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Anheuser-Busch InBev S.A. 10-Q 2008 UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
COMMISSION
FILE NUMBER: 1-7823
ANHEUSER-BUSCH
COMPANIES, INC.
One
Busch Place, St. Louis, Missouri 63118
(314)
577-2000
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
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 – 719,042,325 shares as of June 30, 2008.
1
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Balance Sheet (Unaudited)
See the
accompanying footnotes on pages 5 to 11.
2
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Statement of Income (Unaudited)
See the
accompanying footnotes on pages 5 to 11.
3
Anheuser-Busch
Companies, Inc. and Subsidiaries
Consolidated
Statement of Cash Flows (Unaudited)
See the
accompanying footnotes on pages 5 to 11.
4
Anheuser-Busch
Companies, Inc. and Subsidiaries
Notes
to Unaudited Consolidated 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,
2007.
Comparative
business segments information for the second quarter and first six months ended
June 30 (in millions):
5
In
2008, the company changed reporting responsibility for beer sales in the
Caribbean region from U.S. Beer to International Beer and also reassigned
certain administrative and technology support costs between Corporate and U.S.
Beer. Segment results for 2007 have been updated to conform to the revised
reporting conventions.
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, 2008, existing
stock plans authorized issuance of 125 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 6
compensation
is reported, and is classified as a corporate item for business segments
reporting. Unrecognized stock compensation expense as of June 30, 2008 totaled
$87 million, of which $15 million is expected to be recognized in the third
quarter with the remainder recognized in the fourth quarter.
The
following table provides additional information regarding options outstanding
and options that were exercisable as of June 30, 2008 (options and in-the-money
values in millions).
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 gains due to this
hedge ineffectiveness of $0.8 million for the second quarter of 2008 compared to
net ineffective pretax losses of $2.3 million for the second quarter of
2007. For the first six months, the company recognized net
ineffective losses of $5.7 million in 2008 and $1.4 million in
2007. 7
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):
The
components of accumulated nonowner changes in shareholders equity, net of
applicable taxes, as of June 30, 2008 and December 31, 2007 follow (in
millions):
Combined
net income and nonowner changes in shareholders equity, net of applicable taxes,
for the second quarter and first six months ended June 30 follows (in
millions):
8
The
company’s inventories were comprised of the following as of June 30, 2008 and
December 31, 2007 (in millions).
Following
is goodwill by business segment, as of June 30, 2008 and December 31, 2007 (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 2008 is primarily due to
fluctuations in foreign currency exchange rates.
9
The
components of expense for pensions and postretirement health care benefits are
shown below for the second quarter and first six months of 2008 and 2007 (in
millions).
Summary
financial information for Anheuser-Busch’s equity investee Grupo Modelo for the
second quarter and first six months of 2008 and 2007 is presented below (in
millions). The amounts shown represent 100% of Modelo’s consolidated operating
results 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.
10
Effective
in the first quarter 2008, the company adopted FAS No. 157, “Fair Value
Measurements.” FAS 157 requires specific disclosures regarding assets
and liabilities measured at fair value, including the primary sources and
potentially the inputs used to determine fair value, depending on the type and
reliability of those inputs. Currently, the disclosures prescribed by
FAS 157 apply only to financial assets and liabilities. Applicability to
nonfinancial assets and liabilities is effective in the first quarter
2009.
The
company accounts for financial derivatives at fair value and at June 30, 2008
had derivatives-based assets (amounts due from counterparties) of $59.1 million
and liabilities (amounts due to counterparties) of $8.3 million reported on the
balance sheet. The liabilities are reported in other current liabilities while
$58.8 million of the assets are reported in other current assets with the
remaining $0.3 million reported in other assets. The fair values of
derivatives are determined either through quoted prices in active markets for
exchange traded derivatives, which for Anheuser-Busch are primarily commodity
derivatives, or through pricing from brokers who develop values based on inputs
observable in active markets, such as interest rates and currency volatilities.
The fair value of derivatives based on market quoted pricing was net assets of
$46.6 million as of June 30, 2008, while the fair value related to broker quoted
pricing was net assets of $4.2 million.
Anheuser-Busch
also uses fair value measurements when it periodically evaluates the
recoverability of goodwill and other intangible assets, and when preparing
annual fair value disclosures regarding the company’s long-term debt
portfolio.
On July
13, 2008, InBev NV and Anheuser-Busch announced an agreement to combine the two
companies, forming the world’s leading global brewer. Anheuser-Busch
shareholders will receive $70 per share in cash, for an aggregate equity value
of $52 billion. The combined company will be called Anheuser-Busch InBev.
Both companies’ Boards of Directors have unanimously approved the transaction.
The combination is expected to be complete by the end of 2008.
11
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, 2008, compared to the second quarter and first six months ended June 30,
2007, and the year ended December 31, 2007. 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, 2007.
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
achieved solid sales and earnings per share growth for the quarter and first
half of the year, reporting that second quarter 2008 net sales increased 4.6%
and diluted earnings per share increased 8%. For the first six months of 2008,
net sales increased 5.3% and diluted earnings per share increased 6.5%. U.S.
beer shipments and wholesaler sales-to-retailers increased in the quarter over
last year, led by the successful launch of Bud Light Lime and improved
performance of other core brands. According to IRI supermarket data,
Anheuser-Busch has gained 1.0 share points at the consumer level during the four
weeks ended July 6th. The company is encouraged by the success of its marketing
and selling initiatives and is optimistic concerning the outlook for the
remaining summer selling season. Anheuser-Busch’s new Strategic Plan expands and
accelerates the cost reduction and operating efficiency initiatives generated by
the Blue Ocean project, as well as the company’s planned price increases. These
initiatives, combined with our increased marketing and selling efforts, are all
contributing to a very strong outlook for profit growth.
Results
for the second quarter of 2007 include a $16 million pretax gain ($.01 per
share) on the sale of the company’s remaining interest in its Spanish theme park
investment. This one-time gain impacts the comparability of financial results
between years. Excluding the impact of this gain, which the company believes
allows a better comparison of underlying results, diluted earnings per share
increased 9.2% for the second quarter and 7.1% for the first six months (see
tables on page 17).
12
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 2008 versus comparable 2007
periods.
U.S.
beer volume represents beer shipments to wholesalers in the United States. U.S.
beer shipments-to-wholesalers increased 0.5% for the second quarter.
Sales-to-retailers for the quarter increased 0.4% despite the timing of the
Fourth of July holiday that adversely impacted the comparison with second
quarter 2007 results. Sales-to-retailers for the second quarter plus first week
of July, which eliminates the holiday timing distortion, were up 1.9% over the
comparable period last year. For the first six months of 2008,
shipments-to-wholesalers increased 0.4%, and sales-to-retailers decreased 0.1%
with import brands contributing 0.2 basis points of growth to shipments and 0.4
basis points to sales-to-retailers. The Fourth of July timing also adversely
impacted year-to-date sales-to-retailers although to a lesser degree than in the
quarter. Wholesaler inventories for Anheuser-Busch produced brands at the end of
the second quarter were essentially level compared with inventories at the end
of the second quarter 2007.
The
company’s estimated U.S. beer market share for the first six months of 2008 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 4.8% for the second quarter, to 6
million barrels, and 4% for the first half of 2008, to 12 million barrels,
driven primarily by volume increases in China, Canada and Argentina, partially
offset by lower volume in the United Kingdom and Ireland. Worldwide
Anheuser-Busch brands volume is comprised of U.S. and international volume, and
rose 1.2% for the second quarter and 1.1% year-to-date, to 34 million and 65
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 2.1% for the
second quarter of 2008, to 9 million barrels, and increased 5.2% for the first
six months to 17 million barrels, due to Tsingtao and Modelo 13
volume
growth in both periods. Total brands volume, which combines worldwide
Anheuser-Busch brand volume with equity partner brands volume was 43 million
barrels in the second quarter and 82 million barrels for the six months, up 1.4%
and 1.9%, respectively.
2008
Financial Results
Following
is a summary and discussion of key operating results for the second quarter and
first six months of 2008 versus comparable 2007 periods.
Anheuser-Busch
reported gross sales of $5.3 billion during the second quarter 2008, an increase
of $210 million, or 4.1%. Gross sales increased 4.8%, or $459
million, to $10 billion for the first six months. Net sales were $4.7
billion and $8.8 billion, increases of $206 million and $447 million,
respectively, or 4.6% for the quarter and 5.3% year-to-date. The differences
between gross and net sales in 2008 are due to beer excise taxes of $615 million
and $1.2 billion, respectively. The sales increases were driven by
higher sales for all operating segments, with the exception of a second quarter
decline in packaging segment sales. For the second quarter and first six months,
respectively, U.S. beer segment net sales increased 4.5%, or $145 million, and
4.2%, or $258 million on higher volume, increased revenue per barrel and
favorable brand mix; international beer net sales increased $48 million and $97
million primarily due increased sales in China and Canada; packaging operations
net sales decreased $14 million for the second quarter on lower aluminum can
manufacturing revenues, and increased $16 million for the first six months on
higher recycling sales; and 14
entertainment
segment sales increased $16 million and $52 million due to increased attendance
and higher ticket pricing.
U.S.
beer revenue per barrel was up 3.2% in the second quarter 2008 and grew 2.7%
compared with the first half of 2007, due to price increases in late 2007 and
first quarter 2008 and favorable brand mix, especially in the second quarter.
Revenue per barrel increases accounted for $111 million and $190 million,
respectively, of the increases in U.S. beer net sales in the second quarter and
first six months, higher beer volume contributed $14 million and $25 million,
respectively, and nonbeer revenues added $20 million and $43 million,
respectively. 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. The
U.S. beer pricing environment remained favorable through the important Memorial
Day and Fourth of July holidays, as expected. The company plans to implement
price increases on approximately 85% of its U.S. volume in September and October
2008, with the pricing initiatives tailored to selected markets, brands and
packages. The company is projecting revenue per barrel growth, including mix, of
4% for the full year 2008.
The
cost of sales for the second quarter 2008 was $3 billion, an increase of $141
million, or 4.9%, and was up $296 million, or 5.5%, to $5.6 billion for the
first six months. The increases in cost of sales are primarily
attributable to the costs associated with increased costs for brewing and
packaging materials; higher operating costs for international beer and
entertainment in both periods and for the packaging segment year-to-date;
increased energy costs, including freight costs; and costs associated with
higher U.S. and international beer volume. Consolidated gross profit
as a percentage of net sales was 36.5% for the second quarter and 36.2%
year-to-date, down 20 basis points and 10 basis points,
respectively.
Marketing,
distribution and administrative expenses were $793 million for the second
quarter and $1.5 billion year-to-date, representing a $37 million increase for
the quarter and a $78 million increase year-to-date. The changes versus prior
year periods are due to higher U.S. beer marketing costs; higher advertising
expenses in China, particularly year-to-date; increased marketing costs for
entertainment operations; higher delivery costs for company-owned beer
wholesalerships, including an incremental location versus last year; and
increased administrative expenses year-to-date.
Operating
income was $930 million, an increase of $29 million, or 3.2% for the second
quarter 2008. For the first six months of 2008, operating income was
$1.7 billion, an increase of $73 million, or 4.5%. Operating margins declined 30
basis points for the second quarter and 10 basis points for the first six
months, to 19.7% and 19.2%, respectively.
Interest
expense less interest income was $120 million for the second quarter and $248
million for the first six months of 2008, increases versus respective 2007
periods of $2 million and $11 million. The increases in both periods are due to
higher average outstanding debt balances partially offset by lower average
interest rates. Interest income was down slightly in the second quarter and
higher year-to-date 15
in 2008
versus 2007. Interest capitalized of $4 million in the second quarter and $9
million for the first six months was level and up slightly, respectively, 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 2008, the company had
other income of $3 million versus other income of $10 million in 2007.
Year-to-date the company recognized expense of $2 million in 2008 compared with
income of $4 million. Other income for the second quarter and first
six months of 2007 includes the $16 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 2008 was $816 million, an increase of
$19 million, or 2.4%, on improved results for U.S. and international beer
partially offset by lower results for packaging and entertainment. Year-to-date,
pretax income was $1.5 billion, an increase of $58 million or 4.2%, on higher
earnings from U.S. beer, international beer and entertainment partially offset
by lower packaging segment results. U.S. beer pretax profits improved $18
million in the second quarter and were up $35 million for the first six months,
due to higher beer sales volume and increased pricing partially offset by higher
marketing and distribution expenses and increased beer production costs.
International beer pretax income increased $18 million in the second quarter and
increased $37 million year-to-date on profit growth in China, Canada and the
United Kingdom. Packaging segment pretax profits were down $6 million and $10
million, respectively, primarily due to lower recycling earnings. Entertainment
segment pretax profits declined $8 million and grew $5 million, respectively,
due primarily to increased attendance and increased ticket pricing, being fully
offset by higher park operating costs in the quarter and partially offset
year-to-date.
Equity
income of $167 million for the second quarter and $293 million year-to-date
decreased $28 million and $61 million, respectively, reflecting higher materials
and operating costs at Grupo Modelo partially offset by volume growth in both
periods and higher pricing in the second quarter. Tsingtao equity results for
the second quarter include a $7 million charge for higher income tax rates
mandated by the government retroactively for 2007. Equity income in 2007
includes benefits of $12 million and $29 million, respectively, in the second
quarter and first six months due to the return of advertising funds that were
part of Modelo’s prior beer import contracts.
Net
income of $689 million in the second quarter of 2008 represented an increase of
$12 million, or 2%. Net income grew 0.5%, to $1.2 billion for the
first six months of 2008. Diluted earnings per share were $.95 and $1.65,
respectively, for the second quarter and first six months of 2008, representing
increases of 8% and 6.5%, respectively. Diluted earnings per share
for 2008 benefited from the repurchase of 13.7 million shares in the first six
months under the company’s share repurchase program. The effective
income tax rate was 36% for the second quarter 2008 and 37.5% for the
first 16
six
months, representing decreases of 350 and 220 basis points, respectively,
primarily due to lower taxes on foreign earnings and tax benefits related to the
exercise of employee incentive stock options.
The
company believes that excluding the impact of the $16 million one-time gain from
the sale of the Spanish theme park investment in 2007 provides more meaningful
comparisons of financial results between periods. As shown in the following
table, pretax income, net income and diluted earnings per share for the second
quarter increased 4.5%, 3.3% and 9.2%, respectively, excluding the one-time
gain. For the first six months, income before income taxes, net income and
diluted earnings per share excluding the gain increased 5.4%, 1.3% and 7.1%,
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.
17
Cash at
June 30, 2008 was $253 million, a decrease of $30 million from the December 31,
2007 balance. The company generated operating cash flow before the
change in working capital of $1.8 billion for the first six months of 2008, an
increase of $36 million due primarily to increased earnings and tax benefits on
the exercise of employee stock options partially offset by a higher
discretionary defined benefit pension contribution in 2008. The company made a
discretionary contribution of $165 million in 2008 versus a contribution of $85
million in 2007. Discretionary contributions are in addition to required minimum
funding. See the consolidated statement of cash flows for additional information
on the company’s sources and uses of cash.
The
company’s debt balance decreased $657 million in the first half of 2008 compared
to an increase of $300 million in 2007. The changes in debt for the
first half of 2008 and 2007 are summarized below (in millions).
18
The
company’s commercial paper obligation of $597 million at June 30, 2008 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, 2008 and
2007 were 2.37% and 5.28%, respectively.
Capital
expenditures during the second quarter 2008 were $207 million, compared with
$192 million for the second quarter 2007. Capital expenditures totaled $357
million and $346 million, respectively, for the first six months of 2008 and
2007. Full year 2008 capital expenditures are expected to be
approximately $875 million.
At its
July 2008 meeting, the Board of Directors increased the company’s regular
quarterly dividend rate on outstanding shares of the company’s common stock
12.1%, to $.37 per share from $.33, payable September 9, 2008, to shareholders
of record August 11, 2008.
Except as described
below, there have been
only normal and recurring changes in the company’s cash commitments since
December 31, 2007.
Anheuser-Busch has
developed an estimate of its costs resulting from the transaction with InBev and
related matters. The company currently estimates these costs, primarily for
investment banking, legal and accounting services, to approximate $120 million
in the third quarter 2008, with associated cash payments of approximately $20
million in the third quarter and the remaining $100 million to be paid primarily
in the fourth quarter. Additionally, in the fourth quarter the company
anticipates incurring a noncash charge of approximately $72 million for the
accelerated vesting of stock compensation awards, cash payments of approximately
$40 million under an enhanced officer bonus program and cash payments totaling
approximately $71 million related to officer and director deferred compensation
and retirement plans. The timing of the anticipated fourth quarter cash
payments noted above assumes a change in control before December 31, 2008. If
the change in control date is delayed, the timing of these payments will also be
delayed.
In
June 2008, in connection with its plans to reduce costs and improve
efficiency, Anheuser-Busch announced an enhanced retirement program to be
offered to certain salaried employees. The program will provide enhanced pension
and retiree medical benefits to salaried employees who are at least 55 years old
as of December 31, 2008. The company estimates that its salaried workforce
will be reduced by 10% to 15% as a result of this program and
attrition. In conjunction with this program, the company expects to
recognize in the fourth quarter of 2008 a one-time pretax charge estimated in
the range of $300 million to $400 million for enhanced retirement and
severance costs, with associated cash expenditures of approximately
$20 million to $30 million.
19
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,
2007, 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,
2008 and have concluded that they are effective as of June 30, 2008 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 was filed in federal court in the Northern District of Ohio. The company
believed that the assertions of Novelis were without merit, and filed a motion
for summary judgment. This motion was granted on May 22, 2008, resulting
in a dismissal of all of Novelis' claims. On June 20, 2008, Novelis filed
an appeal to the 6th Circuit Court of Appeals. The company expects to
prevail on appeal.
20
Missouri
Shareholder Suits
On
June 4, 2008 and July 16, 2008, two substantially similar putative shareholder
class and derivative actions were filed in the Circuit Court of the City of St.
Louis, Missouri against the company's Board of Directors (the "Board") and the
company (in part as nominal defendant), styled as
Pick v. Busch, et al., C.A. No. 0822-CC02134, and
New Jersey Carpenters Pension and Annuities Funds v. Busch, et al., C.A.
No. 0822-CC07280. These plaintiffs alleged that the defendants breached
their fiduciary duties by failing to give adequate consideration to the InBev
non-binding proposal and taking improper defensive actions against the offer in
an attempt to maintain their positions on the Board. The plaintiffs
generally sought declaratory relief that the defendants breached their fiduciary
duties, injunctive relief to prevent such breaches, and/or fees and
expenses. On July 2, 2008, a different plaintiff filed an action with
similar allegations in United Stated District Court for the Eastern District of
Missouri, styled as
United Food & Commercial Workers Pension Fund of Northeastern PA v.
Anheuser-Busch Companies, Inc., et al., C.A. 4:08-cv-00968. The
plaintiff in the federal action sought damages in addition to the other forms of
relief sought in the state actions.
The plaintiffs in
the Missouri state court actions filed a motion to consolidate those two cases
and for the appointment of lead counsel on June 26, 2008 and a motion for
expedited discovery on June 30, 2008. The company filed motions to stay
the two Missouri state actions in favor of the substantially similar lawsuits
pending in the Delaware Court of Chancery on June 27, 2008. On July 2,
2008, the Circuit Court of the City of St. Louis held a hearing on these motions
and, on July 7, 2008, granted the company's motion to stay the two Missouri
state actions in favor of substantially similar Delaware actions. The
Circuit Court also ruled that the plaintiffs' motion to consolidate the Missouri
actions and motion for expedited discovery were moot. On July 11, 2008,
the plaintiffs filed a motion to lift the stay and the company filed an
opposition brief on July 18, 2008. On July 21, 2008, the court removed the
motion to lift the stay from its hearing docket, to be reset on
application.
Delaware
Shareholder Suits
Between June 12,
2008 and July 2, 2008 a total of 11 substantially similar putative shareholder
class and derivative actions were filed in the Delaware Court of Chancery
against the Board and the company (in part as a nominal defendant), alleging
that the defendants breached their fiduciary duties by failing to maximize
shareholder value and adopting unreasonable defensive measures in the face of
the InBev non-binding proposal, including undertaking merger negotiations with
Grupo Modelo. The plaintiffs generally sought declaratory relief that the
defendants breached their fiduciary duties, injunctive relief to prevent such
breaches, damages, and/or fees and expenses.
On
June 18, 2008 and June 24, 2008, the plaintiffs in two of these actions moved
for expedited discovery. The court denied both motions. On June 25, 2008,
one of the plaintiffs filed an Order of Dismissal seeking a voluntary dismissal
of its action without prejudice. On July 10, 2008, the court
21
consolidated
the remaining ten actions under the caption In
re Anheuser-Busch Companies, Inc. Shareholders Litigation, C.A. No. 3851,
appointed the following as lead plaintiffs: Deka International S.A.
Luxemburg, International Fund Management S.A. Luxemburg, Helaba Invest
Kapitalanlagegesellschaft MBH, Deka Investmentgesellschaft MBH, Deka Fundmaster
Investmentgesellschaft MBH, the General Retirement System of the City of
Detroit, and Sjunde AP-Fonden. The court further ordered the lead
plaintiffs to file a consolidated amended derivative and class action complaint
and that the defendants need not respond to any of the previously
filed-complaints. The lead plaintiffs have not yet filed their
consolidated amended complaint.
InBev's
Delaware Suit
On
June 26, 2008, InBev, which purports to be a shareholder of the company, filed a
complaint in the Delaware Court of Chancery against the company, styled as InBev
NV/SA v. Anheuser-Busch Companies, Inc., C.A. 3857. In its
complaint, InBev alleged that it intended to seek stockholder consents to remove
the entire Board because the company intended to delay, frustrate and reject the
InBev proposal. For relief, InBev requested (1) a declaratory judgment
that: (a) the company's 2006 Amendment to Article Fifth of its Certificate of
Incorporation had declassified all three classes of the Board, and (b) the
company's stockholders were, under the company's Certificate of Incorporation
and Delaware law, permitted to remove all of the company's directors without
cause; and (2) any other relief the court may choose to
grant.
On
July 8, 2008, InBev filed a motion for expedited proceedings. InBev alleged that
expedited proceedings were necessary due to its pending consent solicitation and
the company's stated position that it would challenge InBev's lawsuit.
InBev also filed a motion for summary judgment, arguing that as a matter of law,
the shareholders of the company may remove all directors of the company without
cause and that the Board is not classified as provided in Section 141(d) of the
Delaware General Corporation Law.
On
July 23, 2008, InBev voluntarily dismissed this action.
Anheuser-Busch's
Missouri Suit
On
July 7, 2008, the company filed a complaint in federal court in the Eastern
District of Missouri against InBev, styled as Anheuser-Busch
Companies, Inc. v. InBev NV/SA, C.A. No. 4:08-cv-00993. The company
alleged that InBev made false and misleading statements regarding the InBev
non-binding proposal and Proposed Consent Actions. The complaint sought:
(1) injunctive relief (temporarily, preliminarily, and permanently) to prevent
InBev (and its officers, agents, employees, attorneys, and all persons in active
concern or participation with them) from taking any steps towards soliciting
consents from the company's shareholders until such time as InBev has cured all
of its false and misleading statements and there is a further court order, (2)
costs and expenses for the company, including attorneys' fees, and (3) any other
relief the court may choose to grant.
On July 24, 2008,
the company voluntarily dismissed this
action.
22
Under the merger
agreement, the company has agreed to voluntarily dismiss this
action.
Levi
Lawsuit
On
May 27, 2008, Hunter R. Levi, a former employee of the company, filed a pro se
lawsuit in the United Stated District Court in the Western District of Missouri
against the company, the Board (excluding Patrick Stokes and William Porter
Payne), and various other individuals and companies, styled as Levi
v. Anheuser-Busch Companies, Inc., et al., C.A. 08-0398-cv-W-DGK.
The complaint alleges that Levi was wrongfully terminated in violation of
Missouri law and the Sarbanes-Oxley Act of 2002. The complaint seeks
actual damages of $2.5 million and punitive damages between $5 million and $136
million.
On July 15, 2008,
Levi filed a motion seeking (1) an injunction to prohibit the company, its
executives, and the Board from further negotiations between the company and
InBev regarding a proposed sale of the company, including any Anheuser-Busch
shareholder vote; (2) an order requiring the company to retain documents
pertaining to Levi's complaint; and (3) investigative referrals to the
Securities and Exchange Commission, the Department of Justice, and the Federal
Bureau of Investigation. Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
Following
are the company’s monthly common stock purchases during the second quarter 2008
(in millions, except per share). All shares are repurchased under Board of
Directors authorization. In December 2006, the Board authorized a new program to
repurchase 100 million shares. There is no prescribed termination date for this
program. The numbers of shares shown include shares delivered to the company to
exercise stock options.
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