<PAGE>
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
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
<CAPTION>
3rd Quarter ended Nine months ended
Sept. 30, Sept. 30,
-------------------------------------
(In millions, except per share data) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
2
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
<CAPTION>
Nine months ended Sept. 30,
---------------------------
(In millions) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
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
======================
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
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
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
11
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 116,173
<SECURITIES> 0
<RECEIVABLES> 808,638
<ALLOWANCES> 4,373
<INVENTORY> 532,875
<CURRENT-ASSETS> 1,633,784
<PP&E> 12,944,096
<DEPRECIATION> 5,335,343
<TOTAL-ASSETS> 11,542,552
<CURRENT-LIABILITIES> 1,552,230
<BONDS> 4,065,604
0
0
<COMMON> 708,678
<OTHER-SE> 3,433,080
<TOTAL-LIABILITY-AND-EQUITY> 11,542,552
<SALES> 8,558,799
<TOTAL-REVENUES> 8,558,799
<CGS> 5,390,227
<TOTAL-COSTS> 6,785,684
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<INTEREST-EXPENSE> 192,115
<INCOME-PRETAX> 1,618,514
<INCOME-TAX> 621,574
<INCOME-CONTINUING> 1,032,389
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<NET-INCOME> 1,032,389
<EPS-PRIMARY> 2.06
<EPS-DILUTED> 2.06
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