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Anheuser-Busch InBev S.A. 10-Q 2007 UNITED
STATES
SECURITIES
AND
EXCHANGE COMMISSION
WASHINGTON,
D.C.
20549
FORM
10-Q
COMMISSION
FILE
NUMBER: 1-7823
ANHEUSER-BUSCH
COMPANIES, INC.
(EXACT
NAME OF
REGISTRANT AS SPECIFIED IN ITS CHARTER)
One
Busch Place,
St. Louis, Missouri 63118
(314)
577-2000
Indicate
by check
mark whether the registrant (1) has filed all reports required to be filed
by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to the filing requirements for the
past
90 days.
Indicate
by check
mark whether the registrant is a large accelerated filer, an accelerated filer
or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act.
Indicate
by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the
Exchange Act).
Indicate
the number
of shares outstanding of each of the issuer’s classes of common stock, as of the
latest practicable date.
$1
Par Value Common
Stock – 749,568,124 shares as of June 30, 2007.
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Balance Sheet (Unaudited)
See
the
accompanying footnotes on pages 5 to 12.
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Statement of Income (Unaudited)
See
the
accompanying footnotes on pages 5 to 12.
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Statement of Cash Flows (Unaudited)
See
the
accompanying footnotes on pages 5 to 12.
Anheuser-Busch
Companies, Inc. and Subsidiaries
Notes
to
Unaudited Consolidated Financial Statements
1.
Unaudited
Financial Statements
The
unaudited
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles and applicable SEC guidelines pertaining to
quarterly financial reporting, and include all adjustments necessary for a
fair
presentation. These statements should be read in combination with the
consolidated financial statements and notes included in the company’s annual
report on Form 10-K for the year ended December 31, 2006.
2.
Business
Segments Information
Comparative
business segments information for the second quarter and first six months ended
June 30 (in millions):
In
2007, the
company changed reporting responsibility for certain administrative and
technology support costs from Corporate to the U.S. beer segment. 2006 segment
results have been updated to conform to this reporting convention.
3.
Stock
Compensation
Under
the terms of
the company’s stock option plans, officers, certain other employees and
non-employee directors may be granted options to purchase the company’s common
stock at a price equal to the New York Stock Exchange closing composite tape
on
the date the option is granted. Options generally vest over three
years and have a maximum term of 10 years. At June 30, 2007, existing stock
plans authorized issuance of 140 million shares of common stock. The company
has
the choice of issuing either new shares or from treasury stock when options
are
exercised under employee stock compensation plans. Under the plan for the board
of directors, shares are issued from treasury stock.
For
financial
reporting purposes, stock compensation expense is included in cost of sales
and
marketing, distribution and administrative expenses, depending on where the
recipient’s cash compensation is reported, and is classified as a corporate item
for business segments reporting.
Unrecognized
stock
compensation expense as of June 30, 2007 totaled $87 million, which will be
recognized over a weighted average period of approximately 1.5
years.
The
following table
provides additional information regarding options outstanding and options that
were exercisable as of June 30, 2007 (options and in-the-money values in
millions).
4.
Derivatives
Anheuser-Busch
accounts for its derivatives in accordance with FAS 133, “Accounting for
Derivatives and Other Hedging Instruments,” and therefore defers in accumulated
non-owner changes in shareholders equity the portion of cash flow hedging gains
and losses that equal the change in cost of the underlying hedged transactions.
As the underlying hedged transactions occur, the associated deferred hedging
gains and losses are reclassified into earnings to match the change in cost
of
the transaction. For fair value hedges, the changes in value for both the
derivative and the underlying hedged exposure are recognized in earnings each
quarter.
Following
are
pretax gains and losses from derivatives which were recognized in earnings
during the second quarter and first six months (in millions). These gains and
losses effectively offset changes in the cost or value of the company’s hedged
exposures.
The
company
immediately recognizes in earnings any portion of derivative gains or losses
that are not 100% effective at offsetting price changes in the underlying
transactions. Anheuser-Busch recognized net pretax losses due to this
hedge ineffectiveness of $2.3 million for the second quarter of 2007 compared
to
net ineffective pretax losses of $0.7 million for the second quarter of
2006. For the first six months, the company recognized net
ineffective losses of $1.4 million in both 2007 and 2006.
5.
Earnings
Per
Share
Earnings
per share
are calculated by dividing net income by weighted-average common shares
outstanding for the period. The difference between basic and diluted
weighted-average common shares is the dilutive impact of unexercised
in-the-money stock options. There were no adjustments to net income
for any period shown for purposes of calculating earnings per share.
Weighted-average common shares outstanding for the second quarter and first
six
months ended June 30 are shown below (millions of shares):
6.
Non-Owner
Changes in Shareholders Equity
The
components of
accumulated non-owner changes in shareholders equity, net of applicable taxes,
as of June 30, 2007 and December 31, 2006 follow (in millions):
Combined
net income
and non-owner changes in shareholders equity, net of applicable taxes, for
the
second quarter and first six months ended June 30 follows (in
millions):
In
its 2006 annual
report on Form 10-K, the company disclosed combined net income and non-owner
changes in shareholders equity of $1,648.2 million, which included the impact
of
recognizing certain deferred retirement benefits costs in accordance with FAS
158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans.” Excluding these costs, combined net income and non-owner
changes in shareholders equity for the year ended December 31, 2006 would have
been $2,060.2 million. The company plans to report combined net
income and non-owner changes in shareholders equity for 2006 excluding the
impact of FAS 158 adoption when it publishes its 2007 annual report on Form
10-K.
7.
Inventories
The
company’s
inventories were comprised of the following as of June 30, 2007 and December
31,
2006 (in millions).
8.
Goodwill
Following
is
goodwill by business segment, as of June 30, 2007 and December 31, 2006 (in
millions). Goodwill is included in either other assets or investment in
affiliated companies, as appropriate, in the consolidated balance sheet. The
change in goodwill during the first six months 2007 is primarily due to
fluctuations in foreign currency exchange rates.
9.
Pension
and
Postretirement Health Care Expense
The
components of
expense for pensions and postretirement health care benefits are shown below
for
the second quarter and first six months of 2007 and 2006 (in millions). In
order
to enhance the funded status of its defined benefit pension plans, the company
made discretionary pension contributions of $85 million and $214 million in
January 2007 and 2006, respectively. These contributions are in addition to
the
company’s required pension funding for those years.
In
the first
quarter, the company recognized previously deferred actuarial losses resulting
from the retirement of certain executive officers in the fourth quarter 2006,
in
accordance with FAS 88, “Employers’ Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans.” The company recognized the FAS 88 impact in
the first quarter of 2007 because these individuals retired subsequent to the
company’s pension accounting measurement date of October 1, 2006.
10.
Equity
Investment in Grupo Modelo
Summary
financial
information for Anheuser-Busch’s equity investee Grupo Modelo for the second
quarter and first six months of 2007 and 2006 is presented below (in millions).
The amounts shown represent 100% of Modelo’s consolidated operating results and
financial position based on U.S. generally accepted accounting principles on
a
one-month lag basis, and include the impact of the company’s purchase accounting
adjustments.
In
June 2007, Grupo
Modelo restructured its distribution operations in Mexico City and recognized
related costs in its month of June results. Anheuser-Busch reports
its equity share of Modelo results on a one-month lag basis, and as such will
report its share of Modelo’s June results, including the related restructuring
costs, in the company’s third quarter.
11.
Uncertain
Tax Positions
Effective
January
1, 2007, Anheuser-Busch adopted FASB Interpretation No. 48 (FIN 48), “Accounting
for Uncertainty in Income Taxes.” On adoption, the company had $96.8 million in
gross unrecognized tax benefits, resulting in $45.9 million of net uncertain
tax
benefit positions that would reduce the company’s effective income tax rate if
recognized. To comply with FIN 48, Anheuser-Busch reclassified $102.6
million of tax liabilities from current to noncurrent on the balance sheet
and
also separately recognized $53.1 million of deferred tax assets which had
previously been netted against tax liabilities. The company made no adjustments
to retained earnings related to adoption, there have been no material changes
in
the amount of unrecognized tax benefits since adoption, and the company
anticipates no significant changes in the next 12 months.
The
company’s
policy is to accrue interest related to potential underpayment of income taxes
within the provision for income taxes. The liability for accrued
interest totaled $7.8 million as of January 1, 2007. Interest is computed on
the
difference between the company’s uncertain tax benefit positions under FIN 48
and the amount deducted or expected to be deducted in the company’s tax
returns.
The
principal
jurisdictions for which Anheuser-Busch files income tax returns are U.S. federal
and the various city, state, and international locations where the company
has
operations. The company participates in the IRS Compliance Assurance Process
program for the examination of U.S. federal income tax returns, and examinations
are substantively complete through 2006. City and state examinations
are substantially complete through 2001. The status of international tax
examinations varies by jurisdiction. The company does not anticipate any
material adjustments to its financial statements resulting from tax examinations
currently in progress.
Management’s
Discussion and Analysis of Operations and Financial
Condition
This
discussion
summarizes the significant factors affecting the consolidated operating results,
financial condition and liquidity and cash flows of Anheuser-Busch Companies,
Inc. for the second quarter and six months ended June 30, 2007, compared to
the
second quarter and first six months ended June 30, 2006, and the year ended
December 31, 2006. This discussion should be read in conjunction with
the consolidated financial statements and notes included in the company's annual
report to shareholders for the year ended December 31, 2006.
This
discussion
contains forward-looking statements regarding the company’s expectations
concerning its future operations, earnings and prospects. On the date the
forward-looking statements are made, the statements represent the company’s
expectations, but the company’s expectations concerning its future operations,
earnings and prospects may change. The company’s expectations involve risks and
uncertainties (both favorable and unfavorable) and are based on many assumptions
that the company believes to be reasonable, but such assumptions may ultimately
prove to be inaccurate or incomplete, in whole or in part. Accordingly, there
can be no assurances that the company’s expectations and the forward-looking
statements will be correct. Please refer to the company’s most recent
SEC Form 10-K for a description of risk factors that could cause actual results
to differ (favorably or unfavorably) from the expectations stated in this
discussion. Anheuser-Busch disclaims any obligation to update any of
these forward-looking statements.
Results
of
Operations
Anheuser-Busch
reported that second quarter 2007 net sales increased 6.1% and diluted earnings
per share increased 7.3%. For the first six months of 2007, net sales
increased 4.5% and diluted earnings per share increased 6.2%. Led by U.S. beer
operations, all of the company’s business segments reported improved earnings in
the second quarter and Anheuser-Busch is on track to deliver accelerating
earnings growth in the second half of the year. The positive outlook is based
on
a favorable pricing environment, the company’s broadened U.S. beer portfolio
that provides access to high-margin growth opportunities, successful
productivity improvement initiatives that are mitigating cost pressures and
enhanced earnings contributions from the international beer segment, led by
Grupo Modelo. Anheuser-Busch continues to target long term earnings per share
growth in the 7% to 10% range, and expects the company’s 2007 earnings per share
increase to exceed this range.
The
second quarters
of both 2007 and 2006 include one-time items that impact the comparability
of
reported operating results. In the second quarter of 2007, the company recorded
a $16 million pretax gain ($.01 per share) on the sale of its remaining interest
in its Spanish theme park investment and in the second quarter of 2006,
Anheuser-Busch recognized a $7.8 million tax provision benefit due to the
reduction of deferred income taxes resulting from state tax legislation in
Texas. Excluding the impact of these one-time items from both years,
which the company believes allows a better comparison of
underlying
operating results, diluted earnings per share increased 7.4% for the second
quarter and 6.2% for the first six months (see additional discussion on pages
17
through 19).
Beer
Sales
Results
Following
is a
summary and discussion of the company’s beer volume and sales results for the
second quarter and first six months of 2007 versus comparable 2006
periods.
U.S.
beer volume
represents beer shipments to wholesalers in the United States. U.S. beer volume
increased 2.3% for the second quarter, while sales-to-retailers increased
0.1%. Import brands contributed 1.9 points of growth to shipments and
1.6 points to sales-to-retailers.
For
the first six
months of 2007, shipments-to-wholesalers increased 1.5%, and sales-to-retailers
increased 0.1% with acquired and import brands contributing 1.7 points of growth
to shipments and 1.6 points to sales-to-retailers. Wholesaler
inventories at the end of the second quarter were slightly higher than at the
end of the second quarter 2006.
The
company’s
estimated U.S. beer market share for the first six months of 2007 was 48.8%
compared to prior year market share of 48.9%. Market share is based
on estimated U.S. beer industry shipment volume using information provided
by
the Beer Institute and the U.S. Department of Commerce.
International
volume consisting of Anheuser-Busch brands produced overseas by company-owned
breweries and under license and contract brewing agreements, plus exports from
the company’s U.S. breweries, increased 1.6% for the second quarter and 4.8% for
the first half of 2007, driven primarily by volume increases in China, Canada
and Mexico, partially offset by lower volume in the United Kingdom. Worldwide
Anheuser-Busch brands volume is comprised of U.S. and international volume,
and
rose 2.2% for the second quarter and 2.0% year-to-date, to 33.4 million and
64.4
million barrels, respectively.
Equity
partner
brands volume, which represents the company’s share of its foreign equity
partners’ volume reported on a one-month lag, increased 6.8% for the second
quarter of 2007, to 9.1 million
barrels,
and
increased 5.6% for the first six months to 15.7 million barrels, due to Modelo
and Tsingtao volume growth in both periods. Total brands volume, which combines
worldwide Anheuser-Busch brand volume with equity partner brands volume was
42.5
million barrels in the second quarter and 80.1 million barrels for the six
months, up 3.2% and 2.7%, respectively.
2007
Financial Results
Following
is a
summary and discussion of key operating results for the second quarter and
first
six months of 2007 versus comparable 2006 periods.
Anheuser-Busch
reported gross sales of $5.1 billion during the second quarter 2007, an increase
of $272 million, or 5.6%. Gross sales increased 4.2%, or $382
million, to $9.5 billion for the first six months. Net sales were
$4.5 billion and $8.4 billion, increases of $259 million and $362 million,
respectively, or 6.1% for the quarter and 4.5% year-to-date. The differences
between gross and net sales in 2007 are due to beer excise taxes of $611
million
and $1.2 billion, respectively. The sales increases were driven
by higher sales for all operating segments, with the exception of a year-to-date
decline in packaging segment sales. For the second quarter and first six
months,
respectively, U.S. beer segment net sales increased 6.9%, or $206 million,
and
5.3%, or $309 million on higher volume, increased revenue per barrel, higher
promotional prices over the key summer holiday periods and favorable
brand
mix; international beer net sales increased 4% and 6% primarily due to volume
gains in China, Canada and Mexico offset by declines in the United Kingdom;
packaging operations net sales increased 5% for the second quarter on higher
aluminum can and recycling revenues, but decreased 1% for the first six months
on lower can manufacturing sales; and entertainment segment sales increased
8.4%
in both periods due to increased attendance, higher ticket pricing and higher
in-park spending.
U.S.
beer
revenue per barrel was up 3.1% in the second quarter 2007 and grew 2.7% compared
to the first half of 2006, due to the successful implementation of price
increases and discount reductions on over half the company’s U.S. volume earlier
in the year. Revenue per barrel increases accounted for $128 million
and $216 million, respectively, of the increases in U.S. beer net sales in
the
second quarter and first six months, while higher beer volume contributed
$78
million and $93 million, respectively, to the increases for the same periods.
Revenue per barrel is calculated as net sales generated by the company’s U.S.
beer operations on barrels of beer sold, determined on a U.S. GAAP basis,
divided by the total volume of beer shipped to U.S. wholesalers. Consistent
with
its pattern for pricing actions in recent years, the company expects to
implement increases on the majority of its volume early next year, with a
few
selective increases in the fourth quarter 2007. As in the past,
pricing initiatives will be tailored to selected markets, brands and
packages.
The
cost of sales
for the second quarter 2007 was $2.9 billion, an increase of $197 million,
or
7.4%, and was up $254 million, or 5%, to $5.3 billion for the first six
months. The increases in cost of sales are primarily attributable to
the costs associated with higher U.S. and international beer volume of $101
million and $8 million, respectively, for the second quarter and $132 million
and $24 million, respectively, for the first six months. Additional
factors include increased costs for brewing and packaging materials and higher
labor and operating costs for entertainment operations, partially offset
by
lower energy costs and lower packaging segment costs due to lower volumes.
Gross
profit as a percentage of net sales was 36.7% for the second quarter and
36.3%
year-to-date, down 80 basis points and 30 basis points,
respectively.
Marketing,
distribution and administrative expenses were $756 million for the second
quarter and $1.4 billion year-to-date, representing a $42 million increase
for
the quarter and a $92 million increase year-to-date. The changes versus prior
year periods are due to higher U.S. beer marketing costs, including incremental
marketing and selling expense for the company’s new import beer portfolio,
increased marketing costs for entertainment operations, higher delivery costs
for company-owned beer wholesalerships, and increased administrative expenses
year-to-date. Administrative expenses for the first six months include a
FAS 88
settlement charge and an asset disposition gain.
Operating
income
was $901 million, an increase of $20 million, or 2.3% for the second quarter
2007. For the first six months of 2007, operating income was $1.6
billion, an increase of $16 million, or 1%.
Operating
margins declined 70 basis points for both the second quarter and first six
months, to 20.0% and 19.3%, respectively.
Interest
expense
less interest income was $118 million for the second quarter and $238 million
for the first six months of 2007, increases versus respective 2006 periods
of $3
million and $8 million. The increases are due to higher interest rates combined
with higher average outstanding debt during the quarter and higher interest
rates partially offset by lower average debt balances year-to-date. Interest
income was greater in both 2007 periods versus 2006. Interest
capitalized of $4.2 million in the second quarter and $7.7 million for the
first
six months was down slightly due to the timing of capital spending and project
in-service dates.
Other
income/(expense), net reflects the impact of numerous items not directly
related
to the company’s operations. For the second quarter of 2007, the company had
other income of $9.6 million versus other expense of $6.8 million in 2006.
Year-to-date the company recognized income of $3.7 million in 2007 compared
to
expense of $3.1 million. Other income for the second quarter and
first six months of 2007 includes the $16.0 million gain from the sale of
the
company’s remaining interest in its Spanish theme park investment. For business
segment reporting purposes, the gain is reported as a corporate
item.
Income
before
income taxes for the second quarter 2007 was $797 million, an increase of
$33
million, or 4.3%, due to improved results for all segments. Year-to-date,
pretax
income was $1.4 billion, an increase of $13 million or 1%, primarily due
to
higher earnings from the packaging and entertainment segments partially offset
by lower earnings for international beer operations and higher interest and
administrative expenses. U.S. beer pretax profits improved $12.5 million
in the
second quarter and were essentially level with 2006 for the first six months,
due to higher beer sales volume and increased pricing being offset by higher
marketing expenses and beer production costs. International beer pretax income
increased $2.6 million in the second quarter and decreased $1.9 million
year-to-date on profit growth in China, Canada and Mexico plus lower marketing
costs, partially offset by lower results in the United Kingdom in the quarter,
and fully offset for the six months. Packaging segment pretax profits were
up
$9.8 million and $15.6 million, respectively, primarily due to increased
profits
from can manufacturing and aluminum recycling on improved pricing partially
offset by lower volume, and increased label manufacturing earnings from higher
volumes. Entertainment segment pretax profits grew $5.4 million and $4.5
million, respectively, due to increased attendance, increased ticket pricing
and
higher in-park spending partially offset by higher park operating costs in
both
periods.
Equity
income of
$195 million for the second quarter and $354 million year-to-date increased
$25
million and $61 million, respectively, reflecting the benefit of improved
Grupo
Modelo earnings from higher volume and benefits associated with the new Crown
import and distribution joint venture. Equity income
includes benefits
of $12
million and $29 million, respectively, in the second quarter and for the
first
six months due to the return of advertising funds that were part of prior
import
contracts. The benefit for the first six months was partially offset by a
timing
change in the recognition of Modelo’s export sales to the U.S.
Anheuser-Busch’s
effective income tax rate was 39.5% for the second quarter 2007 and 39.7%
for
the first six months, representing increases of 70 and 90 basis points,
respectively, primarily due to higher taxes on foreign earnings and the
favorable impact of the Texas state income tax legislation in 2006, partially
offset by a step-up in the domestic manufacturing deduction in 2007. The
effective tax rates for 2007 include a benefit from partial capital loss
utilization.
Net
income of $677
million in the second quarter of 2007 represented an increase of $39 million,
or
6.1%. Net income grew 5.1%, to $1.2 billion for the first six months
of 2007. Diluted earnings per share were $.88 and $1.55, respectively, for
the
second quarter and first six months of 2007, representing increases of 7.3%
and
6.2%, respectively. Diluted earnings per share benefited from the
repurchase of 22.4 million shares in the first six months under the company’s
share repurchase program.
The
company
believes excluding the one-time gain from the sale of the Spanish theme park
investment in 2007 and the favorable income tax benefit in 2006 provides
more
meaningful comparisons between periods. As shown in the following table,
pretax
income, net income and diluted earnings per share excluding these one-time
items
increased 2.2%, 5.9% and 7.4%, respectively for the second quarter, while
the
effective income tax rate decreased 40 basis points. For the first
six months, income before income taxes declined 0.2%, while net income, diluted
earnings per share and the effective income tax rate increased 4.9%, 6.2%
and 30
basis points, respectively.
Liquidity
and Financial Condition
The
primary source
of the company’s cash flow is generated by operations. Principal uses of cash
are capital expenditures, share repurchase, dividends and business
investments. Cash generated by the company’s business segments is
projected to exceed funding requirements for each segment’s anticipated capital
spending. The net issuance of debt provides an additional source of
cash as necessary for share repurchasing, dividends and business investments.
The nature, extent and timing of debt financing vary depending on the company’s
evaluation of existing market conditions and other factors. Cash
at June 30,
2007 was $303 million, an increase of $84 million from the December 31, 2006
balance. The company generated operating cash flow before the change
in working capital of $1.7 billion for the first six months of 2007, an increase
of $295 million due primarily to increased earnings, higher Grupo Modelo
dividends and a lower discretionary defined benefit pension contribution
in
2007, $85 million versus $214 million in 2006. See the consolidated statement
of
cash flows for additional information on the company’s sources and uses of
cash.
The
company’s debt
balance increased $300 million in the first half of 2007 compared to a decrease
of $136 million in 2006. The changes in debt for the first half of
2007 and 2006 are summarized below (in millions).
As
of June 30,
2007, the company has $1.05 billion of debt available for issuance through
existing SEC shelf registrations. The
company’s
commercial paper obligation of $589 million at June 30, 2007 is classified
as
long-term, since commercial paper is maintained on a long-term basis with
on-going support provided by the company's $2 billion revolving credit
agreement. The interest rates for commercial paper at June 30, 2007 and 2006
were 5.28% and 5.41%, respectively.
There
have been
only normal and recurring changes in the company’s cash commitments since
December 31, 2006.
Capital
expenditures during the second quarter 2007 were $192 million, compared to
$159
million for the second quarter 2006. Capital expenditures totaled
$346 million and $318 million, respectively, for the first six months of
2007
and 2006. Full year 2007 capital expenditures are expected to be in
the range of $900 to $950 million.
At
its July 2007
meeting, the Board of Directors increased the company’s regular quarterly
dividend rate on outstanding shares of the company’s common stock 11.9%, to $.33
per share from $.295, payable September 10, 2007, to shareholders of record
August 9, 2007.
Item
3. Disclosures About Market Risks
The
company’s
derivatives holdings fluctuate during the year based on normal and recurring
changes in purchasing and production activity. Since December 31, 2006, there
have been no significant changes in the company’s interest rate, foreign
currency or commodity exposures. There have been no changes in the
types of derivative instruments used to hedge the company’s
exposures.
Item
4.
Controls and Procedures
It
is the
responsibility of the chief executive officer and chief financial officer
to
ensure the company maintains disclosure controls and procedures designed
to
provide reasonable assurance that material information, both financial and
non-financial, and other information required under the securities laws to
be
disclosed is identified and communicated to senior management on a timely
basis. The company’s disclosure controls and procedures include
mandatory communication of material subsidiary events, automated accounting
processing and reporting, management review of monthly and quarterly results,
periodic subsidiary business reviews, an established system of internal controls
and rotating internal control reviews by the company’s internal
auditors.
The
chief executive
officer and chief financial officer evaluated the company’s disclosure controls
and procedures as of the end of the quarter ended June 30, 2007 and have
concluded that they are effective as of June 30, 2007 in providing reasonable
assurance that such information is identified and communicated on a timely
basis. Additionally, there were no changes in the company’s internal
control over financial reporting during the quarter that have materially
affected, or are reasonably likely to materially affect, the company’s internal
control over financial reporting. PART
II –
OTHER INFORMATION
Item
1. Legal Proceedings
On
September 19,
2006, one of the Company’s cansheet suppliers, Novelis Corporation (“Novelis”),
instituted a lawsuit seeking relief from continued performance of its
obligations under its cansheet supply agreement with the
Company. This action is being heard in federal court in the Northern
District of Ohio. The Company believes that the assertions of Novelis are
without merit, intends to vigorously defend its rights under the cansheet
supply
agreement and expects to prevail in the litigation.
Reference
is made
to the Company's 10-K for the fiscal year ended December 31, 2006, which
provides a description of certain putative class action lawsuits filed against
the Company. On July 17, 2007, the U.S. Court of Appeals for the
Sixth Circuit dismissed the Michigan and Ohio cases on the grounds that the
plaintiffs lacked standing to sue and thus that the court lacked federal
jurisdiction to hear the claims. The court also held that the
plaintiffs did not plead an injury and could not plead causation because
the
illegal activities involved in underage drinking were an intervening legal
cause
and consequently that the claim asserted by the plaintiffs was not redressable
in court.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
Following
are the
Company’s monthly common stock purchases during the second quarter 2007 (in
millions, except per share). All shares are repurchased under Board of Directors
authorization. The Board’s most recent authorization to repurchase 100 million
shares occurred in December 2006. There is no prescribed termination date
for
this program. The numbers of shares shown include shares delivered to the
company to exercise stock options.
Item
6. Exhibits
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.
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