |
|
|
|
3.5 |
|
Interest income
|
|
|
1.1 |
|
|
|
0.5 |
|
Other expense, net
|
|
|
(4.9 |
) |
|
|
(5.9 |
) |
Income before
income taxes
|
|
|
634.8 |
|
|
|
596.2 |
|
Provision for income
taxes
|
|
|
(249.9 |
) |
|
|
(238.1 |
) |
Equity
income, net of tax
|
|
|
126.0 |
|
|
|
159.4 |
|
Net
income
|
|
$ |
510.9 |
|
|
$ |
517.5 |
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
.71 |
|
|
$ |
.68 |
|
Diluted
earnings per share
|
|
$ |
.71 |
|
|
$ |
.67 |
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
Cash flow
from operating activities:
|
|
|
|
|
|
|
Net income
|
|
$ |
510.9 |
|
|
$ |
517.5 |
|
Adjustments to reconcile net income to
cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
253.3 |
|
|
|
246.0 |
|
Decrease in deferred income
taxes
|
|
|
(9.6 |
) |
|
|
(21.9 |
) |
Stock-based compensation
expense
|
|
|
14.4 |
|
|
|
15.1 |
|
Undistributed earnings of affiliated
companies
|
|
|
(126.0 |
) |
|
|
(159.4 |
) |
Other, net
|
|
|
12.6 |
|
|
|
(40.9 |
) |
Operating cash flow before the change
in working capital
|
|
|
655.6 |
|
|
|
556.4 |
|
Increase in working
capital
|
|
|
(44.9 |
) |
|
|
(240.4 |
) |
Cash provided by operating
activities
|
|
|
610.7 |
|
|
|
316.0 |
|
|
|
|
|
|
|
|
|
|
Cash flow
from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(150.3 |
) |
|
|
(154.4 |
) |
Acquisitions
|
|
|
(1.5 |
) |
|
|
(83.5 |
) |
Cash used for investing
activities
|
|
|
(151.8 |
) |
|
|
(237.9 |
) |
|
|
|
|
|
|
|
|
|
Cash flow
from financing activities:
|
|
|
|
|
|
|
|
|
Increase in debt
|
|
|
353.3 |
|
|
|
585.1 |
|
Decrease in debt
|
|
|
(218.9 |
) |
|
|
(0.7 |
) |
Dividends paid to
shareholders
|
|
|
(236.3 |
) |
|
|
(225.5 |
) |
Acquisition of treasury
stock
|
|
|
(458.7 |
) |
|
|
(477.4 |
) |
Shares issued under stock
plans
|
|
|
36.3 |
|
|
|
95.3 |
|
Cash used for financing
activities
|
|
|
(524.3 |
) |
|
|
(23.2 |
) |
Net increase
/ (decrease) in cash during the period
|
|
|
(65.4 |
) |
|
|
54.9 |
|
Cash,
beginning of period
|
|
|
283.2 |
|
|
|
219.2 |
|
Cash, end of
period
|
|
$ |
217.8 |
|
|
$ |
274.1 |
|
|
|
|
|
|
|
|
|
|
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, 2007.
2.
|
Business Segments
Information
|
Comparative business segments information for
the first quarter ended March 31 (in millions):
|
U.S.
Beer
|
International
Beer
|
Packaging
|
Entertainment
|
Corporate
and
Elims
|
Consolidated
|
2008
|
|
|
|
|
|
|
Gross
Sales
|
$3,574.7
|
337.8
|
644.5
|
221.6
|
(123.9)
|
$4,654.7
|
Net
Sales:
|
|
|
|
|
|
|
-
Intersegment
|
$0.8
|
0.1
|
242.0
|
--
|
(242.9)
|
--
|
-
External
|
$3,065.9
|
290.2
|
402.5
|
221.6
|
119.0
|
$4,099.2
|
Income
Before
Income
Taxes
|
$775.5
|
37.5
|
39.9
|
(6.1)
|
(212.0)
|
$634.8
|
Equity
Income
|
$(0.4)
|
126.4
|
--
|
--
|
--
|
$126.0
|
Net
Income
|
$480.4
|
149.7
|
24.7
|
(3.8)
|
(140.1)
|
$510.9
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Gross
Sales
|
$3,457.4
|
285.6
|
604.5
|
185.0
|
(126.9)
|
$4,405.6
|
Net
Sales:
|
|
|
|
|
|
|
-
Intersegment
|
$0.8
|
0.3
|
232.0
|
--
|
(233.1)
|
--
|
-
External
|
$2,953.3
|
241.4
|
372.5
|
185.0
|
106.2
|
$3,858.4
|
Income
Before
Income
Taxes
|
$758.0
|
19.1
|
44.5
|
(18.5)
|
(206.9)
|
$596.2
|
Equity
Income
|
$0.1
|
159.3
|
--
|
--
|
--
|
$159.4
|
Net
Income
|
$470.1
|
171.1
|
27.6
|
(11.5)
|
(139.8)
|
$517.5
|
In 2008, the company changed reporting
responsibility for beer sales in the Caribbean region from U.S. Beer to
International Beer and also reassigned certain administrative and technology
support costs between Corporate and U.S. Beer. Segment results for 2007 have
been updated to conform to the revised reporting conventions.
Under the terms of the company’s stock option
plans, officers, certain other employees and nonemployee 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, 2008, existing stock compensation plans
authorized the issuance of 135 million shares of common stock. The company
issues either new shares or treasury shares when options are exercised under
employee stock compensation 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, 2008 was $102 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, 2008 (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
|
2.2
|
0.6
years
|
$29.92
|
$38.8
|
|
2.2
|
$29.92
|
$38.8
|
$30-39
|
5.1
|
1.6
years
|
$37.83
|
$48.6
|
|
5.1
|
$37.83
|
$48.6
|
$40-49
|
54.9
|
5.2
years
|
$46.53
|
$112.3
|
|
45.4
|
$46.73
|
$84.9
|
$50-53
|
37.4
|
6.6
years
|
$51.45
|
---
|
|
27.6
|
$51.29
|
---
|
$20-53
|
99.6
|
5.4
years
|
$47.56
|
$199.7
|
|
80.3
|
$47.27
|
$172.3
|
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 nonowner
changes in shareholders equity the effective portion of derivatives gains and
losses (those that equal the change in cost of the underlying hedged
transactions). As the 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
|
2008
|
|
|
2007
|
Gains
|
|
Losses
|
|
|
Gains
|
|
Losses
|
$5.5
|
|
$4.5
|
|
|
$3.7
|
|
$5.1
|
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 losses due to hedge ineffectiveness of $6.5 million for
the first quarter of 2008 compared to net ineffective pretax gains of $0.9
million for the first quarter of 2007.
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
|
|
2008
|
|
2007
|
Basic
weighted average shares outstanding
|
716.7
|
|
763.5
|
Diluted
weighted average shares outstanding
|
721.6
|
|
773.3
|
The company’s
inventories were comprised of the following as of March 31, 2008 and December
31, 2007 (in millions).
|
|
March
31,
|
|
|
Dec.
31,
|
|
|
|
2008
|
|
|
2007
|
|
Raw
Materials
|
|
$ |
387.8 |
|
|
$ |
365.4 |
|
Work-in-Process
|
|
|
134.9 |
|
|
|
109.9 |
|
Finished
Goods
|
|
|
295.6 |
|
|
|
248.2 |
|
Total
Inventories
|
|
$ |
818.3 |
|
|
$ |
723.5 |
|
7.
|
Nonowner Changes in
Shareholders Equity
|
The components of accumulated nonowner changes
in shareholders equity, net of applicable taxes, as of March 31, 2008 and
December 31, 2007 follow (in millions):
|
|
March
31,
|
|
|
Dec.
31,
|
|
|
|
2008
|
|
|
2007
|
|
Foreign
currency translation loss
|
|
$ |
(239.6 |
) |
|
$ |
(347.0 |
) |
Deferred
hedging gains
|
|
|
11.0 |
|
|
|
0.1 |
|
Deferred
securities valuation gains
|
|
|
2.1 |
|
|
|
1.0 |
|
Deferred
retirement benefits costs
|
|
|
(565.1 |
) |
|
|
(576.3 |
) |
Accumulated
nonowner changes in shareholders equity
|
|
$ |
(791.6 |
) |
|
$ |
(922.2 |
) |
Net income plus nonowner changes in
shareholders equity, net of applicable taxes, for the quarter ended March 31
follows (in millions):
|
|
First
Quarter
|
|
|
|
2008
|
|
|
2007
|
|
Net
income
|
|
$ |
510.9 |
|
|
$ |
517.5 |
|
Foreign
currency translation gains / (losses)
|
|
|
107.4 |
|
|
|
(41.1 |
) |
Net change in
deferred hedging gains
|
|
|
10.9 |
|
|
|
3.1 |
|
Net change in
deferred securities valuation gains / (losses)
|
|
|
1.1 |
|
|
|
(0.4 |
) |
Net change in
deferred retirement benefits
|
|
|
11.2 |
|
|
|
-- |
|
Net income
plus nonowner changes in shareholders equity
|
|
$ |
641.5 |
|
|
$ |
479.1 |
|
Following is goodwill by business segment, as
of March 31, 2008 and December 31, 2007 (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
2008 results from fluctuations in foreign currency exchange rates.
|
|
March
31,
2008
|
|
|
Dec.
31,
2007
|
|
Domestic
Beer
|
|
$ |
21.2 |
|
|
$ |
21.2 |
|
International
Beer
|
|
|
1,379.1 |
|
|
|
1,343.3 |
|
Packaging
|
|
|
21.9 |
|
|
|
21.9 |
|
Entertainment
|
|
|
288.3 |
|
|
|
288.3 |
|
Total
goodwill
|
|
$ |
1,710.5 |
|
|
$ |
1,674.7 |
|
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 2008 and 2007 (in millions):
|
|
Pensions
|
|
|
Retirement
Health
Care
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service cost
(benefits earned during the period)
|
|
$ |
24.9 |
|
|
$ |
25.1 |
|
|
$ |
7.5 |
|
|
$ |
6.5 |
|
Interest cost
on benefit obligation
|
|
|
47.5 |
|
|
|
44.6 |
|
|
|
12.1 |
|
|
|
10.9 |
|
Assumed
return on plan assets
|
|
|
(55.4 |
) |
|
|
(52.1 |
) |
|
|
--- |
|
|
|
--- |
|
Amortization
of prior service cost and net actuarial losses
|
|
|
15.0 |
|
|
|
21.3 |
|
|
|
4.6 |
|
|
|
4.1 |
|
FAS 88
Settlement
|
|
|
--- |
|
|
|
19.0 |
|
|
|
-- |
|
|
|
-- |
|
Expense for defined benefit
plans
|
|
|
32.0 |
|
|
|
57.9 |
|
|
|
24.2 |
|
|
|
21.5 |
|
Cash
contributed to multi-employer plans
|
|
|
4.1 |
|
|
|
4.2 |
|
|
|
--- |
|
|
|
--- |
|
Cash
contributed to defined contribution plans
|
|
|
5.4 |
|
|
|
5.2 |
|
|
|
--- |
|
|
|
--- |
|
Total quarterly
expense
|
|
$ |
41.5 |
|
|
$ |
67.3 |
|
|
$ |
24.2 |
|
|
$ |
21.5 |
|
In the first quarter 2007, 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.
|
Equity Investment in
Grupo Modelo
|
Summary financial information for
Anheuser-Busch’s equity investee Grupo Modelo for the first quarter of 2008 and
2007 is presented below (in millions). The amounts shown represent 100% of
Modelo’s consolidated operating results 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,
|
|
|
|
2008
|
|
|
2007
|
|
Net
sales
|
|
$ |
1,045.2 |
|
|
$ |
962.6 |
|
Gross
profit
|
|
$ |
663.5 |
|
|
$ |
609.3 |
|
Minority
interest
|
|
$ |
0.8 |
|
|
$ |
4.3 |
|
Net
income
|
|
$ |
255.2 |
|
|
$ |
312.7 |
|
11.
|
Fair Value
Measurements
|
Effective in the
first quarter 2008, the company adopted FAS No. 157, “Fair Value
Measurements.” FAS 157 requires specific disclosures regarding assets
and liabilities measured at fair value, including the primary sources and
potentially the inputs used to determine fair value, depending on the type and
reliability of those inputs. Currently, the disclosures prescribed by
FAS 157 apply only to financial assets and liabilities. Applicability to
nonfinancial assets and liabilities is effective in the first quarter
2009.
The company
accounts for financial derivatives at fair value and at March 31, 2008 had
derivatives-based assets (amounts due from counterparties) of $27.3 million and
liabilities (amounts due to counterparties) of $9.4 million reported on the
balance sheet. The liabilities are reported in other current liabilities while
$25.6 million of the assets are reported in other current assets with the
remaining $1.7 million reported in other assets. The fair values of
derivatives are determined either through quoted prices in active markets for
exchange traded derivatives, which for Anheuser-Busch are primarily commodity
derivatives, or through pricing from brokers who develop values based on inputs
observable in active markets, such as interest rates and currency volatilities.
The fair value of derivatives based on market quoted pricing was $24.0 million
as of March 31, 2008, while the fair value related to broker quoted pricing was
$12.7 million.
Anheuser-Busch also
uses fair value measurements when it periodically evaluates the recoverability
of goodwill and other intangible assets, and when preparing annual fair value
disclosures regarding the company’s long-term debt portfolio.
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, 2008, compared to the first quarter ended March 31, 2007, and
the year ended December 31, 2007. 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,
2007.
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
operations achieved solid results in the first quarter 2008, growing net sales,
operating income and diluted earnings per share 6% over last year. The company
successfully implemented U.S. beer price increases and expects good revenue per
barrel performance in 2008. Cost reduction efforts are significantly mitigating
the impact of industry-wide cost pressures. Marketing and sales support for core
beer brands is being increased, and although U.S. beer sales-to-retailers
results were below expectations, the company is optimistic concerning the
outlook for beer sales during the key summer selling season.
Beer Sales
Results
Following is a summary and discussion of the
company’s beer volume and sales results for the first quarter 2008 compared with
the first quarter 2007.
Beer Volume
(millions of barrels)
|
|
|
|
|
2008 vs.
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
25.8 |
|
|
|
25.7 |
|
|
|
Up
0.1
|
|
|
Up
0.4%
|
International
|
|
5.4 |
|
|
|
5.2 |
|
|
|
|
|
|
|
Worldwide A-B Brands
|
|
31.2 |
|
|
|
30.9 |
|
|
|
Up
0.3
|
|
|
Up
0.8%
|
Equity
Partner Brands
|
|
7.3 |
|
|
|
6.7 |
|
|
|
|
|
|
|
Total Brands
|
|
38.5 |
|
|
|
37.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. beer
shipments-to-wholesalers increased 0.4% for the first quarter 2008, with import
brands contributing 60 basis points to overall growth. First quarter 2008
sales-to-retailers were down 0.7%, and sale-to-retailers for Anheuser-Busch
produced brands, excluding imports, declined 1.4%. Sales-to-retailers trends
have improved in April and for the first three weeks of the month are up 2% for
Anheuser-Busch produced brands. Wholesaler inventories for Anheuser-Busch
produced brands at the end of the first quarter were approximately the same as a
year ago. The company’s estimated domestic market share (excluding
exports) for the first quarter 2008 was 50.9%, compared to prior year market
share of 50.6%. 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 3.1% for the first quarter 2008 driven primarily by sales
in Canada, Argentina, Mexico and China. Worldwide Anheuser-Busch brands volume
is comprised of domestic volume and international volume and rose 0.8%, to 31.2
million barrels.
Equity partner brands volume, representing the
company’s share of its equity partners’ volume reported on a one-month lag,
increased 9.3% for the first quarter of 2008 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 2.3%, to
38.5 million barrels in the first quarter.
First Quarter 2008 Financial
Results
Following is a summary and discussion of key
operating results for the first quarter 2008 versus 2007.
$ in
millions, except per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
Gross
Sales
|
|
$ |
4,655 |
|
|
$ |
4,406 |
|
|
Up
$249
|
|
|
Up
5.7%
|
|
Net
Sales
|
|
$ |
4,099 |
|
|
$ |
3,858 |
|
|
Up
$241
|
|
|
Up
6.2%
|
|
Operating
Income
|
|
$ |
763 |
|
|
$ |
718 |
|
|
Up
$45
|
|
|
Up
6.2%
|
|
Income Before
Income Taxes
|
|
$ |
635 |
|
|
$ |
596 |
|
|
Up
$39
|
|
|
Up
6.5%
|
|
Equity
Income
|
|
$ |
126 |
|
|
$ |
159 |
|
|
Dn
$33
|
|
|
Dn
21.0%
|
|
Net
Income
|
|
$ |
511 |
|
|
$ |
518 |
|
|
Dn
$7
|
|
|
Dn
1.3%
|
|
Diluted
Earnings per Share
|
|
$ |
.71 |
|
|
$ |
.67 |
|
|
Up
$.04
|
|
|
Up
6.0%
|
|
Anheuser-Busch
reported gross sales of $4.7 billion during the first quarter 2008, an increase
of 5.7%. Net sales were $4.1 billion, an increase of
6.2%. The difference between gross and net sales in 2008 reflects
beer excise taxes of $556 million.
The increases in
both gross and net sales were due to sales increases for all business segments.
U.S. beer segment net sales increased 4%, or $113 million on improved revenue
per barrel, increased beer volume and higher nonbeer revenues. International
beer net sales increased 20%, or $49 million primarily due to volume increases.
Packaging operations net sales increased 8%, or $30 million due to higher
volume, while entertainment segment sales were up 20%, or $37 million on
increased attendance.
U.S. beer revenue
per barrel was up 2.3% on successful implementation of price increases on the
majority of the company’s U.S. volume at the end of last year and during the
first quarter of 2008. Revenue per barrel growth accounted for $79 million of
the first quarter U.S. beer net sales growth, higher volume contributed $11
million and non-beer revenues added $23 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 2008 was $2.6 billion, an increase of $155 million, or 6.3%.
The increase in cost of sales is primarily attributable to increased costs for
both U.S. and international beer brewing materials, higher U.S. beer freight
costs, costs associated with higher beer volume and higher operating costs for
packaging and entertainment operations. Consolidated gross profit as a
percentage of net sales was 35.8% for the first quarter, down 10 basis points,
primarily due to lower margins for packaging operations.
Marketing,
distribution and administrative expenses were $706 million, an increase of $41
million, or 6.1% for the first quarter. This increase is due to higher marketing
spending for U.S. beer trademark brands, increased marketing costs in China,
higher delivery costs for company-owned beer wholesalerships and increased
administrative expenses. Administrative expenses for the first quarter 2007
included a FAS 88 charge and an asset disposition gain.
Operating income
was $763 million, an increase of $45 million, or 6.2% for the first quarter 2008
due to higher profits in U.S. and international beer operations plus improved
results for entertainment operations, partially offset by lower packaging
segment profits. Consolidated operating margin of 18.6% for the first quarter
was level versus prior year.
Interest expense
less interest income was $128 million for the first quarter 2008, an increase of
$9 million, or 7% primarily due to higher average outstanding debt balances
partially offset by lower interest rates. Interest capitalized of $4.9 million
in the first quarter 2008 was up $1.4 million, primarily 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. The
company had other expense of $5 million in 2008 compared to $6 million in
2007.
Income before
income taxes for the first quarter 2008 was $635 million, an increase of $39
million, or 6.5% due primarily to improved operating results less the increase
in interest expense. Income before income taxes for U.S. beer was up $18
million, reflecting higher volume and pricing, partially offset by increased
cost of sales and marketing and distribution expenses. International beer pretax
income was up $18 million, primarily due to increased profits in China, Canada
and improved results in the United Kingdom. Packaging segment pretax income
decreased $5 million primarily due to lower earnings from recycling
operations. Entertainment segment pretax results improved $12 million
from increased attendance that benefited from the Easter holiday occurring in
the first quarter in 2008 versus the second quarter last year.
Equity income
decreased $33 million, or 21% in the first quarter 2008, primarily from a
combination of higher materials and operating costs for Grupo Modelo partially
offset by higher beer volume. Additionally, equity income for the first quarter
2007 included a $17 million benefit from the return of an advertising fund that
was part of Modelo’s former beer import contract.
Net income of $511
million in the first quarter of 2008 was down $7 million, or 1.3% while diluted
earnings per share were $.71, up $.04, or 6% from prior year. 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. Anheuser-Busch’s effective tax rate was 39.4% in the first
quarter 2008, a decrease of 50 basis points primarily due to lower taxes on
foreign earnings.
Liquidity and Financial
Condition
Cash at March 31,
2008 was $218 million, a decrease of $65 million from the December 31, 2007
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 $656
million for the first quarter 2008, an increase of $99 million due primarily to
the first quarter 2007 discretionary pension contribution of $85 million. The
company did not make a discretionary contribution in 2008. Discretionary pension
contributions are made in addition to the company’s required annual pension
funding. There have been only normal and recurring changes in the company’s cash
commitments since December 31, 2007.
Capital
expenditures during the first quarter 2008 were $150 million, compared to $154
million for the first quarter 2007. Full year 2008 capital
expenditures are expected to be approximately $975 million.
At its April 2008
meeting, the Board of Directors declared a regular quarterly dividend of $.33
per share on outstanding shares of the company’s common stock, payable
June 9, 2008 to shareholders of record May 9, 2008. The dividend rate for
the comparable 2007 period was $.295 per share.
The company’s debt
balance increased a net $141 million since December 31, 2007, compared to a net
increase of $623 million during the first quarter 2007. The details
of the quarterly changes in debt are outlined below (in millions).
Description
|
|
Amount
|
|
Interest
Rate
(Fixed Unless
Noted)
|
First Three Months of
2008
|
|
|
|
|
Increases:
|
|
|
|
|
|
Commercial
Paper
|
|
$355.7
|
|
3.02% wtd.
avg., floating
|
|
Other,
net
|
|
3.9
|
|
Various
|
|
Total
increases
|
|
359.6
|
|
|
Decreases:
|
|
|
|
|
|
U.S. Dollar
Notes
|
|
(150.0)
|
|
5.75%
|
|
Stag Brewery
Capital Lease Obligation
|
|
(68.3)
|
|
6.00%
|
|
Other,
net
|
|
(0.6)
|
|
Various
|
|
Total
decreases
|
|
(218.9)
|
|
|
|
Net increase
in debt
|
|
$140.7
|
|
|
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
|
|
|
The company’s
commercial paper borrowings of $1.4 billion at March 31, 2008 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 2.66%.
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, 2007, 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, 2008 and have
concluded that they are effective as of March 31, 2008 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
For a description
of certain litigation to which the company is a party, reference the company’s
Form 10-K for the year ended December 31, 2007 and the company’s Form 10-Q for
the quarter ended September 30, 2007.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
Following are the
Company’s monthly common stock purchases during the first quarter 2008 (in
millions, except per share). All shares are repurchased under Board of Directors
authorization. In December 2006, the Board authorized a new program to
repurchase 100 million shares. 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
|
|
Shares
Remaining Authorized Under Disclosed Repurchase
Programs at
December 31, 2007
|
|
|
61.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Share
Repurchases
|
|
|
|
|
|
|
|
January
|
|
|
5.2 |
|
|
|
$49.59 |
|
February
|
|
|
2.8 |
|
|
|
$47.52 |
|
March
|
|
|
1.3 |
|
|
|
$46.91 |
|
Total
First Quarter 2008 Repurchases
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Remaining Authorized Under Disclosed Repurchase
Programs at
March 31, 2008
|
|
|
52.0 |
|
|
|
|
|
Item
4. Submission of Matters to a Vote of Security Holders
At the Annual
Meeting of Stockholders of the Company held April 23, 2008, the following
matters were voted on:
1.
|
Election of
August A. Busch III, August A. Busch IV, Carlos Fernandez G., James R.
Jones, Joyce M. Roche, Henry Hugh Shelton, Patrick T. Stokes, 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
|
607,140,355
|
|
15,847,113
|
|
August A.
Busch IV
|
610,118,527
|
|
12,508,941
|
|
Carlos
Fernandez G.
|
589,624,207
|
|
33,003,261
|
|
James R.
Jones
|
610,846,385
|
|
11,781,083
|
|
Joyce M.
Roche
|
607,368,851
|
|
15,258,617
|
|
Henry Hugh
Shelton
|
611,040,791
|
|
11,586,677
|
|
Patrick T.
Stokes
|
607,010,013
|
|
15,201,174
|
|
Andrew C.
Taylor
|
608,506,479
|
|
13,704,708
|
|
Douglas A.
Warner III
|
608,629,589
|
|
13,581,598
|
2.
|
Approve the
2008 Long-Term Equity Incentive Plan for Non-Employee
Directors
|
|
For
|
430,311,651
|
|
|
Against
|
90,884,844
|
|
|
Abstain
|
8,210,905 |
|
|
Non-Votes
|
93,220,068
|
|
3.
|
Approve the
appointment of PricewaterhouseCoopers LLP as independent registered public
accounting firm for 2008
|
|
For
|
609,157,423
|
|
|
Against
|
7,305,910
|
|
|
Abstain
|
6,164,135
|
|
|
Non-Votes
|
0
|
|
4.
|
Stockholder
Proposal concerning a report on charitable
contributions
|
|
For
|
34,390,517
|
|
|
Against
|
450,167,942
|
|
|
Abstain
|
45,171,959
|
|
|
Non-Votes
|
92,897,050
|
|
5.
|
Stockholder
Proposal on special shareholder
meetings
|
|
For
|
235,324,992
|
|
|
Against
|
284,065,808
|
|
|
Abstain
|
10,339,618
|
|
|
Non-Votes
|
92,897,050
|
|
6.
|
Stockholder
Proposal on executive compensation
|
|
For
|
220,761,354
|
|
|
Against
|
296,580,808
|
|
|
Abstain
|
12,388,256
|
|
|
Non-Votes
|
92,897,050
|
|
Item
6. Exhibits
Exhibit
|
|
Description
|
|
|
|
10.22
|
|
Summary of
Compensation of Non-Employee Directors of Anheuser-Busch Companies,
Inc.
|
|
|
|
10.33
|
|
2008
Long-Term Equity Incentive Plan for Non-Employee Directors (Incorporated
by reference to Appendix B to the Definitive Proxy Statement for Annual
Meeting of Stockholders on April 23, 2008).
|
|
|
|
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 25,
2008
|
|
|
|
|
|
|
|
/s/ John F.
Kelly |
|
John F.
Kelly
Vice
President and Controller
(Chief
Accounting Officer)
April 25,
2008
|