-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Twee++WKuHAoUUWCw66ErIVR4uVL7ue+2BMZ4juvZOMi1t70ZzASnTFNOwfJDK91 8R25K7Wd98V8f6Les54nLw== 0000310569-97-000017.txt : 19971114 0000310569-97-000017.hdr.sgml : 19971114 ACCESSION NUMBER: 0000310569-97-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANHEUSER BUSCH COMPANIES INC CENTRAL INDEX KEY: 0000310569 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] IRS NUMBER: 431162835 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07823 FILM NUMBER: 97712991 BUSINESS ADDRESS: STREET 1: ONE BUSCH PL STREET 2: C/O OFFICE OF THE VP & SEC'Y CITY: ST LOUIS STATE: MO ZIP: 63118 BUSINESS PHONE: 3145772000 MAIL ADDRESS: STREET 1: ONE BUSCH PL CITY: ST LOUIS STATE: MO ZIP: 63118 10-Q 1 THIRD QUARTER 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended September 30, 1997 Commission file number 1-7823 ANHEUSER-BUSCH COMPANIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 43-1162835 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) 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) 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 such filing requirements for the past 90 days. Yes [X] No [ ] 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-489,941,589 shares as of September 30, 1997 CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
3rd Quarter ended Nine months ended Sept. 30, Sept. 30, ------------------------------------- (In millions, except per share data) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------ Sales........................................ $3,584.9 $3,541.8 $9,912.1 $9,727.2 Less federal and state excise taxes........ (483.3) (478.3) (1,353.3) (1,330.8) -------------------------------------- Net sales.................................... 3,101.6 3,063.5 8,558.8 8,396.4 Cost of products and services.............. (1,923.6) (1,885.7) (5,390.2) (5,270.1) -------------------------------------- Gross profit................................. 1,178.0 1,177.8 3,168.6 3,126.3 Gain on sale of St. Louis National Baseball Club (Cardinals)......................... -- -- -- 54.7 Marketing, distribution and administrative expenses................................. (519.2) (522.3) (1,395.5) (1,387.6) -------------------------------------- Operating income............................. 658.8 655.5 1,773.1 1,793.4 Other income and expenses: Interest expense........................... (69.6) (58.6) (192.1) (178.5) Interest capitalized....................... 10.3 7.1 30.1 23.4 Interest income............................ 1.4 3.5 5.3 8.1 Other income, net.......................... 1.0 6.1 2.1 1.4 -------------------------------------- Income before income taxes................... 601.9 613.6 1,618.5 1,647.8 Provision for income taxes................. (231.1) (236.4) (621.6) (641.7) Equity income, net of tax.................. 22.7 -- 35.5 -- -------------------------------------- Income from continuing operations............ 393.5 377.2 1,032.4 1,006.1 Income from discontinued operations.......... -- -- -- 33.8 -------------------------------------- Net income................................... 393.5 377.2 1,032.4 1,039.9 Retained earnings, beginning of period....... 7,325.4 6,631.2 6,924.5 6,869.6 Common stock dividends (per share: 3rd quarter, 1997--$.26; 1996--$.24; nine months, 1997--$.76; 1996--$.70)............ (127.7) (118.6) (365.7) (339.7) Spin-off of The Earthgrains Company.......... -- -- -- (680.0) -------------------------------------- Retained earnings, end of period............. $7,591.2 $6,889.8 $7,591.2 $6,889.8 ====================================== Primary earnings per share: Continuing operations...................... $ .79 $ .75 $ 2.06 $ 1.99 Discontinued operations.................... -- -- -- .07 -------------------------------------- Net income................................. $ .79 $ .75 $ 2.06 $ 2.06 ====================================== Fully diluted earnings per share: Continuing operations...................... $ .79 $ .74 $ 2.06 $ 1.97 Discontinued operations.................... -- -- -- .07 -------------------------------------- Net income................................. $ .79 $ .74 $ 2.06 $ 2.04 ====================================== See accompanying Notes to Consolidated Financial Statements on Page 3.
2 Notes to Consolidated Financial Statements 1. UNAUDITED FINANCIAL STATEMENTS: The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles and applicable SEC guidelines pertaining to interim financial information. In the opinion of the company's management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the financial statements, have been included therein. These statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the company's Annual Report to shareholders for the year ended December 31, 1996. 2. DISCONTINUED OPERATIONS: Through the tax-free spin-off of The Earthgrains Company and the sale of Eagle Snacks, Anheuser-Busch has divested its food products segment. All Earthgrains and Eagle Snacks related financial results are reported in the company's Consolidated Financial Statements as discontinued operations. During the second quarter 1996, the company completed the sale of Eagle Snacks. Accordingly, Anheuser-Busch adjusted its previously estimated loss provision for the disposition of the food products segment and recognized a $33.8 million, or $.07 per share, after-tax gain, which is reported as discontinued operations in the Consolidated Statement of Income. 3. EARNINGS PER SHARE: Primary earnings per share (EPS) of common stock are based on the weighted average number of shares of common stock outstanding during the period. Fully diluted EPS for 1996 assumed the conversion of the company's convertible debentures and the elimination of related after-tax interest expense. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128, "Earnings per Share" (FAS 128) effective December 15, 1997. FAS 128 will simplify the EPS calculation and require the reporting of "basic" and "diluted" EPS to replace the current primary and fully 3 diluted EPS, respectively. The company will adopt FAS 128 for 1997 annual results and will restate previously reported EPS. Adoption and restatement will not have a material impact on the company's reported EPS. 4. SALE OF ST. LOUIS NATIONAL BASEBALL CLUB (CARDINALS): During the first quarter 1996, the company sold the St. Louis Cardinals, Busch Memorial Stadium and several nearby parking garages and properties in downtown St. Louis. The sale resulted in a $54.7 million pretax gain, equivalent to $.06 per share, which is reported as a separate line item in the Consolidated Statement of Income. 4 CONSOLIDATED BALANCE SHEET Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited) SEPTEMBER 30, ------------------- (In millions) 1997 1996 - ----------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and marketable securities........... $ 116.2 $ 122.5 Receivables, less allowance for doubtful accounts...................... 804.3 649.2 Inventories: Raw materials and supplies............. 292.1 293.4 Work in progress....................... 85.0 84.0 Finished goods......................... 155.8 150.0 Total inventories.................... 532.9 527.4 Other current assets..................... 180.4 263.2 ------------------------ Total current assets................... 1,633.8 1,562.3 INVESTMENTS IN AFFILIATED COMPANIES...... 1,228.6 738.6 INVESTMENTS AND OTHER ASSETS............. 1,071.4 1,045.3 PLANT AND EQUIPMENT, NET................. 7,608.8 7,047.3 ------------------------ TOTAL ASSETS........................... $11,542.6 $10,393.5 ======================== 5 CONSOLIDATED BALANCE SHEET (Continued) SEPTEMBER 30, ------------------- (In millions) 1997 1996 - ----------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES: Accounts payable....................... $ 702.0 $ 624.7 Accrued salaries, wages and benefits... 230.6 215.9 Accrued taxes, other than income taxes......................... 99.4 97.6 Estimated income taxes................. 164.6 172.4 Other current liabilities.............. 355.6 255.3 ------------------------ Total current liabilities............ 1,552.2 1,365.9 ------------------------ POSTRETIREMENT BENEFITS.................. 525.9 538.3 ------------------------ LONG-TERM DEBT........................... 4,065.6 3,235.3 ------------------------ DEFERRED INCOME TAXES.................... 1,257.1 1,191.2 ------------------------ SHAREHOLDERS EQUITY: Common stock........................... 708.7 704.9 Capital in excess of par value......... 982.4 891.2 Retained earnings...................... 7,591.2 6,889.8 Foreign currency translation adjustment (209.3) (13.2) ------------------------ 9,073.0 8,472.7 Treasury stock, at cost................ (4,649.1) (4,094.5) ESOP debt guarantee.................... (282.1) (315.4) ------------------------ 4,141.8 4,062.8 ------------------------ COMMITMENTS AND CONTINGENCIES............ -- -- ------------------------ TOTAL LIABILITIES AND SHAREHOLDERS EQUITY................................. $11,542.6 $10,393.5 ======================== 6 CONSOLIDATED STATEMENT OF CASH FLOWS Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
Nine months ended Sept. 30, --------------------------- (In millions) 1997 1996 - -------------------------------------------------------------------------- CASH FLOW FROM OPERATING ACTIVITIES: Net income....................................... $1,032.4 $1,039.9 Discontinued operations.......................... -- (33.8) ---------------------- Income from continuing operations................ 1,032.4 1,006.1 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization................. 501.1 450.3 Increase in deferred income taxes............. 48.9 58.4 Undistributed earnings of affiliated companies (35.5) -- After-tax gain on sale of St. Louis Cardinals. -- (33.4) (Increase) Decrease in noncash working capital (24.1) 101.0 Other, net.................................... (76.1) (61.9) ---------------------- Cash provided by operating activities............. 1,446.7 1,520.5 Net cash provided by discontinued operations...... -- 66.4 ---------------------- Total cash provided by operating activities....... 1,446.7 1,586.9 ---------------------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures.............................. (880.4) (774.3) New business acquisitions......................... (619.2) (135.7) Proceeds from sale of St. Louis Cardinals......... -- 116.6 ----------------------- Cash (used for) investing activities..............(1,499.6) (793.4) ----------------------- CASH FLOW FROM FINANCING ACTIVITIES: Increase in long-term debt........................ 914.5 277.1 Decrease in long-term debt........................ (86.5) (127.4) Dividends paid to stockholders.................... (365.7) (339.7) Acquisition of treasury stock..................... (442.9) (658.5) Shares issued under stock plans and conversion of convertible debentures...................... 56.1 83.9 ---------------------- Cash provided by (used for) financing activities.. 75.5 (764.6) ---------------------- Net increase in cash and marketable securities during the period............................... 22.6 28.9 Cash and marketable securities, beginning of period.......................................... 93.6 93.6 ---------------------- Cash and marketable securities, end of period..... $ 116.2 $122.5 ======================
A more adequate understanding of the company's financial position and business can be gained by reference to the Anheuser-Busch Companies, Inc. Annual Report on Form 10-K for the year ended December 31, 1996. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations INTRODUCTION - ------------ This Discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity/cash flows of Anheuser-Busch Companies, Inc. for the third quarter and nine months ended September 30, 1997 compared to the third quarter and nine months ended September 30, 1996, and the year ended December 31, 1996. This Discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the company's Annual Report to Shareholders for the year ended December 31, 1996. Additional information concerning the company's consolidated financial and operating results is contained in the Letter to Shareholders section of the third quarter Financial Report included in the quarterly Anheuser-Busch publication HORIZONS. This Discussion contains statements regarding the company's expectations concerning its operations, earnings and prospects. These statements are forward-looking statements that involve significant risks and uncertainties, and accordingly no assurances can be given that such expectations will be correct. These expectations are based upon 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. Important factors that could cause actual results to differ from the expectations stated in this Discussion include, 8 among others, changes in the pricing environment for the company's products; factors that may adversely affect domestic demand for malt beverage products; changes in customer preference for the company's malt beverage products; changes in raw materials prices; changes in foreign currency exchange rates; changes in the company's international beer business or in the beer business of the company's international equity partners; and the effect of stock market conditions on the company's share repurchase program. PRIOR EVENTS - ------------ In May 1997, the company completed the purchase of an additional equity stake in Grupo Modelo, S.A. de C.V., Mexico's largest brewer and producer of the Corona brand, for $605 million. The company now holds a 37% direct and indirect investment in Modelo's operating subsidiary, Diblo, totaling approximately $1.1 billion. As part of this purchase, the company received expanded minority rights and increased its representation on the Modelo Board of Directors to 10 of 21 members. The purchase also triggered adoption of equity accounting for the Modelo investment. In the fourth quarter 1995, the Board of Directors approved management's plan to divest the company's food products segment through a tax-free 100% spin-off of The Earthgrains Company (formerly known as Campbell Taggart, Inc.) and the sale of Eagle Snacks, Inc. In accordance with generally accepted accounting principles, Anheuser-Busch restated all prior period financial information to report the historical combined financial results 9 of Earthgrains and Eagle Snacks as discontinued operations, including the recording of an estimated loss provision of $244.3 million in 1995 related to the divestiture. The company completed the spin-off of Earthgrains to shareholders on March 26, 1996 and Earthgrains common stock began trading on the New York Stock Exchange as a separate company on March 27, 1996. In February 1996, Anheuser-Busch reached an agreement to sell most of its Eagle Snacks production facilities to Frito-Lay, a subsidiary of PepsiCo, and completed the sale in the second quarter 1996. Upon completion of the sale of Eagle Snacks, Anheuser-Busch adjusted its previously estimated loss provision for the disposition of its food products segment and recognized a $33.8 million, or $.07 per share, after-tax gain. That gain is reported as Discontinued Operations in the second quarter of 1996 and has no impact on financial results from Continuing Operations. The spin-off of Earthgrains and sale of Eagle Snacks completed the company's divestiture of its food products segment. In the first quarter 1996, the company sold the St. Louis Cardinals, Busch Memorial Stadium and other downtown St. Louis properties and reported a $54.7 million pretax gain, which is equivalent to $.06 per share. The gain on the sale of the Cardinals is reported as a separate line item on the company's consolidated income statement. Due to the nonrecurring nature of this gain, key financial comparisons from continuing 10 operations between the first nine months of 1997 and 1996 are presented both excluding and including the Cardinal gain to --------- --------- facilitate a more complete understanding of underlying company operations. RESULTS FROM CONTINUING OPERATIONS - ---------------------------------- Following are summarized comparative operating results for 1997 and 1996. - ------------------------------------------------------------------ Third Quarter - Continuing Operations (In millions, except per share) ------------------------------------------- 1997 | 1996 | 1997 vs. 1996 -----------|---------|-----------|--------- Gross Sales $3,585 | $3,542 | Up $43 | Up 1.2% | | | Net Sales $3,102 | $3,064 | Up $38 | Up 1.2% | | | Operating Income $659 | $656 | Up $3 | Up 0.5% | | | Equity Income, Net of Tax $23 | -- | Up $23 | N/M | | | Net Income $393 | $377 | Up $16 | Up 4.3% | | | Fully Diluted Earnings per $.79 | $.74 | Up $.05 | Up 6.8% Share | | | - ------------------------------------------------------------------ N/M - Not Meaningful
- ----------------------------------------------------------------------------- Nine Months Ended September 30 - Continuing Operations (In millions, except per share) --------------------------------------------------- 1997 | 1996 | 1996 | 1997 vs. 1996 -------|---------|---------|----------------------- |Excluding|Including|Excluding |Including |Cardinal |Cardinal | Cardinal | Cardinal | Gain | Gain | Gain | Gain --------------------------------------------------- Gross Sales $9,912 |$9,727 | $9,727 | Up 1.9% | Up 1.9% Net Sales $8,559 |$8,396 | $8,396 | Up 1.9% | Up 1.9% Operating Income $1,773 |$1,739 | $1,793 | Up 2.0% | Dn 1.1% Equity Income, Net of Tax $35 | -- | -- | N/M | N/M Net Income $1,032 | $973 | $1,006 | Up 6.1% | Up 2.6% Fully Diluted Earnings $2.06 | $1.91 | $1.97 | Up 7.9% | Up 4.6% per Share - ----------------------------------------------------------------------------- N/M - Not Meaningful
11 THE FOLLOWING ANALYSIS EXCLUDES THE 1996 GAIN ON THE SALE OF THE CARDINALS. -------- Gross sales were $3.6 billion and $9.9 billion, respectively, for the third quarter and first nine months of 1997, representing increases of $43.1 million, or 1.2%, and $184.9 million, or 1.9%, compared to similar periods in 1996. Net sales for the third quarter and first nine months of 1997 were $3.1 billion and $8.6 billion, respectively, increasing $38.1 million, or 1.2%, for the third quarter and $162.4 million, or 1.9%, for the first nine months versus 1996. The differences between gross and net sales represent federal and state beer excise taxes. The primary factors responsible for the sales increases were higher domestic and international beer sales volume, partially offset by price discounting in the domestic beer market, and increased sales from the company's theme park operations. Theme park operations experienced an attendance increase of 7% for the first nine months of 1997 and also attained higher in-park per capita revenues. Worldwide beer volume information is summarized in the following table: - ----------------------------------------------------------------- Worldwide Beer Volume (millions of barrels) - ----------------------------------------------------------------- | Third Quarter |Nine Months Ended Sept. 30 --------------------------------------------------- | | vs. 1996 | | vs. 1996 | |-------|--------| |--------|---------- |1997 |Barrels| % | 1997 |Barrels | % |------|-------|--------|------|--------|---------- Domestic |24.5 |Up 0.1 | Up 0.5%| 68.7 | Up 0.4 | Up 0.6% | | | | | | International | 1.8 |Up 0.1 | Up 7.6%| 5.0 | Up 0.5 | Up 10.6% |------|-------|--------|------|--------|---------- Worldwide |26.3 |Up 0.2 | Up 1.0%| 73.7 | Up 0.9 | Up 1.2% - ----------------------------------------------------------------- 12 Domestic volume represents beer produced and shipped within the United States. International volume represents exports from the company's U.S. breweries to markets around the world, plus Anheuser-Busch brands produced overseas by company-owned breweries (Wuhan in China and Mortlake in the United Kingdom) and under license and contract brewing agreements. The increase in domestic volume during both the third quarter and first nine months was driven by the continued momentum of Bud Light, which is up approximately 10% versus last year, and improved Budweiser trends. Total Bud Family sales-to-retailers are up 2.6 percent for the third quarter and 1.2 percent for the first nine months of 1997. The aggressive price discounting initiated by competition in the first half of the year continued into the third quarter. Anheuser-Busch is prepared to be fully competitive in every major market and segment and the company will continue to meet competitive prices to protect market share. Matching competitive discounting will dampen short-term earnings growth, but will enhance the company's volume growth and maximize shareholder value over the long term. Recent volume trends are favorable for the company's core premium brands. Budweiser results are the best the company has experienced in recent years, with a third quarter decline of approximately 1 percent. Bud Light is returning to double-digit growth. These positive trends will place Anheuser-Busch in a superior position in the long run. 13 Given the current environment Anheuser-Busch is not initiating front-line price increases to wholesalers as the company has in recent years. Instead, the company intends to reduce its current level of discounting, beginning in the first quarter 1998, in order to increase Anheuser-Busch's revenues and protect its brand equities. Anheuser-Busch's objective continues to be annual double-digit earnings per share growth. However, the company expects earnings per share growth to fall short of that objective as long as industry conditions follow the current pattern. For 1997, the company expects per share growth for the full year to be slightly below year-to-date results. The increase in international beer volume is principally due to increased Budweiser volume, which is up 123,000 barrels and 655,000 barrels, or 8% and 17%, respectively, for the third quarter and first nine months of 1997. Volume growth at company-owned facilities in China and the United Kingdom continues to be strong, with increases of 15% and 33%, respectively, for the third quarter and first nine months of 1997 versus the prior year. Contract and license volume is up over 17% for the third quarter and 25% for the first nine months of 1997. The significant gains in Anheuser-Busch brands produced overseas have been partially offset by reduced exports from the company's U.S. facilities due in part to the discontinuation of Kirin Ice shipments to Japan and lower shipments of Michelob Classic Dark to Taiwan. 14 International volume does not include Anheuser-Busch's equity investments in foreign breweries. However, the company's share of its equity partners' volume is gaining in significance. Assigning a portion of each foreign partner's barrelage based on Anheuser-Busch's investment percentage in those companies would result in an equity volume of 2.8 million barrels in the third quarter and 4.7 million barrels for the first nine months of 1997. Including this volume, Anheuser-Busch's worldwide volume would have been up 3.4% for the first nine months of 1997 compared to the same 1996 period. Anheuser-Busch's share of U. S. beer shipments for the first nine months of 1997 was 45.0%, a slight decrease from the 45.1% for the first nine months of 1996. The company's U. S. market share is based on combined domestic and export volume of 70.0 million barrels in 1997 and 69.9 million barrels in 1996. U. S. industry sales represent estimates based on information provided by the Beer Institute and include imports, exports, nonalcohol brews and other malt beverages. Anheuser-Busch has led the U. S. brewing industry in sales volume and market share since 1957. Cost of products and services was $1.9 billion, and $5.4 billion, respectively, for the third quarter and first nine months of 1997, increasing 2.0% and 2.3% compared to the same periods in 1996. The increase in cost of products and services is attributable to higher costs associated with increased beer sales volume and theme park attendance. 15 Gross profit as a percentage of net sales was 38.0% for the third quarter 1997, versus 38.4% for the third quarter 1996, and 37.0% for the first nine months of 1997, compared to 37.2% for the first nine months of 1996. Marketing, distribution and administrative expenses for the third quarter 1997 were $519.2 million compared with $522.3 million for the third quarter 1996, a decrease of $3.1 million, or 0.6%. For the first nine months of 1997 and 1996, these expenses were $1.40 billion and $1.39 billion respectively, an increase of $7.9 million, or 0.6%. The decrease in this category for the third quarter 1997 primarily relates to reduced domestic marketing costs in comparison with Centennial Summer Olympic Games promotional costs in 1996, partially offset by increased marketing costs related to international beer operations and increased administrative expenses. The increase for the first nine months of 1997 is principally due to marketing costs related to the company's international beer activity, costs related to increased theme park attendance, additional costs due to an increase in the number of company-owned beer wholesale operations and increased administrative expenses, partially offset by lower promotional spending compared to last year due to the 1996 Centennial Summer Olympic Games in Atlanta. 16 Operating income for the third quarter 1997 was $658.8 million, an increase of $3.3 million, or 0.5%, over the comparable period last year. Operating income for the first nine months of 1997 was $1.8 billion, an increase of $34.4 million, or 2.0% versus the first nine months of 1996. The increases in operating income are primarily due to increased beer sales volume, continued brewery operating efficiencies and improved performance by the company's theme park operations. Domestic revenue per barrel for the third quarter 1997 was slightly below the third quarter 1996 level. Net interest cost (interest expense less interest income) was $68.2 million for the third quarter 1997, an increase of $13.1 million, or 23.8%, compared to net interest cost of $55.1 million for the third quarter 1996. Net interest cost for the first nine months of 1997 was $186.8 million, an increase of $16.4 million, or 9.6%, over net interest cost of $170.4 million for the corresponding period in 1996. The increase in net interest cost for the third quarter and first nine months of 1997 is primarily the result of an increase in long-term debt related to the additional investment in Modelo in May 1997. The net change in debt is summarized in the Financial Condition section of this Discussion. Interest capitalized increased $3.2 million and $6.7 million for the third quarter and first nine months of 1997, to $10.3 million for the third quarter and $30.1 million for the first nine months of 1997. The increase in interest capitalized in 1997 is related to higher construction-in-progress levels due to ongoing modernization projects at the company's breweries. 17 Other income, net, was $1.0 million for the third quarter and $2.1 million for the first nine months of 1997, representing a decrease of $5.1 million for the third quarter 1997 and an increase of $0.7 million for the first nine months compared to the corresponding periods in 1996. The decrease in other income, net, for the third quarter 1997 is primarily attributable to the elimination of dividend income reporting for the Modelo investment because of the switch to equity accounting in the second quarter 1997. Income from continuing operations was $393.5 million for the third quarter 1997, an increase of $16.3 million, or 4.3%, compared to the third quarter 1996. For the first nine months of 1997, income from continuing operations was $1.03 billion, an increase of $59.7 million, or 6.1%, compared to 1996. In the second quarter 1997, the company began recognizing its pro rata equity interest in the net earnings of Grupo Modelo under the equity method of accounting for the first time. The equity income recognized for the first nine months of 1997 reflects the company's 17.7% interest owned from January through May 1997, and its 37% interest thereafter, consistent with the adoption of the equity method. The difference between income recognized on the cost basis in prior years and what would have been recognized had the company applied equity accounting for those years is not material. 18 The effective tax rate declined 0.5 percentage points, to 38.4%, for the first nine months of 1997 versus 1996 primarily due to lower foreign taxes. Fully diluted earnings per share from continuing operations for the third quarter 1997 were $.79, an increase of $.05, or 6.8%, compared to the third quarter 1996. Fully diluted earnings per share from continuing operations were $2.06, an increase of $.15 or 7.9%, for the first nine months of 1997 compared to 1996. Earnings per share growth continues to benefit from fewer shares outstanding due to the company's ongoing share repurchase program. The company has repurchased over 10 million shares through the first nine months of 1997 and anticipates the repurchase of approximately 3% of total shares outstanding in 1997. Fully diluted earnings per share are based on the weighted average number of shares of the company's outstanding stock. Fully diluted earnings per share for 1996 assumed the conversion of the company's convertible debentures and the elimination of related after-tax interest expense. The debentures were converted in September 1996. FOREIGN CURRENCY TRANSLATION - ---------------------------- Upon adopting the equity method of accounting in the second quarter 1997, the company adjusted the carrying value of its Modelo investment to reflect the impact of cumulative Mexican Peso depreciation during the period for which the 19 investment was accounted for under the cost method of accounting (1993 through 1996). The offset to this translation adjustment is included in the "Foreign Currency Translation Adjustment" line in the Shareholders Equity section of the Consolidated Balance Sheet. Effective January 1, 1997, the Mexican economy is considered hyperinflationary for U. S. accounting purposes. Under hyperinflationary accounting, all monetary translation adjustments will be recognized in earnings in the current period. FINANCIAL CONDITION - ------------------- Cash and marketable securities at September 30, 1997 totaled $116.2 million, a decrease of $6.3 million from the September 30, 1996 level and an increase of $22.6 million from the December 31, 1996 level. The principal source of the company's cash flow is cash generated by operations. Additional sources of cash during the twelve-month period ended September 30, 1997 were financing activities. Principal uses of cash during the period were capital expenditures, share repurchases, dividends and the increase in the company's investment in Grupo Modelo. Total long-term debt increased $830.3 million during the twelve-month period ended September 30, 1997, primarily as a result of the additional $605 million investment in Modelo in the second quarter this year. The net increase in debt during this period is shown below, by key component: 20 Debt Issuances ...$1,062.0 million, comprised of the following: -------------- - $250.0 million of long-term notes (interest rate: 6.75%) - $250.0 million of long-term notes (interest rate: 7.1%) - $250.0 million of debentures (interest rate: 7.125%) - $262.4 million of dual-currency notes (quarterly floating interest rate) - $49.6 million of industrial revenue bonds (various fixed interest rates) Debt Reduction ... $231.7 million, comprised of the following: -------------- - $60.8 of debentures (interest rate: 8.625%) - $13.0 million of medium term notes (interest rate: 7.4%) - $107.8 million of commercial paper (wtd. avg. interest rate: 5.4%) - $33.3 million reduction of the ESOP debt guarantee (interest rate: 8.3%) - $6.8 million of other miscellaneous reductions, net At September 30, 1997, $530.8 million of commercial paper borrowings were outstanding, a decrease of $107.8 million compared to the September 30, 1996 balance, and an increase of $375.3 million over the balance at December 31, 1996. Commercial paper is classified as long-term debt since it is intended to be maintained on a long-term basis with on-going credit support provided by the company's $1 billion revolving credit agreement. Capital expenditures during the third quarter 1997 were $283.5 million compared to $243.6 million for the third quarter 21 1996, and $880.4 million for the first nine months of 1997 versus $774.3 million for the same period in 1996. The company continues to expect 1997 capital expenditures to approximate $1 billion. In the first quarter 1997, the Board of Directors approved capital funding for a $68 million expansion of the company's brewery in Wuhan, China. Construction on the Wuhan expansion began in June 1997 and will double the capacity of the brewery to 2.1 million barrels. In the first quarter 1997, the company completed its 50 million share repurchase program authorized by the Board of Directors in 1994. This program has enhanced shareholder value through direct cash payments totaling $1.6 billion. The company is currently repurchasing shares under the 50 million share repurchase program authorized by the Board in July 1996. ENVIRONMENTAL MATTERS - --------------------- The company is subject to federal, state and local environmental protection laws and regulations and is operating within such laws or is taking action aimed at assuring compliance with such laws and regulations. Compliance with these laws and regulations is not expected to materially affect the company's competitive position. None of the Environmental Protection Agency (EPA) designated clean-up sites for which Anheuser-Busch has been identified as a Potentially Responsible Party (PRP) would have a material impact on the company's consolidated financial statements. 22 PART II - OTHER INFORMATION Item 1. Legal Proceedings Justice Department Inquiry - -------------------------- In October 1997, the company received notification from the Justice Department that the Department had begun a civil investigation into the distribution and sale of beer, including Anheuser-Busch's policies and practices in marketing and distribution. Anheuser-Busch is unable at this time to determine what, if any, impact this investigation will have on the company's operations. However, the company believes that all its practices are entirely legitimate and legal, and will cooperate fully with the investigation. Item 5. Other Information Labor Negotiations - ------------------ Anheuser-Busch's current contract with the International Brotherhood of Teamsters, covering approximately 8,000 brewery employees, expires in February 1998. Negotiations with the Teamsters were scheduled to begin the last week of September, but the opening session was postponed by the union until approximately the middle of November. Although the company cannot predict the outcome of negotiations, Anheuser-Busch anticipates bargaining in good faith and reaching an agreement with the Teamsters. 23 Additional Investment In Grupo Modelo - ------------------------------------- In June 1997, the company exercised its remaining options to purchase an additional 13.25% share in Diblo for an estimated cost of approximately $550 million. When the purchase is completed, Anheuser-Busch will hold a 50.2% direct and indirect interest in Grupo Modelo and its operating subsidiary, Diblo, and will have invested approximately $1.6 billion. Due diligence has been completed and Anheuser-Busch and the controlling shareholders of Grupo Modelo have initiated dispute resolution to settle differences of opinion regarding the technical aspects of determining the price of Anheuser-Busch's option shares. The additional purchase will not expand the company's minority rights or representation on Grupo Modelo's Board. Since the additional purchase will not give Anheuser-Busch control of Grupo Modelo or Diblo, the company will continue to apply the equity method of accounting after this purchase is completed. Stag Brewery Acquisition - ------------------------ In July 1997, the company purchased the remaining 50% interest in its brewing joint venture at the Stag Brewery in Mortlake, London, England from its joint venture partner, Scottish & Newcastle, Plc. The Stag Brewery brews Budweiser primarily for the United Kingdom. Under the agreement, Scottish & Newcastle will retain ownership of the brewery and Anheuser-Busch wi ll lease the site and have control over future capital investment. 24 Widmer Brothers Alliance - ------------------------ In October 1997, Anheuser-Busch completed a distribution and equity alliance with Widmer Brothers Brewing Company of Portland, Ore. The company made a minority equity investment in Widmer and will distribute Widmer's line of authentic craft beers in all new markets through its wholesaler system. Dividends - --------- On October 22, 1997, the Board of Directors announced a regular quarterly dividend on the company's common stock of 26 cents per share, payable December 9, 1997 to shareholders of record November 10, 1997. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- 4 - Indenture dated as of August 1, 1995 between the company and The Chase Manhattan Bank, as Trustee (Incorporated by reference to Exhibit 4.1 in the Form S-3 of the company, Registration Statement No. 33-60885.) (Other indentures are not filed, but the company agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request.) 12 - Ratio of Earnings to Fixed Charges 27 - Financial Data Schedule (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the three-month period ending September 30, 1997. 25 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) November 12, 1997 /s/ John F. Kelly ----------------------------------------- John F. Kelly Vice President and Controller (Chief Accounting Officer) November 12, 1997 26 INDEX TO EXHIBITS Exhibit No. Exhibit ----------- ------- 4 Indenture dated as of August 1, 1995 between the company and The Chase Manhattan Bank, as Trustee (Incorporated by reference to Exhibit 4.1 in the Form S-3 of the company, Registration Statement No. 33-60885.) (Other indentures are not filed, but the company agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request.) 12 Ratio of Earnings to Fixed Charges 27 Financial Data Schedule EX-12 2 EXHIBIT 12, RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the ratio of the Company's earnings to fixed charges, on a consolidated basis, for the periods indicated: Nine Months Ended Sept. 30, Year Ended December 31, ------------- ----------------------------------------- 1997 1996 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ---- ---- 8.6X 9.3X 1/ 8.3X 1/ 6.6X 2/ 7.7X 5.8X 3/ 7.7X For purposes of this ratio, earnings have been calculated by adding to income before income taxes the amount of fixed charges. Fixed charges consist of interest on all indebtedness, amortization of debt discount and that portion of rental expense deemed to represent interest. 1/ The ratio for 1996 includes the gain from the sale of the Cardinals, which increased income before income taxes by $54.7 million for both the nine months ended September 30, 1996 and the year ended December 31, 1996. Excluding this one-time gain, the ratios would have been 9.0X for the nine months ended September 30, 1996 and 8.1X for the year ended December 31, 1996. 2/ The ratio for 1995 includes the impact of the Tampa Brewery shutdown and the reduction of beer wholesaler inventories. Excluding these non-recurring items, the ratio would have been 7.6X. 3/ Includes the impact of the one-time, pre-tax restructuring charge of $401.3 million as a result of the company's Profitability Enhancement Program. Excluding this non-recurring special charge, the ratio would have been 7.5X. EX-27 3 FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from the Form 10-Q for the quarter ended September 30, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 116,173 0 808,638 4,373 532,875 1,633,784 12,944,096 5,335,343 11,542,552 1,552,230 4,065,604 0 0 708,678 3,433,080 11,542,552 8,558,799 8,558,799 5,390,227 6,785,684 0 0 192,115 1,618,514 621,574 1,032,389 0 0 0 1,032,389 2.06 2.06
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