1
ANHEUSER [LOGO] BUSCH
COMPANIES
[PHOTO]
A d d i n g t o l i f e ' s e n j o y m e n t
CONTENTS
Management's Discussion and Analysis
of Operations and Financial Condition 26
Responsibility for Financial Statements 39
Report of Independent Accountants 39
Consolidated Balance Sheet 40
Consolidated Statement of Income 41
Consolidated Statement of Changes
in Shareholders Equity 42
Consolidated Statement of Cash Flows 43
Notes To Consolidated
Financial Statements 44
Financial Summary--Operations 56
Financial Summary--Balance Sheet
and Other Information 58
F I N A N C I A L R E V I E W 1999
1999 Annual Report 25
--
2
[PHOTO]
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/cash flows
of Anheuser-Busch Companies, Inc. for the three-year period ended December
31, 1999. This discussion should be read in conjunction with the Consolidated
Financial Statements and Notes to the Consolidated Financial Statements
included in this annual report.
This discussion contains certain statements regarding the company's
expectations concerning its operations, earnings and prospects. These
statements are forward-looking statements that involve significant risks and
uncertainties, and accordingly, no assurances can be given that such
expectations will be correct. These expectations are based upon many
assumptions that the company believes to be reasonable, but such assumptions
may ultimately prove to be inaccurate or incomplete, in whole or in part.
Important factors that could cause actual results to differ from the
expectations stated in this discussion include, among others, changes in the
pricing environment for the company's products; changes in domestic demand
for malt beverage products; changes in consumer preference for the company's
malt beverage products; regulatory or legislative changes; changes in raw
materials prices; changes in interest rates; changes in foreign currency
exchange rates; changes in attendance and consumer spending 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 partner; and the effect of stock market
conditions on the company's share repurchase program.
OBJECTIVES
Anheuser-Busch remains focused on three major objectives in order to
enhance shareholder value:
* Increasing per barrel profitability which, when combined with continued
market share growth, will provide solid long-term earnings per share
growth.
* Profitable expansion of international beer operations by building the
Budweiser brand worldwide and making selected investments in leading
brewers in key international beer growth markets. The company has made
significant marketing investments to build Budweiser brand recognition
outside the United States and operates overseas breweries in China and the
United Kingdom. The company also has a significant equity position in
Grupo Modelo, Mexico's largest brewer and producer of the Corona brand.
* Continued support of profit growth in packaging and entertainment
operations. Packaging operations provide significant efficiencies, cost
savings and quality assurance for domestic beer operations, while
entertainment operations enhance the company's corporate image by
showcasing its heritage, values and commitment to quality and social
responsibility to 19 million visitors annually as well as adding their
profit contribution.
26 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
3
OPERATIONS
In the fourth quarter 1997, the company expensed all previously capitalized
and unamortized business re-engineering costs associated with the development
and installation of computer software, in accordance with the change in
accounting practice mandated by EITF No. 97-13. The total write-off of $10
million after-tax ($.02 per share) is shown as a separate "cumulative effect
of accounting change" line item in the income statement, and had no impact on
the company's results from operations.
Due to the write-off having no impact on the company's results from
operations, this discussion excludes the impact of the cumulative effect of
accounting change adjustment.
COMPARISON OF OPERATING RESULTS
Key financial comparisons from operations are summarized in the following
tables.
COMPARISON OF OPERATING RESULTS ($ in millions, except per share)
1999 1998 1999 VS. 1998
Gross sales $13,723 $13,208 $515 3.9%
Excise taxes $2,019 $1,962 $57 2.9%
Net sales $11,704 $11,246 $458 4.1%
Operating income $2,302 $2,125 $177 8.3%
Equity income, net of tax $158 $85 $73 85.2%
Net income $1,402 $1,233 $169 13.7%
Diluted earnings per share $2.94 $2.53 $.41 16.2%
- ----------------------------------------------------------------------------
1998 1997 <F1> 1998 VS. 1997
Gross sales $13,208 $12,832 $376 2.9%
Excise taxes $1,962 $1,766 $196 11.1%
Net sales $11,246 $11,066 $180 1.6%
Operating income $2,125 $2,053 $72 3.5%
Equity income, net of tax $85 $50 $35 68.7%
Net income $1,233 $1,179 $54 4.6%
Diluted earnings per share $2.53 $2.36 $.17 7.2%
- ----------------------------------------------------------------------------
<FN>
<F1> Net income and diluted earnings per share exclude the impact of the
adjustment for the cumulative effect of adopting EITF No. 97-13.
- ----------------------------------------------------------------------------
1997<F1> 1996<F2> 1997 VS. 1996
Gross sales $12,832 $12,622 $210 1.7%
Excise taxes $1,766 $1,738 $28 1.6%
Net sales $11,066 $10,884 $182 1.7%
Operating income $2,053 $2,029 $24 1.2%
Equity income, net of tax $50 -- $50 <FN/M>
Net income $1,179 $1,123 $56 5.0%
Diluted earnings per share $2.36 $2.21 $.15 6.8%
- ----------------------------------------------------------------------------
<FN>
<FN/M> - Not Meaningful
<F1> Net income and diluted earnings per share exclude the impact of the
adjustment for the cumulative effect of adopting EITF No. 97-13.
<F2> Normalized results exclude the $54.7 million gain from the sale of the
St. Louis Cardinals baseball club.
BEER VOLUME SALES
Total worldwide beer sales volume results are summarized in the following
table:
WORLDWIDE BEER SALES VOLUME (millions of barrels)
1999 1998 CHANGE
Domestic 95.7 92.7 3.2%
International 7.2 7.1 1.2%
------------------------------------
Worldwide A-B brands 102.9 99.8 3.1%
International equity partner brands 15.1 11.2 34.7%
------------------------------------
Total brands 118.0 111.0 6.3%
====================================
- -------------------------------------------------------------------------------
1998 1997 CHANGE
Domestic 92.7 89.6 3.5%
International 7.1 7.0 0.6%
------------------------------------
Worldwide A-B brands 99.8 96.6 3.3%
International equity partner brands 11.2 6.8 64.9%
------------------------------------
Total brands 111.0 103.4 7.3%
====================================
- -------------------------------------------------------------------------------
1997 1996 CHANGE
Domestic 89.6 88.9 0.7%
International 7.0 6.2 13.4%
------------------------------------
Worldwide A-B brands 96.6 95.1 1.6%
International equity partner brands 6.8 4.0 70.7%
------------------------------------
Total brands 103.4 99.1 4.3%
====================================
- -------------------------------------------------------------------------------
WORLDWIDE BEER VOLUME
Worldwide beer volume is comprised of domestic volume and international
volume of Anheuser-Busch brands. Domestic volume represents Anheuser-Busch
brands produced and shipped within the United States. International volume
represents exports from the company's U.S. breweries to markets around the
world, plus Anheuser-Busch brands produced overseas by company-operated
breweries in China and the United Kingdom and under various license and
contract brewing agreements. Budweiser and other Anheuser-Busch beer brands
are sold in more than 80 countries worldwide. Total brands sales volume
includes the company's pro rata share of volume in international equity
partner Grupo Modelo combined with worldwide Anheuser-Busch brand volume.
Total brands for all years shown also includes Anheuser-Busch's equity share
of Antarctica beer volume. The company sold its equity investment back to
Antarctica in July 1999 in accordance with its investment agreement. See Note
2 for additional discussion.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 27
--
4
MANAGEMENT'S DISCUSSION & ANALYSIS OF
OPERATIONS & FINANCIAL CONDITION
SALES -- 1999 VS. 1998
Led by record domestic beer sales volume and successful revenue enhancement
strategies, Anheuser-Busch achieved record gross sales of $13.7 billion and
record net sales of $11.7 billion in 1999. Gross sales increased over 1998 by
$515 million, or 3.9% and net sales increased over 1998 by $458 million, or
4.1%. The sales increases are primarily due to higher domestic beer volume
and revenue per barrel. The difference between gross and net sales for 1999
represents beer excise taxes of $2.02 billion.
Domestic revenue per barrel grew 3% in 1999 compared to last year,
reflecting the company's focus on enhancing domestic beer profitability. In
the fourth quarter 1999, the company implemented price increases in 72% of
the country on selected brands and packages representing approximately 43% of
its volume.
Domestic beer shipments to wholesalers grew to an all-time high of 95.7
million barrels in 1999, an increase of 3.0 million barrels or 3.2% over
1998. Each of the company's core brand families contributed to this record
achievement. Bud Light continued its outstanding sales performance, with its
eighth consecutive year of double-digit growth. Wholesaler sales-to-retailers
grew 3.3% for full year 1999.
Sales-to-retailers for the fourth quarter 1999 increased 3.1% vs. the
fourth quarter 1998. This high level of retail demand exceeded the 2.1%
increase in fourth quarter shipments by Anheuser-Busch to its wholesalers,
reducing wholesaler inventories to levels below last year, further enhancing
product freshness and system economics.
The company believes the combination of outstanding domestic beer industry
fundamentals, the highest quality and freshest beer in the industry, and
exceptional marketing and sales execution provide a positive outlook for
achieving Anheuser-Busch's double-digit earnings per share growth objective
in 2000.
In February 2000, the company implemented selected price increases and
additional discount reductions on approximately 20% of its volume. These
revenue enhancement actions have again been tailored to specific markets,
brands and packages.
Worldwide Anheuser-Busch beer brand shipments grew to a record 102.9
million barrels for the full year 1999, up 3.1% compared to last year. This
marks the first time in brewing industry history one company has sold over
100 million barrels of its beer in a single year.
Total brands sales volume was 118.0 million barrels, up 6.3%, for the full
year 1999.
The company's domestic market share (excluding exports) for the full year
1999 was 47.5%, an increase of 0.7 percentage points over 1998 market share
of 46.8%. Including exports, the company's share of U.S. shipments was 47.3%
for the full year vs. 46.6% for 1998. Domestic market share and share of U.S.
shipments are determined based on industry sales estimates provided by the
Beer Institute. The company's market share is higher than previously reported
reflecting the Beer Institute's recent revisions to industry sales estimates.
Anheuser-Busch has led the U.S. brewing industry in sales volume and market
share since 1957.
SALES<F*>
(GRAPH)
International beer volume (excluding Modelo) was up 1.2% for the full year
1999 compared to 1998, to 7.2 million barrels. The increase was due primarily
to gains in the Americas, Ireland and Continental Europe, partially offset by
continued weakness in Asia, principally in Japan, and lower sales in the
United Kingdom.
28 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
5
In August 1999, the company recalled twist-off bottles in several European
countries as a quality assurance measure. The recall stemmed from problems
with the bottle manufacturing process. There were no quality issues with the
beer itself. The company incurred total pretax costs of approximately $6
million for the bottle recall.
In July 1999, Anheuser-Busch sold its equity interest in Brazilian brewer
Antarctica back to Antarctica. In September 1999, Anheuser-Busch and
Antarctica announced a joint decision not to apply to CADE, Brazil's
antitrust commission, for continued production of Budweiser by Antarctica.
Instead, Anheuser-Busch entered into a distribution agreement with Expand
Group in December 1999 for the exporting of Budweiser to Brazil beginning in
January 2000. The pretax cost of discontinuing Budweiser production in Brazil
was approximately $6 million.
Effective January 2000, the company converted its Japan joint venture
operation into an exclusive license agreement with its local partner Kirin,
for the production and selling of Budweiser in Japan. The new agreement with
Kirin is designed to create new opportunities for Budweiser's growth and to
improve profitability by giving the brand full access to Kirin's national
wholesaler distribution and integrated selling systems. The one-time cost of
converting to the license agreement was approximately $9 million and is
included in 1999 results.
SALES -- 1998 VS. 1997
Anheuser-Busch achieved gross sales of $13.2 billion and net sales of $11.2
billion in 1998. These results represent a gross sales increase over 1997 of
$376 million, or 2.9%, and a net sales increase over 1997 of $180 million, or
1.6%. The increases were primarily due to higher domestic beer volume. For
1998, sales and excise taxes include the impact of accounting for Stag
Brewery operations in the United Kingdom on a consolidated basis vs. equity
accounting in 1997. Beer excise taxes for 1998 totaled $1.96 billion.
Worldwide volume for Anheuser-Busch beer brands was up 3.3% for 1998,
compared to the prior year. Total volume was up 7.6 million barrels, or 7.3%,
for the year. International equity partner brands reflects the company's 37%
ownership interest in Grupo Modelo brands for the first nine months of 1998
and 50.2% for the fourth quarter, compared to a combination of 17.7%
ownership interest for the first five months of 1997 and 37% thereafter.
Anheuser-Busch's strategy to reduce domestic price discounting, initiated
at the beginning of 1998, was successful. This strategy was designed to
increase revenues, reduce the spread between front-line and discounted prices
to consumers, and protect the company's brand equities. In October 1998, the
company initiated a revenue enhancement strategy of selective price increases
and additional discount reductions. As a result of these and other actions,
domestic revenue per barrel was up nearly 3% in the fourth quarter 1998
compared to the same period in 1997, and was level for the full year compared
to 1997.
Anheuser-Busch domestic beer shipments grew 3.5% during 1998, reflecting
strong retail demand. Overall, sales-to-retailers were up 4% for 1998.
Combined Bud and Bud Light sales-to-retailers increased 3.4% for 1998
compared to 1997. This growth was led by Bud Light, which had its seventh
consecutive double-digit growth year.
The company's domestic market share (excluding exports) for 1998 was 46.8%,
an increase of 1.0 market share point over 1997 market share of 45.8%.
Including exports, the company's share of U.S. shipments was 46.6% vs. 45.5%
for 1997.
International Anheuser-Busch brand volume (excluding Modelo) was up 0.6% in
1998 compared to 1997. Strong Budweiser sales performances in the United
Kingdom, Ireland, Continental Europe and Canada were mostly offset by sales
declines in Asia.
In Japan, Anheuser-Busch performance was impacted by lower industry sales
due to an economic recession and the introduction of a tax-advantaged
"happoshu" beer category. Anheuser-Busch introduced its own happoshu beer and
significantly restructured its sales force. The restructuring resulted in a
pretax charge of about $9 million, or $.01 per share after-tax, in the fourth
quarter 1998.
In June 1998, the company restructured its alliance with Labatt Brewing
Company and granted Labatt perpetual rights to brew and sell the Budweiser
and Bud Light brands in Canada. In return, Labatt significantly increased
marketing support behind the two brands which provides Anheuser-Busch with a
greater share of associated profits. Budweiser is currently the
third-largest-selling beer in Canada.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 29
--
6
MANAGEMENT'S DISCUSSION & ANALYSIS OF
OPERATIONS & FINANCIAL CONDITION
SALES -- 1997 VS. 1996
Gross sales were $12.8 billion and net sales were $11.1 billion in 1997,
representing increases of $210 million and $182 million, respectively, or
1.7%, compared to 1996. The difference between gross and net sales for 1997
represents $1.77 billion of beer excise taxes.
The primary factors responsible for the sales increases were higher
domestic and international beer sales volume, partially offset by increased
price discounting in the domestic beer market, and increased sales from the
company's theme park operations. Theme park operations experienced an
attendance increase of approximately 7% in 1997 vs. 1996 and also attained
higher in-park per capita revenues.
The increase in domestic volume during 1997 was driven by Bud Light, which
was up approximately 10%, and improved Budweiser trends. Total Bud Family
sales-to-retailers were up almost 2% in 1997 compared to 1996.
Anheuser-Busch's domestic market share (excluding exports) for 1997 was
45.8%, compared to 45.7% in 1996. Anheuser-Busch's share of shipments
(including exports) for 1997 was 45.5%, level compared with 1996 share.
Operating performance for 1997 was significantly impacted by aggressive
price discounting initiated by competition, which began in the first quarter
and became progressively deeper throughout the year. Anheuser-Busch responded
with comparable levels of discounting to keep its brands price-competitive
and protect its market share, and the pricing environment stabilized by the
end of the year.
Volume trends were favorable for the company's core premium brands in 1997
as consumers traded up to premium and higher-priced brands. Bud Light
continued its double-digit growth. The company's quality initiatives,
including a freshness advertising campaign and renewed focus on
Anheuser-Busch's heritage of quality and excellence, enhanced the company's
quality perception among consumers.
Total international beer volume growth was strong for 1997, led by combined
Budweiser sales volume increases in China and the United Kingdom of 44% for
the full year. Significant gains in volume produced overseas in 1997 were
partially offset by reduced exports from the company's U.S. facilities due in
part to discontinuing Kirin Ice shipments to Japan and lower shipments of
Michelob Classic Dark to Taiwan.
Total international volume, excluding equity partner volume, was up 13.4%
for the year. Budweiser volume outside the United States was up 18.3% for
1997 vs. 1996.
COST OF PRODUCTS AND SERVICES
The company continuously strives to drive operating costs out of its
system. Brewery modernizations have yielded long-term savings through reduced
beer packaging and shipping costs and reduced maintenance and equipment
replacement costs. The company's focused production methods and wholesaler
support centers concentrate small-volume brand and package production at
three breweries to create production efficiencies, reduce costs and enhance
responsiveness to changing consumer brand/package preferences. Also, the
company works with its network of wholesalers to reduce distribution costs
through better systemwide coordination.
Cost of products and services was $7.25 billion in 1999, an increase of $92
million, or 1.3%, vs. 1998. The increase in the cost of products and services
in 1999 is primarily due to costs associated with higher domestic beer volume
and higher costs at the company's packaging operations.
Gross profit as a percentage of net sales for 1999 was 38.0%, an increase
of 1.7 percentage points vs. 1998, primarily reflecting increased domestic
revenue per barrel due to the company's focus on increasing beer profit
margins.
Cost of products and services was $7.16 billion in 1998, an increase of $66
million, or 0.9%, compared to 1997. The change in the cost of products and
services in 1998 is primarily due to increased beer volume, the change in the
method of accounting for the Stag Brewery operation (consolidation in 1998
vs. equity accounting in 1997) and improved brewery operating efficiencies.
In 1997, before the Stag Brewing Company Ltd. was 100% owned by
Anheuser-Busch, the company accounted for its 50% share of operations under
the equity method, with excise taxes paid on beer sold included in the cost of
beer purchased from Stag. In 1998, under full consolidation accounting, excise
taxes are shown as a deduction from gross sales.
Gross profit as a percentage of net sales was 36.3% for 1998, an increase
of 0.4 percentage points vs. 1997, primarily reflecting productivity
improvements.
Cost of products and services in 1997 was $7.10 billion, an increase of
1.9% compared to 1996. The increase in cost of products and services in 1997
is attributable to slightly higher materials costs plus costs associated with
increased beer sales volume and theme park attendance. Gross profit as a
percentage of net sales was 35.9% for 1997, a decrease of 0.1 percentage
points compared to 36.0% for 1996, due to slightly lower revenue per barrel
in 1997.
30 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
7
MARKETING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES
Marketing, distribution and administrative expenses for 1999 were $2.15
billion compared with $1.96 billion for 1998, an increase of $189 million, or
9.7%. The increase is primarily attributable to higher domestic marketing and
sales promotion spending in support of the Bud Family, increased spending on
consumer awareness and education programs and higher general and
administrative costs.
Marketing, distribution and administrative expenses for 1998 increased $42
million, or 2.2%, compared to 1997 expenses of $1.92 billion. The increase is
primarily due to higher domestic and international marketing expense in
support of premium brands, primarily the Bud Family, partially offset by
reduced general and administrative costs.
Marketing, distribution and administrative expenses for 1997 were up $26
million, or 1.4%, compared with $1.89 billion for 1996. The increase for 1997
is principally due to marketing costs related to the company's international
beer activity, costs related to increased theme park attendance and increased
administrative expenses, partially offset by lower promotional spending
compared to 1996 when the Summer Olympic Games were held in Atlanta.
OPERATING INCOME
Operating income represents the measure of the company's financial
performance before net interest cost, other nonoperating items and equity
income. Operating income for 1999 was $2.30 billion, an increase of $177
million, or 8.3%, compared to 1998. The increase in operating income for the
year is primarily due to strong domestic beer performance driven by higher
domestic beer sales volume and revenue per barrel.
Theme park operating results were up slightly from 1998, excluding costs
associated with the start-up of the Discovery Cove park in Orlando, which
will open in summer 2000.
Performance of the company's packaging operations was level with the prior
year.
Net income for Anheuser-Busch's international beer segment was up 59% in
1999 due to Modelo's strong performance and Anheuser-Busch's increased
ownership levels. However, international beer operating results, which
exclude Modelo, declined for the year to a loss of $19.9 million, including
one-time costs associated with the termination of the Budweiser production
joint venture in Brazil, the impact of a bottle recall in Europe and the
conversion of the company's Japan joint venture operation into an exclusive
license agreement.
Operating income for 1998 was $2.13 billion, an increase of $72 million, or
3.5%, over 1997. The increase in operating income for 1998 was primarily due
to higher domestic beer sales volume and higher operating results from can
manufacturing and entertainment, partially offset by weaker results from
international beer operations.
OPERATING INCOME
(GRAPH)
Packaging operating income improved in 1998 vs. the prior year, due to
higher soft drink can volume and reduced costs. Despite weakness in Florida
tourism, entertainment operations had a slight improvement in operating
income compared to 1997, due to higher in-park spending. International beer
operating income declined vs. 1997 primarily due to weakness in Japan.
Operating income for 1997 was $2.05 billion, an increase of $24 million, or
1.2%, compared to 1996. The increase was primarily due to increased beer
sales volume, continued brewery operating efficiencies and improved
performance by the company's theme park operations. Domestic revenue per
barrel for 1997 was down slightly vs. the 1996 level.
Entertainment operations had strong attendance and profitability and
contributed $115 million in operating income in 1997. International beer
profitability was down in 1997 compared to 1996, primarily due to continued
significant marketing expenditures for Budweiser. Packaging operations
contributed $121 million in operating profits in 1997, down slightly when
compared with 1996 performance.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 31
--
8
MANAGEMENT'S DISCUSSION & ANALYSIS OF
OPERATIONS & FINANCIAL CONDITION
NET INTEREST COST
Net interest cost (interest expense less interest income) was $303.5
million for 1999, $285.7 million for 1998 and $253.3 million for 1997,
representing increases of 6.2%, 12.8% and 13.4%, respectively, compared to
prior years. These increases reflect higher average outstanding debt balances
during the years. See the Liquidity and Cash Flows section of this discussion
for additional information.
INTEREST CAPITALIZED
Interest capitalized for 1999 decreased $7.8 million, to $18.2 million,
compared to 1998. Interest capitalized declined $16.1 million in 1998, to
$26.0 million, while interest capitalized increased $6.6 million, to $42.1
million, in 1997 compared to 1996. Capitalized interest amounts fluctuate
depending on construction-in-progress balances which change due to capital
spending and the timing of project completions. Interest capitalized declined
in 1999 and 1998 as the company completed its long-term brewery modernization
projects.
OTHER INCOME/EXPENSE, NET
Other income/expense, net includes numerous items of a nonoperating nature
that do not have a material impact on the company's consolidated results of
operations, either individually or in total. The company had net other
expense of $9.4 million in 1999, $13.0 million in 1998 and $9.3 million in
1997.
EQUITY INCOME, NET
The company began recognizing its pro rata equity interest in the net
earnings of Grupo Modelo under the equity method of accounting in 1997.
Equity income, net of tax, increased $72.5 million, to $157.5 million in
1999. The increase in equity income is due to Modelo's strong underlying
operating performance, and Anheuser-Busch's 50.2% equity stake in Modelo
throughout 1999, compared to 37% ownership for the first nine months and
50.2% for the last quarter 1998. Additionally, equity income for 1998 was
adversely impacted by Mexican peso depreciation and hyperinflation
accounting. Hyperinflation accounting ceased January 1, 1999.
The company recognized equity income, net of tax, of $85.0 million during
1998, compared to $50.3 million in 1997. The increase in equity income in
1998 was due to the company's larger equity stake in Modelo and the strong
underlying sales volume and operating results for Modelo, partially offset by
hyperinflation accounting.
For 1998, equity income percentages compare with 17.7% ownership for the
first five months of 1997 and a 37% ownership interest thereafter.
NET INCOME
NET INCOME/DIVIDENDS
(GRAPH)
Net income was $1.40 billion in 1999, an increase of $169 million, or
13.7%, vs. 1998. Net income was $1.23 billion for 1998, an increase of $54
million, or 4.6%, compared to 1997 net income (before accounting change) of
$1.18 billion, which increased 5.0% vs. net income (excluding the gain on the
sale of the St. Louis Cardinals) for 1996.
The company's effective tax rate was 38.0% in 1999 and 1998 and 38.4% in
1997. The decline in 1998 was principally due to lower state and foreign
taxes and lower nondeductible costs.
32 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
9
DILUTED EARNINGS PER SHARE
Diluted earnings per share were $2.94 for 1999, an increase of 16.2% vs.
1998 diluted earnings per share. The 16.2% earnings per share growth in 1999
was the highest growth rate of the 1990s.
Diluted earnings per share for 1998 were $2.53, an increase of $.17, or
7.2%, compared to 1997 diluted earnings per share (before accounting change)
of $2.36, which had increased 6.8% compared to 1996 (excluding the Cardinals
gain). Diluted earnings per share benefit from the company's ongoing share
repurchase program. The company repurchased almost 19 million common shares
in 1999. See Note 7 for additional information regarding share repurchases.
DILUTED EARNINGS
PER SHARE
(GRAPH)
EMPLOYEE-RELATED COSTS
Employee-related costs totaled $1.88 billion in 1999, an increase of $40
million, or 2.2%, vs. 1998 costs of $1.84 billion. Employee-related costs
during 1998 increased $46 million, or 2.6%, vs. 1997 costs of $1.79 billion.
The changes in employee-related costs reflect normal increases in salaries,
wages and benefit levels, partially offset by lower combined pension and
retiree medical expenses.
Salaries and wages comprise the majority of employee-related costs and
totaled $1.54 billion in 1999, an increase of $22 million, or 1.4% vs. 1998.
Salaries and wages totaled $1.52 billion in 1998, an increase of $40 million,
or 2.7%, compared to $1.48 billion paid in 1997. The remainder of
employee-related costs consists of pension, life insurance, and health care
benefits and payroll taxes.
EMPLOYEE-RELATED
COSTS
(GRAPH)
Full-time employees numbered 23,645, 24,344 and 24,326 at December 31,
1999, 1998 and 1997, respectively.
TAXES
The company is significantly impacted by federal, state and local taxes,
including beer excise taxes. Taxes applicable to 1999 operations (not
including the many indirect taxes included in materials and services
purchased) totaled $3.0 billion, an increase of $114 million, or 3.9%, vs.
1998 total taxes of $2.89 billion, and highlight the burden of taxation on
the company and the brewing industry in general. Taxes in 1998 increased 8.1%
compared to 1997 total taxes of $2.67 billion, which decreased $8 million, or
0.3%, compared to 1996.
The increases in taxes in 1999 and 1998 are primarily due to higher excise
taxes on increased beer volume. Taxes for 1998 also reflect the full
accounting consolidation of Stag operations compared to 1997. The decrease in
1997 compared to 1996 is primarily attributable to reduced income taxes due
to lower pretax income and a lower effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The company's primary sources of liquidity are cash provided from
operations and financing activities. Principal uses of cash are capital
expenditures, business investments, share repurchases and dividends.
Information on the company's consolidated cash flows (categorized by
operating activities, financing activities and investing activities) for the
years 1999, 1998 and 1997 is presented in the Consolidated Statement of Cash
Flows and Note 11.
OPERATING CASH FLOW
(GRAPH)
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 33
--
10
MANAGEMENT'S DISCUSSION & ANALYSIS OF
OPERATIONS & FINANCIAL CONDITION
OPERATING CASH FLOW
Anheuser-Busch's strong financial profile allows it to pursue its growth
strategies while providing substantial direct returns to shareholders.
Accordingly, the company has established well-defined priorities for its
operating cash flow:
* Reinvest in core businesses to achieve profitable growth. To enhance
shareholder value, the company will continue to make investments to improve
efficiency and capacity in its existing operations, and make selected
investments in international brewers.
* Make substantial cash payments directly to shareholders through consistent
dividend growth and the repurchase of common shares each year. The company
has paid cash dividends each of the last 66 years, and has repurchased
approximately 3% of outstanding shares annually for the last 10 years.
There was a working capital deficit of $(386.6) million at December 31,
1999, compared to a working capital deficit of $(89.9) million at December
31, 1998 and working capital of $83.2 million at December 31, 1997.
CAPITAL EXPENDITURES
During the next five years, the company will continue capital expenditure
programs designed to take advantage of growth and productivity improvement
opportunities for its beer, packaging and entertainment operations. The
company has a formal and intensive review procedure for the authorization of
capital expenditures. The most important measure of acceptability of a
capital project is its projected discounted cash flow return on investment.
Cash flow from operating activities is projected to exceed the company's
funding requirements for anticipated capital expenditures. However, the
combination of capital spending, dividend payments and share repurchases,
plus possible additional investments in international brewers, may require
external financing. The nature, extent and timing of external financing will
vary depending upon the company's evaluation of existing market conditions
and other economic factors.
Total capital expenditures in 1999 amounted to $865.3 million, an increase
of $47.8 million, or 5.8%, compared to 1998 capital spending of $817.5
million. Capital expenditures over the past five years totaled $4.9 billion.
The company expects capital expenditures in 2000 of approximately $1.0
billion and anticipates capital expenditures during the five-year period 2000
- - 2004 approximating $4 billion.
CAPITAL EXPENDITURES/
DEPRECIATION & AMORTIZATION
(GRAPH)
SHARE REPURCHASE
See Note 7 for a discussion of share repurchase activity.
DIVIDENDS
Cash dividends paid to common shareholders were $544.7 million in 1999 and
$521.0 million in 1998. Dividends on common stock are paid in the months of
March, June, September and December of each year. In the third quarter 1999,
effective with the September dividend, the Board of Directors increased the
quarterly dividend rate by 7.1%, from $.28 to $.30 per share of common stock.
This increased annual dividends per common share 7.4%, to $1.16 in 1999,
compared with $1.08 per common share in 1998. In 1998, dividends were $.26
per share for the first two quarters and $.28 per share for the last two
quarters.
34 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
11
FINANCING ACTIVITIES
The company utilizes Securities and Exchange Commission "shelf"
registration statements to provide flexibility and efficiency when obtaining
long-term financing. At December 31, 1999, a total of $690 million of debt
was available for issuance under existing registrations.
Debt increased a net $404.3 million in 1999, compared to an increase of
$353.0 million in 1998. The change in debt during these years is detailed
below, by key component.
INCREASES IN DEBT -- $994.7 million in 1999 compared to $451.5 million in
1998, as follows:
YEAR DESCRIPTION AMOUNT INTEREST RATE
1999 LONG-TERM NOTES $300.0 5.75%, FIXED
COMMERCIAL PAPER $627.1 5.1%, WEIGHTED
AVERAGE
INDUSTRIAL REVENUE
BONDS $36.1 VARIOUS FIXED RATES
MISCELLANEOUS $31.5 VARIOUS FIXED RATES
1998 Long-term notes $300.0 $100.0 million each at
5.125%, 5.375%
and 5.65%, fixed
Debentures $100.0 6.5%, fixed
Commercial paper $23.3 5.5%, weighted average
Industrial revenue bonds $13.8 Various fixed rates
Miscellaneous $14.4 Various fixed rates
- --------------------------------------------------------------------------
REDUCTIONS IN DEBT -- $590.4 million in 1999 versus $98.5 million in 1998,
as follows:
YEAR DESCRIPTION AMOUNT INTEREST RATE
1999 DUAL CURRENCY NOTES $262.4 QUARTERLY FLOATING RATE
LONG-TERM NOTES $250.0 8.75%, FIXED
DEBENTURES $23.0 8.5%, FIXED
MEDIUM-TERM NOTES $15.0 7.7%, WEIGHTED
AVERAGE
ESOP DEBT
GUARANTEE $36.7 8.25%, FIXED
MISCELLANEOUS $3.3 VARIOUS FIXED RATES
1998 Debentures $45.0 $22.5 million each at
8.5% and 8.625%, fixed
Medium-term notes $15.0 6.3%, weighted average
ESOP debt guarantee $34.9 8.25%, fixed
Miscellaneous $3.6 Various fixed rates
- --------------------------------------------------------------------------
In addition to long-term debt financing, the company has access to funds
through the utilization of commercial paper and its $1 billion revolving bank
credit agreement that expires August 2001. The credit agreement provides the
company with an immediate and continuing source of liquidity. No borrowings
have been made under the credit agreement since its inception. See Note 4 for
additional discussion of debt.
The company's ratio of debt to total capitalization was 56.6% and 52.8% at
December 31, 1999 and 1998, respectively.
The company's cash flow to total debt ratio was $39.8% in 1999, 40.3% in
1998, and 42.5% in 1997.
The company's fixed charge coverage ratio was 6.9x, 6.8x, and 7.3x for the
years ended December 31, 1999, 1998 and 1997, respectively.
COMMON STOCK
At December 31, 1999, common stock shareholders of record numbered 60,100
compared with 62,110 at the end of 1998. See Note 7 for a summary of common
stock activity.
SHAREHOLDERS EQUITY/DEBT
(GRAPH)
PRICE RANGE OF COMMON STOCK
The company's common stock is listed on the New York Stock Exchange under
the symbol "BUD." The following table summarizes 1999 quarterly high and low
closing prices for BUD.
PRICE RANGE OF ANHEUSER-BUSCH COMMON STOCK (BUD)
1999 1998
QUARTER HIGH LOW HIGH LOW
First 78-7/16 65-3/16 47-1/2 43-7/16
Second 78-7/8 68-15/16 49-1/4 45-7/16
Third 81-5/8 69-11/16 57-3/8 46-3/4
Fourth 76-3/8 66-11/16 68-1/4 52-1/2
- ------------------------------------------------------------------
The closing price of the company's common stock at December 31, 1999 and
1998 was $70-7/8 and $65-5/8, respectively. The book value of each common
share of stock at December 31, 1999 was $8.50, compared to $8.84 at December
31, 1998.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 35
--
12
MANAGEMENT'S DISCUSSION & ANALYSIS OF
OPERATIONS & FINANCIAL CONDITION
SYSTEMS-RELATED YEAR 2000 COSTS
The company experienced no operating interruptions or other disturbances
due to Year 2000 events. The company resolved its Year 2000 date recognition
issues through either the replacement of existing systems with Year
2000-ready systems or by reprogramming existing systems.
All costs related to the assessment, reprogramming and testing of systems
for the Year 2000 effort were expensed as incurred. The company incurred Year
2000-related reprogramming costs of $11.8 million in 1999, $15.5 million in
1998 and $6.6 million in 1997, and expects to incur costs of approximately $2
million in 2000 to complete its efforts.
RISK MANAGEMENT
In the ordinary course of business, Anheuser-Busch is exposed to foreign
currency exchange, interest rate and commodity price risks. These exposures
primarily relate to the sale of product to foreign customers, purchases from
foreign suppliers, royalty receipts from license and contract brewers,
acquisition of raw materials from both domestic and foreign suppliers, and
changes in interest rates. The company utilizes derivative financial
instruments, including forward exchange contracts, futures contracts, swaps
and options to manage certain of these exposures that it considers practical
to do so. Anheuser-Busch has well-established policies and procedures
governing the use of derivatives. The company hedges only firm commitments or
anticipated transactions in the normal course of business and corporate
policy prohibits the use of derivatives for speculation, including the sale
of free-standing instruments. The company neither holds nor issues financial
instruments for trading purposes.
Specific hedging strategies depend on several factors, including the
magnitude and volatility of the exposure, offset through contract terms, cost
and availability of appropriate hedging instruments, the anticipated time
horizon, commodity basis, opportunity cost and the nature of the item being
hedged. The company's overall risk management goal is to strike a balance
between managing its exposure to market volatility and obtaining the most
favorable transaction costs possible within the constraints of its financial
objectives. Exposures the company currently is unable to hedge, or has
elected to substantially not hedge, primarily relate to its floating rate
debt, net investments in foreign-currency-denominated operations and
translated earnings of foreign subsidiaries.
Derivatives are either exchange-traded instruments which are highly liquid,
or over-the-counter instruments transacted with financial institutions. No
credit loss is anticipated as the counterparties to over-the-counter
instruments generally have long-term ratings from Standard and Poor's or
Moody's no lower than A+ or A1, respectively. Additionally, counterparty fair
value positions favorable to Anheuser-Busch and in excess of certain
thresholds are collateralized with cash, U.S. Treasury securities or letters
of credit. Anheuser-Busch has reciprocal collateralization responsibilities
for fair value positions unfavorable to the company and in excess of certain
thresholds. Collateral amounts at December 31, 1999 were not material.
The fair value of derivative financial instruments is the estimated amount
the company would receive or have to pay when terminating any contracts. The
company also monitors the effectiveness of its hedging structures, based
either on cash offset between changes in the value of the underlying exposure
and changes in the value of the derivative, or by the correlation between the
price of the underlying exposure and the pricing on which the value of the
derivative is based.
Following is a volatility analysis of the company's derivatives portfolio
that indicates potential changes in the fair value of the company's
derivative holdings under certain market movements. The company applies
sensitivity analysis for commodity price exposures and value-at-risk (VAR)
analysis for foreign currency and interest rate exposures.
VOLATILITY ANALYSIS
ESTIMATED FAIR VALUE VOLATILITY AT DEC. 31, 1999 (in millions)
Foreign Currency Risk (VAR):
Forwards, Options $(0.8)
Interest Rate Risk (VAR):
Swaps $(0.3)
Commodity Price Risk (Sensitivity):
Futures, Swaps, Options $(6.6)
- --------------------------------------------------------------------------
VAR forecasts fair value changes using a statistical model (Monte Carlo
simulation method) which incorporates historical correlations among various
currencies and interest rates. The VAR model assumes the company could
liquidate its currency and interest rate positions in a single day (one-day
holding period). The volatility figures provided represent the maximum
one-day loss each portfolio could experience for 19 out of every 20 trading
days (95% confidence level), based on history.
36 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
13
The sensitivity analysis for commodities reflects the impact of a
hypothetical 10% adverse change in the market price for the company's
principal commodities.
The volatility of foreign currencies, interest rates and commodity prices
are dependent on many factors that cannot be forecasted with accuracy.
Therefore, changes in fair value over time could differ substantially from
the illustration.
The preceding derivatives volatility analysis ignores changes in the value
of the underlying hedged transactions. Because the company does not hold or
trade derivatives for speculation or profit, it seeks to establish only
highly effective hedging relationships. See Note 3 for additional
information.
INTRODUCTION OF THE EURO
The initial phase of the three-year phase-in of the new common currency of
the European Economic and Monetary Union, the "euro," began on January 1,
1999. Prior to introduction, the company made appropriate arrangements with
key financial institutions to ensure smooth handling of euro receipts and
disbursements.
The company's financial systems accommodated the euro introduction. Full
systems euro readiness will be achieved through planned systems upgrades
and/or replacement prior to the end of the euro transition period in 2001.
The company is able to denominate agreements and hedges in euros as
necessary. The company cannot readily predict what impact, if any, single
currency pricing will have on its European operations.
SIGNIFICANT NON-U.S. EQUITY INVESTMENTS
GRUPO MODELO
In September 1998, the company completed the purchase of an additional
13.25% of Diblo, S.A. de C.V., the operating subsidiary of Grupo Modelo, S.A.
de C.V., Mexico's largest brewer and leading exporter of beer. The purchase
price was $557 million, bringing Anheuser-Busch's total investment in Modelo
to $1.6 billion. The additional investment increased Anheuser-Busch's total
direct and indirect holdings in Diblo to 50.2%. The increase in ownership
does not give Anheuser-Busch voting or other effective control of either
Grupo Modelo or Diblo and, accordingly, the company continues to account for
its Modelo investment on the equity basis.
The economic benefit of the company's Modelo investment can be measured in
two ways--Anheuser-Busch's pro rata share in the earnings of Modelo (equity
income) and the excess of the fair value of the investment over its carrying
value. The excess of fair value over carrying value, based on Grupo Modelo's
closing stock price at December 31, 1999, was $4.0 billion. Although this
amount is appropriately not reflected in the company's income statement or
balance sheet, it represents economic value to Anheuser-Busch.
Due to the structure and composition of Anheuser-Busch's initial
investment, the company was not required to adjust the carrying amount of its
Modelo investment under FAS 115 while on the cost basis of accounting from
1993 to 1996. Additionally, the initial investment was configured such that
the company's return was largely protected against a decline in the value of
the Mexican peso.
The company adopted the equity method of accounting when ownership was
increased to 37% in May 1997, which gave Anheuser-Busch additional minority
rights and increased representation on the Grupo Modelo Board of Directors.
At that time, the company adjusted the carrying value of its Modelo
investment by $189.4 million to reflect the impact of cumulative peso
depreciation from 1993 to 1996, the period for which the investment was
accounted for under the cost method of accounting. The offset to this
translation adjustment was the foreign currency translation component of
other comprehensive income in shareholders equity.
Throughout 1997 and 1998, Mexico was considered hyperinflationary for
accounting purposes. Under hyperinflation accounting, the company effectively
recognized in earnings the relative impact of Mexican peso depreciation on
its investment during 1997 and 1998, which was unfavorable. The Mexican
economy ceased to be hyperinflationary for accounting purposes on January 1,
1999. Translation adjustments are now appropriately reflected in equity
rather than earnings. See Note 2 for additional discussion.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 37
--
14
MANAGEMENT'S DISCUSSION & ANALYSIS OF
OPERATIONS & FINANCIAL CONDITION
ANTARCTICA
In April 1996, the company purchased a 5% equity stake in a subsidiary,
ANEP, that controlled 75% of the operations of Companhia Antarctica Paulista
(Antarctica), one of Brazil's leading brewers. The investment agreement
provided the company with options allowing it to increase its investment to
approximately 30% of ANEP which expired in April 2002. In July 1999,
Anheuser-Busch and Antarctica jointly announced the end of their equity
partnership. See Note 2 for additional discussion.
CORPORATE MATTERS
LABOR NEGOTIATIONS
On August 7, 1999, Teamster-represented employees at the company's 12 U.S.
breweries approved the national portion of a new contract offer by a margin
of 59% to 41%. The proposed agreement had been endorsed by the Teamsters'
International leadership and called for a new contract which would expire
February 29, 2004. Local agreements, however, remain unresolved in several
breweries. Both the company and the Teamsters have previously stated that
there can be no final agreement, and the new contract cannot go into effect,
until agreement is reached on all national and local issues. As a result, the
company continues to operate its breweries under the terms of the offer
implemented in September 1998. The company remains committed to operate its
breweries in the event of any work stoppages.
Proposed terms covering local issues were approved by employees at
breweries in Columbus, OH, Williamsburg, VA and Baldwinsville, NY, and
certain locals in St. Louis, MO, Newark, NJ and Los Angeles, CA. Local
supplements previously had been approved by employees in Houston, TX,
Fairfield, CA and Merrimack, NH. Local terms were rejected in Ft. Collins,
CO, Cartersville, GA and Jacksonville, FL, and at certain locals in St.
Louis, MO, Newark, NJ and Los Angeles, CA.
The terms of the proposed agreement include wage and benefit increases, as
well as provisions to support productivity improvement, promote workplace
flexibility, reduce absenteeism, improve the grievance procedure and
institute a more effective drug-testing program. Additionally, Anheuser-Busch
would reaffirm its commitment, contingent on the new contract going into
effect, to keep all 12 of its U.S. breweries open during the life of the
contract, barring an unforeseen event, providing its Teamster-represented
employees with unprecedented job security.
ENVIRONMENTAL MATTERS
The company is subject to federal, state and local environmental protection
laws and regulations and is operating within such laws or is taking action
aimed at assuring compliance with such laws and regulations. Compliance with
these laws and regulations is not expected to materially affect the company's
competitive position. None of the Environmental Protection Agency (EPA)
designated clean-up sites for which Anheuser-Busch has been identified as a
Potentially Responsible Party (PRP) would have a material impact on the
company's consolidated financial statements.
The company is strongly committed to environmental protection. Its
Environmental Management System provides specific guidance for how the
environment must be factored into business decisions and mandates special
consideration of environmental issues in conjunction with other business
issues when any of the company's facilities or business units plans capital
projects or changes in processes. Anheuser-Busch also encourages its
suppliers to adopt similar environmental management practices and policies.
38 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
15
MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
The management of Anheuser-Busch Companies, Inc. is responsible for the
financial statements and other information included in this annual report.
These statements are prepared in accordance with generally accepted
accounting principles.
The company maintains accounting and reporting systems, supported by a
system of internal accounting control, which management believes are adequate
to provide reasonable assurances that assets are safeguarded against loss
from unauthorized use or disposition and financial records are reliable for
preparing financial statements. During 1999, the company's internal auditors,
in conjunction with PricewaterhouseCoopers LLP, the company's independent
accountants, performed a comprehensive review of the adequacy of the
company's internal accounting control system. Based on that comprehensive
review, it is management's opinion that the company has an effective system
of internal accounting control.
The Audit Committee of the Board of Directors, which consists of six
nonmanagement directors, oversees the company's financial reporting and
internal control systems, recommends selection of the company's independent
accountants and meets with the independent accountants and internal auditors
to review the overall scope and specific plans for their respective audits.
The Committee held four meetings during 1999. A more complete description of
the functions performed by the Audit Committee can be found in the company's
proxy statement.
REPORT OF INDEPENDENT ACCOUNTANTS
800 Market Street
St. Louis, MO 63101
[PRICEWATERHOUSECOOPERS LOGO]
February 1, 2000
To the Shareholders and Board of Directors
of Anheuser-Busch Companies, Inc.
We have audited the accompanying Consolidated Balance Sheet of
Anheuser-Busch Companies, Inc. and its subsidiaries as of December 31, 1999
and 1998, and the related Consolidated Statements of Income, Changes in
Shareholders Equity and Cash Flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements audited by us present
fairly, in all material respects, the financial position of Anheuser-Busch
Companies, Inc. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 1 and Note 2 to the Consolidated Financial
Statements, in 1997 the company respectively changed its method of accounting
for business process re-engineering costs incurred in connection with
information technology transformation projects, and adopted the equity method
of accounting for its investment in Grupo Modelo, S.A. de C.V. and its
operating subsidiary, Diblo, S.A. de C.V.
/s/ PriceWaterhouseCoopers LLP
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 39
--
16
CONSOLIDATED BALANCE SHEET
Anheuser-Busch Companies and Subsidiaries
YEAR ENDED DECEMBER 31 (in millions) 1999 1998
ASSETS
Current Assets:
Cash and marketable securities $ 152.1 $ 224.8
Accounts and notes receivable, less allowance for
doubtful accounts of $6.4 in 1999 and $5.5 in 1998 629.0 610.1
Inventories:
Raw materials and supplies 378.2 362.9
Work in process 84.7 90.7
Finished goods 160.9 169.8
Total inventories 623.8 623.4
Other current assets 195.7 182.1
------------------------------------
Total current assets 1,600.6 1,640.4
Investments in affiliated companies 2,012.5 1,880.6
Other assets 1,062.7 1,114.3
Plant and equipment, net 7,964.6 7,849.0
------------------------------------
TOTAL ASSETS $12,640.4 $12,484.3
====================================
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Accounts payable $ 932.6 $ 905.7
Short-term debt 242.3 --
Accrued salaries, wages and benefits 263.0 256.3
Accrued taxes 164.2 193.6
Other current liabilities 385.1 374.7
------------------------------------
Total current liabilities 1,987.2 1,730.3
------------------------------------
Postretirement benefits 506.4 515.8
------------------------------------
Long-term debt 4,880.6 4,718.6
------------------------------------
Deferred income taxes 1,344.7 1,303.6
------------------------------------
Common Stock and Other Shareholders Equity:
Common stock, $1.00 par value, authorized 1.6 billion shares 716.1 712.7
Capital in excess of par value 1,241.0 1,117.5
Retained earnings 9,181.2 8,320.7
Accumulated other comprehensive income:
Foreign currency translation adjustment (175.0) (205.6)
------------------------------------
10,963.3 9,945.3
Treasury stock, at cost (6,831.3) (5,482.1)
ESOP debt guarantee (210.5) (247.2)
------------------------------------
3,921.5 4,216.0
------------------------------------
Commitments and contingencies -- --
------------------------------------
TOTAL LIABILITIES AND EQUITY $12,640.4 $12,484.3
====================================
The Notes on pages 44-55 of this report are an integral component of the
company's Consolidated Financial Statements.
40 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
17
CONSOLIDATED STATEMENT OF INCOME
Anheuser-Busch Companies and Subsidiaries
YEAR ENDED DECEMBER 31 (in millions) 1999 1998 1997
Sales $13,723.3 $13,207.9 $12,832.4
Excise taxes (2,019.6) (1,962.1) (1,766.2)
--------------------------------------------------
Net sales 11,703.7 11,245.8 11,066.2
Cost of products and services (7,254.4) (7,162.5) (7,096.9)
--------------------------------------------------
Gross profit 4,449.3 4,083.3 3,969.3
Marketing, distribution and administrative expenses (2,147.0) (1,958.0) (1,916.3)
--------------------------------------------------
Operating income 2,302.3 2,125.3 2,053.0
Interest expense (307.8) (291.5) (261.2)
Interest capitalized 18.2 26.0 42.1
Interest income 4.3 5.8 7.9
Other expense, net (9.4) (13.0) (9.3)
--------------------------------------------------
Income before income taxes 2,007.6 1,852.6 1,832.5
Provision for income taxes (762.9) (704.3) (703.6)
Equity income, net of tax 157.5 85.0 50.3
--------------------------------------------------
Income before cumulative effect of accounting change 1,402.2 1,233.3 1,179.2
Cumulative effect of accounting change, net of tax benefit of $6.2 -- -- (10.0)
--------------------------------------------------
Net income $ 1,402.2 $ 1,233.3 $ 1,169.2
==================================================
Basic earnings per share:
Income before cumulative effect of accounting change $ 2.99 $ 2.56 $ 2.39
Cumulative effect of accounting change -- -- (.02)
--------------------------------------------------
Net income $ 2.99 $ 2.56 $ 2.37
==================================================
Diluted earnings per share:
Income before cumulative effect of accounting change $ 2.94 $ 2.53 $ 2.36
Cumulative effect of accounting change -- -- (.02)
--------------------------------------------------
Net income $ 2.94 $ 2.53 $ 2.34
==================================================
The Notes on pages 44-55 of this report are an integral component of the
company's Consolidated Financial Statements.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 41
--
18
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
Anheuser-Busch Companies and Subsidiaries
YEAR ENDED DECEMBER 31 (in millions, except per share) 1999 1998 1997
COMMON STOCK
Balance, beginning of period $ 712.7 $ 709.3 $ 705.8
Shares issued under stock plans 3.4 3.4 3.5
-------------------------------------------------
Balance, end of period $ 716.1 $ 712.7 $ 709.3
=================================================
CAPITAL IN EXCESS OF PAR VALUE
Balance, beginning of period $ 1,117.5 $ 1,017.0 $ 929.2
Shares issued under stock plans 123.5 100.5 87.8
=================================================
Balance, end of period $ 1,241.0 $ 1,117.5 $ 1,017.0
=================================================
RETAINED EARNINGS
Balance, beginning of period $ 8,320.7 $ 7,604.9 $ 6,924.5
Net income 1,402.2 1,233.3 1,169.2
Common dividends paid (per share: 1999 - $1.16;
1998 - $1.08; 1997 - $1.00) (544.7) (521.0) (492.6)
Shares issued under stock plans 3.0 3.5 3.8
-------------------------------------------------
Balance, end of period $ 9,181.2 $ 8,320.7 $ 7,604.9
=================================================
TREASURY STOCK
Balance, beginning of period $(5,482.1) $(4,793.3) $(4,206.2)
Treasury stock acquired (1,349.2) (688.8) (587.1)
-------------------------------------------------
Balance, end of period $(6,831.3) $(5,482.1) $(4,793.3)
=================================================
ESOP DEBT GUARANTEE
Balance, beginning of period $ (247.2) $ (282.1) $ (315.4)
Annual debt service 36.7 34.9 33.3
-------------------------------------------------
Balance, end of period $ (210.5) $ (247.2) $ (282.1)
=================================================
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of period $ (205.6) $ (214.0) $ (8.8)
Foreign currency translation adjustment 30.6 8.4 (205.2)
-------------------------------------------------
Balance, end of period $ (175.0) $ (205.6) $ (214.0)
=================================================
TOTAL SHAREHOLDERS EQUITY $ 3,921.5 $ 4,216.0 $ 4,041.8
=================================================
COMPREHENSIVE INCOME
Net income $ 1,402.2 $ 1,233.3 $ 1,169.2
Foreign currency translation adjustment 30.6 8.4 (205.2)
-------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 1,432.8 $ 1,241.7 $ 964.0
=================================================
The Notes on pages 44-55 of this report are an integral component of the
company's Consolidated Financial Statements.
42 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
19
CONSOLIDATED STATEMENT OF CASH FLOWS
Anheuser-Busch Companies and Subsidiaries
YEAR ENDED DECEMBER 31 (in millions) 1999 1998 1997
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 1,402.2 $ 1,233.3 $ 1,169.2
Cumulative effect of accounting change -- -- 10.0
-------------------------------------------
Income before cumulative effect of accounting change 1,402.2 1,233.3 1,179.2
Adjustments to reconcile income before cumulative
effect of accounting change to cash provided by operating activities:
Depreciation and amortization 777.0 738.4 683.7
Deferred income taxes 40.3 34.5 91.4
Undistributed earnings of affiliated companies (155.5) (53.7) (49.9)
Other, net 38.6 (27.1) (93.2)
-------------------------------------------
Operating cash flow before changes in working capital 2,102.6 1,925.4 1,811.2
(Increase)/decrease in working capital (18.3) 250.6 5.4
-------------------------------------------
Cash provided by operating activities 2,084.3 2,176.0 1,816.6
-------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (865.3) (817.5) (1,199.3)
New business acquisitions (7.0) (566.5) (683.3)
Proceeds from sale of business 59.6 -- --
-------------------------------------------
Cash (used for) investing activities (812.7) (1,384.0) (1,882.6)
-------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in debt 973.4 451.5 1,245.9
Decrease in debt (553.7) (63.6) (141.6)
Dividends paid to shareholders (544.7) (521.0) (492.6)
Acquisition of treasury stock (1,349.2) (688.8) (587.1)
Shares issued under stock plans 129.9 107.4 95.1
-------------------------------------------
Cash (used for)/provided by financing activities (1,344.3) (714.5) 119.7
-------------------------------------------
Net (decrease)/increase in cash during the year (72.7) 77.5 53.7
Cash, beginning of year 224.8 147.3 93.6
-------------------------------------------
Cash, end of year $ 152.1 $ 224.8 $ 147.3
===========================================
The Notes on pages 44-55 of this report are an integral component of the
company's Consolidated Financial Statements.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 43
--
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES
This summary of the significant accounting principles and policies of
Anheuser-Busch Companies, Inc. and its subsidiaries is presented to assist in
evaluating the company's Consolidated Financial Statements included in this
annual report. These principles and policies conform to U.S. generally
accepted accounting principles. The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires that
management make estimates and assumptions about the future which impact the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates and assumptions.
REVENUE RECOGNITION
The company recognizes revenue only when finished products are shipped or
services have been rendered to unaffiliated customers. The company's beer and
packaging operations do not engage in consignment sales. Entertainment
operations recognize revenue related to advance ticket sales when customers
actually visit a park location.
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the company
and all its subsidiaries. The company generally consolidates all
majority-owned and controlled subsidiaries, accounts for investments below
the 20% level under the cost method, and applies the equity method of
accounting for investments between 20% and 50%. All significant intercompany
transactions have been eliminated. Minority interests in consolidated
subsidiaries are not material.
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign operations where the local currency is the
functional currency are translated using period-end exchange rates for assets
and liabilities, and weighted average exchange rates during the period for
the results of operations. Translation adjustments are reported as a separate
component of other comprehensive income within shareholders equity.
Translation practice differs for foreign operations in hyperinflationary
economies. See Note 2 for additional discussion.
Exchange rate adjustments related to foreign currency transactions are
recognized in income as incurred.
CASH AND MARKETABLE SECURITIES
Cash and marketable securities include cash, demand deposits and
short-term investments with initial maturities generally of 90 days or less.
EXCESS OF COST OVER NET ASSETS
OF ACQUIRED BUSINESSES (GOODWILL)
The excess of the cost over the net assets of acquired businesses, which
is included in other assets on the balance sheet, is amortized on a
straight-line basis over a period of 40 years. Accumulated amortization at
December 31, 1999 and 1998 was $131.7 million and $116.3 million, respectively.
The ongoing recoverability of goodwill is monitored based on applicable
operating unit performance and consideration of significant events or changes
in the overall business environment. See Note 11 for additional information.
INVENTORIES AND PRODUCTION COSTS
Inventories are valued at the lower of cost or market. Cost is determined
under the last-in, first-out method (LIFO) for approximately 75% and 73%,
respectively, of total inventories at December 31, 1999 and 1998. Had the
average-cost method (which approximates replacement cost) been used with
respect to such inventories at December 31, 1999 and 1998, total inventories
would have been $83.3 million and $100.3 million higher, respectively.
PLANT AND EQUIPMENT
Plant and equipment is carried at cost and includes expenditures for new
facilities and expenditures which substantially increase the useful lives of
existing facilities. The cost of maintenance, repairs and minor renewals is
expensed as incurred. When plant and equipment is retired or otherwise
disposed, the cost and related accumulated depreciation are eliminated, and
any gain or loss on disposition is recognized in earnings.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, resulting in annual depreciation rates on
buildings ranging from 2% to 10% and on machinery and equipment ranging from
4% to 25%.
INCOME TAXES
The provision for income taxes is based on income and expense amounts as
reported in the Consolidated Statement of Income. The company utilizes
certain provisions of federal, state and foreign income tax laws and
regulations to reduce current taxes payable. Deferred income taxes are
recognized for the effect of temporary differences between financial and tax
reporting in accordance with the requirements of FAS No. 109, "Accounting for
Income Taxes."
44 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
21
DERIVATIVE FINANCIAL INSTRUMENTS
All derivative instruments held by the company are designated as hedges,
have high correlation with the underlying exposure and are highly effective
in offsetting underlying price movements. Accordingly, gains and losses from
changes in derivative fair values are deferred. Gains or losses upon
settlement of derivative positions when the underlying transaction occurs are
recognized in the income statement or recorded as part of the underlying
asset or liability, depending on the circumstances. Derivative positions are
settled if the underlying transaction is no longer expected to occur, with
related gains and losses recognized in earnings in the period settlement
occurs. Option premiums paid are recorded as assets and amortized over the
life of the option. Derivatives generally have initial terms of less than
three years, and all currently hedged transactions are expected to occur
within the next three years. See Note 3 for additional information regarding
the company's derivatives portfolio.
RESEARCH AND DEVELOPMENT COSTS, ADVERTISING
AND PROMOTIONAL COSTS, AND INITIAL PLANT COSTS
Research and development costs, advertising and promotional costs, and
initial plant costs are expensed as incurred. Advertising and promotional
expenses were $721.8 million, $642.1 million and $603.6 million in 1999, 1998
and 1997, respectively.
START-UP COSTS
Effective January 1, 1999, the company adopted SOP 98-5, "Reporting on the
Costs of Start-Up Activities," which requires the costs of start-up
activities to be expensed as incurred. Adoption of SOP 98-5 required no
significant changes to the company's accounting policies and had no impact on
the results of operations.
SYSTEMS DEVELOPMENT COSTS
The company capitalizes certain systems development costs that meet
established criteria in accordance with SOP 98-1, "Accounting for the Costs
of Computer Systems Developed or Obtained for Internal Use." Amounts
capitalized are amortized to expense over a five-year period.
In the fourth quarter 1997, in accordance with EITF consensus No. 97-13,
"Accounting for Costs Incurred in Connection with a Consulting Project or an
Internal Project That Combines Business Process Reengineering and Information
Technology Transformation," the company reported a $10 million after-tax
charge ($.02 per share) to expense previously capitalized systems
reengineering costs. The charge is shown as a separate cumulative effect of
accounting change line item in the income statement. The company now expenses
all such costs as incurred.
STOCK-BASED COMPENSATION
The company accounts for employee stock options in accordance with APB 25,
"Accounting for Stock Issued to Employees." Under APB 25, the company
recognizes no compensation expense related to employee stock options, since
options are always granted at a price equal to the market price on the day of
grant. See Note 5 for additional information on the company's stock options
plus pro forma disclosures required by FAS 123, "Accounting for Stock-Based
Compensation."
2. INTERNATIONAL INVESTMENTS
GRUPO MODELO
In 1993, Anheuser-Busch purchased a 17.7% direct and indirect equity
interest in Diblo, S.A. de C.V. (Diblo), the operating subsidiary of Grupo
Modelo, S.A. de C.V. (Modelo), Mexico's largest brewer and producer of the
Corona brand, for $477 million. In May 1997, the company increased its direct
and indirect equity ownership in Diblo to 37% for an additional $605 million.
Effective with the increase in equity ownership to 37%, the company received
expanded minority rights, increased its representation on Modelo's Board of
Directors to 10 of 21 members and adopted the equity method of accounting for
the investment. In September 1998, the company completed its purchase of an
additional 13.25% equity interest in Diblo for $557 million, and now owns a
50.2% direct and indirect interest in Diblo. Anheuser-Busch does not have
voting or other effective control of either Diblo or Modelo and therefore
continues to account for its investment using the equity method.
The difference between income recognized on the cost basis prior to 1997
and what would have been recognized had the company applied equity accounting
in those years is not material. In 1997, the company recorded a $189.4
million adjustment to the carrying value of the investment for cumulative
Mexican peso depreciation between 1993 and 1996 prior to the adoption of
equity accounting in 1997. The offset for the adjustment was to "foreign
currency translation," a component of other comprehensive income in
shareholders equity.
Included in the carrying amount of the Modelo investment is goodwill of
$541.4 million and $553.6 million, respectively, at December 31, 1999 and
1998 which is being amortized over 40 years. Accumulated amortization was
$29.2 million and $15 million, respectively, at December 31, 1999 and 1998.
Dividends received from Grupo Modelo in 1999 totaled $2.9 million, compared
to $50.3 million in 1998 and $16.4 million in 1997.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 45
--
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For foreign operations in countries whose economies are considered highly
inflationary, foreign currency translation practice under FAS No. 52,
"Foreign Currency Translation," requires that property, other long-lived
assets, long-term liabilities and related profit and loss accounts be
translated at historical rates of exchange. Additionally, net monetary asset
and liability related translation adjustments must be included in earnings in
the current period. Mexico's economy was considered highly inflationary for
accounting purposes for all of calendar 1997 and 1998. Accordingly, all
monetary translation gains and losses related to the Modelo investment were
recognized in equity income during 1997 and 1998.
Summary financial information for Grupo Modelo as of, and for the two years
ended December 31, is presented in the following table (in millions). The
amounts shown represent consolidated Grupo Modelo operating results and
financial position based on U.S. generally accepted accounting principles,
and include the impact of Anheuser-Busch's purchase accounting adjustments.
1999 1998
Current assets $1,156.3 $ 859.8
Noncurrent assets 3,322.3 3,008.4
Current liabilities 262.3 200.6
Noncurrent liabilities 328.0 172.0
Gross sales 2,576.3 1,748.3
Net sales 2,405.4 1,632.0
Gross profit 1,209.8 809.2
Minority interest 48.7 32.8
Net income 333.5 180.3
- -------------------------------------------------------------
OTHER INTERNATIONAL INVESTMENTS
In April 1996, the company purchased a 5% equity stake in a subsidiary
controlling approximately 75% of the operations of the Brazilian brewer
Antarctica for $52.5 million, with options to increase its equity interest to
approximately 30%. Because Anheuser-Busch had the ability to exercise
significant influence as a result of rights granted in its investment
agreement, the company applied the equity method of accounting for the
investment in Antarctica in 1997, 1998 and 1999.
In originally approving the partnership, the Brazilian antitrust agency,
CADE, required Anheuser-Busch's options to be mandatorily exercised at
specified dates. The first of the required fixed-dollar investment options
was set to expire in September 1999, but was determined to be no longer
economically attractive for Anheuser-Busch. Accordingly, the company
exercised its right to end its equity partnership with Antarctica in July
1999. There was no impact on earnings associated with the divestiture.
CADE also required Anheuser-Busch to discontinue its joint venture with
Antarctica for the production, sale and distribution of Budweiser in Brazil.
The pretax cost of discontinuing Budweiser production in Brazil was
approximately $6 million. In December 1999, the company entered into a
distribution agreement with Expand Group and now exports Budweiser to Brazil.
In 1996, Anheuser-Busch purchased a 4.4% interest in the Argentine
subsidiary of Compania Cervecerias Unidas S.A. (CCU), CCU-Argentina, with
options to increase its investment up to 20%. In December 1998, the company
exercised a portion of its options and purchased an additional 3.8% in
CCU-Argentina for $10 million. The company purchased an additional 2.5% of
CCU-Argentina for $7.0 million in December 1999, bringing the company's total
ownership to 10.7%. The company's remaining options expire in December 2002.
The investment is accounted for on the cost basis. CCU-Argentina brews
Budweiser under license and sells the brand in Buenos Aires and other major
Argentine markets.
In the fourth quarter 1998, the company restructured the sales force and
made other organizational changes at its 90%-owned Japanese joint venture
subsidiary. Total pretax cost of the restructuring was almost $9 million,
primarily for severance benefits for workforce reductions. Effective January
2000, the company converted its joint venture operation into an exclusive
license agreement with Kirin Brewing Company, Ltd. for the production and
sale of Budweiser in Japan. The one-time pretax cost of converting to the
license agreement was approximately $9 million, primarily for severance
benefits, and is included in 1999 operating results.
The company owns an 86.6% interest in and controls a joint venture which
owns the Wuhan brewery located in the People's Republic of China. The joint
venture brews and distributes Budweiser primarily in the northern, eastern
and central regions of China. The joint venture is consolidated.
In 1997, the company purchased the remaining 50% of the Stag Brewing
Company Ltd. from its partner, Scottish Courage. Budweiser is brewed and
packaged at the Stag Brewery primarily for distribution in the United
Kingdom. Scottish Courage owns and leases the brewery site to the company.
The Stag Brewery operations are consolidated.
3. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
The company currently uses the following derivative financial instruments:
purchased options and forward contracts for foreign currency risk; swaps for
interest rate risk; and futures, swaps and purchased options for commodity
price risk. Derivatives other than options are off-balance-sheet and
therefore have no recorded carrying value. Because the company hedges only
with instruments that have high correlation with the underlying transaction
pricing, changes in derivatives fair values are expected to be offset by
changes in the underlying pricing.
46 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
23
The following table summarizes the notional transaction amounts and fair
values for outstanding derivatives, by risk category and instrument type, at
December 31, (in millions). Bracketed figures indicate settlement of the
derivative contract without concluding the underlying hedged transaction
would be unfavorable to Anheuser-Busch. In practice, this rarely occurs.
1999 1998
---- ----
Notional Fair Notional Fair
Amount Value Amount Value
---------------------------------------------------------------
Foreign Currency:
Forwards $ 150.9 $ 4.0 $ 76.8 $ 1.5
Options 94.1 (.7) 323.1 6.5
---------------------------------------------------------------
245.0 3.3 399.9 8.0
---------------------------------------------------------------
Interest Rate:
Swaps 562.8 6.5 425.2 (53.4)
---------------------------------------------------------------
Commodity Price:
Swaps 92.4 4.5 14.1 (.3)
Futures 40.1 (3.0) 46.1 (3.6)
Options 559.6 64.5 94.4 2.0
---------------------------------------------------------------
692.1 66.0 154.6 (1.9)
---------------------------------------------------------------
Total of outstanding
derivatives $1,499.9 $75.8 $979.7 $(47.3)
===============================================================
- ------------------------------------------------------------------------------------------
The interest rate swap and currency exchange agreements related to the
dual-currency notes described in Note 4 are included as interest rate swaps
in the preceding table. These agreements are integral parts of dual-currency
note structures which provide the company with floating-rate financing at
below-market rates.
The company has "long" exposure to the British pound sterling, Irish punt,
Mexican peso and Canadian dollar. The company's exposures to other currencies
are essentially "short," primarily for German mark-denominated purchases of
hops. Long exposure indicates the company has foreign currency in excess of
its needs, while a short exposure indicates the company requires additional
foreign currency to meet its needs. For commodity derivatives, as a net user
of raw materials, the company's underlying price exposure is short,
indicating additional quantities must be obtained to meet anticipated
production requirements.
CONCENTRATION OF CREDIT RISK
The company does not have a material concentration of credit risk.
NONDERIVATIVE FINANCIAL INSTRUMENTS
Nonderivative financial instruments included in the balance sheet are cash,
accounts receivable, commercial paper and long-term debt. The fair value of
long-term debt, based on future cash flows discounted at interest rates
currently available to the company for debt with similar maturities and
characteristics, was $4.5 billion and $5.0 billion at December 31, 1999 and
1998, respectively.
NEW DERIVATIVES AND HEDGING ACCOUNTING STANDARD
In June 1998, FAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. FAS 133 requires all derivative financial
instruments to be reported on an entity's balance sheet at fair value, with
changes in fair value recognized in either earnings or equity, depending on
the nature of the underlying exposure being hedged. The Standard is required
to be adopted no later than January 1, 2001.
Adoption of FAS 133 requires a one-time recognition on the balance sheet of
the fair value of the company's derivatives portfolio plus a cumulative
effect adjustment to earnings and/or equity. The company does not anticipate
a material earnings impact from the initial adoption of FAS 133. The company
plans no substantive changes to its risk management strategy as a result of
adopting the new Standard, and will revise its derivatives-related
documentation and policies as necessary on adoption. The company plans to
adopt FAS 133 on January 1, 2001.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 47
--
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. DEBT
Debt at December 31, consisted of the following (in millions):
1999 1998
Long-term debt:
Commercial paper (weighted average
interest rates of 5.1% in 1999
and 5.5% in 1998) $1,000.0 $ 615.2
Medium-term Notes Due 2000 to 2001
(interest rates from 5.1% to 8.0%) 32.5 47.5
8.5% Sinking Fund Debentures
Maturing 1999 to 2017 -- 23.0
8.75% Notes Due 1999 -- 250.0
5.1% Japanese yen/Australian
dollar Notes Due 1999 -- 262.4
4.1% Japanese yen/U.S.
dollar Notes Due 2001 162.8 162.8
6.9% Notes Due 2002 200.0 200.0
6.75% Notes Due 2003 200.0 200.0
6.75% Notes Due 2005 200.0 200.0
7% Notes Due 2005 100.0 100.0
6.75% Notes Due 2006 250.0 250.0
7.1% Notes Due 2007 250.0 250.0
5.125% Notes Due 2008 100.0 100.0
5.375% Notes Due 2008 100.0 100.0
5.65% Notes Due 2008 100.0 100.0
9% Debentures Due 2009 350.0 350.0
5.75% Notes Due 2010 150.0 --
5.75% Notes Due 2011 150.0 --
7.25% Debentures Due 2015 150.0 150.0
7.125% Notes Due 2017 250.0 250.0
7.375% Debentures Due 2023 200.0 200.0
7% Debentures Due 2025 200.0 200.0
6.75% Debentures Due 2027 100.0 100.0
6.5% Debentures Due 2028 100.0 100.0
Industrial Revenue Bonds
(interest rates from 5.6% to 7.4%) 248.3 212.2
8.25% ESOP Debt Guarantee 210.5 247.2
Other long-term debt 76.5 48.3
------------------------------
Total long-term debt 4,880.6 4,718.6
Short-term debt:
Commercial paper (year-end
interest rate of 6.0%) 242.3 --
------------------------------
Total debt $5,122.9 $4,718.6
==============================
- --------------------------------------------------------------------------
The company uses Securities and Exchange Commission shelf registrations to
maintain debt issuance flexibility and currently has $690 million in
registered debt available for issuance.
Gains/losses on debt redemptions (either individually or in the aggregate)
are not material for any year presented.
The company's 4.1% Japanese yen/U.S. dollar notes are hedged by an interest
rate swap and currency exchange structure that effectively transfers all
currency exchange risk to the counterparty over the life of the debt.
In October 1999, the company entered into a dual interest rate swap
structure which lowered the effective interest rate on the $200 million 6.9%
Notes Due 2002, to 6.44% over the remaining term.
The company has in place a single, committed revolving credit agreement
totaling $1 billion, expiring in August 2001, which supports the company's
commercial paper program. At December 31, 1999 and 1998, the company had no
outstanding borrowings under the agreement. Annual fees under the agreement
were $600,000 for 1999, 1998 and 1997.
Commercial paper borrowings classified as long-term are supported on a
long-term basis by the $1 billion revolving credit agreement. The company may
also choose to refinance some or all of its commercial paper debt with
long-term notes or debentures. Commercial paper borrowings in excess of $1
billion are classified as short-term.
The aggregate maturities on long-term debt are $75 million, $180 million,
$200 million, $200 million and zero, respectively, for each of the years
ending December 31, 2000 through 2004. These maturities do not include future
maturities of the ESOP debt guarantee or commercial paper.
5. STOCK OPTION PLANS
Under terms of the company's stock option plans, officers, certain other
employees and nonemployee directors may be granted options to purchase the
company's common stock at no less than 100% of the market price on the date
the option is granted. Options generally vest over three years and have a
maximum term of 10 years. At December 31, 1999, 1998 and 1997, a total of 40
million, 44 million and 27 million shares, respectively, were reserved for
future issuance under the plans. Certain of the plans also provide for the
granting of stock appreciation rights (SARs) in tandem with, or in lieu of,
stock options. When SARs and options are issued in tandem, the exercise of an
SAR cancels the related option and the exercise of an option cancels the
related SAR. There were 2,000 SARs outstanding at December 31, 1999 and none
outstanding at December 31, 1998.
48 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
25
Presented below is a summary of stock option plans activity for the years
shown:
Options Wtd. Avg. Options Wtd. Avg.
Outstanding Exercise Price Exercisable Exercise Price
- ---------------------------------------------------------------------------------------------
BALANCE,
DEC. 31, 1996 24,320,664 $28.55 15,230,871 $24.67
Granted 5,558,073 43.37
Exercised (3,971,384) 22.48
Cancelled (185,377) 35.11
-------------
BALANCE,
DEC. 31, 1997 25,721,976 $32.64 15,908,186 $27.69
Granted 5,043,905 59.82
Exercised (4,084,369) 24.70
Cancelled (139,691) 40.81
BALANCE,
DEC. 31, 1998 26,541,821 $38.98 16,712,205 $31.79
Granted 5,295,646 75.76
Exercised (3,508,208) 27.11
Cancelled (43,984) 53.20
BALANCE,
DEC. 31, 1999 28,285,275 $47.32 18,083,477 $37.39
- ---------------------------------------------------------------------------------------------
The following table provides additional information for options
outstanding and exercisable at December 31, 1999:
OPTIONS OUTSTANDING
- ------------------------------------------------------------------------------
Range of Wtd. Avg. Wtd. Avg.
Prices Number Remaining Life Exercise Price
------ ------ -------------- --------------
$20-29 4,749,947 4 YRS $25.72
30-39 4,390,445 6 YRS 32.35
40-49 8,869,516 7 YRS 42.29
50-59 4,981,101 9 YRS 59.85
60-77 5,294,266 10 YRS 75.76
---------
$20-77 28,285,275 7 YRS $47.32
- ------------------------------------------------------------------------------
OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------
Range of Wtd. Avg.
Prices Number Exercise Price
------ ------ --------------
$20-29 4,749,947 $25.72
30-39 4,390,445 32.35
40-49 7,077,526 42.01
50-59 1,682,824 59.85
60-77 182,735 75.76
-------
$20-77 18,083,477 $37.39
- ------------------------------------------------------------------------------
The company's stock option plans provide for acceleration of exercisability
of the options upon the occurrence of certain events relating to a change in
control, merger, sale of assets or liquidation of the company (Acceleration
Events). Certain of the plans also provide that optionees may be granted
Limited Stock Appreciation Rights (LSARs). LSARs become exercisable, in lieu
of an option, upon the occurrence, at least six months following the date of
grant, of an Acceleration Event. The LSARs entitle the holder to a cash
payment per share equivalent to the excess of the share value (as defined
under terms of the LSAR) over the grant price. As of December 31, 1999 and
1998, there were zero and .1 million, respectively, of LSARs outstanding.
PRO FORMA FAIR VALUE DISCLOSURES
Had compensation expense for the company's stock options been recognized
based on the fair value on the grant date under the methodology prescribed by
FAS 123, the company's income from continuing operations and earnings per
share for the three years ended December 31, would have been impacted as
shown in the following table (in millions, except per share).
1999 1998 1997
Reported income
from continuing operations $1,402.2 $1,233.3 $1,179.2
Pro forma income from
continuing operations 1,373.3 1,209.3 1,165.0
Reported diluted earnings
per share 2.94 2.53 2.36
Pro forma diluted earnings
per share 2.88 2.48 2.33
- -------------------------------------------------------------------------------
The fair value of options granted, which is hypothetically amortized to
expense over the option vesting period in determining the pro forma impact,
has been estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
1999 1998 1997
Expected life of option 5 YRS. 5 yrs. 5 yrs.
Risk-free interest rate 6.2% 4.7% 5.7%
Expected volatility of
Anheuser-Busch stock 18% 16% 15%
Expected dividend yield
on Anheuser-Busch stock 1.6% 1.7% 2.3%
- -------------------------------------------------------------------------------
The weighted average fair value of options granted during 1999, 1998 and
1997 determined using the Black-Scholes model is as follows:
1999 1998 1997
Fair value of each
option granted $18.76 $11.72 $8.37
Total number of options
granted (in millions) 5.3 5.0 5.6
------------------------------------------
Total fair value of all options
granted (in millions) $ 99.4 $ 58.6 $46.9
==========================================
- -------------------------------------------------------------------------------
For FAS 123 disclosure purposes, the weighted average fair value of stock
options granted is required to be based on a theoretical option pricing
model. In actuality, because the company's stock options are not traded on
any 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 would benefit
all stockholders commensurately.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 49
--
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. EMPLOYEE STOCK OWNERSHIP PLANS
In 1989, the company added Employee Stock Ownership Plans (ESOPs) to its
existing Deferred Income Stock Purchase and Savings Plans. Most regular
employees are eligible for participation in the ESOPs. The ESOPs initially
borrowed $500 million for a term of 15 years at an interest rate of 8.25% and
used the proceeds to buy approximately 22.7 million shares of common stock
from the company at market price. The debt is guaranteed by the company and
the shares are being allocated to participants over the 15-year period as
contributions are made to the plans. The ESOPs purchased an additional .2
million shares from the company using proceeds from the sale of
spin-off-related Earthgrains shares in 1996. Of the 22.9 million total shares
purchased, 16.8 million shares have been allocated to plan participants.
ESOP cash contributions and expense accrued during the calendar year are
determined by several factors, including the market price, number of shares
allocated to participants, debt service, dividends on unallocated shares and
the company's matching contribution. Over the 15-year life of the ESOPs,
total expense recognized will equal total cash contributions made by the
company for ESOP debt service.
ESOP expense is allocated to operating expense and interest expense based
on the ratio of principal and interest payments on the debt. Total ESOP
expense for the three years ended December 31, is presented below (in
millions):
1999 1998 1997
Operating expense $1.7 $ 7.4 $ 8.6
Interest expense .9 4.5 6.7
----------------------------------
Total ESOP expense $2.6 $11.9 $15.3
==================================
- -----------------------------------------------------------------------------
ESOP cash contributions are made in March and September to correspond with
debt service requirements. A summary of cash contributions and dividends on
unallocated ESOP shares for the three years ended December 31, is presented
below (in millions):
1999 1998 1997
Cash contributions $2.5 $14.2 $15.2
==================================
Dividends $7.8 $ 8.9 $ 9.9
==================================
- -----------------------------------------------------------------------------
7. PREFERRED AND COMMON STOCK
COMMON STOCK ACTIVITY
Activity for the company's common stock for the three years ended December
31, is summarized below (in millions of shares):
1999 1998 1997
COMMON STOCK
Beginning common stock 712.7 709.3 705.8
Shares issued under
stock plans 3.4 3.4 3.5
------------------------------------
Common stock 716.1 712.7 709.3
------------------------------------
TREASURY STOCK
Beginning treasury stock (236.1) (222.2) (208.4)
Treasury stock acquired (18.9) (13.9) (13.8)
------------------------------------
Cumulative treasury stock (255.0) (236.1) (222.2)
------------------------------------
NET COMMON STOCK
OUTSTANDING 461.1 476.6 487.1
====================================
- ----------------------------------------------------------------------------
PREFERRED STOCK
At December 31, 1999 and 1998, 40,000,000 shares of $1.00 par value
preferred stock were authorized and unissued.
STOCK REPURCHASE PROGRAMS
The Board of Directors has approved various resolutions authorizing the
company to purchase shares of its common stock to return cash to shareholders
and to meet the requirements of the company's various stock purchase and
incentive plans. At December 31, 1999, approximately 6 million shares were
available for repurchase under a 1996 repurchase authorization.The company's
current resolution was approved by the Board in February 2000 and authorized
the repurchase of 50 million shares.
The company acquired 18.9 million, 13.9 million and 13.8 million shares of
common stock in 1999, 1998 and 1997 for $1,349.2 million, $688.8 million and
$587.1 million, respectively.
STOCKHOLDER RIGHTS PLAN
The Board of Directors adopted a Stockholder Rights Plan in 1985, which was
extended in 1994, that would permit shareholders to purchase common stock at
prices substantially below market value under certain change-in-control
scenarios.
50 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
27
8. RETIREMENT BENEFITS
PENSION PLANS
The company has pension plans covering substantially all of its regular
employees. Total pension expense for the three years ended December 31, is
presented below (in millions):
1999 1998 1997
Single-employer
defined benefit plans $21.1 $ 3.3 $12.0
Multi-employer plans 15.7 14.4 13.2
Defined contribution plans 18.3 18.2 15.9
--------------------------------------
Total pension expense $55.1 $35.9 $41.1
======================================
- -----------------------------------------------------------------------------
Contributions to multi-employer plans in which the company and its
subsidiaries participate are determined in accordance with the provisions of
negotiated labor contracts and are based on employee hours or weeks worked.
Expense recognized for multi-employer and defined contribution plans equals
cash contributions for all years shown.
Net annual pension expense for single-employer defined benefit plans was
comprised of the following for the three years ended December 31, (in
millions):
1999 1998 1997
Service cost (benefits earned
during the year) $ 63.2 $ 53.4 $ 51.5
Interest cost on projected
benefit obligation 116.7 106.4 100.7
Assumed return on plan assets (169.2) (156.8) (141.0)
Amortization of prior service cost,
actuarial gains/losses and the
excess of market value of plan
assets over projected benefit
obligation at January 1, 1986 10.4 .3 .8
----------------------------------------
Net annual pension expense $ 21.1 $ 3.3 $ 12.0
========================================
- ----------------------------------------------------------------------------
The key actuarial assumptions used in determining annual pension expense
for single-employer defined benefit plans were as follows for the three years
ended December 31:
1999 1998 1997
Discount rate 7.0% 7.5% 7.75%
Long-term rate of
return on plan assets 10.0% 10.0% 10.0%
Weighted average rate
of compensation increase 4.75% 4.75% 5.5%
- -----------------------------------------------------------------------------
The following table provides a reconciliation of the funded status of
single-employer defined benefit plans to prepaid pension cost for the two
years ended December 31, (in millions):
1999 1998
Funded status - plan assets in excess of
projected benefit obligation (PBO) $320.4 $120.2
Unamortized excess of market value of
plan assets over PBO at January 1, 1986,
being amortized over 15 years (12.7) (23.0)
Unrecognized net actuarial (gain) (258.8) (61.8)
Unamortized prior service cost 155.8 167.9
------------------------------
Prepaid pension cost $204.7 $203.3
==============================
- ----------------------------------------------------------------------------
The assumptions used in determining the funded status of the plans as of
December 31, were as follows:
1999 1998
Discount rate 7.5% 7.0%
Weighted average rate of
compensation increase 4.75% 4.75%
- -----------------------------------------------------------------------------
The following tables summarize the changes in the projected benefit
obligation and the fair market value of plan assets (consisting primarily of
corporate equity securities and publicly traded bonds) for all company
single-employer defined benefit pension plans for the two years ended
December 31, (in millions).
1999 1998
Projected benefit obligation,
beginning of year $1,704.0 $1,428.4
Service cost 63.2 53.4
Interest cost 116.7 106.4
Plan amendments 7.2 111.9
Actuarial (gain)/loss (36.0) 92.0
Benefits paid (109.0) (88.1)
---------------------------------
Projected benefit obligation,
end of year $1,746.1 $1,704.0
=================================
- -----------------------------------------------------------------------------
1999 1998
Fair market value of plan assets,
beginning of year $1,824.2 $1,821.4
Actual return on plan assets 328.5 68.7
Employer contributions 22.8 22.2
Benefits paid (109.0) (88.1)
---------------------------------
Fair market value of plan assets,
end of year $2,066.5 $1,824.2
=================================
- -----------------------------------------------------------------------------
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 51
--
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POSTRETIREMENT HEALTH CARE AND INSURANCE BENEFITS
The company provides certain health care and life insurance benefits to
eligible retired employees. Generally, participants must accrue 10 years of
continuous service after reaching age 45 to become eligible for retiree
health care benefits.
The following table sets forth the accumulated postretirement benefit
obligation (APBO) and the total postretirement benefit liability for all
company single-employer defined benefit health care and life insurance plans
at December 31, (in millions). Postretirement benefit obligations are not
prefunded and there are no assets associated with the plans.
1999 1998
Accumulated postretirement
benefit obligation (APBO) $369.9 $348.1
Unrecognized prior service benefits 76.3 87.9
Unrecognized net actuarial gains 79.2 98.7
----------------------------
Total postretirement benefit liability $525.4 $534.7
============================
- --------------------------------------------------------------------------
As of December 31, 1999 and 1998, $19.0 million and $18.9 million of these
obligations were classified as current liabilities and $506.4 million and
$515.8 million were classified as long-term liabilities, respectively.
Net periodic postretirement benefits expense for company single-employer
defined benefit health care and life insurance plans was comprised of the
following for the three years ended December 31, (in millions):
1999 1998 1997
Service cost (benefits earned
during the year) $ 16.8 $ 13.6 $ 12.0
Interest cost on APBO 24.0 23.3 23.2
Amortization of prior
service benefit (11.6) (11.7) (11.7)
Amortization of actuarial (gains) (13.0) (8.9) (10.1)
------------------------------------------
Net periodic postretirement
benefits expense $ 16.2 $ 16.3 $ 13.4
==========================================
- ------------------------------------------------------------------------------
The following table summarizes the change in the APBO for the two years
ended December 31, (in millions):
1999 1998
APBO, beginning of year $348.1 $318.4
Service cost 16.8 13.6
Interest cost 24.0 23.3
Actuarial loss 6.5 11.8
Benefits paid (25.5) (19.0)
-------------------------------
APBO, end of year $369.9 $348.1
===============================
- -------------------------------------------------------------
In measuring the APBO, annual trend rates for health care costs of 9.6%,
8.7% and 8.3% were assumed for 1999, 1998 and 1997, respectively. These rates
were assumed to decline ratably over the subsequent 9-12 years to 5.4% for
1999, 5.95 % for 1998, and 5.3% for 1997, and remain at that level
thereafter. The weighted average discount rate used in determining the APBO
was 8.0% and 7.5% at December 31, 1999 and 1998, respectively.
If the assumed health care cost trend rate changed by 1%, the APBO as of
December 31, 1999 would change by 13%. A 1% change in the health care cost
trend rate would result in a corresponding change of 14% in net periodic
postretirement benefits expense.
9. EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share are based on the weighted average number of shares
of common stock outstanding during the year. Diluted earnings per share are
based on the weighted average number of shares of common stock plus common
stock equivalents outstanding during the year.
A reconciliation of weighted average shares outstanding between basic and
diluted earnings per share for the three years ended December 31, follows (in
millions of shares). There were no adjustments to income available to common
shareholders for any year shown.
1999 1998 1997
Basic weighted average
shares outstanding 469.5 482.1 492.6
Stock option shares 7.3 5.4 7.1
------------------------------------
Diluted weighted average
shares outstanding 476.8 487.5 499.7
====================================
- -----------------------------------------------------------------------------
52 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
29
10. INCOME TAXES
The provision for income taxes consists of the following for the three
years ended December 31, (in millions):
1999 1998 1997
Current tax provision:
Federal $615.9 $564.3 $510.9
State 106.3 93.3 85.8
Foreign .4 12.2 15.5
-------------------------------------
722.6 669.8 612.2
-------------------------------------
Deferred tax provision:
Federal 32.3 31.6 78.2
State 4.7 2.9 13.8
Foreign 3.3 -- (.6)
-------------------------------------
40.3 34.5 91.4
-------------------------------------
Total tax provision $762.9 $704.3 $703.6
=====================================
- -----------------------------------------------------------------------------
The deferred tax provision results from temporary differences in the
recognition of income and expense for tax and financial reporting purposes.
The primary differences are related to fixed assets (tax effect of $13.8
million in 1999, $51.5 million in 1998 and $67.8 million in 1997).
At December 31, 1999 and 1998, the company had deferred tax liabilities of
$1,903.5 million and $1,841.3 million, and deferred tax assets of $558.8
million and $537.7 million, respectively. Deferred tax liabilities are
primarily related to fixed assets of $1,614.9 million and $1,601.1 million,
respectively. Deferred tax assets are related to accrued postretirement
benefits ($198.5 million and $202.1 million, respectively) and other accruals
and temporary differences ($300.4 million and $335.6 million, respectively)
which are not deductible for tax purposes until paid or utilized.
A reconciliation between the U.S. federal statutory tax rate and the
effective tax rate for the three years ended December 31, is presented below:
1999 1998 1997
Federal statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 3.6 3.4 3.5
Impact of foreign operations .2 .1 .1
Other items (.8) (.5) (.2)
---------------------------------
Effective tax rate 38.0% 38.0% 38.4%
=================================
- --------------------------------------------------------------------------
11. SUPPLEMENTAL INFORMATION
Accounts payable include $124.0 million and $135.0 million, respectively,
of outstanding checks at December 31, 1999 and 1998.
Supplemental cash flow information for the three years ended December 31,
is presented below (in millions):
1999 1998 1997
CASH PAID DURING THE YEAR:
Interest, net of
interest capitalized $ 286.9 $ 263.3 $ 205.1
Income taxes 706.2 644.3 609.5
Excise taxes 2,016.6 1,966.6 1,760.6
CHANGES IN WORKING CAPITAL:
(Increase)/decrease in
noncash current assets:
Accounts receivable $ (18.9) $ 103.3 $ (80.7)
Inventories (0.4) (73.2) (19.1)
Other current assets (13.6) (9.1) 35.4
Increase/(decrease) in
current liabilities:
Accounts payable 26.9 113.9 65.0
Accrued salaries, wages
and benefits 6.7 32.0 (3.3)
Accrued taxes (29.4) 9.7 (49.1)
Other current liabilities 10.4 74.0 57.2
-----------------------------------------
Net (increase)/decrease
in working capital $ (18.3) $ 250.6 $ 5.4
=========================================
- ------------------------------------------------------------------------------
The components of plant and equipment, net, at December 31, are summarized
below (in millions):
1999 1998
Land $ 260.8 $ 250.9
Buildings 3,684.7 3,569.9
Machinery and equipment 9,921.8 9,570.4
Construction in progress 512.3 446.5
--------------------------------------
14,379.6 13,837.7
Accumulated depreciation (6,415.0) (5,988.7)
--------------------------------------
Total plant and equipment, net $ 7,964.6 $ 7,849.0
======================================
- ------------------------------------------------------------------------------
The components of other assets at December 31, are summarized below (in
millions):
1999 1998
Investment properties $ 119.0 $ 116.4
Goodwill 425.0 442.2
Deferred charges 518.7 555.7
------------------------------------
Total other assets $1,062.7 $1,114.3
====================================
- --------------------------------------------------------------------------
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 53
--
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized below is selected legal entity financial information for
Anheuser-Busch, Inc., a wholly-owned subsidiary of Anheuser-Busch Companies,
as of and for the years ended December 31, (in millions). This information is
provided to satisfy certain Securities and Exchange Commission reporting
requirements necessitated by Anheuser-Busch, Inc. being co-obligor on
substantially all Anheuser-Busch Companies debt.
1999 1998 1997
Income Statement Information:
Net sales $8,939.9 $ 8,408.0 $ 8,116.3
Gross profit 3,589.9 3,197.1 3,141.2
Net income <F1> 1,078.2 969.7 906.8
Balance Sheet Information:
Current assets $ 649.9 $ 581.4 $ 623.9
Noncurrent assets <F2> 6,494.1 17,086.7 15,619.0
Current liabilities 836.1 733.9 677.7
Noncurrent liabilities <F1> 5,694.1 4,998.6 4,599.4
- -----------------------------------------------------------------------------
<FN>
<F1> All guaranteed debt for which Anheuser-Busch, Inc. is co-obligor is
included as an element of noncurrent liabilities, with related interest
expense included in the determination of net income.
<F2> The reduction in noncurrent assets in 1999 is due to an intercompany
dividend from Anheuser-Busch, Inc. to Anheuser-Busch Companies.
12. COMMITMENTS AND CONTINGENCIES
The company had commitments for capital expenditures of approximately $148
million at December 31, 1999. Obligations under capital and operating leases
are not material.
The company and certain of its subsidiaries are involved in certain claims
and legal proceedings in which monetary damages and other relief are sought.
The company is vigorously contesting these claims. However, resolution of
these claims 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 all existing 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.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Net Gross Net Diluted Earnings
Sales Profit Income per Share
- -----------------------------------------------------------------------------------
YEAR ENDED
DEC. 31, 1999
1st Quarter $ 2,685.2 $ 973.1 $ 319.1 $ .66
2nd Quarter 3,080.7 1,216.2 431.0 .90
3rd Quarter 3,222.3 1,316.8 461.5 .97
4th Quarter 2,715.5 943.2 190.6 .41
----------------------------------------------------------------
Annual $11,703.7 $4,449.3 $1,402.2 $2.94
================================================================
- -----------------------------------------------------------------------------------
YEAR ENDED
DEC. 31, 1998
1st Quarter $ 2,507.5 $ 868.7 $ 265.2 $ .54
2nd Quarter 3,006.3 1,142.9 391.2 .80
3rd Quarter 3,122.0 1,226.4 408.3 .84
4th Quarter 2,610.0 845.3 168.6 .35
----------------------------------------------------------------
Annual $11,245.8 $4,083.3 $1,233.3 $2.53
================================================================
- -----------------------------------------------------------------------------------
14. BUSINESS SEGMENTS
The company categorizes its operations into five business segments:
Domestic Beer, International Beer, Packaging, Entertainment and Other.
The Domestic Beer segment consists of the company's U.S. beer production,
marketing, distribution and raw materials acquisition.
The International Beer segment consists of the company's export sales and
overseas beer production and marketing operations, which include
company-owned operations, administration of contract and license brewing
arrangements and equity investments. The company sells beer in more than 80
countries, with principal markets in Canada, the United Kingdom, Ireland,
China and Japan.
The Packaging segment is comprised of the company's aluminum beverage can
manufacturing, aluminum can recycling and label printing operations. Cans are
produced for both the company's domestic beer operations and U.S. soft drink
industry customers.
The Entertainment segment consists of the company's SeaWorld, Busch
Gardens and other adventure park operations.
The Other segment is comprised of the company's real estate development,
transportation and communications businesses.
Summarized on the following page is the company's business segment
information for 1999, 1998 and 1997 (in millions). Intersegment sales are
fully eliminated in consolidation. No single customer accounted for more than
10% of sales. Corporate expenses, including net interest expense, are not
allocated to operating segments.
54 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
31
- ------------------------------------------------------------------------------------------------------------------------
Domestic Int'l Corp. &
1999 Beer Beer Pkg. Enter. Other Elims <F1> Consol.
- ------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT INFORMATION:
Gross sales $10,966.8 763.3 1,941.9 750.5 120.2 (819.4) $13,723.3
Net sales - external $ 9,088.2 622.3 1,151.2 750.5 91.5 -- $11,703.7
Net sales - intersegment $ -- -- 790.7 -- 28.7 (819.4) $ --
Depreciation & amortization $ 535.5 20.2 94.6 89.7 6.1 30.9 $ 777.0
Income before income taxes $ 2,250.7 (19.9) 149.3 111.3 12.2 (496.0) $ 2,007.6
Equity income, net of tax $ -- 157.5 -- -- -- -- $ 157.5
Net income $ 1,395.4 145.2 92.6 69.0 7.6 (307.6) $ 1,402.2
BALANCE SHEET INFORMATION:
Total assets $ 7,183.9 2,439.6 843.6 1,360.4 197.0 615.9 $12,640.4
Equity method investments $ -- 1,787.9 -- -- -- -- $ 1,787.9
Foreign-located fixed assets $ -- 221.4 -- -- -- -- $ 221.4
Capital expenditures $ 563.2 45.3 49.7 162.6 13.5 31.0 $ 865.3
- ------------------------------------------------------------------------------------------------------------------------
Domestic Int'l Corp. &
1998 Beer Beer Pkg. Enter. Other Elims <F1> Consol.
- ------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT INFORMATION:
Gross sales $10,391.6 809.1 1,842.0 760.8 147.0 (742.6) $13,207.9
Net sales - external $ 8,569.9 668.7 1,127.4 760.8 119.0 -- $11,245.8
Net sales - intersegment $ -- -- 714.6 -- 28.0 (742.6) $ --
Depreciation & amortization $ 498.9 14.6 102.6 90.3 6.1 25.9 $ 738.4
Income before income taxes $ 2,018.0 10.1 148.2 116.6 9.9 (450.2) $ 1,852.6
Equity income, net of tax $ -- 85.0 -- -- -- -- $ 85.0
Net income $ 1,251.2 91.3 91.9 72.3 6.1 (279.5) $ 1,233.3
BALANCE SHEET INFORMATION:
Total assets $ 7,078.5 2,340.9 874.1 1,283.1 211.0 696.7 $12,484.3
Equity method investments $ -- 1,662.6 -- -- -- -- $ 1,662.6
Foreign-located fixed assets $ -- 202.1 -- -- -- -- $ 202.1
Capital expenditures $ 514.1 82.9 81.4 97.2 9.9 32.0 $ 817.5
- ------------------------------------------------------------------------------------------------------------------------
Domestic Int'l Corp. &
1997 Beer Beer Pkg. Enter. Other Elims <F1> Consol.
- ------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT INFORMATION:
Gross sales $10,023.9 784.8 1,867.2 756.2 151.7 (751.4) $12,832.4
Net sales - external $ 8,257.7 784.8 1,150.8 756.2 116.7 -- $11,066.2
Net sales - intersegment $ -- -- 716.4 -- 35.0 (751.4) $ --
Depreciation & amortization $ 459.8 7.7 100.5 83.5 6.3 25.9 $ 683.7
Income before income taxes $ 1,984.8 18.2 115.0 115.3 8.8 (409.6) $ 1,832.5
Equity income, net of tax $ -- 50.3 -- -- -- -- $ 50.3
Income from
continuing operations $ 1,230.6 61.6 71.3 71.5 5.5 (261.3) $ 1,179.2
BALANCE SHEET INFORMATION:
Total assets $ 7,121.1 1,636.9 863.9 1,291.7 220.1 593.4 $11,727.1
Equity method investments $ -- 1,045.6 -- -- -- -- $ 1,045.6
Foreign-located fixed assets $ -- 128.7 -- -- -- -- $ 128.7
Capital expenditures $ 888.5 36.8 98.1 140.1 15.0 20.8 $ 1,199.3
- ------------------------------------------------------------------------------------------------------------------------
<FN>
<FNote 1:> Corporate assets principally include cash, marketable securities,
deferred charges and certain fixed assets. Eliminations impact only
gross and intersegment sales.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 55
--
32
FINANCIAL SUMMARY -- OPERATIONS
Anheuser-Busch Companies and Subsidiaries
(In millions, except per share data) 1999 1998 1997
Consolidated Summary of Operations:
Barrels of A-B beer brands sold worldwide 102.9 99.8 96.6
=================================================
Gross sales $13,723.3 $13,207.9 $12,832.4
Excise taxes (2,019.6) (1,962.1) (1,766.2)
-------------------------------------------------
Net sales 11,703.7 11,245.8 11,066.2
Cost of products and services (7,254.4) (7,162.5) (7,096.9)
-------------------------------------------------
Gross profit 4,449.3 4,083.3 3,969.3
Marketing, distribution and administrative expenses (2,147.0) (1,958.0) (1,916.3)
Gain on sale of St. Louis Cardinals -- -- --
Shutdown of Tampa brewery -- -- --
Restructuring charge -- -- --
-------------------------------------------------
Operating income 2,302.3 2,125.3 2,053.0
Interest expense (307.8) (291.5) (261.2)
Interest capitalized 18.2 26.0 42.1
Interest income 4.3 5.8 7.9
Other income/(expense), net (9.4) (13.0) (9.3)
-------------------------------------------------
Income before income taxes 2,007.6 1,852.6 1,832.5
Provision for income taxes (current and deferred) (762.9) (704.3) (703.6)
Revaluation of deferred tax liability under FAS 109 -- -- --
Equity income, net of tax 157.5 85.0 50.3
-------------------------------------------------
Income from continuing operations 1,402.2 1,233.3 1,179.2
Income/(loss) from discontinued operations -- -- --
-------------------------------------------------
Income before accounting changes 1,402.2 1,233.3 1,179.2
Cumulative effect of accounting changes -- -- (10.0) <F1>
-------------------------------------------------
Net income $ 1,402.2 $ 1,233.3 $ 1,169.2
=================================================
Basic Earnings Per Share:
Income from continuing operations $ 2.99 $ 2.56 $ 2.39
Income/(loss) from discontinued operations -- -- --
-------------------------------------------------
Income before accounting changes 2.99 2.56 2.39
Cumulative effect of accounting changes -- -- (.02) <F1>
-------------------------------------------------
Net income $ 2.99 $ 2.56 $ 2.37
=================================================
Diluted Earnings Per Share:
Income from continuing operations $ 2.94 $ 2.53 $ 2.36
Income/(loss) from discontinued operations -- -- --
-------------------------------------------------
Income before accounting changes 2.94 2.53 2.36
Cumulative effect of accounting changes -- -- (.02) <F1>
-------------------------------------------------
Net income $ 2.94 $ 2.53 $ 2.34
=================================================
Cash dividends paid on common stock $ 544.7 $ 521.0 $ 492.6
Per share 1.16 1.08 1.00
Weighted average number of common shares:
Basic 469.5 482.1 492.6
Diluted 476.8 487.5 499.7
- -----------------------------------------------------------------------------------------------------------------------
All per share information and weighted average number of common shares data
reflect the September 12, 1996 two-for-one stock split and the 1997 adoption
of FAS 128, "Earnings per Share," as applicable. All financial information has
been restated to recognize the 1995 divestiture of the Food Products segment.
All amounts include the acquisition of SeaWorld as of December 1, 1989.
<FN>
<FNote 1:> 1997 change in accounting for deferred systems re-engineering costs,
net of tax benefit of $6.2 million. 1992 change in accounting for
income taxes and other postretirement benefits, net of tax benefit
of $186.4 million.
56 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
33
1996 1995 1994 1993 1992 1991 1990 1989
95.1 90.9 91.3 89.7 88.9 87.9 88.1 82.2
========================================================================================================================
$12,621.5 $12,004.5 $11,705.0 $11,147.3 $11,008.6 $10,631.9 $9,716.1 $8,553.7
(1,737.8) (1,664.0) (1,679.7) (1,679.8) (1,668.6) (1,637.9) (868.1) (802.3)
- ------------------------------------------------------------------------------------------------------------------------
10,883.7 10,340.5 10,025.3 9,467.5 9,340.0 8,994.0 8,848.0 7,751.4
(6,964.6) (6,791.0) (6,492.1) (6,167.6) (6,051.8) (5,953.5) (5,963.4) (5,226.5)
- ------------------------------------------------------------------------------------------------------------------------
3,919.1 3,549.5 3,533.2 3,299.9 3,288.2 3,040.5 2,884.6 2,524.9
(1,890.0) (1,756.6) (1,679.9) (1,612.1) (1,583.7) (1,409.5) (1,364.9) (1,244.3)
54.7 -- -- -- -- -- -- --
-- (160.0) -- -- -- -- -- --
-- -- -- (401.3) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
2,083.8 <F2> 1,632.9 <F3> 1,853.3 1,286.5 <F4> 1,704.5 1,631.0 1,519.7 1,280.6
(232.8) (225.9) (219.3) (205.1) (194.6) (234.0) (277.2) (172.9)
35.5 24.3 21.8 35.2 46.9 45.6 52.5 49.8
9.4 9.9 2.6 3.4 4.4 6.6 4.3 7.9
(3.0) 20.5 17.6 21.0 (2.5) 1.3 (16.5) 17.7
- ------------------------------------------------------------------------------------------------------------------------
1,892.9 <F2> 1,461.7 <F3> 1,676.0 1,141.0 <F4> 1,558.7 1,450.5 1,282.8 1,183.1
(736.8) (575.1) (661.5) (452.6) (594.6) (549.6) (481.4) (438.2)
-- -- -- (31.2) -- -- -- --
-- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
1,156.1 <F2> 886.6 <F3> 1,014.5 657.2 <F4> 964.1 900.9 801.4 744.9
33.8 (244.3) 17.6 (62.7) 30.1 38.9 41.0 22.3
- ------------------------------------------------------------------------------------------------------------------------
1,189.9 642.3 1,032.1 594.5 994.2 939.8 842.4 767.2
-- -- -- -- (76.7) <F1> -- -- --
- ------------------------------------------------------------------------------------------------------------------------
$ 1,189.9 $ 642.3 $ 1,032.1 $ 594.5 $ 917.5 $ 939.8 $ 842.4 $ 767.2
========================================================================================================================
$ 2.31 $ 1.73 $ 1.93 $ 1.20 $ 1.71 $ 1.59 $ 1.42 $ 1.32
.07 (.47) .04 (.11) .05 .06 .07 .04
- ------------------------------------------------------------------------------------------------------------------------
2.38 1.26 1.97 1.09 1.76 1.65 1.49 1.36
-- -- -- -- (.13) <F1> -- -- --
- ------------------------------------------------------------------------------------------------------------------------
$ 2.38 $ 1.26 $ 1.97 $ 1.09 $ 1.63 $ 1.65 $ 1.49 $ 1.36
========================================================================================================================
$ 2.27 <F2> $ 1.71 <F3> $ 1.90 $ 1.20 <F4> $ 1.68 $ 1.56 $ 1.40 $ 1.30
.07 (.47) .04 (.11) .05 .06 .07 .04
- ------------------------------------------------------------------------------------------------------------------------
2.34 1.24 1.94 1.09 1.73 1.62 1.47 1.34
-- -- -- -- (.13) <F1> -- -- --
- ------------------------------------------------------------------------------------------------------------------------
$ 2.34 $ 1.24 $ 1.94 $ 1.09 $ 1.60 $ 1.62 $ 1.47 $ 1.34
========================================================================================================================
$ 458.9 $ 429.5 $ 398.8 $ 370.0 $ 338.3 $ 301.1 $ 265.0 $ 226.2
.92 .84 .76 .68 .60 .53 .47 .40
499.1 510.9 524.6 544.3 563.7 568.0 563.7 565.5
510.6 524.4 538.0 558.6 581.6 585.8 579.4 572.4
- ------------------------------------------------------------------------------------------------------------------------
<FN>
<FNote 2:> 1996 results include the impact of the gain on the sale of the
St. Louis Cardinals. Excluding the Cardinal gain, operating income,
pretax income, income from continuing operations and diluted
earnings per share would have been $2,029.1 million, $1,838.2
million, $1,122.7 million and $2.21, respectively.
<FNote 3:> 1995 results include the impact of the one-time pretax charge of
$160 million for the closure of the Tampa brewery, and the $74.5
million pretax impact of the beer wholesaler inventory reduction.
Excluding these nonrecurring special items, operating income,
pretax income, income from continuing operations and diluted
earnings per share would have been $1,867.4 million, $1,696.2
million, $1,032.3 million and $1.99, respectively.
<FNote 4:> 1993 results include the impact of two nonrecurring special charges.
These charges are (1) a restructuring charge ($401.3 million,
pretax) and (2) a revaluation of the deferred tax liability due to
the 1% increase in federal tax rates ($31.2 million, after-tax).
Excluding these nonrecurring special charges, operating income,
pretax income, income from continuing operations and diluted
earnings per share would have been $1,687.8 million, $1,542.3
million, $935.2 million and $1.69, respectively.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 57
--
34
FINANCIAL SUMMARY -- BALANCE SHEET AND OTHER INFORMATION
Anheuser-Busch Companies and Subsidiaries
(In millions, except per share and statistical data) 1999 1998 1997
Balance Sheet Information:
Working capital (deficit) $ (386.6) $ (89.9) $ 83.2
Current ratio 0.8 0.9 1.1
Debt 5,122.9 4,718.6 4,365.6
Shareholders equity 3,921.5 4,216.0 4,041.8
Return on shareholders equity 34.5% 29.9% 29.2% <F1>
Debt to total capitalization ratio 56.6% 52.8% 51.9%
Book value per share 8.50 8.84 8.30
Total assets $12,640.4 12,484.3 11,727.1
Other Information:
Capital expenditures $ 865.3 $ 817.5 $ 1,199.3
Price/earnings ratio 24.1 25.9 18.6 <F1>
Market price range of common stock (high and low closing) 81-5/8-65-3/16 68-1/4-43-7/16 47-7/8-39-1/2
- ---------------------------------------------------------------------------------------------------------------------------------
All share and per share information reflects the September 12, 1996 two-for-one
stock split. All financial information has been restated to recognize the 1995
divestiture of the Food Products segment. All amounts include the acquisition
of SeaWorld as of December 1, 1989.
<FN>
<FNote 1:> These ratios have been calculated based on income from continuing
operations before the cumulative effect of accounting changes.
58 1999 Annual Report ANHEUSER-BUSCH COMPANIES
- --
35
1996 1995 1994 1993 1992 1991 1990 1989
$ 34.9 $ 268.6 $ 57.0 $ (41.3) $ 247.8 $ 107.9 $ (62.8) $ (82.8)
1.0 1.2 1.0 1.0 1.2 1.1 0.9 0.9
3,270.9 3,270.1 3,066.4 3,019.7 2,630.3 2,627.9 3,115.8 3,268.9
4,029.1 4,433.9 4,415.5 4,255.5 4,620.4 4,438.1 3,679.1 3,099.9
30.0% <F2> 25.0% <F3> 29.9% 18.8% <F4> 27.6% <F1> 30.2% 34.0% 34.6%
44.8% 47.1% 47.3% 47.3% 42.0% 43.9% 54.5% 60.7%
8.10 7.22 6.64 6.31 6.51 5.90 4.60 3.74
10,463.6 10,590.9 10,547.4 10,267.7 9,954.9 9,642.5 9,274.2 8,690.1
$ 1,084.6 $ 952.5 $ 662.8 $ 656.3 $ 628.8 $ 625.5 $ 805.3 $ 979.0
17.6 <F2> 19.6 <F3> 13.1 22.6 <F4> 16.9 <F1> 18.9 14.6 14.4
42-7/8-32-1/2 34-25-3/8 27-5/8-23-1/2 30-22 30-1/4-26 30-3/4-19-3/4 22-1/2-17-1/8 22-7/8-15-1/4
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
<FNote 2:> These ratios have been calculated based on reported income from
continuing operations, which includes the $54.7 million pretax gain
on the sale of the St. Louis Cardinals. Excluding the Cardinal gain,
return on shareholders equity would have been 29.2% and the
price/earnings ratio would have been 18.1.
<FNote 3:> These ratios have been calculated based on reported income from
continuing operations. Excluding the two nonrecurring 1995 items
($160 million pretax charge for closure of the Tampa brewery and
$74.5 million impact of the beer wholesaler inventory reduction),
return on shareholders equity would have been 29.1% and the price/
earnings ratio would have been 16.8.
<FNote 4:> These ratios have been calculated based on reported income from
continuing operations. Excluding the two nonrecurring 1993 charges
($401.3 million pretax restructuring charge and $31.2 million
after-tax FAS 109 charge), return on shareholders equity would have
been 26.7% and the price/earnings ratio would have been 13.8.
ANHEUSER-BUSCH COMPANIES 1999 Annual Report 59
--