SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended June 30, 20042005
Commission file number 1-7823
ANHEUSER-BUSCH COMPANIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1162835
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Busch Place, St. Louis, Missouri 63118
(Address of principal executive offices) (Zip Code)
314-577-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act)
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
$1 Par Value Common Stock - 800,997,265776,779,707 shares as of June 30, 20042005
1
CONSOLIDATED BALANCE SHEET
Anheuser-Busch Companies, Inc. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
June 30, December 31,
(In millions)millions, except per share) 2005 2004
2003
------------------- ---------------------------- ------------
Assets
Current Assets:
Cash $261.0 $191.1$137.1 $228.1
Accounts receivable 955.1 669.4963.9 696.1
Inventories:
Raw materials and supplies 316.9 320.3378.1 405.0
Work in progress 101.1 81.9103.1 80.0
Finished goods 228.4 185.3229.3 205.3
Total inventories 646.4 587.5710.5 690.3
Other current assets 149.9 182.3
------------------- -------------------230.5 203.9
--------- ---------
Total current assets 2,012.4 1,630.3
Investment in Harbin Brewery 408.4 --2,042.0 1,818.4
Investments in affiliated companies 2,967.3 3,052.03,060.7 3,150.2
Plant and equipment, net 8,496.8 8,498.98,986.5 8,847.4
Intangible assets, including goodwill of $370.2
million$996.6 and $349.0 million, respectively 518.4 486.6$984.1 1,201.3 1,191.9
Other assets 961.1 1,021.7
------------------- -------------------1,098.9 1,165.5
--------- ---------
Total Assets $15,364.4 $14,689.5
=================== ===================$16,389.4 $16,173.4
========= =========
Liabilities and Shareholders Equity
Current Liabilities:
Accounts payable $1,009.3 $1,093.7$ 1,155.4 $ 1,194.8
Accrued salaries, wages and benefits 264.7 288.9267.9 291.4
Accrued taxes 361.7 163.1235.8 152.9
Accrued interest 128.6 125.2
Other current liabilities 358.3 311.5
------------------- -------------------254.9 204.7
--------- ---------
Total current liabilities 1,994.0 1,857.2
------------------- -------------------2,042.6 1,969.0
--------- ---------
Postretirement benefits 462.6 470.4
------------------- -------------------443.7 454.2
--------- ---------
Debt 7,688.8 7,285.4
------------------- -------------------8,275.3 8,278.6
--------- ---------
Deferred income taxes 1,567.1 1,462.1
------------------- -------------------1,617.4 1,727.2
--------- ---------
Other long-term liabilities 898.5 902.7
------------------- -------------------1,077.0 1,076.3
--------- ---------
Shareholders Equity:
Common stock, $1.00 par, value,authorized 1.6 billion shares authorized 1,461.2 1,457.91,466.7 1,463.0
Capital in excess of par value 1,299.9 1,194.01,543.6 1,425.3
Retained earnings 14,778.6 13,935.416,145.7 15,407.2
Treasury stock, at cost (13,729.9) (12,939.0)(15,214.0) (14,638.5)
Accumulated non-owner changes in equity (1,056.4) (890.3)
ESOP debt guarantee -- (46.3)
------------------- -------------------(1,008.6) (988.9)
--------- ---------
Total Shareholders Equity 2,753.4 2,711.7
------------------- -------------------2,933.4 2,668.1
--------- ---------
Commitments and contingencies -- --
------------------- ---------------------------- ---------
Total Liabilities and Shareholders Equity $15,364.4 $14,689.5
=================== ===================$16,389.4 $16,173.4
========= =========
- -------------------------------------------------------------------------------------------------------------------
See the accompanying footnotes on pages 5 -- 13.
2
CONSOLIDATED STATEMENT OF INCOME
Anheuser-Busch Companies, Inc., and Subsidiaries
Consolidated Income Statement (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
Second Qtr. Ended June 30,First Six Months Ended June 30,
---------------------------------- ----------------------------------
(In millions, except per share) Ended June 30, Ended June 30,
------------------------------ ------------------------------
2005 2004 20032005 2004
2003
--------------- --------------- --------------- ----------------------- -------- -------- --------
Gross sales $4,597.3 $4,597.2 $4,339.3$8,682.4 $8,600.2 $8,134.2
Excise taxes (579.2) (587.2) (569.1)(1,100.6) (1,113.2)
(1,083.4)
--------------- --------------- --------------- ----------------------- -------- -------- --------
Net sales 4,018.1 4,010.0 3,770.27,581.8 7,487.0 7,050.8
Cost of sales (2,476.0) (2,331.2) (2,189.9)(4,703.2) (4,404.5)
(4,164.3)
--------------- --------------- --------------- ----------------------- -------- -------- --------
Gross profit 1,542.1 1,678.8 1,580.32,878.6 3,082.5 2,886.5
Marketing, distribution and
administrative expenses (697.1) (654.3) (622.3)(1,301.2) (1,236.6)
(1,164.4)
--------------- --------------- --------------- ----------------------- -------- -------- --------
Operating income 845.0 1,024.5 958.01,577.4 1,845.9 1,722.1
Interest expense (115.9) (105.9) (102.3)(230.7) (207.6) (201.0)
Interest capitalized 5.5 5.8 6.410.7 11.0 10.8
Interest income 0.2 0.4 0.22.2 1.5
0.3
Other income/(expense),income, net 1.2 2.4 (0.8)20.7 30.0
(1.0)
--------------- --------------- --------------- ----------------------- -------- -------- --------
Income before income taxes 736.0 927.2 861.51,380.3 1,680.8 1,531.2
Provision for income taxes (266.2) (360.0) (334.9)(503.6) (652.6) (594.2)
Equity income, net of tax 137.2 106.3 106.0243.1 195.2
180.4
--------------- --------------- --------------- ----------------------- -------- -------- --------
Net income $607.0 $673.5 $632.6$1,119.8 $1,223.4
$1,117.4
=============== =============== =============== ======================= ======== ======== ========
Basic earnings per share $.78 $.84 $.76$1.44 $1.52
$1.34
=============== =============== =============== ======================= ======== ======== ========
Diluted earnings per share $.78 $.83 $.75$1.43 $1.50
$1.32
=============== =============== =============== ======================= ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
See the accompanying footnotes on pages 5 -- 13.
3
CONSOLIDATED STATEMENT OF CASH FLOWS
Anheuser-Busch Companies, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
First Six Months
(In millions) Ended June 30,
----------------------------------------
(In millions)-------------------------------
2005 2004
2003
---------------- ------------------------ --------
Cash flow from operating activities:
Net Income $1,119.8 $1,223.4 $1,117.4
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 481.0 457.1
429.0
Deferred(Decrease) / Increase in deferred income taxes (55.0) 33.3 28.7
Undistributed earnings of affiliated companies (39.5) (16.2)
(50.7)Gain on sale of business (15.4) ---
Other, net 102.9 93.8
59.3
---------------- ------------------------ --------
Operating cash flow before changechanges in working capital 1,593.8 1,791.4 1,583.7
Increase in working capital (244.7) (235.2)
(119.3)
---------------- ------------------------ --------
Cash provided by operating activities 1,349.1 1,556.2
1,464.4
---------------- ------------------------ --------
Cash flow from investing activities:
Capital expenditures (565.4) (441.7)
(490.1)
Business acquisitionsProceeds from sale of business 48.3 ---
Acquisitions -- (441.3)
(116.4)
---------------- ------------------------ --------
Cash used for investing activities (517.1) (883.0)
(606.5)
---------------- ------------------------ --------
Cash flow from financing activities:
Increase in long-term debt 3.7 963.5 576.9
Decrease in long-term debt (57.9) (502.9) (77.2)
Dividends paid to shareholders (381.3) (354.3) (326.2)
Acquisition of treasury stock (575.5) (792.2) (1,126.6)
Shares issued under stock plans 88.0 82.6
49.3
---------------- ------------------------ --------
Cash used for financing activities (923.0) (603.3)
(903.8)
---------------- ------------------------ --------
Net increase/(decrease) / increase in cash during the period (91.0) 69.9 (45.9)
Cash, beginning of period 228.1 191.1
188.9
---------------- ------------------------ --------
Cash, end of period $137.1 $261.0
$143.0
================ ======================== ========
- ---------------------------------------------------------------------------------------------------------------------
See the accompanying footnotes on pages 5 -- 13.
4
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 information,reporting, and include all
adjustments necessary for a fair presentation. These statements should
be read in combination with the consolidated financial statements and
footnotesnotes included in the company's annual report on Form 10-K for the year
ended December 31, 2003.2004.
2. Business Segments Information
-----------------------------
Comparative business segment information for the second quarter and
first six months ended June 30 are presented below (in millions):
----------------------------------------------------------------------------------------
SECOND Domestic Int'l Corporate
QUARTER Beer Beer Packaging Entertain. & Elims. Consol.
- ---------------------------------------------------------------------------------------------------------------
2005
Gross Sales $3,432.1 296.8 648.9 320.9 (101.4) $4,597.3
Net Sales:
- - Intersegment $0.7 -- 227.5 -- (228.2) $--
- - External $2,912.7 236.3 421.4 320.9 126.8 $4,018.1
Income Before
Income Taxes $773.3 26.0 44.5 78.0 (185.8) $736.0
Equity Income,
Net of Tax -- $137.2 -- -- -- $137.2
Net Income $479.5 153.3 27.6 48.4 (101.8) $607.0
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
2004
Gross Sales $3,558.2 237.5 625.8 312.5 (136.8) $4,597.2
Net Sales:
- - Intersegment $0.7 -- 237.9 -- (238.6) $--
- - External $3,020.6 187.5 387.9 312.5 101.5 $4,010.0
Income Before
Income Taxes $951.6 31.1 52.5 81.8 (189.8) $927.2
Equity Income,
Net of Tax -- $106.3 -- -- -- $106.3
Net Income $589.9 125.6 32.6 50.7 (125.3) $673.5
- ---------------------------------------------------------------------------------------------------------------
5
----------------------------------------------------------------------------------------
FIRST Domestic Int'l Corporate
SIX MONTHS Beer Beer Packaging Entertain. & Elims. Consol.
- ---------------------------------------------------------------------------------------------------------------
2005
Gross Sales $6,645.8 545.1 1,215.4 496.0 (219.9) $8,682.4
Net Sales:
- - Intersegment $1.4 -- 436.1 -- (437.5) $--
- - External $5,647.1 441.8 779.3 496.0 217.6 $7,581.8
Income Before
Income Taxes $1,554.6 47.8 80.1 71.6 (373.8) $1,380.3
Equity Income -- $243.1 -- -- -- $243.1
Net Income $963.9 272.7 49.7 44.4 (210.9) $1,119.8
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
2004
Gross Sales $6,821.1 430.6 1,147.2 466.6 (265.3) $8,600.2
Net Sales:
- - Intersegment $1.4 -- 448.0 -- (449.4) $--
- - External $5,790.8 346.3 699.2 466.6 184.1 $7,487.0
Income Before
Income Taxes $1,814.2 54.0 89.3 70.8 (347.5) $1,680.8
Equity Income -- $195.2 -- -- -- $195.2
Net Income $1,124.8 228.7 55.4 43.9 (229.4) $1,223.4
- ---------------------------------------------------------------------------------------------------------------
Effective in the first quarter 2005, the company's transportation
business is included within the domestic beer segment and its real
estate business is reported as a corporate item. These businesses
previously comprised the "other" segment. Segment results for 2004 have
been updated to conform to the 2005 reporting convention. The change in
composition is not material for any period presented.
3. 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
due to
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 belowin the follow table (millions of shares):
6
Second Quarter First Six Months
---------------------------- ------------------------------------------------------- ---------------------------
2005 2004 20032005 2004
2003----------- ------------ ------------ ------------ -----------------------
Basic weighted average
shares outstanding 777.1 800.9 831.2778.2 805.7
836.0=========== ============ ============ ============ =======================
Diluted weighted average
shares outstanding 782.4 810.6 842.0784.4 815.8
846.5=========== ============ ============ ============ =======================
5
3. Business Segments Information
-----------------------------
Comparative business segment information4. Non-Owner Changes in Shareholders Equity
----------------------------------------
The components of accumulated non-owner changes in shareholders
equity, net of applicable income taxes, as of June 30, 2005 and
December 31, 2004 follow (in millions):
June 30, Dec. 31,
2005 2004
--------------- ---------------
Foreign currency translation loss $(493.1) $(566.5)
Deferred hedging gains 1.9 (1.3)
Deferred securities valuation gains (0.4) 95.9
Minimum pension liability (517.0) (517.0)
--------------- ---------------
Accumulated non-owner changes in shareholders equity $(1,008.6) $(988.9)
=============== ===============
Net income plus non-owner changes in shareholders equity, net of
applicable income taxes, for the second quarter and first six months ended June 30 (in millions):
-----------------------------------------------------------------------------------------
SECOND Domestic Int'l Corporate
QUARTER Beer Beer Packaging Entertain. Other & Elims. Consol.
-----------------------------------------------------------------------------------------------------------------
2004
Gross Sales $3,553.9 237.5 625.8 312.5 23.5 (156.0) $4,597.2
Net Sales:
- Intersegment -- -- $237.9 -- 1.1 (239.0) $ --
- External $3,016.7 187.5 387.9 312.5 22.4 83.0 $4,010.0
Income Before
Income Taxes $951.5 31.1 52.5 81.8 2.2 (191.9) $927.2
Equity Income -- $106.3 -- -- -- -- $106.3
Net Income $589.9 125.6 32.6 50.7 1.4 (126.7) $673.5
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
2003
Gross Sales $3,397.5 201.0 589.9 280.3 21.2 (150.6) $4,339.3
Net Sales:
- Intersegment -- -- $232.9 -- 1.2 (234.1) $ --
- External $2,870.8 158.6 357.0 280.3 20.0 83.5 $3,770.2
Income Before
Income Taxes $875.7 25.9 50.5 66.0 2.5 (159.1) $861.5
Equity Income -- $106.0 -- -- -- -- $106.0
Net Income $542.9 122.1 31.3 40.9 1.5 (106.1) $632.6
-----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
FIRST Domestic Int'l Corporate
SIX MONTHS Beer Beer Packaging Entertain. Other & Elims. Consol.
-----------------------------------------------------------------------------------------------------------------
2004
Gross Sales $6,812.0 430.6 1,147.2 466.6 34.3 (290.5) $8,600.2
Net Sales:
- Intersegment -- -- $448.0 -- 2.1 (450.1) $ --
- External $5,783.1 346.3 699.2 466.6 32.2 159.6 $7,487.0
Income Before
Income Taxes $1,814.2 54.0 89.3 70.8 (2.3) (345.2) $1,680.8
Equity Income -- $195.2 -- -- -- -- $195.2
Net Income $1,124.8 228.7 55.4 43.9 (1.4) (228.0) $1,223.4
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
2003
Gross Sales $6,536.3 367.2 1,086.9 406.1 33.3 (295.6) $8,134.2
Net Sales:
- Intersegment -- -- $447.4 -- 2.3 (449.7) $ --
- External $5,521.5 298.6 639.5 406.1 31.0 154.1 $7,050.8
Income Before
Income Taxes $1,675.3 46.1 84.3 45.5 (0.1) (319.9) $1,531.2
Equity Income -- $180.4 -- -- -- -- $180.4
Net Income $1,038.7 209.0 52.3 28.2 (0.1) (210.7) $1,117.4
-----------------------------------------------------------------------------------------------------------------
6
4. Business Investments
--------------------
Harbin Group Investment
-----------------------
During the second quarter Anheuser-Busch acquired an initial 36 percent
equity stake and launched a tender offer for the remaining shares in
Harbin Brewery Group, a major brewer in China. By the end of the
quarter, the company had acquired an additional 29 percent of Harbin,
increasing its total ownership to approximately 65 percent. The company
paid $408.4 million for its 65 percent investment in Harbin, which is
included in its consolidated statement of cash flows and as a single
line item in the consolidated balance sheet as of June 30, 2004 because
a U.S. GAAP balance sheet is currently not available. To date,
Anheuser-Busch has acquired virtually all Harbin shares for a total
investment of approximately $692 million.
Anheuser-Busch's second quarter earnings do not include results for
Harbin. Beginning in the third quarter, upon completion of purchase
accounting valuations, the company will fully consolidate its Harbin
investment within its financial statements. The company anticipates
reporting Harbin results on a one-month lag basis. For 2004, it is
estimated the Harbin acquisition will dilute earnings per share by
approximately $.01.
Tsingtao Investment
-------------------
In March 2004, the company made its planned final investment of $33
million in convertible bonds of Tsingtao, the largest brewer in China,
bringing the total of its recent investments in Tsingtao to $182
million. The company's equity ownership interest remains at 9.9% and
continues to be accounted for using the cost method.
7
5. Non-Owner Changes in Equity
---------------------------
Net income and non-owner changes in equity, net of applicable taxes,
for the second quarter and six months
ended June 30 follows (in millions):
Second Quarter First Six Months
------------------------- ----------------------------
----------------------------2005 2004 20032005 2004
2003
------------ ------------ ------------ --------------------- --------- ----------- ----------
Net income $607.0 $673.5 $632.6$1,119.8 $1,223.4 $1,117.4
Non-owner changes in equity:
Foreign currency translation
gains and (losses) 43.0 (103.5) 176.373.4 (21.9) (31.1)
Net change in deferred hedging (losses)
and gains and
(losses)(1.9) (31.7) 0.83.2 (42.4) (1.7)
Deferred securities valuation gains and
(losses)losses (104.2) (114.9) 16.0(96.3) (101.8)
23.7
------------ ------------ ------------ --------------------- --------- ----------- ----------
Combined net income and non-owner changes in
equity $543.9 $423.4 $825.7$1,100.1 $1,057.3
$1,108.3
============ ============ ============ ===================== ========= =========== ==========
During the second quarter 2004, the company began recording deferred
income taxes related to certain non-owner changes in shareholders
equity. The deferred income tax liability effects were as follows (in
millions):
Increase/(Decrease)
-----------------------------------
Non-Owner Deferred
Changes Income
in Equity Tax Liability
--------------- -----------------
Deferred securities valuation gains $(35.1) $35.1
Deferred hedging gains (10.7) 10.7
-------------- ------------
Total $(45.8) $45.8
============== ============
The components of accumulated non-owner changes in equity, net of
applicable taxes,7
5. Goodwill
--------
Following is goodwill by business segment, as of June 30, 20042005 and
December 31, 2003 follow2004 (in millions):. For balance sheet classification,
goodwill related to consolidated companies is included in other assets,
while goodwill related to equity investments is included in investment
in affiliated companies. The change in international beer segment
goodwill during 2005 is due to post-acquisition balance sheet
adjustments related to Harbin and fluctuations in foreign currency
exchange rates.
June 30, 2005 Dec. 31, 2004
2003
------------- -------------------------------- ----------------------
Foreign currency translation loss $(691.3) $(669.4)
Minimum pension liability (453.0) (453.0)
Deferred hedging gains 17.4 59.8
Deferred securities valuation gains 70.5 172.3
------------- -------------
Accumulated non-owner changes in equity $(1,056.4) $(890.3)
============= =============Domestic Beer $21.2 $21.2
International Beer 1,206.8 1,177.8
Packaging 21.9 21.9
Entertainment 288.3 288.3
------------------- ----------------------
Total goodwill $1,538.2 $1,509.2
=================== ======================
8
6. Derivatives
-----------
Anheuser-Busch accounts for itsAll of Anheuser-Busch's derivatives underqualify as hedges in accordance
with FAS 133, "Accounting for Derivatives and Other Hedging
Instruments," and the company therefore defers the recognition of
effective hedging gains and losses in accumulated non-owner changes in
shareholders equity until the underlying hedged transactions actually
occur. As the underlying transactions occur, gains and losses that have
been previously deferred are reclassified into earnings. The company
reclassified the following gains and losses from accumulated non-owner
changes in equity into earnings during the second quarter and first six
months (in millions):
2005 2004
-------------------------- --------------------------
Gains Losses Gains Losses
-------- -------- --------- ---------
Second Quarter $1.8 $0.8 $18.5 $0.4
======== ======== ========= =========
First Six Months $2.4 $5.3 $36.2 $0.8
======== ======== ========= =========
8
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 hedged exposures. The company reclassified deferred
gains of $18.5transactions. Anheuser-Busch recognized
net losses due to such ineffectiveness totaling $0.1 million and $36.2 million, and deferred losses of $0.4
million and $0.8 million from accumulated non-owner changes in equity
into operating income duringfor the
second quarter and $0.4 million for the first six months of 2004, respectively, as underlying hedged transactions occurred.
The company recognized2005,
compared to a net loss due to hedge ineffectiveness of $0.5 million for the second quarter and a net
gain of $23.6 million for the first six months of 2004, compared to net gains of $0.8 million and
$0.9 million, respectively,2004. The gain for
the comparable 2003 periods. The first halfsix months of 2004 gain includes $19.5 million related to the sale
of commodity hedges, that had been in place for future years, which is reported in other income. The hedges were originally placed using estimates of
costs to be contained in the renewal of supply contracts.
Anheuser-Busch lowered its cost estimates during the first quarter,
resulting in significant hedge ineffectiveness in compliance with FAS
133. Due to the hedge ineffectiveness, the company sold these hedgesincome and realized the ineffective portion of the gain.classified
as a corporate item for segment reporting.
7. Goodwill
--------
Following is goodwill by business segment, as of June 30, 2004 and
December 31, 2003 (in millions). Goodwill is included in intangible
assets or investment in affiliated companies, as appropriate, in the
consolidated balance sheet. The company completed the purchase price
allocation for the acquisition of a wholesaler during the second
quarter resulting in the increase in domestic beer goodwill. The change
in international beer goodwill is due to foreign currency translation.
June 30, Dec. 31,
2004 2003
-------------- --------------
Domestic Beer $21.2 $ --
International Beer 672.7 679.7
Packaging 21.9 21.9
Entertainment 288.3 288.3
-------------- --------------
Total goodwill $1,004.1 $989.9
============== ==============
9
8. Stock Based Compensation
------------------------
The company currently accounts for employee stock options in
accordance with FAS 123, "Accounting for Stock-Based Compensation."
Under FAS 123, the company elects to recognizerecognizes no compensation expense related
to employee
stock options since options are always granted with an exercise price
equal to the market price of the company's stock on the day of grant.
Because of its election to not recognize compensation expense for stock
options, the company makes requiredand instead provides pro forma disclosures of net
income and diluted earnings per share as if compensation expense had been
recognized based on the fair value of the stock options on the grant
date.
For FAS 123 disclosureIn the first quarter 2005, for pro forma reporting purposes
Anheuser-Busch began assuming that 100% of the fair value ofexpense associated with
non-forfeitable stock options granted is required to be based on a theoretical option-pricing model.
Anheuser-Busch estimatesrecognized at the value of its options using the
Black-Scholes model and then hypothetically amortizes the value to
compensationgrant date. The
company previously assumed all stock option expense was amortized over
the three-year vesting period forperiod. The company expects full year 2005 pro
forma stock option expense in the range of $.13 - $.15 per share.
Following is the pro forma reporting. In actuality, because the company's employee stock
options are not tradedimpact on an exchange, employees can receive no value
nor derive any benefit from holding stock options under these plans
without an increase in the market price of Anheuser-Busch stock. Such
an increase in stock price benefits all stockholders. The pro forma
impactnet income and earnings per share
for the second quarter and first six months ended June 30 follows (in millions,
except per share):
9
Second Quarter First Six Months
--------------------------- ---------------------------------------------------------------
2005 2004 20032005 2004
2003------------ ----------- ------------ -------------- ---------------------------
Reported Net Income $607.0 $673.5 $632.6$1,119.8 $1,223.4 $1,117.4
Pro Forma Impact of Expensing
Stock Options (13.4) (29.1) (27.8)(25.8) (58.2)
(55.7)------------ ----------- ------------ -------------- ---------------------------
Pro Forma Net Income $593.6 $644.4 $604.8$1,094.0 $1,165.2
$1,061.7============ =========== ============ ============== ===========================
Reported Basic Earnings Per Share $.78 $.84 $.76$1.44 $1.52 $1.34
Pro Forma Impact of Expensing
Stock Options (.02) (.04) (.03) (.07)
(.07)------------ ----------- ------------ -------------- ---------------------------
Pro Forma Basic Earnings Per Share $.76 $.80 $.73$1.41 $1.45
$1.27============ =========== ============ ============== ===========================
Reported Diluted Earnings Per Share $.78 $.83 $.75$1.43 $1.50 $1.32
Pro Forma Impact of Expensing
Stock Options (.02) (.04) (.03) (.07)
(.07)------------ ----------- ------------ -------------- ---------------------------
Pro Forma Diluted Earnings Per Share $.76 $.79 $.72$1.40 $1.43
$1.25============ =========== ============ ============== ===========================
10
In MarchDecember 2004, the FASB issued a proposed standard entitledrevised and renamed guidance on
stock option accounting, FAS 123R, "Share-Based Payment - An Amendment ofPayment." FAS Nos. 123 and 95." The proposed rules will
eliminate the disclosure-only election under FAS 123 and require the
recognition of123R
requires compensation expense forrelated to stock options and other forms
of equity compensationto be recognized
in the income statement, based on the fair value of the instruments onoptions at the date
of grant. The FASB currently expects to issue a final standard
in late 2004, whichFAS 123R is slatedrequired to be effective foradopted in the first quarter 20052006.
Anheuser-Busch is currently evaluating when it will adopt FAS 123R.
10
8. Pension and Postretirement Health Care Expense
----------------------------------------------
The components of total pension expense for Anheuser-Busch.the second quarter and
first six months ended June 30 are shown below (in millions):
Second Quarter First Six Months
--------------------- ------------------------
2005 2004 2005 2004
-------- ------- -------- ---------
Service cost (benefits earned during the period) $24.2 $22.0 $48.5 $42.3
Interest cost on benefit obligation 42.2 39.5 84.4 79.1
Assumed return on plan assets (49.0) (47.4) (98.0) (95.1)
Amortization of prior service cost and net actuarial losses 22.0 16.3 44.0 31.9
-------- ------- -------- ---------
Expense for defined benefit plans 39.4 30.4 78.9 58.2
Cash contributed to multi-employer pension plans 4.2 4.4 8.1 8.5
Cash contributed to defined contribution pension plans 4.0 4.7 8.7 9.3
-------- ------- -------- ---------
Total pension benefits expense $47.6 $39.5 $95.7 $76.0
======== ======= ======== =========
The components of total postretirement health care expense for the
second quarter and first six months ended June 30 are shown below (in
millions):
Second Quarter First Six Months
--------------------- -----------------------
2005 2004 2005 2004
------- ------- ------- ---------
Service cost (benefits earned during the period) $6.6 $5.3 $12.8 $11.2
Interest cost on benefit obligation 10.1 8.0 19.7 17.4
Amortization of prior service cost and net actuarial
losses and (gains) 3.0 (1.9) 1.3 (2.7)
------- ------- ------- ---------
Total defined benefits expense $19.7 $11.4 $33.8 $25.9
======= ======= ======= =========
11
9. Tsingtao Bond Conversion
------------------------
In addition to the quarterly disclosures shown
previously,April 2005, the company also disclosedconverted its two remaining Tsingtao
convertible bonds into Series H common shares, thereby increasing
Anheuser-Busch's economic ownership in Tsingtao from 9.9% to 27%, and
its 2003 Annual Reportvoting stake from 9.9% to Shareholders that20%. Local government authorities hold
the pro forma dilutive impact on net income and
earnings per share of hypothetically expensing stock options based on
Black-Scholesproxy voting rights for the full years 2003, 20027% difference between the company's
voting and 2001 was $113 million
and $.14 per share, $93 million and $.11 per share, and $69 million and
$.08 per share, respectively.economic stakes. The FASB's proposal advocates using a
binomial (lattice-based) option pricing model rather than the
Black-Scholes modelincreased economic stake allows the
company currently uses to determine grant date
fair value.nominate an additional director, giving the company two of
11 board seats. Because of the additional share ownership and board
representation, Anheuser-Busch has not yet determined what, if any, impact
usingbelieves it can now exercise significant
influence over Tsingtao and therefore began applying the recommended binomial model will haveequity method
of accounting for Tsingtao in May 2005, on the company's
estimated net income and earnings per share dilution compared to the
Black-Scholes model.
9.a one-month lag.
10. Contingencies
-------------
In January 1997, Maris Distributing Company, Inc., a former
independent Anheuser-Busch wholesaler in Florida, initiated litigation
against the company alleging breach of contract and 12 other claims.
Anheuser-Busch terminated its distribution agreement with Maris
Distributing in March 1997. During the course of litigation, nine
claims were resolved in favor of Anheuser-Busch and a defamation claim
brought by Maris was mistried. In August 2001, a jury rendered a
verdict against the company in the amount of $50 million on two
remaining claims. The court subsequently awarded plaintiffs an
additional $22.6 million in accumulated prejudgment interest on the
jury award, which may continuecontinues to accrue at a rate that is fixed annually.
Prejudgment interest is now approximately $37 million. Anheuser-Busch
continues to believe it acted appropriately in terminating the
distribution agreement of Maris Distributing. In May 2003, the Court of
Appeals remanded the case to the trial court for resolution of issues
relating to the defamation claim. In September 2003, the trial court
determined that Maris Distributing's amended 11
defamation claim could
proceed. The trial of the defamation claim is scheduled to begin August
1, 2005. Anheuser-Busch is vigorously contesting that claim and is seeking review of the decision of the trial court to
permit the defamation claim to proceed.claim. The
appeals of the 2001 verdict cannot be heard by the Court of Appeals
until matters relating to the defamation claim are resolved. The
company continues to vigorously
12
contest the verdict. However, resolution is not expected to occur
quickly and the ultimate impact of this matter on the company's
financial position, results of operations or cash flows cannot
presently be predicted. The company's results do not include any
expense related to the Maris Distributing judgment or interest for any
period shown.
The company and certain of its subsidiaries are involved in
additional claims and legal proceedings in which monetary damages and
other relief is sought. The company is vigorously contesting these
claims; however resolution is not expected to occur quickly, and their
ultimate outcome cannot presently be predicted. It is the opinion of
management that the ultimate resolution of these claims, legal
proceedings and other contingencies, either individually or in the
aggregate, will not materially affect the company's financial position,
results of operations or liquidity.
10. Deferred Income Tax Liability
-----------------------------
During the second quarter 2004, the company identified a $25.9 million
balance sheet reclassification related to the spin-off of its
Campbell-Taggart bakery subsidiary in 1996. This reclassification does
not have any impact on the company's results of operations, cash flows
or total assets. As of June 30, 2004, the company increased the
deferred income tax liability by $25.9 million, from $1,541.2 million
to $1,567.1 million, and decreased retained earnings by $25.9 million,
from $14,804.5 million to $14,778.6 million.
12
11. Pension and Other Postretirement Benefits Expense
-------------------------------------------------
The components of total pension expense for the second quarter and six
months ended June 30 are shown below (in millions):
Second Quarter First Six Months
----------------------- -----------------------
2004 2003 2004 2003
---------- --------- ---------- ---------
Service cost (benefits earned during the period) $22.0 $18.7 $42.3 $37.3
Interest cost on benefit obligation 39.5 38.0 79.1 76.0
Assumed return on plan assets (47.4) (47.3) (95.1) (94.5)
Amortization of prior service cost and net actuarial
losses 16.3 9.1 31.9 18.1
---------- --------- ---------- ---------
Expense for defined benefit plans 30.4 18.5 58.2 36.9
Cash contributed to multi-employer pension plans 4.4 4.2 8.5 8.4
Cash contributed to defined contribution pension plans 4.7 4.6 9.3 9.2
---------- --------- ---------- ---------
Total pension benefits expense $39.5 $27.3 $76.0 $54.5
========== ========= ========== =========
The components of total postretirement benefits expense for the second
quarter and six months ended June 30 are shown below (in millions):
Second Quarter First Six Months
----------------------- -----------------------
2004 2003 2004 2003
---------- --------- ---------- ---------
Service cost (benefits earned during the period) $5.3 $4.9 $11.2 $9.8
Interest cost on benefit obligation 8.0 9.5 17.4 19.0
Amortization of prior service cost and net actuarial
gains (1.9) (2.3) (2.7) (4.6)
---------- --------- ---------- ---------
Total defined benefits expense $11.4 $12.1 $25.9 $24.2
========== ========= ========== =========
During the second quarter of 2004, Anheuser-Busch began recognizing the
estimated impact of the Medicare Prescription Drug Improvement and
Modernization Act of 2003, which provides a federal subsidy to sponsors
of retiree health care plans. As a result of the Act, the company's
accumulated postretirement benefits liability as of June 30, 2004
decreased $43.9 million while defined postretirement benefits expense
for the first six months was reduced $2.8 million.
13
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
INTRODUCTION
- ------------
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity/liquidity and cash
flows of Anheuser-Busch Companies, Inc. for the second quarter and first six
months ended June 30, 2005, compared to the second quarter and first six
months ended June 30, 2004, compared to the second quarter and six months ended
June 30, 2003, and the year ended December 31, 2003.2004. This
discussion should be read in combinationconjunction with the consolidated financial
statements and notes included in the company's annual report to shareholders
for the year ended December 31, 2003.2004.
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. Important factors that could cause actual
results to differ (favorably or unfavorably) from the expectations stated in
this discussion include, among others, changes in the pricing environment
for the company's products; changes in U.S. demand for malt beverage
products;products, including changes in U.S. demand for other alcohol beverages;
changes in consumer preference for the company's malt beverage products;
changes in the cost of marketing the company's malt beverage products;
regulatory or legislative changes, including changes in beer excise taxes at
either the federal or state level;level and changes in income taxes; changes in
the litigation to which the company is a party; changes in raw materials
prices; changes in packaging materials costs; changes in interest rates;
changes in foreign currency exchange rates; unusual weather conditions that
could impact beer consumption in the U.S.; changes in attendance and
consumer spending patterns for the company's theme park operations; changes
in demand for aluminum beverage containers; changes in the company's
international beer business or in the beer business of the company's
international equity partners; changes in the economies of the countries in
which the company's international beer business or its international equity
partners operate; changes in the company's credit rating resulting from
future
14
acquisitions or divestitures; and the effect of stock
14
market conditions on
the company's share repurchase program. Anheuser-Busch disclaims any
obligation to update or revise any of these forward-looking statements.
RESULTS OF OPERATIONS
- ---------------------
With strongAnheuser-Busch had a challenging first six months in its domestic beer
business. Both the company and the domestic beer industry experienced volume
declines and higher cost pressures. The company has implemented a number of
initiatives to enhance beer volume and market share growth from allincluding
introduction of new products and packaging, increased investments in
domestic marketing, stepped-up on-premise sales activities and tactical
price promotions, and Anheuser-Busch is encouraged by its major operating segments,
Anheuser-Busch achieved record sales improvement
in June. During the second quarter 2005, wholesaler inventories were reduced
significantly and are now below last year.
Consolidated net sales increased 0.2% and 1.3%, respectively, in the
second quarter and first six months of 2005, while reported diluted earnings
per share decreased 6% for the quarter and 4.7% year-to-date. Reported
earnings per share for both periods in 2005 and the first six months of 2004
include one-time gains that make comparisons between periods difficult.
These one-time gains include settlement of tax matters in Chile related to
the sale of the company's investment in Compania Cervecerias Unidas S.A.
(CCU), Ohio state income tax reform legislation and a gain on the sale of an
interest in a theme park in Spain in 2005, and a gain in 2004 related to the
sale of commodity hedges. Excluding these one-time items to make 2005 and
2004 results comparable, earnings per share for the second quarter and first
six months of 2004. Consolidated net2005 decreased 8.4% and 6.7%, respectively (see complete
discussion on pages 21 through 24).
Although Anheuser-Busch is confident it will restore its sales increased 6.4%momentum
and return to solid earnings growth in the second quarter, while dilutedfuture, the company is currently
forecasting 2005 earnings per share increased 10.7%. Net sales
and diluted earnings per share increased 6.2% and 13.6%, respectively,to be below 2004 results, excluding
one-time gains for the first six months. Results for the first six months of 2004 benefited
from a $19.5 million pretax gain ($.015 per share) from the sale of
commodity hedges in the first quarter. This gain is reported in other
income/(expense) on the consolidated income statement and as such does not
impact gross profit or operating income. Excluding this gain, earnings per
share for the first six months increased 12.5% vs. 2003.
Anheuser-Busch had an excellent second quarter and continued its
track record of delivering consistent and dependable earnings growth. The
company has now achieved 23 consecutive quarters of double-digit earnings
per share growth and remains confident in its ability to consistently
achieve its double-digit annual earnings per share growth objective over the
long-term, with an 11.7% earnings per share growth target for 2004,
excluding the benefit of the commodity hedge gainboth years, as shown below.
15
Earnings Per Share
Increase
----------- --------------------------------------------------
2005 2004 Decrease
--------------------- ------------- ---------------------
Including Hedge
Projected / Reported $2.61 - $2.69 $2.77
Gain $2.785 +12.3%
============on Sale of Spanish Theme Park (.024) --
Chile Income Tax Settlement on CCU Sale (.009) --
Deferred Income Tax Benefit from Ohio
Tax Legislation (.009) --
Commodity Hedge Gain -- (.015)
-----------Gain on Sale of CCU -- (.018)
Deferred Income Tax Benefit From
Mexican Income Tax Rate Reduction -- (.012)
--------------------- -------------
Excluding Hedge Gain $2.77 +11.7%
=========== ============One-Time Gains $2.57 - $2.65 $2.73 (6)% to (3)%
===================== ============= =====================
15
BEER SALES RESULTS
- ------------------
The company's beer volume for the second quarter and first six months
of 2004 is summarized in the following table:
- ---------------------------------------------------------------------------------------------------------------------
Reported Beer Volume (millions of barrels) for Periods Ended June 30
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Second Quarter First Six Months
----------------------------------- ----------------------------------------------------------------------- ------------------------------------
Versus 20032004 Versus 2003
------------------------ ------------------------
2004
------------------------- --------------------------
2005 Barrels % 20042005 Barrels %
---------- ------------- ---------- ---------- ------------- ----------------- --------- ----------- ------ --------- -----------
Domestic 27.326.3 Dn 1.0 Dn 3.7% 50.8 Dn 1.7 Dn 3.2%
International 4.9 Up 0.5 1.9% 52.52.6 Up 0.7 1.4%
International 2.3115.6% 9.3 Up 0.15 6.6% 4.15.1 Up 0.3 6.4%
---------- ------------- ---------- ---------- ------------- ----------122.5%
------- --------- ----------- ------ --------- -----------
Worldwide A-B Brands 29.631.2 Up 0.7 2.2% 56.61.6 Up 1.0 1.7%5.4% 60.1 Up 3.4 Up 6.0%
Int'l Equity Partner Brands 5.26.8 Up 0.1 2.3% 9.61.6 Up 0.2 2.1%
---------- ------------- ---------- ---------- ------------- ----------31.1% 11.1 Up 1.5 Up 16.1%
------- --------- ----------- ------ --------- -----------
Total Brands 34.838.0 Up 0.8 2.2% 66.23.2 Up 1.2 1.8%
========== ============= ========== ========== ============= ==========9.2% 71.2 Up 4.9 Up 7.5%
======= ========= =========== ====== ========= ===========
- ---------------------------------------------------------------------------------------------------------------------
Domestic volume represents Anheuser-Busch beer sales-to-wholesalers increased 1.9% forshipped within the
United States. During the second quarter of 2004 vs.2005, domestic beer
sales-to-wholesalers volume decreased 3.7% compared with the second quarter
20032004, and wholesaler sales-to-retailers declined 0.2%. Wholesaler
inventories were up 1.4% forreduced significantly during the quarter, from
approximately 1.5 days higher than prior year at the beginning of the
quarter to over one day lower than 2004 at the end of the quarter. During
the first six months of 2004.2005, domestic beer sales-to-wholesalers declined
3.2%, while wholesaler sales-to-retailers declined 0.4% on a comparable
selling day adjusted basis. Wholesaler sales-to-retailers were up 1.2%sales-to-retailer trends improved
significantly in June. Bud family sales-to-
16
retailers increased in the second quarter 2005 and up 1.8% for the first six months vs. similar 2003 periods.
These results were leddriven
by strongthe growth of the company's Michelob ULTRA and
Bud Light brands.and the national introduction in late February of
Budweiser Select.
The company's estimated domestic market share (excluding exports) for
the first six months of 2005 was 48.8%, compared to 2004 wasmarket share of
49.8%, level with 2003 market share.. Domestic market share is based on estimated U.S. beer industry
salesshipment volume using information provided by the Beer Institute and the
U.S. Department of Commerce. Anheuser-Busch's market share performance based
on shipments was primarily due to the company's wholesaler inventory
reduction. At the consumer level, Anheuser-Busch gained share in
supermarkets and convenience stores combined for the first six months of
2005 versus 2004, according to IRI data.
International volume, consisting of Anheuser-Busch brands produced
overseas by company-owned breweries and under license and contract-brewingcontract brewing
agreements, plus exports from the company's U.S. breweries to markets around
the world, increased 6.6%116% for the second quarter and 6.4%123% for the first six
months of 2005. These increases for the second quarter and year-to-date 2005
include 2.5 million and 5.1 million barrels, respectively, from the Harbin
Brewery, which the company acquired and began consolidating in the third
quarter 2004. Excluding Harbin, international beer volume increased 3.5% and
1.2%, respectively, primarily due to increased volume in Canada, partially
offset by lower sales volume in Ireland and the United Kingdom for both the
second quarter and first six months of 2005 and lower Bud-Wuhan operations
volume in China year-to-date. Bud-Wuhan operations volume in China was up 2%
for the second quarter 2005.
Worldwide Anheuser-Busch beer salesbrands volume, comprised of domestic volume
and international volume, increased 5.4% and 6.0%, respectively, for the
second quarter and first six months of 2004 rose 2.2% and 1.7%,2005 to 29.631.2 million and 56.660.1 million
barrels respectively, vs. 2003. Worldwide beerversus 2004.
Total brands volume, is comprised
of domesticwhich combines worldwide Anheuser-Busch brand
volume andwith international volume. International equity partner brands volume representing(representing the company's
share of its foreign equity partners' volume reported on a one-month lag, increased 2.3% forlag) was 38.0
million barrels in the second quarter and 2.1%2005, up 3.2 million barrels, or 9.2%
over second quarter 2004. Total brands volume was up 7.5%, to 71.2 million
barrels for the first six months of 2004 vs. 2003, contributing to
the company's 2.2% and 1.8% increase in total brands volume for
16
the same periods.2005.
International equity partner brands volume was upgrew 31.1% and 16.1%,
respectively, for the second quarter and first six months of 2005 due to
Modelo volume growth.growth and the addition of Tsingtao equity volume beginning in
May 2005, partially offset by the loss of
17
volume from the sale of the company's equity investment in CCU in the fourth
quarter 2004.
Consistent with the company's stated priorities to restore U.S. volume
and market share momentum, the company plans to defer additional price
increases throughout most of the country until early 2006. A single phase
price increase is being planned for early 2006. As always, future revenue
enhancement initiatives will be tailored to specific markets, brands and
packages.
SECOND QUARTER AND FIRST SIX MONTHS OF 20042005 FINANCIAL RESULTS
- -------------------------------------------------------------
Key operating results for the second quarter and first six months of
20042005 are summarized in the following tables:below:
- -----------------------------------------------------------------------------------------------------------------------
($ in millions, except per share)
-----------------------------------------------------------------------------------------------------------------------------------
Second Quarter 2005 vs. 2004
versus 2003
------------------------------ ---------------------------------------------------------- ---------------------------
2005 2004 2003 $ %
------------ ------------ ----------- ------------------- -------- --------- ----------
Gross Sales $4,597 $4,339 Up $258 Up 5.9%$4,597 -- --
Net Sales $4,018 $4,010 $3,770 Up $240$8 Up 6.4%0.2%
Income Before Income Taxes $736 $927 $862 Up $65 Up 7.6%Dn $191 Dn 20.6%
Equity Income Net of Tax$137 $106 $106 -- --Up $31 Up 29.0%
Net Income $607 $674 $633 Up $41 Up 6.5%Dn $67 Dn 9.9%
Diluted Earnings per Share $.78 $.83 $.75 Up $.08 Up 10.7%Dn $.05 Dn 6.0%
- -----------------------------------------------------------------------------------------------------------------------
18
- -----------------------------------------------------------------------------------------------------------------------
($ in millions, except per share)
-----------------------------------------------------------------------------------------------------------------------------------
First Six Months 2005 vs. 2004
versus 2003
------------------------------ ---------------------------------------------------------- ---------------------------
2005 2004 2003 $ %
------------ ------------ ----------- ------------------- -------- --------- ----------
Gross Sales $8,682 $8,600 $8,134 Up $466$82 Up 5.7%1.0%
Net Sales $7,582 $7,487 $7,051 Up $436$95 Up 6.2%1.3%
Income Before Income Taxes $1,380 $1,681 $1,531 Up $150 Up 9.8%Dn $301 Dn 17.9%
Equity Income Net of Tax$243 $195 $180 Up $15$48 Up 8.2%24.5%
Net Income $1,120 $1,223 $1,117 Up $106 Up 9.5%Dn $103 Dn 8.5%
Diluted Earnings per Share $1.43 $1.50 $1.32 Up $.18 Up 13.6%Dn $.07 Dn 4.7%
- -----------------------------------------------------------------------------------------------------------------------
A discussion of financial results for the second quarter and first
six months of 2004 follows.
Anheuser-Busch achieved recordreported gross sales of $4.6 billion and $8.6$8.7 billion,
and record net sales of $4.0 billion and $7.5$7.6 billion, respectively, in the second
quarter and first six months of 2004.2005. These amounts represent gross sales
increases over 2003 of 5.9%being level versus 2004 for the second quarter and 5.7%increasing 1.0% for the
first six months. Net sales increased over 20032004 by 6.4%0.2% and 6.2%1.3%,
respectively, for the same periods. The differences between gross and net
sales reflect beer excise taxes paid by the company on its products.
The increases in consolidated grossof $579 million and net sales are primarily the
result of 5.1% and 4.7% sales increases$1.1 billion for the domestic beer segment in the
second quarter and first six months, of 2004, respectively, due to higher
revenue per barrel and
17
increased beer volume.respectively.
The second quarter and year-to-date results also
include higher sales for all of the company's remaining segments.
International beer net sales were up mid-teens for both periods due to
volume growth in China, Canada and the United Kingdom; packaging segment net
sales were up 9% for both the second quarter and six months from soft drink
can sales volume increases; and entertainment net sales increased 11.5% and
15%, respectively, both due to higher attendance and admissions pricing.
Domestic revenue per barrel grew 2.5% in the second quarter, and
2.8% for the first six months of 2004 vs. the same periods in 2003. This
growth reflects the continuing favorable pricing environment and continued
consumer trading up to the super premium Michelob family. Revenue per barrel
has now increased by 2% or more for 23 consecutive quarters, and generated
$91.7 million and $184.9 millionincreases in net sales improvement for the second quarter and first six months
of 2004, respectively. Higher beer volume
contributed $54.2 million and $76.7 million, respectively,2005 were due to thesales increases for international beer, packaging and
entertainment operations partially offset by declines in domestic beer
revenues. International beer net sales increased 26% and 28%, respectively,
primarily due to incremental volume from the sameHarbin acquisition.
Commodity-based packaging operations net sales increased 9% in the second
quarter and 11.5% for the first six months due to higher can and recycling
revenues attributable to higher aluminum prices. Entertainment segment sales
increased 3% for the second quarter and 6% year-to-date primarily due to
higher admissions pricing and higher in-park spending for both periods. For
the second quarter and first six months, domestic beer segment net sales
decreased 3.6% and 2.5%, respectively, primarily due to lower beer sales
volume partially offset by higher revenue per barrel. Second quarter also
includes higher sales for the company's real estate subsidiary.
Domestic beer revenue per barrel grew 0.2% and 0.9% for the second
quarter and first six months of 2005. Domestic revenue per barrel is
calculated as net sales generated by the company's domestic beer operations
on barrels of beer sold,
19
determined on a U.S. GAAP basis, divided by the volume of beer shipped from
the company's breweries to independent U.S. wholesalers. Consistent with the company's
practice of implementing moderate annual price increases in two phases,
Anheuser-Busch plans to initiate selected pricing actions in the fourth
quarter 2004. The revenue enhancement initiatives will again be tailored to
specific markets, brands and packages and will apply to over 40% of the
company's volume, which is somewhat greater than in 2003.
Cost of sales was $2.3$2.5 billion and $4.4$4.7 billion, respectively, for the
second quarter and first six months of 2004,2005, reflecting increases of $141$145
million, or 6.5%6.2%, and $240$299 million, or 5.8%6.8%, respectively, compared to 2003.2004.
The increases in cost of sales for the second quarter and first six
months are dueattributable to higher costs for all of
the company's major business segments. The increase insegments, including higher aluminum and other
packaging materials expense and increased energy costs for domestic beerbeer;
incremental production costs are primarily due to costsfor international beer associated with increased beer volume versus prior yearthe
timing of $18 million for
second quarter and $26 million for the first six months, plusHarbin acquisition; increased
costs for brewing and packaging materials in both periods and higher utility
costs year-to-date. International beer experienced higher costs associated
with increased beer volume. Packaging operations incurred higher aluminum costs and entertainment operations incurred
18
higher can
and glass manufacturing costs for the commodity-based packaging businesses;
and higher park operating expenses.expenses in entertainment operations. Gross margin (gross profit
as a percentage of net sales) increased 30sales decreased 320 basis points in the first half of
2004,2005, to 41.2%.
Second38.0%, while second quarter 2005 gross margin was 41.9%38.4%, levela decline
of 350 basis points versus 2003,2004. These decreases are primarily due to the
decline in domestic beer volume combined with domestic beer gross margin growth of 30 basis points being essentially offset by lower
margins for the commodity-based packaging segment.production costs
per barrel significantly exceeding revenue per barrel.
Marketing, distribution and administrative expenses for the second
quarter 20042005 were $654$697 million, an increase of $32$43 million, or 5.1%6.5% compared
with second quarter 2003.2004. For the first six months of 2004,2005, these expenses
were $1.2$1.3 billion, an increase of $72$65 million, or 6.2%5.2% versus lastprior year.
TheseFor both the second quarter and year-to-date, the increases are principally due to increasedthe result
of higher domestic beer marketing and selling costs,
especially year-to-date and primarily for the Bud
Family and Michelob ULTRA,including the national introduction of Budweiser Select;
increased international beer marketing costs and higher beer distribution
costs associated with owning an additional wholesale operation,for company-owned U.S. beer wholesalers and higher legalfor China operations,
partially offset reduced general and administrative costs. The second quarter increase also reflects
increased marketing costs associated with the Olympics and higher
compensation costs due to the expiration of the company's employee stock
ownership plans.expenses.
Operating income increased $67decreased $180 million, or 6.9%17.5% in the second quarter
20042005 and was up $124declined $269 million, or 7.2%14.5% for the first six months versus
comparable periods in 2003.2004 periods. Operating margins for the second quarter and first
six months of 2005 were 25.5%21.0% and 24.7%20.8%, respectively, for increasesdecreases of 10450 and
30390 basis points, respectively.due primarily to reduced domestic beer sales volume and
higher costs.
Interest expense net ofless interest income was $106$116 million for the second
quarter and $2062005, an increase of $10 million, for the first six months of 2004,
representing increases of approximately 3% in both periodsor 9.7% compared to 2003.
Thethe second
quarter 2004. Year-to-date, interest expense less interest income was $229
million, an increase of $22 million, or
20
11% versus 2004. These increases in 2004 are primarily due to the impact of higher average outstanding debt
balances partially reduced by slightly lower interest rates compared to
lastprior year. Interest capitalized, decreased 9%which fluctuates depending on the amount
and increased 2%timing of capital project in-service dates, was $5.5 million and $10.7
million, respectively for the second quarter and first six months of 2005,
down slightly compared with 2004 respectively, to $6 million and $11 million. These changes primarily
resulted from fluctuations in construction in progress balances during 2004.amounts.
Other income/expense,(expense), net includes equity earnings fromreflects the impact of numerous items not
directly related to the company's limited partnership investments in beer wholesalers and numerous
other items of a nonoperating nature. The company had other income of $2
million and $30 million foroperations. For the second quarter and
first six months of 2005, the company had other income of $1.2 million and
$20.7 million, respectively, representing decreases versus 2004 respectively, compared to other expense of $150% and
31%, respectively. Other income for the first six months of 2005 includes
the $15.4 million for eachpretax gain ($.024 per share) from the sale of the
comparable 2003 periods. Othercompany's equity interest in the Port Aventura theme park in Spain, while
other income for the first six months of 2004 includes the one-time pretax
gain of $19.5 million ($.015 per 19
share) from the sale of commodity
derivatives that had been in place for
future years. The hedges were originally placed using estimates of costs to
be contained in the renewal of supply contracts. Anheuser-Busch lowered its
cost estimates during the first quarter, resulting in significant hedge
ineffectiveness in compliance with FAS 133. Due to the hedge
ineffectiveness, the company sold these hedges and realized the ineffective
portion of the gain, which is reported as a corporate item forderivatives. For business segment reporting purposes. Other income for the first six months also
includes a $19.1 million pretax gain ($.014 per share) related to the sale
of two beer wholesaler partnerships in the first quarter 2004.
Income before income taxes for the quarter was $927 million, an
increase of $66 million, or 7.6% versus second quarter 2003. Income before
income taxes of $1.7 billion for the first six months increased $150
million, or 9.8% compared to 2003. These results reflect increased pretax
income for the domestic beer segment along with improved results for all of
the company's other operating segments.
Domestic beer pretax income was $952 million and $1.8 billion for
the second quarter and first six months of 2004, respectively. This
represents growth of $76 million, or an especially strong 8.7% for the
second quarter 2004, and $139 million, or 8.3% for the first six months
versus prior year. Bothpurposes, both of these increases reflect higher revenue per barrel
due to the favorable pricing environment and increased beer sales volume.
The year-to-date increasegains
are reported as corporate items. Year-to-date 2004 results also includes theinclude a
$19.1 million pretax gain related to the sale of two beer wholesalerships,wholesaler
partnerships, which is reported in other
income/(expense), netthe domestic beer segment results.
Income before income taxes for consolidated reporting.
Internationalthe second quarter 2005 was $736
million, a decrease of $191 million, or 21% versus second quarter 2004.
Pretax income for the first six months of 2005 was $1.4 billion, a decline
of $301 million, or 18% versus 2004. Decreases for both periods primarily
reflect lower profits in domestic beer, higher interest expense, and lower
results for international beer and packaging operations, partially offset by
improved performance for the company's real estate subsidiary in the second
quarter. Entertainment operating results were down for the second quarter
and up year-to-date in 2005.
Domestic beer segment pretax profits declined 19%, or $178 million and
14%, or $260 million, respectively, in the second quarter and first six
months of 2005 due to lower beer sales volume, higher aluminum, energy and
plant operating costs and the incremental expenses to support the company's
stepped-up pricing and marketing efforts and national introduction of
Budweiser Select.
International beer pretax income (excluding equity income)
was $31down $5 million for the second
quarter and down $6 million year-to-date. The second quarter decline is
primarily due to lower profits in the United Kingdom caused by lower sales
volume, and the adoption of equity accounting for the company's investment
in Tsingtao during the quarter. In 2004, Tsingtao was accounted for on the
cost basis and $54 million forthe company therefore reported its
21
Tsingtao dividend (declared in the second quarter) in pretax income. The
change to equity accounting in 2005 resulted in a decrease in international
beer pretax income versus last year, which is offset by equity income from
Tsingtao this year. For the first six months, representing increases of $5 million, or 20%international beer pretax
income declined primarily due to lower United Kingdom results and lower
volume and profits for Bud-Wuhan operations in China, partially offset by
the Harbin acquisition. The company completed its acquisition and began
consolidating Harbin results in the secondthird quarter and2004.
Packaging segment pretax profits were down $8 million or 17% for the first six months versus 2003. The
increaseand $9 million
for the second quarter and first six months, isrespectively, primarily due to
volumehigher materials cost for both can and profit growth in China and Canada.
Packagingglass manufacturing operations.
Entertainment segment pretax profits in the second quarter 2004results were $53down $4 million an increase of $2 million, or 4%. For the first six months,
pretax profits were $89 million, an increase of $5 million, or 6%. The
increases in packaging pretax profits for both the
second quarter and the
first six months were due to higher soft drink can volume and improved results from the company's aluminum recycling operations.
20
Entertainment segment pretax results for the second quarter 2004
increased $16 million, or 24%, to $82 million compared to the second quarter
2003, and were up $25 million, or 56% for the first six months. Results were
up for both the quarter and year-to-date primarily due to increased
attendance and higher admissions pricing.
Equity income was $106 million in the second quarter and $195$1 million for the first six months of 2004, up slightly2005. The
entertainment segment had increased admissions pricing and higher in-park
spending along with higher park operating expenses for both the second
quarter and first six months. Attendance was level with prior year for the
second quarter and an
increase of $15 million, or 8.2%up for the first six months versus 2003.
Increasesof 2005. The decline in
equity income are due to higher Modelo volume combined with the
impact of price increases. Equity incomeentertainment segment results from 2003 included a $5.5
million after tax gain representing Anheuser-Busch's equity share of CCU
earnings from the sale of a brewery in Croatia. Excluding this gain, which
better reflects underlying equity investee operations, equity income infor the second quarter 2004essentially reflects
the timing of the Easter holiday in 2005, which occurred in the first
quarter this year versus the second quarter of 2004.
Equity income increased 5.8% vs. 2003, as shown below:
Equity Income Increase
--------------------------- ------------
2004 2003
----------- ------------
Reported $106.3 $106.0 0.3%
============
Gain on Brewery Sale -- (5.5)
----------- ------------
Excluding Gain $106.3 $100.5 5.8%
=========== ============ ============
The company's effective tax rate was 38.8%$31 million and $48 million in both the second
quarter and first six months of 2005, respectively. These increases
primarily reflect the benefit of Grupo Modelo pricing and volume growth, a
lower Mexican income tax rate and the recognition of the company's pro rata
share in the net earnings of Tsingtao Brewing Company beginning in May 2005.
Equity income for the comparable 2004 essentially levelperiods includes the company's share
of CCU earnings. As previously noted, the company sold its equity stake in
CCU in the fourth quarter 2004.
Anheuser-Busch's effective tax rate was 36.2% in the second quarter
2005, a decline of 260 basis points versus the second quarter 2004. The
quarterly decline is due primarily to a $6.8 million favorable impact from
the settlement of certain tax matters in Chile associated with the ratesfourth
quarter 2004 sale of 38.9%the company's equity stake in CCU, a $7.2 million
reduction of deferred income taxes resulting from income tax reform
legislation enacted in Ohio, plus ongoing benefits received under the
American Jobs Creation Act. For the first six months of 2005 the effective
income tax rate was 36.5% versus 38.8% in 2004. The year-to-date decrease
reflects the CCU settlement, the Ohio
22
legislation and 38.8% for the respective periodsAmerican Jobs Creation Act benefit from the second
quarter, plus a favorable deferred income tax impact related to the first
quarter sale of the company's investment in 2003.the Spanish theme park.
Net income increased $41decreased $67 million, or 6.5%9.9% during the second quarter,
2004, and was up $106down $103 million, or 9.5%8.5% for the first six months of 2005, versus
the same periods last year. DilutedReported diluted earnings per share were $.83$.78
for the second quarter 2004, an increase2005, a decrease of 10.7%6.0% compared to prior year, and
were $1.50$1.43 for the first six months, an increasea decrease of 13.6%4.7% compared to the
first half of 2003.2004. Earnings per share continue to benefitbenefited from the company's
share
repurchase program. The company repurchased 4.6of nearly 12 million shares in the first half of 2005.
Excluding the one-time gains as applicable, the effective tax rates for
the second quarter and a totalfirst six months of 15.4 million for the first half of 2004. Excluding
the impact of the one-time gain from the sale of commodity hedges, which
better reflects underlying operations,2005 would have been 38.1% and
38.2%, respectively, while net income and diluted earnings per share would
have declined 11.9% and 8.4%, respectively, for the second quarter and
decreased 10.3% and 6.7%, respectively, year-to-date, as shown in the
following tables (in millions, except per share). Excluding the nonrecurring
gains from earnings better reflects the company's underlying operations and
enhances comparability between periods.
23
Income
Before Provision
Income for Income Net Earnings
SECOND QUARTER Taxes (1) Taxes (1) Income Per Share
- -------------- -------------- --------------- ------------- --------------
2005
- ----
Reported $736.0 $(266.2) $607.0 $.78
Chile Income Tax Settlement on CCU
Sale -- (6.8) (6.8) (.009)
Deferred Income Tax Benefit from Ohio
Tax Legislation -- (7.2) (7.2) (.009)
-------------- --------------- ------------- --------------
Excluding One-Time Gains $736.0 $(280.2) $593.0 $.76
============== =============== ============= ==============
2004
- ----
Reported $927.2 $(360.0) $673.5 $.83
============== =============== ============= ==============
Percentage Decrease --- 2005 vs. 2004
- -------------------------------------
Reported (9.9)% (6.0)%
============= ==============
Excluding One-Time Gains (11.9)% (8.4)%
============= ==============
FIRST SIX MONTHS
- ----------------
2005
- ----
Reported $1,380.3 $(503.6) $1,119.8 $1.43
Gain on Sale of Spanish Theme Park (15.4) (3.5) (18.9) (.024)
Chile Income Tax Settlement on CCU
Sale -- (6.8) (6.8) (.009)
Deferred Income Tax Benefit from Ohio
Tax Legislation -- (7.2) (7.2) (.009)
------------- --------------- ------------- -------------
Excluding One-Time Gains $1,364.9 $(521.1) $1,086.9 $1.386
============= =============== ============= =============
2004
- ----
Reported $1,680.8 $(652.6) $1,223.4 $1.50
Commodity Hedge Gain (19.5) 7.4 (12.1) (.015)
------------- --------------- ------------- -------------
Excluding One-Time Gain $1,661.3 $(645.2) $1,211.3 $1.485
============= =============== ============= =============
Percentage Decrease --- 2005 vs. 2004
- -------------------------------------
Reported (8.5)% (4.7)%
============= =============
Excluding One-Time Gains (10.3)% (6.7)%
============= =============
The effective tax rates excluding one-time gains of 38.1% and 38.2% for the
second quarter and first six months of 2004 would have been $1.49, or an increase of 12.5%, as
shown below:
212005, respectively, are computed by
dividing the provision for income taxes excluding one-time gains by income
before income taxes excluding one-time gains.
24
Diluted Earnings
Per Share Increase
---------------------- ----------
2004 2003
--------- ---------
Reported $1.50 $1.32 13.6%
==========
Commodity Hedge Gain (.015) ---
--------- ---------
Excluding Hedge Gain $1.485 $1.32 12.5%
========= ========= ==========
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Cash at June 30, 20042005 was $261$137 million, an increasea decrease of $70$91 million from
the December 31, 20032004 balance. The principalprimary source of the company's cash flow
is cash generated by operations. Principal uses of cash are capital
expenditures, share repurchase, dividends and business investments. OperatingThe
company generated operating cash flow before the changechanges in working capital of
$1.6 billion for the first six months of 2004 was $1.8 billion.2005. See the consolidated
statement of cash flows for detailed information. The increase in working capital for the
first six months of 2004 compared to the first half of 2003 is primarily due
to higher raw material inventories for barley. Cash generated by the
company's business segments is projected to exceed funding requirements for
each segment's currently anticipated capital spending. The net issuance of debt
provides an additional source of cash as necessary for share repurchase, dividends and
business investments. The Harbin Brewery
investment will resultinvestments in a comparable reduction inorder to maintain the company's 2004 share
repurchases.leverage position.
The usenature, extent and timing of debt financing lowersvary depending on the
company's overall costevaluation of capital.existing market conditions and other factors.
The company's debt balance has increased $403declined $3 million since December 31, 2003. Comparative debt activity2004,
compared to an increase of $403 million during the first six months of 2004 and 2003 is shown below:
22
2004.
The details of the changes in debt are outlined below.
ISSUANCESINCREASES
- ------------------------------------------------------------------------------------------------------------------------------
Amount Interest Rate
Description (millions) (fixed unless noted)
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
First Six Months of 2005
- ------------------------
Commercial Paper $3.7 2.32% Weighted Average, Floating
United Kingdom Brewery Capital Lease Obligation 51.5 6.25%
Other 0.8 Various
-------------
$56.0
=============
First Six Months of 2004
- ------------------------
U.S. Dollar Notes $550.0 $300.0 at 5.0%; $250.0 at 4.7%
Commercial Paper 406.3 1.0% weighted average, floatingWeighted Average, Floating
Industrial Revenue Bonds 1.0 5.875%
Issuance Discounts (1.0) N/A
Other, net 8.0 Various
-------------
$964.3
=============
2003
U.S. Dollar Notes $580.0 $200.0 at 4.5%; $200.0 at 4.625%; $180.0 at 5.35%
Issuance Discounts (3.1) N/A
Other, net 0.6 Various
-------------
$577.5
=============25
REDUCTIONS
- -------------------------------------------------------------------------------------------------------------------------------
Amount Interest Rate
Description (millions) (fixed unless noted)
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
-------------
First Six Months of 2005
- ------------------------
U.S. Dollar Notes $0.7 5.35%
Chinese Renminbi-Denominated Bank Loans 54.5 5.41% Weighted Average
Other 4.1 Various
-------------
$59.3
=============
First Six Months of 2004
- ------------------------
Euro Notes $251.0 $200.0 at 6.5%; $51.0 at 4.6%
U.S. Dollar Notes 250.4 $250$250.0 at 7.1%; $0.4 at 5.35%
ESOP Note 46.3 8.25%
Other, net 13.2 Various
-------------
$560.9
=============
2003
Commercial Paper $76.0 1.21% weighted average, floating
ESOP Note 44.0 8.25%
Other, net 5.113.2 Various
-------------
$125.1$560.9
=============
The company's ESOPcompany has $1.8 billion of debt guarantee expired on March 31, 2004. At
June 30, 2004, theavailable for issuance through
existing SEC shelf registrations.
The company's commercial paper borrowings of $932.6 million$1.2 billion at June 30,
2005 were classified as long-term, since they arecommercial paper is maintained on a
long-term basis with on-going support provided by the company's $2 billion
revolving credit agreement.
The company has $570 million of debt available for issuance
through existing SEC shelf registrations.
Capital expenditures during the first six months of 20042005 were $442$565
million, compared to $490$442 million for the first half of 2003. The decrease
in capital expenditures is essentially due to the timing of spending. Full
year 2004 capital expenditures are expected to approximate $900 million to
$975 million.
Per share dividends paid by the company were $.22 in the second
quarter and $.44 for the first six months of 2004, compared2004. Full
year 2005 capital expenditures are expected in the range of $1 billion to
$.195 and
$.39, respectively, for the
23
comparable 2003 periods.$1.1 billion.
At its July 2005 meeting, the Board of Directors increasedannounced a $.025, or
10.2% increase in the regular quarterly dividend on outstanding shares of
the company's common stock, tofrom $.245 per share an increase of 11.4% from the
prior rate of $.22to $.27 per share. This marks the 28th consecutive year of
Anheuser-Busch dividend increases. The new
dividend rate is payable September 9, 2004,2005, to shareholders of record August
9, 2005. This increase reflects Anheuser-Busch's substantial cash flow and
management's confidence regarding the company's long-term prospects.
There have been only normal and recurring changes in the company's
commitments since December 31, 2004.
Return on Capital Employed
- --------------------------
Return on capital employed for the twelve12 months ended June 30, 2004,2005 was
18.6%17.3%, an increase of 70 basis points overcompared to 18.6% for the twelve-month period12 months ended June 30, 2003.2004. The decline
in return on capital employed is due to the decrease in net income in 2005
versus 2004. Return on
26
capital employed is computed as twelve12 months of net income before after-tax net
interest (interest expense less interest capitalized) divided by average net
investment. Net investment is defined as total assets less non-debt current
liabilities. For 2004,the 12 months ended June 30, 2005, after-tax net interest
expense was $237.8$266 million, calculated as pretax net interest expense of $383.6$428
million less income taxes applied using a 38% tax rate. For 2003,the 12 months
ended June 30, 2004, after-tax net interest expense was $228.9$238 million,
calculated as pretax net interest expense of $369.2 million$384 less income taxes applied
atusing a 38%. tax rate.
ITEM 2. OTHER INFORMATION
Anheuser-Busch was party to an agreement with its wholesaler in St.
Louis County, Missouri, providing the company with the option to purchase
substantially all of the assets of the wholesaler's business. Anheuser-Busch
has assigned its rights under the agreement to an entity owned by David
Stokes, who is the son of Patrick T. Stokes. Prior to the assignment, David
Stokes was the vice president and general manager of the company's Sylmar,
California wholesale beer distribution operation. Based upon the company's
extensive experience in valuing wholesale beer operations, Anheuser-Busch
believes the price required to be paid by the entity for the acquired assets
and business is a fair market value price.
ITEM 3. RISK MANAGEMENT
The company's derivatives holdings fluctuate during theany given year
based on normal and recurring changes in purchasing and production activity.
The company has experienced slightly higher derivatives use over the last
few years as raw material inputs have increased in conjunction withas a result of increases in
domestic beer volume. Since December 31, 2003,2004, there have been no
significant changes in the company's interest rate, and foreign currency exposures. As previously discussed, certain of the company'sor
commodity exposures, have been reduced due to Anheuser-Busch obtaining lower future
pricing in supply agreements that were finalized during the second quarter.
Thereand there have been no changes in the types of
derivative instruments used to hedge the company's exposures. Underlying
commodity market conditions have been somewhat volatile, with recent trendstrending towards higher prices.prices due to
increased worldwide demand.
27
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
24
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, 20042005 and have concluded that they are effective as of June
30, 20042005 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 identified in connection withduring
the evaluationquarter that have materially affected, or are reasonably likely to
materially affect, the company's internal control over financial reporting.
25
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The company is a party to a lawsuit with the Maris Distributing
Company. Information regarding this lawsuit is contained in Note 10,
"Contingencies," on page 12.
A law firm has named the company (and many other brewers and
distillers) as a defendant in very similar class action lawsuits in Florida,
Michigan, New York, Ohio, Wisconsin and West Virginia state courts. In these
suits, the parents of illegal underage drinkers are suing to recover the
sums that their offspring purportedly spent illegally buying alcohol from
persons or entities other than the defendants. The claims asserted against
the company vary depending on the suit, but include negligence, unjust
28
enrichment, violation of the state's Sales Practice Act or other statutory
provisions, nuisance, fraudulent concealment and civil conspiracy. The suit
filed in Michigan includes a claim under the Michigan Consumer Protection
Act. Each suit seeks money damages, punitive damages and injunctive and
equitable relief, including so-called disgorgement of profits allegedly
attributable to underage drinking. The company removed the Ohio case to
federal court in the Northern District of Ohio in June 2004, removed the
West Virginia case to federal court in the Northern District of West
Virginia in May 2005 and removed the Michigan case to federal court in the
Eastern District of Michigan in July 2005. The company believes that it has
strong legal and factual defenses to these class actions and intends to
defend itself vigorously.
ITEM 2. CHANGES IN SECURITIES
Following are the company's monthly common stock purchases during the
second quarter 20042005 (in millions, except per share):
Shares Avg. Price
Shares per Share
------------------------- ----------------
Shares Remaining Authorized Under Disclosed
Repurchase Programs at April 1, 2004 66.6
=========March 31, 2005 34.4
----------------
Share Repurchases
- -----------------
April 4.4 $50.980.5 $45.93
================
May 0.2 $51.340.8 $46.64
================
June --- N/A
---------0.7 $47.12
---------------- ================
Total 4.6 $51.08
---------2.0 $46.63
---------------- ================
Shares Remaining Authorized Under Disclosed
Repurchase Programs at June 30, 2004 62.0
=========2005 32.4
================
As of June 30, 2004, the company had disbursed $1.3 million for
25,000 shares for which title had not yet been received due to normal
three-day securities settlement protocol.
All shares arehave been repurchased under a March 2003 Board of Directors
authorization. The Board authorized the current programauthorization to repurchase 100 million shares in March 2003.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.
2629
ITEM 6. EXHIBITS
AND REPORTS ON FORM 8-K
(a) Exhibits
--- --------
12 Ratio of Earnings to Fixed Charges
31.1 Certification of Chief Executive Officer required by Rule 13a-14(a) or
15d-14(a) under the Exchange Act
31.2 Certification of Chief Financial Officer required by Rule 13a-14(a) or
15d-14(a) under the Exchange Act
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
--- -------------------
Item Reported Date of Report
------------- --------------
Item 7 (c) Exhibit - Press Release April 28, 2004
Item 12 Results of Operations and
Financial Condition April 28, 2004
2712 Ratio of Earnings to Fixed Charges
31.1 Certification of Chief Executive Officer required by
Rules 13a-14(a) or 15d-14(a) under the Exchange Act
31.2 Certification of Chief Financial Officer required by
Rules 13a-14(a) or 15d-14(a) under the Exchange Act
32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANHEUSER-BUSCH COMPANIES, INC.
(Registrant)
/s/ W. Randolph Baker
-------------------------------------------------------------------------------------
W. Randolph Baker
Vice President and Chief Financial Officer
(Chief Financial Officer)
July 30, 200428, 2005
/s/ John F. Kelly
-------------------------------------------------------------------------------------
John F. Kelly
Vice President and Controller
(Chief Accounting Officer)
July 30, 2004
28, 2005
31