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 PERIOD ENDED JUNE 30, 2006MARCH 31, 2007
|
| | | |
| o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD 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 xAccelerated Filer oNon-Accelerated Filer o | 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 - 768,714,803759,797,680 shares as of June 30, 2006.March 31, 2007.
Anheuser-Busch Companies, Inc. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
| | | | | | |
| | (in millions, except per share) | June 30, | | Dec. 31, | |
| | | 2006 | | 2005 | |
| | Assets | | | | |
| | Current Assets: | | | | |
| | Cash | $222.5 | | $225.8 | |
| | Accounts receivable | 967.1 | | 681.4 | |
| | Inventories | 655.7 | | 654.5 | |
| | Other current assets | 214.3 | | 197.0 | |
| | Total current assets | 2,059.6 | | 1,758.7 | |
| | Investments in affiliated companies | 3,250.0 | | 3,448.2 | |
| | Plant and equipment, net | 8,913.3 | | 9,041.6 | |
| | Intangible assets, including goodwill of $1,050.7 and $1,034.5 | 1,329.9 | | 1,232.6 | |
| | Other assets | 1,229.7 | | 1,073.9 | |
| | Total assets | $16,782.5 | | $16,555.0 | |
| | | | | | |
| | | | | | |
| | Liabilities and Shareholders Equity | | | | |
| | Current Liabilities: | | | | |
| | Accounts payable | $1,250.6 | | $1,249.5 | |
| | Accrued salaries, wages and benefits | 276.4 | | 250.9 | |
| | Accrued taxes | 277.6 | | 156.7 | |
| | Accrued interest | 129.1 | | 123.7 | |
| | Other current liabilities | 291.1 | | 201.8 | |
| | Total current liabilities | 2,224.8 | | 1,982.6 | |
| | Postretirement benefits | 439.5 | | 444.3 | |
| | Debt | 7,836.5 | | 7,972.1 | |
| | Deferred income taxes | 1,316.6 | | 1,345.9 | |
| | Other long-term liabilities | 1,144.0 | | 1,130.3 | |
| | Shareholders Equity: | | | | |
| | Common stock, $1.00 par, authorized 1.6 billion shares | 1,470.5 | | 1,468.6 | |
| | Capital in excess of par value | 2,778.5 | | 2,685.9 | |
| | Retained earnings | 16,417.2 | | 15,698.0 | |
| | Treasury stock, at cost | (15,726.8 | ) | (15,258.9 | ) |
| | Accumulated non-owner changes in equity | (1,118.3 | ) | (913.8 | ) |
| | Total Shareholders Equity | 3,821.1 | | 3,679.8 | |
| | Commitments and contingencies | - | | - | |
| | Total Liabilities and Shareholders Equity | $16,782.5 | | $16,555.0 | |
| | | | | | |
| | 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 13.
11.
Anheuser-Busch Companies, Inc. and Subsidiaries
Consolidated Statement of Income (Unaudited)
| | | | | | | | | | | |
| | (in millions, except per share) | Second Quarter | | | Six Months | |
| | | Ended June 30 | | | Ended June 30 | |
| | | 2006 | | 2005 | | | 2006 | | 2005 | |
| | Gross sales | $4,854.0 | | $4,597.3 | | | $9,150.3 | | $8,682.4 | |
| | Excise taxes | (598.0 | ) | (579.2 | ) | | (1,138.7 | ) | (1,100.6 | ) |
| | Net sales | 4,256.0 | | 4,018.1 | | | 8,011.6 | | 7,581.8 | |
| | Cost of sales | (2,660.7 | ) | (2,479.8 | ) | | (5,078.4 | ) | (4,710.8 | ) |
| | Gross profit | 1,595.3 | | 1,538.3 | | | 2,933.2 | | 2,871.0 | |
| | Marketing, distribution and | | | | | | | | | |
| | administrative expenses | (714.3 | ) | (712.2 | ) | | (1,330.0 | ) | (1,331.5 | ) |
| | Operating income | 881.0 | | 826.1 | | | 1,603.2 | | 1,539.5 | |
| | Interest expense | (115.2 | ) | (115.9 | ) | | (230.3 | ) | (230.7 | ) |
| | Interest capitalized | 5.0 | | 5.5 | | | 9.0 | | 10.7 | |
| | Interest income | 0.2 | | 0.2 | | | 0.8 | | 2.2 | |
| | Other income/(expense), net | (6.8 | ) | 1.2 | | | (3.1 | ) | 20.7 | |
| | Income before income taxes | 764.2 | | 717.1 | | | 1,379.6 | | 1,342.4 | |
| | Provision for income taxes | (296.8 | ) | (260.7 | ) | | (535.4 | ) | (491.5 | ) |
| | Equity income, net of tax | 170.4 | | 137.2 | | | 292.8 | | 243.1 | |
| | Net income | $637.8 | | $593.6 | | | $1,137.0 | | $1,094.0 | |
| | Basic earnings per share | $.83 | | $.76 | | | $1.47 | | $1.41 | |
| | Diluted earnings per share | $.82 | | $.76 | | | $1.46 | | $1.39 | |
| | | | | | | | | | | |
| | 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 13.11.
Anheuser-Busch Companies, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
| | | | |
| | (in millions) | Six Months | |
| | | Ended June 30 | |
| | | 2006 | | 2005 | |
| | Cash flow from operating activities: | | | | |
| | Net income | $1,137.0 | | $1,094.0 | |
| | Adjustments to reconcile net income to cash | | | | |
| | provided by operating activities: | | | | |
| | Depreciation and amortization | 490.0 | | 481.0 | |
| | Decrease in deferred income taxes | (34.7 | ) | (67.1 | ) |
| | Stock compensation expense | 35.1 | | 37.9 | |
| | Undistributed earnings of affiliated companies | (52.8 | ) | (39.5 | ) |
| | Gain on sale of business | - | | (15.4 | ) |
| | Other, net | (139.3 | ) | 83.0 | |
| | Operating cash flow before change in working capital | 1,435.3 | | 1,573.9 | |
| | Increase in working capital | (55.8 | ) | (244.7 | ) |
| | Cash provided by operating activities | 1,379.5 | | 1,329.2 | |
| | | | | | |
| | Cash flow from investing activities: | | | | |
| | Capital expenditures | (318.1 | ) | (565.4 | ) |
| | Acquisitions | (82.3 | ) | - | |
| | Proceeds from sale of business | - | | 48.3 | |
| | Cash used for investing activities | (400.4 | ) | (517.1 | ) |
| | | | | | |
| | Cash flow from financing activities: | | | | |
| | Increase in debt | 300.9 | | 3.7 | |
| | Decrease in debt | (437.9 | ) | (57.9 | ) |
| | Dividends paid to shareholders | (417.8 | ) | (381.3 | ) |
| | Acquisition of treasury stock | (467.8 | ) | (575.5 | ) |
| | Shares issued under stock plans | 40.2 | | 107.9 | |
| | Cash used for financing activities | (982.4 | ) | (903.1 | ) |
| | Net decrease in cash during the period | (3.3 | ) | (91.0 | ) |
| | Cash, beginning of period | 225.8 | | 228.1 | |
| | Cash, end of period | $222.5 | | $137.1 | |
| | | | | | |
| | 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 13.
11.
ANHEUSER-BUSCH COMPANIES, INC. AND SUBSIDIARIES
Anheuser-Busch Companies, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial StatementsNOTES 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, 2005.2006.
| 2. | Business Segments Information |
Comparative business segment information for the secondfirst quarter and first six months ended June 30March 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 | |
| | | | | | | | | | | | | |
| | Domestic | | Int'l | | | | | | Corporate | | | |
| Second Quarter | Beer | | Beer | | Packaging | | Entertainment | | and Elims | | Consolidated | |
2006 | | | | | | | | | | | | |
| Gross Sales | $3,528.5 | | 339.9 | | 714.7 | | 369.4 | | (98.5 | ) | $4,854.0 | |
| Net Sales: | | | | | | | | | | | | |
| - Intersegment | $0.8 | | - | | 243.3 | | - | | (244.1 | ) | $ - | |
| - External | $3,001.8 | | 267.7 | | 471.4 | | 369.4 | | 145.7 | | $4,256.0 | |
| Income Before | | | | | | | | | | | | |
| Income Taxes | $794.4 | | 26.0 | | 45.2 | | 108.5 | | (209.9 | ) | $764.2 | |
| Equity Income | $1.1 | | 169.3 | | - | | - | | - | | $170.4 | |
| Net Income | $493.6 | | 185.4 | | 28.0 | | 67.3 | | (136.5 | ) | $637.8 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
2005 | | | | | | | | | | | | |
| Gross Sales | $3,432.1 | | 296.8 | | 648.9 | | 320.9 | | (101.4 | ) | $4,597.3 | |
| Net Sales: | | | | | | | | | | | | |
| - Intersegment | $0.7 | | - | | 227.5 | | - | | (228.2 | ) | $ - | |
| - External | $2,912.7 | | 236.3 | | 421.4 | | 320.9 | | 126.8 | | $4,018.1 | |
| Income Before | | | | | | | | | | | | |
| Income Taxes | $773.3 | | 26.0 | | 44.5 | | 78.0 | | (204.7 | ) | $717.1 | |
| Equity Income | - | | $137.2 | | - | | - | | - | | $137.2 | |
| Net Income | $479.5 | | 153.3 | | 27.6 | | 48.4 | | (115.2 | ) | $593.6 | |
| | | | | | | | | | | | | |
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.
| | | | | | | | | | | | | |
| | Domestic | | Int'l | | | | | | Corporate | | | |
| First Six Months | Beer | | Beer | | Packaging | | Entertainment | | and Elims | | Consolidated | |
2006 | | | | | | | | | | | | |
| Gross Sales | $6,886.2 | | 597.0 | | 1,344.1 | | 540.1 | | (217.1 | ) | $9,150.3 | |
| Net Sales: | | | | | | | | | | | | |
| - Intersegment | $1.5 | | - | | 469.2 | | - | | (470.7 | ) | $ - | |
| - External | $5,858.3 | | 484.6 | | 874.9 | | 540.1 | | 253.7 | | $8,011.6 | |
| Income Before | | | | | | | | | | | | |
| Income Taxes | $1,576.9 | | 48.1 | | 83.9 | | 90.9 | | (420.2 | ) | $1,379.6 | |
| Equity Income | $1.7 | | 291.1 | | - | | - | | - | | $292.8 | |
| Net Income | $979.4 | | 320.9 | | 52.0 | | 56.4 | | (271.7 | ) | $1,137.0 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
2005 | | | | | | | | | | | | |
| Gross Sales | $6,645.8 | | 545.1 | | 1,215.4 | | 496.0 | | (219.9 | ) | $8,682.4 | |
| Net Sales: | | | | | | | | | | | | |
| - Intersegment | $1.4 | | - | | 436.1 | | - | | (437.5 | ) | $ - | |
| - External | $5,647.1 | | 441.8 | | 779.3 | | 496.0 | | 217.6 | | $7,581.8 | |
| Income Before | | | | | | | | | | | | |
| Income Taxes | $1,554.6 | | 47.8 | | 80.1 | | 71.6 | | (411.7 | ) | $1,342.4 | |
| Equity Income | - | | $243.1 | | - | | - | | - | | $243.1 | |
| Net Income | $963.9 | | 272.7 | | 49.7 | | 44.4 | | (236.7 | ) | $1,094.0 | |
| | | | | | | | | | | | | |
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 average ofclosing composite tape on the high and low market pricesNew York Stock Exchange on the date the option is granted. Options generally vest over three years and have a maximum term of 10 years. At June 30, 2006,March 31, 2007, existing stock plans authorized issuance of 118112 million shares of common stock. The company issues new shares when options are exercised under employee stock compensationoption 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 first six 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 | (1.4 | ) | $27.07 | | |
Cancelled | (0.6 | ) | $48.59 | | |
Balance, June 30, 2006 | 94.6 | | $45.25 | 70.1 | $44.40 |
The following table provides additional information regarding options outstanding and options that were exercisable as of June 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 | | 9.1 | 1.8 years | $26.24 | | $175.2 | 9.1 | $26.24 | | $175.2 |
$30-39 | | 7.8 | 3.2 years | $37.84 | | 59.0 | 7.8 | $37.84 | | 59.0 |
$40-49 | | 49.7 | 6.1 years | $46.47 | | 54.1 | 38.5 | $47.25 | | 34.2 |
$50-53 | | 28.0 | 7.7 years | $51.29 | | -- | 14.7 | $51.60 | | -- |
$20-53 | | 94.6 | 6.0 years | $45.25 | | $288.3 | 70.1 | $44.40 | | $268.4 |
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 above 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 second quarter and first six months of 2006 compared to 2005 (in millions, except per share). Unrecognized pretax stock compensation cost as of June 30, 2006March 31, 2007 was $92$82 million, whichand is expected to be recognized over a weighted average life of approximately 1.5 years.
| | Second Quarter | | | First Six Months |
| | 2006 | | 2005 | | | 2006 | | 2005 |
Pretax stock compensation expense | $18.0 | | $18.9 | | | $35.1 | | $37.9 |
After-tax stock compensation expense | $12.6 | | $13.4 | | | $24.6 | | $25.8 |
Diluted earnings per share impact | $.016 | | $.017 | | | $.032 | | $.033 |
Cash proceeds from stock option exercises | $25.4 | | $54.7 | | | $35.3 | | $87.5 |
In-the-money value of stock options exercised | $15.0 | | $56.0 | | | $24.0 | | $87.0 |
Income tax benefit of stock options exercised (reduction of current taxes payable) | $5.2 | | $19.8 | | | $8.2 | | $29.0 |
Following are figures pertinent to operations for the second quarterThe following table provides additional information regarding options outstanding and first six months of 2005, and the balance sheetoptions that were exercisable as of DecemberMarch 31, 2005 as they were previously reported2007 (options and forin the retrospective adoption of FAS 123R.money values in millions).
Operating Results for Second Quarter 2005 | Including FAS 123R | | As Previously Reported |
| | | | |
| Cost of sales | $2,479.8 | | $2,476.0 |
| Gross profit | $1,538.3 | | $1,542.1 |
| Marketing, distribution and administrative expenses | $712.2 | | $697.1 |
| Operating income | $826.1 | | $845.0 |
| Income before income taxes | $717.1 | | $736.0 |
| Provision for income taxes | $260.7 | | $266.2 |
| Net income | $593.6 | | $607.0 |
| Basic earnings per share | $.76 | | $.78 |
| Diluted earnings per share | $.76 | | $.78 |
| | | | |
Operating Results and Cash Flows for the First Six Months of 2005 | | | |
| Cost of sales | $4,710.8 | | $4,703.2 |
| Gross profit | $2,871.0 | | $2,878.6 |
| Marketing, distribution and administrative expenses | $1,331.5 | | $1,301.2 |
| Operating income | $1,539.5 | | $1,577.4 |
| Income before income taxes | $1,342.4 | | $1,380.3 |
| Provision for income taxes | $491.5 | | $503.6 |
| Net income | $1,094.0 | | $1,119.8 |
| Basic earnings per share | $1.41 | | $1.44 |
| Diluted earnings per share | $1.39 | | $1.43 |
| Operating cash flow before change in working capital | $1,573.9 | | $1,593.8 |
| Cash provided by operating activities | $1,329.2 | | $1,349.1 |
| Shares issued under stock plans | $107.9 | | $88.0 |
| Cash used for financing activities | $903.1 | | $923.0 |
| | | | |
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 |
| 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,Instruments.” and thereforeFor cash flow hedges, the company 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 effective gains and losses from derivatives which were recognized in earnings during the secondfirst quarter and first six months (in millions). These gains and losses effectivelylargely offset price or value changes in the cost or value of the company’s hedged exposures.
Second Quarter | | First Six Months |
| 2006 | | 2005 | | 2006 | | 2005 |
| Gains | Losses | | Gains | Losses | | Gains | Losses | | Gains | Losses |
| --- | $14.2 | | $1.8 | $0.8 | | $0.5 | $40.9 | | $2.4 | $5.3 |
| 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 lossesgains due to this hedge ineffectiveness of $0.7$0.9 million for the secondfirst quarter of 20062007 compared to net ineffective pretax losses of $0.1$0.7 million for the secondfirst quarter of 2005. For the first six months, the company recognized net ineffective losses of $1.4 million and $0.4 million, respectively, in 2006 and 2005.2006.
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 second quarter and first six months ended June 30March 31 are shown below (millions of shares):
| | Second Quarter | | First Six Months | First Quarter |
| | 2006 | | 2005 | | 2006 | | 2005 | 2007 | | 2006 |
| Basic weighted average shares outstanding | 769.8 | | 777.1 | | 773.0 | | 778.2 | 763.5 | | 776.1 |
| | | | | | | | | |
| Diluted weighted average shares outstanding | 777.0 | | 782.4 | | 778.8 | | 784.4 | 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 | | | | | | | |
6.7. | Non-OwnerNonowner Changes in Shareholders Equity
|
The components of accumulated non-ownernonowner changes in shareholders equity, net of applicable taxes, as of June 30, 2006March 31, 2007 and December 31, 20052006 follow (in millions):
| | June 30, 2006 | | Dec. 31, 2005 |
| Foreign currency translation loss | $(584.1) | | $(382.0) |
| Deferred hedging losses | (5.8) | | (2.4) |
| Deferred securities valuation gains | 1.3 | | 0.3 |
| Minimum pension liability | (529.7) | | (529.7) |
| Accumulated non-owner changes in shareholders equity | $(1,118.3) | | $(913.8) |
| | | 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 non-ownernonowner changes in shareholders equity, net of applicable taxes, for the second quarter and first six months ended June 30March 31 follows (in millions):
| | | Second Quarter | | First Six Months | | First Quarter | |
| | | 2006 | | 2005 | | 2006 | | 2005 | | 2007 | | 2006 | |
Net income | Net income | $637.8 | | $593.6 | | $1,137.0 | | $1,094.0 | | | | | | | |
Foreign currency translation gains / (losses) | Foreign currency translation gains / (losses) | (236.6) | | 43.0 | | (202.1) | | 73.4 | | | (41.1 | ) | | 34.5 | |
Net change in deferred hedging gains / (losses) | Net change in deferred hedging gains / (losses) | (2.8) | | (1.9) | | (3.4) | | 3.2 | | | 3.1 | | | (0.6 | ) |
Deferred securities valuation gains / (losses) | 0.6 | | (104.2) | | 1.0 | | (96.3) | |
| | Net income plus non-owner changes in shareholders equity | $399.0 | | $530.5 | | $932.5 | | $1,074.3 | |
| 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 June 30, 2006March 31, 2007 and December 31, 20052006 (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 six months 2006 is due toquarter 2007 results from fluctuations in foreign currency exchange rates.
| | June 30, 2006 | | Dec. 31, 2005 | | | March 31, 2007 | | | Dec. 31, 2006 | |
Domestic Beer | $21.2 | | $21.2 | | | $21.2 | | | | $21.2 | | |
International Beer | 1,239.3 | | 1,261.1 | | | 1,282.1 | | | | 1,283.0 | | |
Packaging | 21.9 | | 21.9 | | | 21.9 | | | | 21.9 | | |
Entertainment | 288.3 | | 288.3 | | | 288.3 | | | | 288.3 | | |
Total goodwill | $1,570.7 | | $1,592.5 | | | $1,613.5 | | | | $1,614.4 | | |
8.9. | Pension and PostretirementRetirement Health Care Expense |
The components of quarterly expense for pensions and postretirementretirement health care benefits are shown below for the secondfirst quarter of 2007 and first six months of 2006 and 2005 (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 a discretionary pension contributioncontributions of $85 million in January 2007 and $214 million in January 2006. This contribution isThese contributions were in addition to the company’s required pension fundingfunding.
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.
| | Pensions |
| | Second Quarter | First Six Months |
| | 2006 | 2005 | 2006 | 2005 |
Service cost (benefits earned during the period) | $26.5 | $24.2 | $53.1 | $48.5 |
Interest cost on benefit obligation | 42.5 | 42.2 | 85.0 | 84.4 |
Assumed return on plan assets | (49.6) | (49.0) | (99.2) | (98.0) |
Amortization of prior service cost and net actuarial losses | 28.5 | 22.0 | 57.0 | 44.0 |
Expense for defined benefit plans | 47.9 | 39.4 | 95.9 | 78.9 |
Cash contributed to multi-employer plans | 4.0 | 4.2 | 7.9 | 8.1 |
Cash contributed to defined contribution plans | 5.0 | 4.0 | 9.7 | 8.7 |
Total expense | $56.9 | $47.6 | $113.5 | $95.7 |
| 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
| | Postretirement Health Care |
| | Second Quarter | First Six Months |
| | 2006 | 2005 | 2006 | 2005 |
Service cost (benefits earned during the period) | $6.1 | $6.6 | $12.3 | $12.8 |
Interest cost on benefit obligation | 8.7 | 10.1 | 17.4 | 19.7 |
Amortization of prior service cost and net actuarial losses | 1.4 | 3.0 | 2.7 | 1.3 |
Total expense | $16.2 | $19.7 | $32.4 | $33.8 |
9.11. | Equity Investment in Grupo Modelo |
Summary financial information for Anheuser-Busch’s equity investee Grupo Modelo for the secondfirst quarter of 2007 and first six 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 |
| | Second Quarter | | | First Six Months |
| | 2006 | | 2005 | | | 2006 | | 2005 |
| Gross sales | $1,473.5 | | $1,256.6 | | | $2,706.5 | | $2,267.4 |
| Net sales | $1,374.3 | | $1,171.6 | | | $2,516.7 | | $2,102.0 |
| Gross profit | $733.5 | | $616.3 | | | $1,338.9 | | $1,134.4 |
| Minority interest expense | $0.5 | | $0.5 | | | $0.8 | | $0.8 |
| Net income | $331.8 | | $263.4 | | | $573.7 | | $474.4 |
| | | | | | | | | |
| | At June 30 | | | |
| | 2006 | | 2005 | | | | | |
| Cash / marketable securities | $1,617.6 | | $1,326.8 | | | | | |
| Other current assets | $946.7 | | $854.1 | | | | | |
| Non-current assets | $4,281.6 | | $4,343.0 | | | | | |
| Current liabilities | $466.1 | | $426.4 | | | | | |
| Non-current liabilities | $353.1 | | $421.3 | | | | | |
| | 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 secondfirst quarter and six months ended June 30, 2006,March 31, 2007, compared to the secondfirst quarter and first six months ended June 30, 2005,March 31, 2006, and the year ended December 31, 2005.2006. This discussion should be read in conjunction with the consolidated financial statements and notes included in the company’scompany's annual report to shareholders for the year ended December 31, 2005.2006.
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
Effective inAnheuser-Busch reported improved sales and earnings for the first quarter 2006, Anheuser-Busch adopted FAS 123R, “Share-Based Payment.” FAS 123R requires the recognition of stock compensation expense for stock options2007, with consolidated net sales increasing 2.7% 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, Anheuser-Busch elected to apply the modified retrospective method of adopting FAS 123R.diluted earnings per share up 4.7%. The company has therefore recast comparative 2005 resultsis 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 incorporatebe favorable. Cost reduction efforts have lessened the impact of previously disclosed pro formaongoing 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
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.
Anheuser-Busch is off tofactors, combined with marketing and selling initiatives, provide a good start this year with favorable performances by all business segments. The company’s domestic beer volume momentum continues to be positive into the key summer selling season, with the largest sales-to-retailers volume in June of any month in the company’s history. The domestic beer pricing environment is favorable and productivity improvement initiatives are helping mitigate continuing cost pressures. In addition, the international beer segment, led by Grupo Modelo, and the entertainment segment are having outstanding years. Based on these positive factors Anheuser-Busch is optimistic concerning its sales andfoundation for accelerated earnings outlook for 2006.
Consolidated net sales for the second quarter and first six months increased 5.9% and 5.7%, respectively, versus prior year, while diluted earnings per share increased 7.9% and 5%. Both domestic beer sales volume and revenue per barrel showed good, balanced growth in the second quarter, with revenue per barrel growing 0.9% and domestic beer shipments-to-wholesalers increasing 2.2% versus the second quarter 2005.
Reported earnings per share for the second quarter and first six months of both 2006 and 2005 include one-time items that impact the comparability of operating results between 2006 and 2005. 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 $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 sale of the company’s equity stake in Compañía Cervecerías Unidas S.A. (CCU) in December 2004. In the first quarter of 2005, the company also had 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 9.5% for the second quarter and 7.4% for the first six months (see additional discussion on pages 20 through 22).
2007.
Beer Sales Results
Following is a summary and discussion of the company’s beer volume and sales results for the secondfirst quarter and2007 compared with the first six months of 2006 versus comparable 2005 periods.quarter 2006.
| | |
| Reported Beer Volume (millions of barrels) for Periods Ended June 30 | |
| | Second Quarter | | Six Months | |
| Beer Volume (millions of barrels) | | Beer Volume (millions of barrels) |
| | | | Versus 2005 | | | | Versus 2005 | First Quarter | | 2007 vs. 2006 |
| | 2006 | | Barrels | | % | | 2006 | | Barrels | | % | 2007 | | 2006 | | Barrels | | % |
Domestic | 26.9 | | Up 0.6 | | Up 2.2% | | 52.5 | | Up 1.7 | | Up 3.4% | 25.7 | | 25.6 | | Up 0.1 | | Up 0.5% |
International | 5.8 | | Up 0.9 | | Up 18.5% | | 10.6 | | Up 1.3 | | Up 14.2% | 5.2 | | 4.8 | | Up 0.4 | | Up 8.7% |
Worldwide A-B Brands | 32.7 | | Up 1.5 | | Up 4.8% | | 63.1 | | Up 3.0 | | Up 5.0% | 30.9 | | 30.4 | | Up 0.5 | | Up 1.8% |
Int’l Equity Partner Brands | 8.5 | | Up 1.7 | | Up 25.1% | | 14.9 | | Up 3.8 | | Up 34.0% | |
| Equity Partner Brands | | 6.7 | | 6.4 | | Up 0.3 | | Up 4.1% |
Total Brands | 41.2 | | Up 3.2 | | Up 8.4% | | 78.0 | | Up 6.8 | | Up 9.6% | 37.6 | | 36.8 | | Up 0.8 | | Up 2.2% |
| | | | | | | | | | | | | |
Domestic beer volume represents Anheuser-Busch beer produced and shipped within the United States. DomesticU.S., which includes both the company’s domestically-produced brands and imported brands. U.S. beer shipments-to-wholesalers increased 2.2%0.5% for the secondfirst quarter 2007, with acquired and sales-to-retailers increased 2%, with the new Rolling Rock, Grolsch and Tigerimport brands contributing 0.41.2 points to overall growth. Sales-to-retailers were up 0.1%, including a contribution of 1.7 points of growth to both shipmentsfrom acquired and sales-to-retailers. Year-to-date shipments-to-wholesalers increased 3.4%, and sales-to-retailers increased 1.8% (on a selling day adjusted basis) with Rolling Rock, Grolsch and Tiger contributing 0.2 points of growth to shipments and sales-to-retailers. Sales-to-retailers increases were led by Bud Light, which grew approximately 6% for bothimport brands. Wholesaler inventories at the second quarter and year-to-date (selling day adjusted). The acquisitionend of the Rolling Rock brands, plusquarter were about one-half of a day lower than the new arrangements with Grolsch, Tiger andfirst quarter 2006. In February the Hansen’s energy brands leveragecompany became the strengthexclusive importer of the company’s distribution system and provide opportunities for earnings enhancements for Anheuser-Busch and its wholesalers.select InBev European brands.
The company’s estimated domestic market share (excluding exports) for the first six months of 2006quarter 2007 was 48.9%50.2%, compared to prior year market share of 48.7%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, to markets around the world, increased
18.5% for the second quarter and 14% 8.7% for the first half of 2006,quarter 2007 driven primarily by sales in China Canada, Mexico and the United Kingdom.Canada. Worldwide Anheuser-Busch brands volume is comprised of domestic volume and international volume and rose 5% for both the second quarter and year-to-date,1.8%, to 3330.9 million and 63 million barrels, respectively.barrels.
Equity partner brands volume, which includesrepresenting the company’s share of its foreign equity partners’ volume reported on a one-month lag, increased 25%4.1% for the secondfirst quarter of 2006, to 8.5 million barrels2007 due to the strongincreased volume performance offrom Grupo Modelo and the inclusion of Tsingtao volume. The company began accounting for Tsingtao on an equity basis in May 2005. Equity partner brands volume was up 34% for the first six months of 2006.Tsingtao.
Total brands volume, which combines worldwide Anheuser-Busch brand volume with equity partner brands volume was 41up 2.2%, to 37.6 million barrels in the second quarter and 78 million barrels for the six months, up 8% and 10%, respectively.first quarter.
2006First Quarter 2007 Financial Results
Following is a summary and discussion of key operating results for the secondfirst quarter and first six months of 20062007 versus comparable 2005 periods.
| | | | |
| $ in millions, except per share | Second Quarter | | 2006 vs. 2005 |
| | 2006 | | 2005 | | $ | | % |
Gross Sales | $4,854 | | $4,597 | | Up $257 | | Up 5.6% |
Net Sales | $4,256 | | $4,018 | | Up $238 | | Up 5.9% |
Income Before Income Taxes | $764 | | $717 | | Up $47 | | Up 6.6% |
Equity Income | $170 | | $137 | | Up $33 | | Up 24.2% |
Net Income | $638 | | $594 | | Up $44 | | Up 7.4% |
Diluted Earnings per Share | $.82 | | $.76 | | Up $.06 | | Up 7.9% |
$ in millions, except per share | First Six Months | | 2006 vs. 2005 | First Quarter | | 2007 vs. 2006 |
| | 2006 | | 2005 | | $ | | % | 2007 | | 2006 | | $ | | % |
Gross Sales | $9,150 | | $8,682 | | Up $468 | | Up 5.4% | $4,406 | | $4,296 | | Up $110 | | Up 2.5% |
Net Sales | $8,012 | | $7,582 | | Up $430 | | Up 5.7% | $3,858 | | $3,756 | | Up $102 | | Up 2.7% |
Income Before Income Taxes | $1,380 | | $1,342 | | Up $38 | | Up 2.8% | $596 | | $615 | | Dn $19 | | Dn 3.1% |
Equity Income | $293 | | $243 | | Up $50 | | Up 20.4% | $159 | | $122 | | Up $37 | | Up 30.3% |
Net Income | $1,137 | | $1,094 | | Up $43 | | Up 3.9% | $518 | | $499 | | Up $19 | | Up 3.7% |
Diluted Earnings per Share | $1.46 | | $1.39 | | Up $.07 | | Up 5.0% | $.67 | | $.64 | | Up $.03 | | Up 4.7% |
Anheuser-Busch reported gross sales of $4.9$4.4 billion during the secondfirst quarter 2006,2007, an increase of $257 million, or 6%2.5%. Gross sales increased 5%, or $468 million, to $9.2 billion for the first six months. Net sales were $4.3$3.9 billion, and $8.0 billion, increasesan increase of $238 million and $430 million, respectively, or 6% for both periods.2.7%. The differencesdifference between gross and net sales in 2006 are due to2007 reflects beer excise taxes of $598 million and $1.1 billion, respectively.$548 million.
The increases in both gross and net sales were driven bydue to sales increases for all operating segments. For the second quarterU.S. and six months, respectively, domesticinternational beer and entertainment operations. U.S. beer segment net sales increased 3% and 4%3.6% on higher volumeimproved revenue per barrel and increased revenue per barrel; internationalsales volume. International beer net sales increased 13% and 10%8.5% primarily due to volume gainsincreases in China Canada and the United Kingdom; packagingCanada. Packaging operations net sales increased 12% in both periodsdeclined 7.7% due to higher aluminumlower can and recycling revenues; andvolume, while entertainment segment sales were up 8.4% on increased 15% and 9%, respectively, due primarily to higher attendance and for the second quarter, in part to the Easter holiday occurring in the second quarter in 2006 versus in the first quarter in 2005.higher ticket pricing.
DomesticU.S. beer revenue per barrel was up 0.9% in the second quarter 2006 and grew 0.4% compared to the first half of 2005, due to the2.3% on successful implementation of price increases and discount reductions on over halfthe majority of the company’s domestic volume.volume during the first quarter and favorable mix from import sales. Revenue per barrel growth includes the impact of acquired and import brands Rolling Rock, Grolsch and Tiger. Revenue per barrel increases accounted for $39$88 million and $40 million, respectively, of the increases in domesticfirst quarter U.S. beer net sales in the second
quarter and first six months. Higher beergrowth, while higher volume contributed $50 million and $171 million, respectively, to the increases for the same periods.$15 million. Revenue per barrel is calculated as net sales generated by the
company’s domesticU.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. Consistent
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 the patternhigher U.S. and international beer volume of $34 million and $8 million, respectively, increased costs for 2006 pricing actions, the company expects to implement increases on the majority of its volume early next year, with a few selective increases in the fourth quarter 2006. As in the past, pricing initiatives will be tailored to selected markets, brandsU.S. beer packaging materials, and packages.
Thehigher labor and operating costs for entertainment operations, partially offset by lower energy costs and lower cost of sales for the second quarter 2006 was $2.7 billion, an increase of $181 million, or 7%, and was up $368 million, or 8%packaging operations due to $5.1 billion for the first six months. The increases in cost of sales are primarily attributable to the costs associated with higher beer volume worldwide, increased costs for beer packaging materials, higher energy costs and increased costs for packaging and entertainment operations. Grosslower volume. Consolidated gross profit as a percentage of net sales was 37.5%35.9% for the secondfirst quarter, and 36.6% year-to-date, down 80up 30 basis points and 130 basis points, respectively, due primarily to increased beer volume being offset by increased costs.points.
Marketing, distribution and administrative expenses were $714$666 million, an increase of $50 million, or 8.1% for the second quarter and $1.3 billion year-to-date, representing a $2 millionfirst quarter. This increase for the quarter and a $2 million decrease year-to-date. These changes versus prior year periods areis due to favorablehigher U.S. beer marketing expenses, especially for domesticcosts, both to support trademark brands and incremental marketing and selling expense on the company’s new import beer and level distributionportfolio, increased marketing costs in China, higher delivery costs for company-owned beer wholesale operations due to having one less location, partially offset bywholesalerships, and increased generaladministrative expenses. Administrative expenses for the first quarter include a FAS 88 charge and administrative costs.an asset disposition gain.
Operating income was $881$718 million, an increasea decrease of $55$4 million, or 7%0.6% for the secondfirst quarter 2006.2007 due to higher cost of sales and marketing expense offsetting increases in net sales. Operating margin for the quarter increased 10decreased 60 basis points, to 20.7% due primarily to increased sales and essentially stable marketing, distribution and administrative expenses. For the first six months of 2006, operating income was $1.6 billion, an increase of $64 million, or 4%, while operating margin was 20.0%, or 30 basis points lower than 2005.18.6%.
Interest expense less interest income was $115 million for the second quarter and $230$119 million for the first six monthsquarter 2007, an increase of 2006, both amounts essentially level with comparable 2005 periods,$5 million, or 4% due to slightlyhigher average interest rates partially offset by lower average outstanding debt balances
offset by higher interest rates and lower interest income year-to-date.outstanding. Interest capitalized of $5$3.5 million in the secondfirst quarter 20062007 was down slightly and was down $2 million year-to-date, due to lowerthe 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 secondfirst quarter of 2006,2007, the company had other expense of $7$6 million, versuscompared to other income of $1$4 million in 2005. Year-to-date the company recognized expense of $3 million in 2006 compared to income of $21 million in 2005. Other income for the first six 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.2006.
Income before income taxes for the secondfirst quarter 20062007 was $764$596 million, an increasea decrease of $47$19 million, or 7%,3.1% due primarily to higherlower profits in the domesticU.S. and international beer and entertainment segments, partially offset by lower one-time items. These same factors led to year-to-date pretax income of $1.4 billion, and increase of $38 million or 3%. For the second quarter and first six months, domestichigher net interest expense. U.S. beer pretax profits improved $21declined $12 million and $22 million,primarily due to higher beer sales volume, increased pricing and lower marketing, partially offset by higher packaging materials energy and plant operating costs.marketing expenses offsetting improved revenue per barrel and higher beer volume. International beer pretax income was essentially level for both periodsdown $5 million primarily due to profit growthlower results in Canada and Mexicothe United Kingdom, partially offset by lower earningsincreased profits in China and the United Kingdom. Profits in China declined due to price competition and increased marketing and selling costs, while United Kingdom profits were down due primarily to lower pricing and unfavorable revenue mix.
Canada. Packaging segment pretax profits were up $1$6 million and $4 million due toon increased profits from can manufacturing in both periods and partially offsetall of its business, led by higher label manufacturing costs year-to-date.aluminum recycling operations. Entertainment segment pretax results grew $31 million and $19 million, respectively, due to the quarterly timing of the Easter holiday and higher overall attendance for the first six months, partially offset by higher park operating costs in both periods.were down slightly versus prior year.
Equity income increased $33$37 million, or 30% in the secondfirst quarter 2006 and $50 million year-to-date, reflecting the benefit of2007 primarily from improved Grupo Modelo earnings from higher domestic volume growth, Mexican price increases taken atand benefits associated with the beginningnew 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 year and a lower Mexican income tax rate, plus Tsingtao equity income growth yearrecognition of Modelo’s export sales to date. The company began applying equity accounting for Tsingtao in May 2005.the U.S.
Anheuser-Busch’s effective tax rate was 38.8% for both the second quarter 2006 and39.9% in the first six months, representing increasesquarter 2007, an increase of 240 and 220110 basis points
respectively, and primarily due to higher taxes on foreign earnings. The effective rates for the second quarter 2006 and for both the second quarter and first six months of 2005 were all lower than typical, reflecting favorable one-time income tax items plus a deferred income tax benefit on the sale of the Spanish theme park. Both the quarterly and year-to-date effective tax rates for 2006 include a benefit from partial capital loss utilization.
Net income of $638$518 million in the secondfirst quarter of 20062007 represented an increase of $44$18 million, or 7%3.7%. Net income grew 4%, to $1.1 billion for the first six months of 2006. Diluted earnings per share were $.82 and $1.46, respectively, for the second quarter and first six months of 2006, representing increases of 8% and 5%, respectively. Diluted earnings$.67, up $.03 from prior year, or 4.7%. Earnings per share benefited from the company’s repurchase of 10.9more than nine million shares in the first six monthsquarter 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 one-time gain from the sale of the Spanish theme park in 2005, which the company believes provides more meaningful comparisons between periods, net income and diluted earnings per share increased 9% and 9.5%, respectively for the second quarter, while the effective income tax rate increased 160 basis points. For the first six months, income before income taxes, net income, diluted earnings per share and the effective income tax rate increased 4%, 6%, 7% and 100 basis points, respectively.
| | | | | | | | | | | | |
Reconciliation of Comparative Operating Results | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | Income | | | | | | | | |
| | | | Before | | Provision | | | | Diluted | | |
| | | | Income | | for Income | | Net | | Earnings | | Effective |
| | Second Quarter | | Taxes | | Taxes | | Income | | Per Share | | Tax Rate |
| | 2006 | | | | | | | | | | |
| | Reported | | $764.2 | | ($296.8) | | $637.8 | | $.82 | | 38.8% |
| | Texas Income Tax Legislation Benefit | | | | (7.8) | | (7.8) | | (.01) | | |
| | Excluding One-Time Items | | $764.2 | | ($304.6) | | $630.0 | | $0.81 | | 39.9% |
| | 2005 | | | | | | | | | | |
| | As Reported | | $736.0 | | ($266.2) | | $607.0 | | $0.78 | | |
| | FAS 123R Impact | | (18.9) | | 5.5 | | (13.4) | | (0.02) | | |
| | Including FAS 123R | | 717.1 | | (260.7) | | 593.6 | | 0.76 | | 36.4% |
| | CCU Sale Chile Income Tax Settlement | | | | (6.8) | | (6.8) | | (.009) | | |
| | Ohio Income Tax Legislation Benefit | | | | (7.2) | | (7.2) | | (.009) | | |
| | Excluding One-Time Items | | $717.1 | | ($274.7) | | $579.6 | | $0.74 | | 38.3% |
| | | | | | | | | | | | |
| | Percentage Change - 2006 vs. 2005 | | | | | | | | | | |
| | Including FAS 123R | | 6.6% | | | | 7.4% | | 7.9% | | 2.4% |
| | Excluding One-Time Items | | 6.6% | | | | 8.7% | | 9.5% | | 1.6% |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | First Six Months | | | | | | | | | | |
| | 2006 | | | | | | | | | | |
| | Reported | | $1,379.6 | | ($535.4) | | $1,137.0 | | $1.46 | | 38.8% |
| | Texas Income Tax Legislation Benefit | | | | (7.8) | | (7.8) | | (.01) | | |
| | Excluding One-Time Items | | $1,379.6 | | ($543.2) | | $1,129.2 | | $1.45 | | 39.4% |
| | 2005 | | | | | | | | | | |
| | As Reported | | $1,380.3 | | ($503.6) | | $1,119.8 | | $1.43 | | |
| | FAS 123R Impact | | (37.9) | | 12.1 | | (25.8) | | (.033) | | |
| | Including FAS 123R | | 1,342.4 | | (491.5) | | 1,094.0 | | 1.39 | | 36.6% |
| | 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) | | |
| | Excluding One-Time Items | | $1,327.0 | | ($509.0) | | $1,061.1 | | $1.35 | | 38.4% |
| | | | | | | | | | | | |
| | Percentage Change - 2006 vs. 2005 | | | | | | | | | | |
| | Including FAS 123R | | 2.8% | | | | 3.9% | | 5.0% | | 2.2% |
| | Excluding One-Time Items | | 4.0% | | | | 6.4% | | 7.4% | | 1.0% |
Liquidity and Financial Condition
Cash at June 30, 2006March 31, 2007 was $223$274 million, a decreasean increase of $3$55 million from the December 31, 20052006 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 $1.4 billion$556 million for the first six monthsquarter 2007, an increase of 2006, a decline of $139$115 million due primarily to the $214 milliondifference in first quarter discretionary contributions made to the company’s defined benefit pension contributionplans. In 2007, the company contributed $85 million compared to $214 million in January 2006 partially offset by increased earnings. The discretionary contribution was2006. Discretionary pension contributions are made in addition to the company’s required annual pension funding, for the year. Full year pension contributions for 2006 are projectedwhich is estimated to be $270 million. The company also reported a favorable change$58 million in working2007. Working capital in the first half of 2006 versus 2005 primarilyincreased $240 million due to lower trade receivablesfirst quarter 2007 bonus payments and raw materialshigher inventories partially offset by higher accrued incentive compensation.and
receivables. There have been only normal and recurring changes in the company’s cash commitments since December 31, 2005.2006.
Capital expenditures during the secondfirst quarter 20062007 were $159$154 million, compared to $288$159 million for the secondfirst quarter 2005. Capital expenditures totaled $318 million and $565 million, respectively, for the first six months of 2006 and 2005.2006. Full year 20062007 capital expenditures are expected to approximate $850be 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 July 2006April 2007 meeting, the Board of Directors increased the company’sdeclared a regular quarterly dividend 9.3%, toof $.295 per share from $.27 per share on outstanding shares of the company’s common stock, payable SeptemberJune 11, 2006,2007 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 | | |
record August 9, 2006. This increase reflects management’s confidence regarding the company’s long-term prospects.
The company’s debt balance decreased a net $136 million in the first half of 2006. The details of the changes in debt for the first half of 2006 and 2005 are outlined below.
Increases in Debt (in millions) | | | |
Description | Amount | | Interest Rate (Fixed Unless Noted) |
First Six Months of 2006 | | | |
| U.S. dollar debentures | $300.0 | | 5.75% |
| Industrial revenue bonds | 1.3 | | 6.25% |
Other, including issuance discounts and related amortization | 5.6 | | Various |
| | $306.9 | | |
| | | | |
First Six Months of 2005 | | | |
| Commercial Paper | $3.7 | | 2.32% Wtd. avg., floating |
| United Kingdom brewery capital lease | 51.5 | | 6.25% |
Other, including issuance discounts and related amortization | 0.8 | | Various |
| | $56.0 | | |
Reductions of Debt (in millions) | | | |
Description | Amount | | Interest Rate (Fixed Unless Noted) |
First Six Months of 2006 | | | |
| Commercial paper | $428.2 | | 4.77% Wtd. avg., floating |
| U. S. Dollar Notes | 1.3 | | 5.35% |
| Chinese renminbi-denominated bank loans | 7.3 | | 5.4% Wtd. avg. |
| Other, net | 5.7 | | Various |
| | $442.5 | | |
| | | | |
First Six Months of 2005 | | | |
| U.S. Dollar Notes | $0.7 | | 5.35% |
| Chinese renminbi-denominated bank loans | 54.5 | | 5.41% Wtd. avg. |
| Other | 4.1 | | Various |
| | $59.3 | | |
The company has $1.35$1.1 billion of debt available for issuance through existing SEC shelf registrations.
The company’s commercial paper obligationborrowings of $674$923 million at June
30, 2006 isMarch 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’scompany's $2 billion revolving credit agreement. The company’s quarter-end interest ratesrate for commercial paper were 5.36% at June 30, 2006 and 3.23% at June 30, 2005.borrowing was 5.39%.
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 prior to the end of year seven of any term.
New Accounting Pronouncement
In July, 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.
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, 2005,2006, 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. 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 June 30, 2006March 31, 2007 and have concluded that they are effective as of June 30, 2006March 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
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 have appealed.
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, violationOn September 19, 2006, one of the state’s Sales Practice Act or other statutory provisions, nuisance, fraudulent concealment and civil conspiracy. The suit filedCompany’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 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, and Wisconsin cases, and the Michigan federal court, the Ohio 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. The plaintiffs in the Wisconsin case have appealed the dismissal to the Wisconsin state court of appeals. A motion to dismiss is pending in West Virginia. 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.Ohio. The Company believes that it has strong legal and factual defenses to these class actions andthe assertions of Novelis are without merit, intends to vigorously defend itself vigorously.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 secondfirst quarter 20062007 (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. TheIn December 2006, the Board authorized the currenta 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 thisany stock repurchase 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 March 31, 2006 | 25.5 | | |
Share Repurchases | | | |
| April | (2.7) | | $42.78 |
| May | (0.6) | | $45.99 |
| June | (1.7) | | $45.39 |
| Total | (5.0) | | |
Repurchases Remaining Authorized Under Disclosed Programs at June 30, 2006 | 20.5 | | |
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 |
12
| | Ratio
|
| 10.32 | | Form of Earnings to Fixed ChargesNotice 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. |
SignaturesSIGNATURES
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) |
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| /s/ W. Randolph Baker | |
| | W. Randolph Baker Vice President and Chief Financial Officer (Chief Financial Officer) July 28, 2006April 27, 2007
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| | /s/ John F. Kelly | |
| | John F. Kelly Vice President and Controller (Chief Accounting Officer) July 28, 2006April 27, 2007
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