Anheuser Busch Financial Statements 2009 by wrh20888

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									CONSUMER PRODUCT INDUSTRY
 Carmen • Daniel • George • Tobey • Ying



              March 20, 2004
                  Agenda

Overview of Industry

Company 1: Coca Cola

Company 2 : Procter and Gamble
  Financial Highlights
  Risk Management
          Consumer Product Industry

Definition:
Consumer Products are everything tangible that the
consumer might consider buying

Two Categories:
     Cyclical Goods: include vehicles, home furnishings,
toys, jewelry, sporting goods and electronics
     Non-Cyclical Goods: include clothing, office supplies,
personal care items and cleaning products.
     Structure of Consumer Product Industry
Highly competitive and mature industry
Generates enormous portion of the gross domestic product
Pumps money into other industries
Sales are concentrated in the US, Japan & Western Europe
  The populations of United States, Canada, Europe, and Japan
  make up less than 20% of the world's population, yet they
  consume the vast majority of consumer goods.
Individual consumers make up the majority of this industry’s
customers
Marketing an individual product and promoting a brand
name are key factors to succeed in this industry
Structure of the Consumer Product Industry
This is a great sector for times when the economy is
slow because the companies depend less on the
economy than the companies from other sectors.
Compare the 12 month percentage changes in
indexes (2002) for consumer products with indexes
of other sectors :
      INDEX                      12 mo. % change

      Non-Cyclical Consumer          -3.22
      Consumer Cyclicals             -17.61

      Energy                         -13.51
      Financial                      -22.01
      Health Care                    -19.41
      Technology                     -37.73
Consumer Product Indices vs. S&P 500 during the last 12 months
                  Hot Industry: Home Appliance

Companies             Current      Revenue          Historical   Profitability
                  Stock Price      ($ in million)   Growth       (EBIT to Revenue)
                   (01/31/2004)


Electrolux Ab      $23.14         $17,048.2          -2.0%           6.2%
Whirlpool Corp.    $75.95         $11,763.0           6.5%           7.3%
Maytag Corp.       $28.64         $4,791.9            2.7%           6.4%
Salton Inc.        $13.75         $933.4             -3.0%           4.8%
Applica Inc.       $8.09          $653.0               0.0%          1.3%
National Presto
Inds Inc.          $37.2          $132.7             11.7%           14.6%
Hot Industry: Home Appliances
        Cold Industry: Housewares and Accessories

Companies                Current      Revenue          Historical   Profitability
                         Stock Price ($ in millions)   Growth       ( EBIT to Revenue)
                         (01/31/2004)


Newell Rubbermaid Inc.   $24.43         $7,670.8        7.9%            10.3%
Blyth Inc.               $33.27         $1,329.9         9.3%           11.2%
Tupperware Corp.         $17.65         $1,151.9       -1.0%            7.9%
Waterford Wedgwood Plc   $0.31          $966.8          -4.6%           2.3%
Libbey Inc.              $18.26         $491.2           2.9%           9.0%
Oneida Ltd.              $5.35          $454.1           -3.9%          -2.7%
Home Products Intl Inc   .$1.48         $235.4           -0.2%          2.5%
Cold Industry: Housewares and Accessories
           Consumer Products in Canada
Canada's consumer products industry consists of furniture,
clothing, textiles, toys, sporting goods, household goods,
electronics, and appliances.

In 2000, furniture sales led the way with 10.7% growth, while
clothing and general merchandise sales grew by 5.5% and
4.4%, respectively.

Over the five year period, from 1996 to 2000, the best
performing export areas in the industry were furniture, with
shipments increasing from $CDN 3.7 billion to $CDN 6.9
billion, and clothing, with shipments increasing from $CDN
1.6 billion to $CDN 3.0 billion.
Challenges & Opportunities of Consumer Product Industry
  Industry consolidation takes place
  Globalization is the primary avenue of growth for many businesses
  Deflation is a more recent phenomenon impacting the way
  companies do business
  Operating efficiencies, both supply- and demand-based, are the new
  trends
  Effective brand management is critical to sustaining a competitive
  advantage. Successful brand development and management involve
  building brand strategies that focus on the customer experience.
  Technology is a major enabler for companies today. It is allowing
  companies to operate in a more time-sensitive, cost-conscious,
  consumer-centric manner.
            Governmental Regulations
The production, distribution and sale in the United States of
consumer products are subject to:
   Federal Food, Drug and Cosmetic Act
   Occupational Safety and Health Act
   Lanham/Trademark Act
   Various environment statutes
   Various other federal, state and local statutes and
   regulations applicable to the production, transportation, sale,
   safety, advertising, labeling and ingredients of such
   products
                        Industry Major Players
Rank             Company         Revenue           Profit     # of employees
                              $ million (2003)   $ million
 1     Nestle                          50,624         3,993           229,765
 2     Unilever                        45,914         1,638           279,000
 3     Procter & Gamble                39,244         2,922           106,000
 4     Kraft                           33,875         1,882           114,000
 5     ConAgra                         27,194           639            89,000
 6     PepsiCo                         26,935         2,662           143,000
 7     Coca-Cola                       20,092         3,969            38,000
 8     Sara Lee                        17,747         2,266           141,500
 9     Kimberly-Clark                  14,524         1,610            64,200
 10    Anheuser-Busch                  12,912         1,705            23,432
     Our Examples: Two Major Players

Coca-Cola




Procter & Gamble
The Coca-Cola Company and Subsidiaries
                    Corporate Profile

World’s soft drink company
Invented by Atlanta pharmacist John Pemberton in 1886
Publicly traded in 1919
NYSE: KO
Credit Rating:
                         LT Debt    Commercial Paper
Standard & Poor’s          A+             A-1
Moody’s                    Aa3            P-1
                     Products

Carbonated Soft Drinks




Non-Carbonated Beverages
                Financial Highlights

                          Coca-Cola      PepsiCo
Market Cap.                   $119.40B      $89.62B
Total Debt / Equity              0.385        0.193
Current Ratio                    1.065         1.08
Book Value Per Share             5.771        6.977
Profit Margin                  20.66%       13.23%
Operating Margin               24.81%       17.73%
ROA                            15.77%       14.62%
ROE                            31.69%       33.94%
                  Financial Structure

Revenue Composition

  Operating Revenues
    Sale of beverage concentrates & syrups
    Sale fountain syrups to fountain retailers
    Sale of finished beverages
  Revenues from Financial Activities
    Interest Income
    Equity Income
                  Financial Structure

Cost Structure

  Cost of Good Sold
  Selling, General, & Admin. Expenses
  Other Expenses (i.e. Interest Expense)
                  Income Statement (in millions)
                                          2003      2002    % Change
Net Operating Revenues                  $21,044   $19,564      7.56%
COGS                                      7,762     7,105        9.25
Gross Profit                            $13,282   $12,495      6.30%
Selling, General, & Admin Exp             7,488     7,001        6.96
Other Operating Charges                    573         0            -
Interest Income                           $176      $209     -15.79%
Interest Expense                           178       199       -10.55
Equity Income – Net                        406       384         5.73
Other Income (Loss) – Net                 (138)     (353)       60.91
Gains on Issuances of Stock by Equity        8         0            -
Investees
Net Income                               $4,347    $3,050     42.52%

Basic Net Income Per Share                $1.77     $1.23     43.90%
Diluted Net Income Per Share              $1.77     $1.23       43.90
                           Structure Cost
Yr Ended Dec 31 (in millions)      2003      % in 2003       2002
Selling Exp                       $3,074      41.05%        $2,915
Advertising Exp                   1,905        25.44         1,775
General & Admin Exp               2,102        28.07         1,946
Stock-Based Compensation Exp       407         5.44              365
Selling, General, & Admin Exp     $7,488      100%          $7,001



               Stock Options (in millions)
                                           2003          2002
Total Stock-based compensation expense     $ 422         $ 365
                        Stock Options

Stock Option Plans

  Max 120 millions shares
  Granted to employees at fair market value at date of grant

                         Exercisable    Expire
    Prior to 1999          3 years      10 years
    1999 To July 2003      4 years      15 years

    Aug to Dec 2003        4 years      10 years
                              Stock Options

Stock option activity (in millions):

                                  Shares   Average Exercise Price
 Outstanding on Jan 1, 2003        159            $ 50.24
 Granted                           24               49.67
 Exercised                         (4)              26.96
 Expired                           (12)             51.45
 Outstanding on Dec 31, 2003       167            $ 50.56

 Exercisable on Dec 31, 2003       102            $ 51.97
                     Stock Options

Restricted Stock Award Plans

  Max 29 million shares
  Granted to certain officers and key employees
  Entitled to vote and receive dividends
                       # of shares    Fair value
       2003 Grants       52,720        $ 42.91
       2002 Grants       30,000        $ 50.99
       2001 Grants      116,300        $ 48.95
                    Risk Management

Risks

        Interest rates
        Foreign Exchange rates
        Commodity prices
        Other market risks
              Interest Rate Management

Strategies:

  Monitors % mix of
    fixed-rate and variable-rate debt
    term debt and non-term debt
  Use interest rate swap agreements
               Interest Rate Management

Short-Term Borrowings:

  Commercial Paper (in millions)
                                     2003      2002

   Commercial Paper                  $ 2,234   $ 2,122

   Weighted-Average Interest rates   1.1%      1.4%
                 Interest Rate Management

Long-Term Debt (in millions):
                            2003            2002
Long-Term Debt (Fixed)      $ 1742   61%    $ 1764   61%
Long-Term Debt (Variable)   $ 1098   39%    $ 1117   39%
                            $2840    100%   $2881    100%


                            2003            2002
Average interest rate       3.9%            4.2%
Total interest payment      $ 180           $ 197
                   Interest Rate Management

Long-Term Debt (in millions):
                                     2003     % of 2003    2002     % of 2002
6%US notes due 2003                   $-          -        $150        5%
Variable rate euro notes due 2004    296        10%        248         9%
5 7/8% euro notes due 2005           591        21%        496        17%
4% US notes due 2005                 749        26%        748        26%
5 3/4% US notes due 2009             399        14%        399        14%
5 3/4% US notes due 2011             498        18%        498        17%
7 3/8% US notes due 2093             116         4%        116         4%
Other, due through 2013 *            191         7%        226         8%
              Total                 $ 2,840     100%      $ 2,881     100%
                Interest Rate Management

Interest rate swap:

  Maturity less than 2 years

                               2003          2002
   Interest rate swap      $ 28 million   $ 44 million
              Interest Rate Management

Value at risk:
  Confidence level: 95%
  Time horizon: one-week period

“Any increase in net interest expense would not have material
  impact on our financial statements”
      Foreign Currency Management

5 geographic segments: net operating revenues

                      Africa
                       4%
     Latin American
           10%                     North America
                                        31%

           Asia
           24%                    Europe / Eurasia /
                                    Middle East
                                        31%
        Foreign Currency Management

Use 52 functional currencies
Weakness in one $$ is often offset by strengths in another

                Impact of US$ on operating income
     2003        Weaker US$             + 2%

     2002        Stronger US$           - 3%

     2001        Stronger US$           - 5%
          Foreign Currency Management

To hedge: Forecasted cash flows denominated in foreign $$

Derivative instruments:
     Forward exchange contracts
     currency options (euro and Japanese)
     1 ~ 2 years maturity
           Foreign Currency Management

Hedging effects:

  Gains/losses on foreign currency cash flow hedges (in
  millions):
                                  2004       2003      2002
                               (estimates)
 Increase (Decrease) to AOCI     $ (40)      $ (31)   $ (151)
            Foreign Currency Management

To hedge: Net investment in certain major $$

Derivative instruments:
     Forward exchange contracts

Hedging effects:
                                      2003    2002    2001
  Increase (Decrease) in foreign
                                    $ (29)   $ (26)   $ (43)
  currency translation adjustment
           Foreign Currency Management

Value at risk:
  Confidence level: 95%
  Time horizon: 1-week period

“Fair value of foreign currency derivatives would decline by
  less than …”
             2003           2002           2001
          $ 26 million   $34 million    $43 million
                      Risk Management

Accumulated Other Comprehensive Income (in millions):

                                                   2003     2002
 Accumulated derivatives net losses as of Jan      $ (9)    $ 142

 Net changes in fair value of derivatives          (100)     (78)

 Net losses reclassified from AOCI into earnings     69      (73)

 Accumulated derivative net losses as of Dec       $ (40)   $ (9)
       Risk Management Process


                 BOARD



         FINANCE COMMITTEE CHARTER




INTEREST RATE & FOREIGN CURRENCY MANAGEMENT
            Financial Committee Charter

Purpose: Aid the Board to oversight financial affairs

Membership:
    No fewer than 3 members
    Appointed/Removed by the Board

Responsibilities:
     Formulate financial policies
     Report financial conditions
     Prepare annual budgets
                Procter & Gamble

Exchange: NYS
Ticker: PG
Established in 1837
Began as a small, family operated soap and candle
company
Based in Cincinnati, Ohio
Markets almost 300 products to more than five billion
consumers in 140 countries
                 P&G Operations

5 global business units
$43 Billion in Sales
          Billion-Dollar Brands

Pampers
Tide
Ariel
Always
Pantene
Charmin
           Billion-Dollar Brands

Bounty
Iams
Crest
Folgers
Pringles
Downy
 Business Unit Breakdown
                   P&G
        $43.3 Billion in Sales


                   Baby & Family Care
                  $9.93 Billion in Sales
                     Diapers, Tissue
          Brands: Pampers, Charmin, Bounty

                   Fabric & Home Care
                  $12.6 Billion in Sales
        Detergent, Bleach, Household cleaners
          Brands: Cheer, Mr. Clean, Febreze

                     Beauty Care
                $12.22 Billion in Sales
Cosmetics, Hair Products, Skin Care, Femine Care
   Brands: Pantene, Tampax, Clairol, Ivory Soap

                        Health Care
                   $5.8 Billion in Sales
          Pet Health/Food, Oral Care, Drugs
Brands: Iams, Crest, Vicks, Metamucil, Pepto-Bismol

                  Snacks & Beverages
                  $3.24 Billion in Sales
                 Snacks and beverages
       Brands: Folgers, Pringles, Sunny Delight
          Cost Structure/Performance

P&G annualized total shareholder return
  nearly 17% over the past 20 years

Strategy for future growth:
   Best in branding
   Innovation: creating new brands and categories
   Scale
                           Income Statement

                                Jun-03   Jun-02   Jun-01   Jun-00       Jun-99
Net Sales                       43,377   40,238   39,244   39,951       38,125
Cost of Goods Sold              22,141   20,989   22,102   21,514       21,027
Gross Profit                    21,236   19,249   17,142   18,437       17,098
R & D Expenditure                  n/a     n/a      n/a      n/a          n/a
SG&A Expense                    13,383   12,571   12,406   12,483       10,845
Depreciation & Amort.              n/a     n/a      n/a      n/a          n/a
Non-Operating Income              238      308      674      304          235
Interest Expense                  561      603      794      722          650
Income Before Taxes              7,530    6,383    4,616    5,536        5,838
Prov. For Inc. Taxes             2,344    2,031    1,694    1,994        2,075
Minority Interest                  n/a     n/a      n/a      n/a          n/a
Investment (Gain/Loss)             n/a     n/a      n/a      n/a          n/a
Other Income                       n/a     n/a      n/a      n/a          n/a
Net Income Before Extra Items    5,186    4,352    2,922    3,542        3,763
Extra Items & Disc. Ops.           n/a     n/a      n/a      n/a          n/a
Net Income                       5,186    4,352    2,922    3,542        3,763
                                                             in millions of USD
                 Risk Management

There is no explicit mentioning of a risk management
committee

Use sensitivity analysis and value-at-risk

With VaR, P&G states that it is 95% confident that there
will be no material impact to their financial statements
concerning interest rates and currency
                  Risk Management

Sources of risk

  Currency rate exposure
  Credit risk
  Interest rate risk
  Commodity market risk
  Other general business risks
                              Foreign Currency

   To what degree is foreign currency management important?
        A lot.
        Sales and Assets consisted of the following:

              Net Sales (for the year ended June 30)        Assets (as of June 30)
                    2003   2002            2001          2003       2002        2001
United States $   21,853 $  21,198       $  20,334     $ 23,424   $ 23,434    $ 18,318
International $   21,524 $  19,040       $  18,910     $ 20,282   $ 17,342    $ 16,069
        Foreign Currency Management

Derivative Instruments used:
  Forward exchange contracts
  Options
  Currency swaps
Maturity
  <18 months: Forwards and options
  <5 years: Swaps
Manages both hedging and non-hedging eligible treatment
  Both are immediately recognized in earnings
        Foreign Currency Management

Fair Value (June 03 vs. June 02 for Hedges)
   Assets: $27 vs. $60
   Liabilities: $92 vs. $29
   To offset impact on sales, inventory purchases, inter-
   company royalties and loans in foreign monies
Fair Value (June 03 vs. 02 for Non-Hedging)
   Assets: $113 vs. $93
   Liabilities: $26 vs. $25
   To offset impact on inter-company financing, income
   from international operations
        Foreign Currency Management

Bottom line impact of gains:
   2003: $264
   2002: $50
   2001: $38

Overall, why so little hedged?
  Exposure netting:
  35 Manufacturing Sites in America, and
  83 Manufacturing Sites, in another 42 countries
      Foreign Currency- Net Investment

Hedges net investment position in major currencies
How?
   Borrows in foreign currency and designates a portion of
   the debt as a hedge of net investments in the currency
   (I.e. use foreign denominated earnings to pay foreign
   denominated interest payments)
Effects in Other Comprehensive Income
   ($418) 2003 vs. ($397) 2002
Accumulated Net Balance
   ($238) 2003 vs. $180 2002
                Credit Risk Management

Strict credit guidelines:

     Transactions entered with only financial institutions of
     investment grade or better
     Closely monitoring counter-party exposures
     Limiting counter-party’s obligation to a certain amount
     P & G doesn’t expect to incur any material losses
        Interest Rate Risk Management

Manages cost by using a mix of variable and fixed-rate
debt
Managed through the use of swaps
   “agrees to exchange, at specific intervals, the difference
   between fixed and variable interest amounts”
Fair value (June 03 vs. June 02)
   $322 vs. $231
      Interest Rate Risk Management

Short-term debt
      Interest Rate Risk Management

Long-term debt
        Commodity Price Management

Potential impact of:
   Weather
   Supply conditions
   Political and economic variables
Derivative Instruments used:
   Futures and Options
   Swaps
Maturity
   <1 year: Forwards and options
   <5 years: Swaps
Not material for the past 3 years
Stock-Based Compensation
                    Stock-Based Compensation

Grants to key managers and directors
  With exercise prices equal to the market price of the grant
  Vested with life of:
                        Date            Vested           Life
                     <July 1998          1 Year        10 Years
               July 1998- August 2002   3 Years        15 Years
                  >September 2002       3 Years        10 Years


  Valued in 2001 using binomial; 2002 and 2003 using
  Black-Scholes
                                                   Years ended June 30
       Options Granted                      2003             2002         2001
       Interest rate                        3.9%             5.4%         5.8%
       Dividend yield                       1.8%             2.2%         2.0%
       Expected volatility                 20.0%            20.0%        26.0%
       Expected life in years                 8               12            9
                      Stock-Based Compensation

1.3 Billion Shares Outstanding

                                                              June 30
Options in Thousands                           2003               2002             2001
Outstanding, beginning of year                120,163           104,196           82,744
Granted                                       17,880             25,040           28,400

                                  Outstanding Options                  Exercisable Options
                                                        Weighted Avg.
                                                         Remaining    Number     Weighted
                          Number         Weighted Avg. Contractual Exercisable   Average
Range of Prices      Outstanding (1000s) Exercise Price  Life Years   (1000s)  Exercise Price
     $28 to 46             15,847           $35.78            2       15,847      $35.78
      54 to 66             36,470           $61.35          10.2       7,938      $59.77
      67 to 85             40,575           $74.85           9.7      16,826      $82.63
     85 to 106             36,907           $93.17           10       18,490      $95.02
               Other types of risks
General business risk

Operational risk
  Restructuring risk
  Management control risk

Legal risk
   Purchase commitments for materials, supplies, services
   and fixed assets
Any Questions?

								
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