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 June 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 - 491,795,562 shares as of June 30, 1997
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CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
2nd Quarter Ended Six Months Ended
June 30, June 30,
(In millions, except per share data) 1997 1996 1997 1996
- --------------------------------------------------------------------------------
Sales....................................$3,463.4 $3,418.0 $6,327.2 $6,185.4
Less federal and state excise taxes.... (469.1) (456.9) (870.0) (852.5)
--------------------------------------
Net sales................................ 2,994.3 2,961.1 5,457.2 5,332.9
Cost of products and services..........(1,869.6) (1,846.3) (3,466.6) (3,384.4)
--------------------------------------
Gross profit............................. 1,124.7 1,114.8 1,990.6 1,948.5
Gain on sale of St. Louis Cardinals.... -- -- -- 54.7
Marketing, distribution and
administrative expenses................ (478.7) (477.3) (876.3) (865.3)
--------------------------------------
Operating income......................... 646.0 637.5 1,114.3 1,137.9
Other income and expenses:
Interest expense....................... (65.3) (61.7) (122.5) (119.9)
Interest capitalized................... 11.0 7.9 19.8 16.3
Interest income........................ 2.0 2.7 3.9 4.6
Other income/(expense), net............ 4.6 (5.1) 1.1 (4.7)
--------------------------------------
Income before income taxes............... 598.3 581.3 1,016.6 1,034.2
Provision for income taxes............... (229.9) (227.9) (390.5) (405.3)
Equity income, net of tax................ 12.8 -- 12.8 --
--------------------------------------
Income from continuing operations........ 381.2 353.4 638.9 628.9
Income from discontinued operations...... -- 33.8 -- 33.8
-------------------------------------
Net income............................... 381.2 387.2 638.9 662.7
Retained earnings, beginning of period... 7,062.7 6,353.5 6,924.5 6,869.6
Common stock dividends (per share: 2nd
quarter, 1997--$.24; 1996--$.22; six
months, 1997--$.48; 1996--$.44)........ (118.5) (109.5) (238.0) (221.1)
Spin-off of The Earthgrains Company...... -- -- -- (680.0)
--------------------------------------
Retained earnings, end of period.........$7,325.4 $6,631.2 $7,325.4 $6,631.2
======================================
Primary earnings per share:
Continuing operations..................$ .76 $ .71 $ 1.27 $ 1.24
Discontinued operations................ -- .07 -- .07
---------------------------------------
Net Income.............................$ .76 $ .78 $ 1.27 $ 1.31
=======================================
Fully diluted earnings per share:
Continuing operations..................$ .76 $ .70 $ 1.27 $ 1.23
Discontinued operations................ -- .07 -- .07
---------------------------------------
Net Income.............................$ .76 $ .77 $ 1.27 $ 1.30
=======================================
See accompanying Notes to Consolidated Financial Statements on Page 3.
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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
divested its food products segment in 1996. 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. The debentures
were converted into common stock in September 1996.
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 diluted
EPS, respectively. The company will adopt FAS 128 when it reports
1997 annual results and will restate previously reported EPS.
Adoption and restatement will not have a material impact of the
company's reported EPS.
4. SALE OF ST. LOUIS 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, or $.06 per share,
which is reported as a separate line item in the Consolidated
Statement of Income.
3
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5. ADDITIONAL INVESTMENT IN GRUPO MODELO: In the second quarter 1997,
the company completed its previously announced purchase of an
additional equity stake in Grupo Modelo, Mexico's largest brewer, and
now holds a 37% direct and indirect investment in Modelo's operating
subsidiary, Diblo. The purchase triggered adoption of the equity
method of accounting for the Modelo investment. Accordingly, the
company began recognizing its pro rata equity interest in the net
earnings of Grupo Modelo for the first time in the second quarter.
The equity income recognized in the second quarter reflects the
cumulative year-to-date amount (January through May 1997 at a 17.7%
ownership interest) consistent with the initial adoption of the
equity method. Due to the timing of Modelo's reporting cycle, the
company will recognize its 37% share of Modelo's net earnings
for the first time in the third quarter 1997.
4
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CONSOLIDATED BALANCE SHEET
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
JUNE 30,
-------------------
(In millions) 1997 1996
- -----------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and marketable securities........... $ 149.1 $ 132.8
Receivables, less allowance for
doubtful accounts...................... 830.1 762.6
Inventories:
Raw materials and supplies............. 267.0 287.1
Work in progress....................... 98.0 100.0
Finished goods......................... 159.6 163.6
Total inventories.................... 524.6 550.7
Other current assets..................... 230.5 260.3
------------------------
Total current assets................... 1,734.3 1,706.4
INVESTMENTS IN AFFILIATED COMPANIES...... 1,202.5 700.0
INVESTMENTS AND OTHER ASSETS............. 1,044.7 1,023.7
PLANT AND EQUIPMENT, NET................. 7,492.5 6,944.0
------------------------
TOTAL ASSETS........................... $11,474.0 $10,374.1
========================
5
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LIABILITIES AND SHAREHOLDERS EQUITY
JUNE 30,
-------------------
(In millions) 1997 1996
- -----------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable....................... $ 695.6 $ 634.6
Accrued salaries, wages and benefits... 217.9 211.7
Accrued taxes, other than income taxes. 144.6 130.1
Estimated income taxes................. 204.3 84.9
Other current liabilities.............. 283.1 271.1
------------------------
Total current liabilities............ 1,545.5 1,332.4
------------------------
POSTRETIREMENT BENEFITS.................. 525.5 535.7
------------------------
LONG-TERM DEBT........................... 4,185.1 3,559.8
------------------------
DEFERRED INCOME TAXES.................... 1,238.7 1,163.2
------------------------
SHAREHOLDERS EQUITY:
Common stock........................... 708.0 348.9
Capital in excess of par value......... 967.3 1,090.1
Retained earnings...................... 7,325.4 6,631.2
Foreign currency translation adjustment (201.2) (12.1)
------------------------
8,799.5 8,058.1
Treasury stock, at cost................ (4,538.2) (3,959.7)
ESOP debt guarantee offset............. (282.1) (315.4)
------------------------
3,979.2 3,783.0
------------------------
COMMITMENTS AND CONTINGENCIES............ -- --
------------------------
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY................................. $11,474.0 $10,374.1
========================
6
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CONSOLIDATED STATEMENT OF CASH FLOWS
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
Six Months Ended June 30,
-------------------------
(In millions) 1997 1996
- -----------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income......................................... $ 638.9 $ 662.7
Discontinued operations............................ -- (33.8)
----------------------
Income from continuing operations.................. 638.9 628.9
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization.................. 330.0 298.9
Increase in deferred income taxes.............. 30.5 30.4
Undistributed earnings of affiliated companies. (12.8) --
After-tax gain on sale of St. Louis Cardinals.. -- (33.4)
(Increase) in noncash working capital.......... (98.4) (66.3)
Other, net..................................... (34.3) (66.2)
----------------------
Cash provided by operating activities.............. 853.9 792.3
Net cash provided by discontinued operations....... -- 57.3
----------------------
Total cash provided by operating activities........ 853.9 849.6
----------------------
7
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Six Months Ended June 30,
-------------------------
(In millions) 1997 1996
- -----------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures............................... (596.9) (530.7)
New business acquisitions.......................... (619.2) (52.5)
Proceeds from sale of St. Louis Cardinals.......... -- 116.6
-----------------------
Cash (used for) investing activities............... (1,216.1) (466.6)
-----------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in long-term debt......................... 1,034.0 448.7
Decrease in long-term debt......................... (86.5) (127.3)
Dividends paid to stockholders..................... (238.0) (221.1)
Acquisition of treasury stock...................... (332.1) (523.7)
Shares issued under stock plans and conversion
of convertible debentures....................... 40.3 79.6
----------------------
Cash provided by (used for) financing activities... 417.7 (343.8)
----------------------
Net increase in cash and marketable securities
during the period................................ 55.5 39.2
Cash and marketable securities, beginning of
period........................................... 93.6 93.6
----------------------
Cash and marketable securities, end of period...... $ 149.1 $ 132.8
======================
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.
8
<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 second quarter and first
six months ended June 30, 1997 compared to the second quarter and first six
months ended June 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
located in the Letter to Shareholders section of the second quarter
Financial Report contained 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, among other,
9
<PAGE>
changes in federal or state beer excise taxes; changes in the pricing
environment for the company's products; factors that may 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 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 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 of Earthgrains and Eagle Snacks as discontinued
operations, including the recording of an estimated loss provision for the
divestiture of $244.3 million in 1995.
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.
10
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Upon the sale of Eagle Snacks, 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. That
gain is reported as Discontinued Operations in the second quarter of 1996
and has no impact on any 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 $54.7 million ($.06 per share) pretax gain. 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 between 1997 and 1996 are presented in the following
table both excluding and including the Cardinal gain to facilitate a more
--------- ---------
complete understanding of underlying company operations.
In May 1997, the company completed its previously announced 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.
11
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RESULTS FROM CONTINUING OPERATIONS
- ----------------------------------
Following are summarized comparative operating results for 1997 and
1996.
|-------------------------------------------------------------------------|
| Second Quarter Ended June 30 - |
| Continuing Operations |
| (In millions, except per share) |
| -----------------------------------------|
|Worldwide Beer Volume (bbls.) 1997 | 1996 || 1997 vs. 1996 |
| ---------- |--------||-----------------|
| Domestic 23.8 | 23.6 ||Up 0.2 | Up 0.8% |
| International 1.8 | 1.8 || -- | Up 1.2% |
| ---------------------------------------|
| Total 25.6 | 25.4 ||Up 0.2 | Up 0.8% |
| | || | |
|Gross Sales $3,463 |$3,418 ||Up $45 | Up 1.3% |
|Net Sales $2,994 |$2,961 ||Up $33 | Up 1.1% |
|Operating Income $646 | $638 ||Up $8 | Up 1.3% |
|Pretax Income $598 | $581 ||Up $17 | Up 2.9% |
|Equity Income, Net of Tax $13 | -- ||Up $13 | N/M |
|Income from Cont. Operations $381 | $353 ||Up $28 | Up 7.9% |
|Fully Diluted Earnings per Share | || | |
|from Continuing Operations $.76 | $.70 ||Up $0.6| Up 8.6% |
- --------------------------------------------------------------------------
N/M - Not Meaningful
12
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- -----------------------------------------------------------------------------
| Six Months Ended June 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 |
|Worldwide Beer Volume (bbls.) |---------|---------|---------|---------|
| Domestic 44.2 | 43.9 | 43.9 |Up 0.6% | Up 0.6% |
| International 3.2 | 2.9 | 2.9 |Up 12.4% |Up 12.4% |
| ------|---------|---------|---------|---------|
| Total 47.4 | 46.8 | 46.8 |Up 1.3% | Up 1.3% |
| | | | | |
|Gross Sales $6,327| $6,185 | $6,185 |Up 2.3% | Up 2.3% |
|Net Sales $5,457| $5,333 | $5,333 |Up 2.3% | Up 2.3% |
|Operating Income $1,114| $1,083 | $1,138 |Up 2.9% | Dn 2.1% |
|Pretax Income $1,017| $979 | $1,034 |Up 3.8% | Dn 1.7% |
|Equity Income, Net of Tax $13 | -- | -- | N/M | N/M |
|Income from Cont. Operations $639 | $596 | $629 |Up 7.3% | Up 1.6% |
|Fully Diluted Earnings per $1.27 | $1.17 | $1.23 |Up 8.5% | Up 3.3% |
|Share from Continuing | | | | |
|Operations | | | | |
- -----------------------------------------------------------------------------
N/M - Not Meaningful
THE FOLLOWING ANALYSIS EXCLUDES THE 1996 GAIN ON THE SALE OF THE CARDINALS.
--------
Gross sales were $3.5 billion and $6.3 billion, respectively, for the
second quarter and first six months of 1997, representing increases of
$45.4 million, or 1.3%, and $141.8 million, or 2.3%, compared to similar
periods in 1996. Net sales for the second quarter and first six months of
1997 were $3.0 billion and $5.5 billion, respectively, increases of $33.2
million, or 1.1%, for the second quarter and $124.3 million, or 2.3%, for
the first six months versus 1996. The differences between gross and net
sales represent federal and state beer excise taxes.
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The primary factors responsible for the sales increases were higher
beer sales volume and increased sales from the company's theme park
operations due to increased attendance. Theme park operations experienced
an attendance increase of over 6% for the first six months of 1997 and also
attained higher in-park per capita revenues.
Combined domestic and international beer sales volume increased .8% and
1.3%, to 25.6 million barrels and 47.4 million barrels, respectively, for
the second quarter and first six months of 1997 compared to the same
periods last year. For the second quarter 1997, domestic and international
volume increased .8% and 1.2%, respectively. For the first six months of
1997, domestic volume increased .6% and international volume increased
12.4%.
Domestic volume represents beer produced and shipped within the United
States, plus Anheuser-Busch imports. 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. International volume does not include Anheuser-Busch's
equity investments in foreign breweries such as Grupo Modelo and
Antarctica.
The increase in domestic volume during both the second quarter and
first six months of 1997 was driven by the continued significant growth of
14
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Bud Light, and was achieved in a difficult pricing environment. The
unexpectedly high level of price discounting experienced in the first
quarter 1997, initiated by competition to stabilize volume, continued into
the second quarter.
The company's policy of matching competitive discounting may dampen
short-term earnings growth, but should enhance the company's market share
position and maximize shareholder value over the long-term. The company's
objective continues to be annual double-digit earnings per share growth.
However, given the current pricing environment, full year 1997 earnings per
share growth is expected to be consistent with year-to-date results, which
is slightly below the company's long-term growth objective.
The increase in international volume is principally due to increased
Budweiser volume, especially in the United Kingdom and China. Worldwide Bud
Family sales volume was up 270,000 barrels and 800,000 barrels, or 1.5% and
2.5%, respectively, for the second quarter and first six months of 1997
versus the prior year.
Anheuser-Busch's share of U. S. beer shipments for the first six months
of 1997 was 44.3%, essentially unchanged compared to the first six months
of 1996. The company's U. S. market share is based on combined domestic
and export volume of 45.1 million barrels in 1997 and 1996. U. S. industry
sales represent estimates based on information provided by the Beer
Institute and include imports,
15
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exports, non-alcohol 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 $1.87 billion, and $3.47 billion,
respectively, for the second quarter and first six months of 1997,
increasing 1.3% and 2.4% compared to the same periods in 1996. The
increase in cost of products and services is attributable to slightly
higher raw materials costs plus other costs associated with increased beer
sales volume and theme park attendance.
Gross profit as a percentage of net sales was 37.6% for the second
quarter 1997 and 36.5% for the first six months of 1997, both unchanged
compared to the same periods in 1996.
Marketing, distribution and administrative expenses for the second
quarter 1997 were $478.7 million compared with $477.3 million for the
second quarter 1996, an increase of $1.4 million, or .3%. For the first
six months of 1997 and 1996, these expenses were $876.3 million and $865.3
million respectively, an increase of $11.0 million, or 1.3%.
These increases are principally due to increased marketing costs
related to the company's international beer activity, higher theme park
attendance and additional costs due to an increase in the number of
company-owned beer wholesale operations, partially offset by lower
promotional spending compared to last year due to the 1996 Centennial
Summer Olympic Games in Atlanta.
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Operating income for the second quarter 1997 was $646.0 million, an
increase of $8.5 million, or 1.3%, over the comparable period last year.
Operating income for the first six months of 1997 was $1.1 billion, an
increase of $31.1 million, or 2.9% versus the first six 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 and packaging operations.
Net interest cost (interest expense less interest income) was $63.3
million for the second quarter 1997, an increase of $4.3 million, or 7.3%,
compared to net interest cost of $59.0 million for the second quarter 1996.
Net interest cost for the first six months of 1997 was $118.6 million, a
decrease of $3.3 million, or 2.9%, over net interest cost of $115.3 million
for the corresponding period in 1996. The increase in net interest cost
for the second quarter 1997 is the result of an increase in debt during the
period related to the Modelo acquisition. The net change in debt is
summarized in the Financial Condition section of this Discussion.
Interest capitalized increased $3.1 million and $3.5 million for the
second quarter and first six months of 1997, to $11.0 million and $19.8
million, respectively. The increase in interest capitalized in 1997 is
related to higher construction-in-progress balances due to ongoing
modernization projects at the company's breweries.
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Other income/(expense), net, provided income of $4.6 million for the
second quarter and $1.1 million for the first six months of 1997,
representing increases of $9.7 million and $5.8 million, respectively, from
the expense incurred in the corresponding 1996 periods. The increases are
primarily attributable to increased profitability at the company's Stag
Brewery joint venture (Mortlake Brewery) in the United Kingdom, which is
accounted for under the equity method, combined with lower debt retirement
costs in 1997, partially offset by the elimination of dividend income
reporting for the Modelo investment consistent with switching to the equity
method of accounting in the second quarter 1997.
Income from continuing operations was $381.2 million for the second
quarter 1997, an increase of $27.8 million, or 7.9%, compared to the second
quarter 1996. For the first six months of 1997, income from continuing
operations was $638.9 million, an increase of $43.4 million, or 7.3%,
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 in the
second quarter reflects the cumulative year-to-date amount (January through
May 1997 at a 17.7% ownership interest) consistent with the initial
adoption of the equity method.
The company will report its pro rata share of Modelo's net earnings on
a one-month delay due to the timing of Modelo's reporting cycle, and will
therefore recognize its 37% share of Modelo's net earnings for the first
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time in the third quarter 1997. 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.
The effective tax rate declined .8 percentage points for the second
quarter and first six months of 1997 versus 1996 due to lower state and
foreign taxes.
Fully diluted earnings per share from continuing operations for the
second quarter 1997 were $.76, an increase of $.06, or 8.6%, compared to
the second quarter 1996. Fully diluted earnings per share from continuing
operations was $1.27, an increase of $.10, or 8.5%, for the first six
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 approximately 8 million shares through the first
six months of 1997 and continues to anticipate the repurchase in 1997 of
approximately 3% of total shares outstanding.
Fully diluted earnings per share are based on the weighted average
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.
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FOREIGN CURRENCY TRANSLATION
- ----------------------------
Upon adopting the equity method of accounting, 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
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 June 30, 1997 totaled $149.1
million, an increase of $16.3 million from the June 30, 1996 level and an
increase of $55.5 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 June 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 $625.3 million during the twelve-month
period ended June 30, 1997, primarily as a result of the additional $605
million investment in Modelo. The net increase in debt during this period
is shown below, by key component:
20
<PAGE>
Debt Issuances . . . $1,042.5 million, comprised of the following:
--------------
-- $250 million of long-term notes (interest rate: 7.1%)
-- $450 million of long-term notes (interest rate: 6.75%)
-- $262.4 million of dual-currency notes (quarterly floating interest
rate)
-- $80.1 million of industrial revenue bonds (various fixed
interest rates)
Debt Reduction . . . $417.2 million, comprised of the following:
--------------
- $73.8 million of medium and long-term notes and debentures
(various fixed interest rates)
- $153.8 million of convertible debentures (interest rate: 8.0%)
- $118.8 million of commercial paper (wtd. avg. interest rate: 5.4%)
- $30.0 million of industrial revenue bonds (interest rate: 7.4%)
- $33.3 million reduction of the ESOP debt guarantee (interest rate:
8.3%)
- $7.5 million of other miscellaneous reductions, net
At June 30, 1997, $898.8 million of commercial paper borrowings were
outstanding, a decrease of $118.8 million compared to the June 30, 1996
balance and an increase of $743.2 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.
21
<PAGE>
Capital expenditures during the second quarter 1997 were $331.3
million compared to $271.4 million for the second quarter 1996, and $596.9
million for the first six months of 1997 versus $530.7 million for the same
period in 1996. The company continues to expect 1997 capital expenditures
to approximate $1.0 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 to
shareholders 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 5. Other Information
In June 1997, the company announced its intention to exercise its
remaining options to purchase an additional 13.25% share in Diblo for an
estimated cost of approximately $550 million. When the purchase is
complete, Anheuser-Busch will hold a 50.2% direct and indirect interest in
Diblo and will have invested approximately $1.6 billion. Due diligence
is 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 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.
In the second quarter 1997, the company introduced an amended
wholesaler equity agreement to its family of independent wholesalers. The
amended agreement, which is the result of a joint effort between
Anheuser-Busch and its wholesalers, better addresses the active involvement
of wholesalers in their markets and updates wholesaler performance
standards to reflect the competitive situation in today's beer business.
23
<PAGE>
In July 1997, the company announced it 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 purchase will provide Anheuser-Busch additional operational flexibility
to support continued expansion of its European business while providing the
company greater participation in the profits from the Stag operation. The
Stag Brewery brews Budweiser for the United Kingdom, Ireland and other
European markets.
Under the agreement, Scottish & Newcastle will retain ownership of the
brewery. Anheuser-Busch will lease the site and have control over future
capital investment to enable the brewery to meet increased European demand
for Budweiser and other Anheuser-Busch brands. The strong commercial
relationship between the company and Scottish & Newcastle will continue
through long-term supply agreements for the packaging and distribution of
Budweiser in the United Kingdom.
On July 23, 1997, the Board of Directors approved an increase in the
quarterly dividend on the company's common stock from 24 cents to 26 cents
per share, an increase of $.02, or 8.3%. The increase reflects the
company's targeted dividend payout ratio of approximately 40 percent over
the long-term, which is in line with other food and beverage companies.
The dividend is payable September 9, 1997 to shareholders of record on
August 11, 1997.
24
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
4 - No instruments defining the rights of holders of long-term
debt are filed since the total amount of securities
authorized under any such instrument does not exceed 10% of
the assets of the Company on a consolidated basis. 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 June 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)
August 13, 1997
/s/ John F. Kelly
------------------------------------------
John F. Kelly
Vice President and Controller
(Chief Accounting Officer)
August 13, 1997
26
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Exhibit
- ------- -------
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:
Six Months
Ended
June 30, Year Ended December 31,
-------------- ------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
8.4X 8.5X 1/ 8.1X 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 ratios for 1996 include the gain from the sale of the
Cardinals, which increased income before income taxes by $54.7
million for both the six months ended June 30, 1996 and the year
ended December 31, 1996. Excluding this one-time gain, the ratios
would have been 8.1X for the six months ended June 30, 1996 and
7.9X 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, pretax 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 June 30, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 149,141
<SECURITIES> 0
<RECEIVABLES> 833,983
<ALLOWANCES> 3,877
<INVENTORY> 524,546
<CURRENT-ASSETS> 1,734,307
<PP&E> 12,711,455
<DEPRECIATION> 5,218,974
<TOTAL-ASSETS> 11,473,952
<CURRENT-LIABILITIES> 1,545,481
<BONDS> 4,185,130
0
0
<COMMON> 707,950
<OTHER-SE> 3,271,243
<TOTAL-LIABILITY-AND-EQUITY> 11,473,952
<SALES> 5,457,196
<TOTAL-REVENUES> 5,457,196
<CGS> 3,466,630
<TOTAL-COSTS> 4,342,937
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,458
<INCOME-PRETAX> 1,016,585
<INCOME-TAX> 390,501
<INCOME-CONTINUING> 638,901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 638,901
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
</TABLE>
