Exhibit 13
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF OPERATIONS AND
FINANCIAL CONDITION
ANHEUSER-BUSCH COMPANIES AND SUBSIDIARIES
INTRODUCTION
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition, liquidity and cash
flows of Anheuser-Busch Companies, Inc. for the three-year period ended
December 31, 2003. 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 forward-looking statements regarding the
company's expectations concerning its future operations, earnings and
prospects. On the date the forward-looking statements are made, the
statements represent the company's expectations, but the company's
expectations concerning its future operations, earnings and prospects may
change. The company's expectations involve risks and uncertainties (both
favorable and unfavorable) and are based on many assumptions that the
company believes to be reasonable, but such assumptions may ultimately prove
to be inaccurate or incomplete, in whole or in part. Accordingly, there can
be no assurances that the company's expectations and the forward-looking
statements will be correct. Important factors that could cause actual
results to differ (favorably or unfavorably) from the expectations stated in
this discussion include, among others, changes in the pricing environment
for the company's products; changes in U.S. demand for malt beverage
products; changes in consumer preference for the company's malt beverage
products; regulatory or legislative changes, including changes in beer
excise taxes at either the federal or state level; changes in the litigation
to which the company is a party; changes in raw materials prices; changes in
packaging materials costs; changes in interest rates; changes in foreign
currency exchange rates; unusual weather conditions that could impact beer
consumption in the U.S.; changes in attendance and consumer spending
patterns for the company's theme park operations; changes in demand for
aluminum beverage containers; changes in the company's international beer
business or in the beer business of the company's international equity
partners; changes in the company's credit rating resulting from future
acquisitions or divestitures; and the effect of stock market conditions on
the company's share repurchase program. Anheuser-Busch disclaims any
obligation to update any of these forward-looking statements.
OBJECTIVES
Anheuser-Busch remains focused on its three core objectives designed to
enhance shareholder value:
o Increasing domestic beer segment volume and per barrel profitability
that, when combined with continued market share growth, will provide
the base for long-term double-digit earnings per share growth and
improvement in return on capital employed.
o Increasing international beer segment profit growth. The company has
made significant marketing investments to build recognition of the
Budweiser brands outside the United States and owns and operates
breweries in China and the United Kingdom. The company also has a 50%
equity position in Grupo Modelo, Mexico's largest brewer and producer
of the Corona brand; a 20% equity position in Compania Cervecerias
Unidas (CCU), the largest brewer in Chile; and a 9.9% equity position
in Tsingtao, the largest brewer in China and producer of the Tsingtao
brand, with an agreement to eventually acquire a 27% economic interest.
o Continued growth in profit and free cash flow in the packaging and
entertainment segments. Packaging operations provide significant
efficiencies, cost savings and quality assurance for domestic beer
operations. Entertainment operations enhance the company's corporate
image by showcasing Anheuser-Busch's heritage, values and commitment to
quality and social responsibility to approximately 20 million visitors
annually.
OPERATING RESULTS
Led by continued growth in both domestic and international beer operations,
Anheuser-Busch had another excellent year in 2003, selling 111 million
barrels of its beer brands worldwide and achieving its 21st consecutive
quarter of solid double-digit earnings per share growth in the fourth
quarter. The company's proven ability to leverage its substantial
competitive strengths has led to these consistently strong results. The beer
pricing environment remains favorable and the combination of revenue per
barrel growth and volume increases has driven continued increases in profit
margins and return on capital employed. For the full year 2003, gross margin
increased 20 basis points to 40.3%, while operating margin increased 60
basis points to 22.6%. Return on capital employed improved to 18.4%, an
increase of 90 basis points over the past 12 months.
Anheuser-Busch looks forward to 2004 with outstanding brands, solid
sales execution, a favorable industry pricing environment and a strong
financial position. The company remains confident in its ability to
consistently achieve its minimum double-digit earnings per share growth
objective over the long-term, and reiterates its previously stated 12%
earnings per share growth target for 2004.
26 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
Effective in the first quarter 2002, the company ceased amortizing
goodwill in accordance with FAS No. 142, "Goodwill and Other Intangible
Assets." The impact of goodwill amortization on 2001 net income and diluted
earnings per share was $35.8 million and $.04, respectively. Had goodwill
amortization ceased on January 1, 2001, net income for 2001 would have been
$1.74 billion and diluted earnings per share would have been $1.93.
Comparisons of key operating results for the last three years are
summarized in the following tables. As noted above, due to the adoption of
FAS 142, operating results for 2003 and 2002 do not reflect any goodwill
amortization expense. Per the requirements of FAS 142, Anheuser-Busch did
not restate the results of operations for 2001 or 2000 to exclude goodwill
amortization, so results for those years include the impact of goodwill
expense. The absence or presence of goodwill amortization expense in the
operating results for the years shown makes direct comparison between
operating results more difficult.
Therefore, for the clearest understanding of the company's operations,
the analysis of operating results for 2002 vs. 2001 is based on 2001 results
provided on a comparable basis, which exclude the impact of goodwill
amortization. Discussions of operating results for 2001 vs. 2000 are already
on a similar basis, as the results for both years include goodwill
amortization expense.
Comparison of Operating Results
Year Ended December 31 (in millions, except per share)
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2003 2002 2003 vs. 2002
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Gross sales $16,320 $15,687 up $633 up 4.0%
Net sales $14,147 $13,566 up $581 up 4.3%
Income before income taxes $ 2,824 $ 2,624 up $200 up 7.7%
Equity income, net of tax $ 345 $ 352 down $ 7 down 1.9%
Net income $ 2,076 $ 1,934 up $142 up 7.4%
Diluted earnings per share $ 2.48 $ 2.20 up $.28 up 12.7%
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2002 vs. 2001
------------------------
Reported Comparable
2002 2001 Basis Basis*
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Gross sales $15,687 $14,973 up 4.8% up 4.8%
Net sales $13,566 $12,912 up 5.1% up 5.1%
Income before income taxes $ 2,624 $ 2,378 up 10.3% up 9.6%
Equity income, net of tax $ 352 $ 254 up 38.3% up 28.2%
Net income $ 1,934 $ 1,705 up 13.4% up 11.1%
Diluted earnings per share $ 2.20 $ 1.89 up 16.4% up 14.0%
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<FN>
* Excludes goodwill amortization in 2001.
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2001 2000 2001 vs. 2000
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Gross sales $14,973 $14,534 up $439 up 3.0%
Net sales $12,912 $12,499 up $413 up 3.3%
Income before income taxes $ 2,378 $ 2,180 up $198 up 9.1%
Equity income, net of tax $ 254 $ 246 up $ 8 up 3.4%
Net income $ 1,705 $ 1,552 up $153 up 9.9%
Diluted earnings per share $ 1.89 $ 1.69 up $.20 up 11.8%
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Provided in the table below for informational purposes are certain 2001
operating measures presented on both an as-reported basis, which includes
goodwill amortization, and on the comparable basis used in the analysis of
2002 vs. 2001 performance throughout Management's Discussion and Analysis,
which excludes goodwill amortization.
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% Change 2002 vs. 2001
2001 2001 ------------------------------
Reported Comparable Reported Comparable
Basis Basis Basis Basis
- --------------------------------------------------------------------------------------------
Cost of sales $7,950.4 $7,938.9 up 2.3% up 2.4%
Gross profit $4,961.1 $4,972.6 up 9.6% up 9.3%
Gross profit margin 38.4% 38.5% up 1.7 pts. up 1.6 pts.
Marketing, distribution &
administrative expenses $2,255.9 $2,254.2 up 8.8% up 8.9%
Operating income $2,723.0 $2,736.2 up 9.4% up 8.9%
Operating profit margin 21.1% 21.2% up 0.9 pts. up 0.8 pts.
Operating profit margin
excluding gain on sale
of SeaWorld Cleveland -- 21.1% -- up 0.9 pts.
Income before income taxes $2,377.6 $2,393.5 up 10.3% up 9.6%
Domestic beer segment
income before income taxes $2,667.1 $2,671.7 up 9.5% up 9.3%
International beer segment
income before income taxes $ 54.4 $ 55.6 up 39.9% up 36.9%
Packaging segment income
before income taxes $ 107.5 $ 108.3 up 43.3% up 42.2%
Entertainment segment
income before income taxes $ 147.4 $ 141.6 up 3.8% up 8.0%
Equity income $ 254.4 $ 274.3 up 38.3% up 28.2%
Net income $1,704.5 $1,740.3 up 13.4% up 11.1%
Effective tax rate 39.0% 38.7% up 0.7 pts. up 1.0 pts.
Basic earnings per share $ 1.91 $ 1.95 up 16.8% up 14.4%
Diluted earnings per share $ 1.89 $ 1.93 up 16.4% up 14.0%
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SALES
Revenue per barrel reflects the net average sales price the company obtains
from wholesaler customers for its products. The higher the net revenue per
barrel, the greater the company's gross profit dollars and gross profit
margin, with revenue per barrel increases having nearly twice the impact on
profits as comparable percentage increases in beer volume. Revenue per
barrel is calculated as net sales generated by the company's domestic beer
operations on barrels of beer sold, determined on a U.S. GAAP basis, divided
by the volume of beer shipped from the company's breweries.
Anheuser-Busch strives to obtain price increases that approximate, or
are slightly less than, increases in the U.S. Consumer Price Index (CPI)
over time. On a constant dollar basis, beer is more affordable today than it
was 10 years ago, and the company believes its pricing strategy allows for
continuing future moderate price increases. The company also believes that
significant federal excise tax increases (which are not expected) could
disrupt the current favorable industry-pricing environment because it could
trigger retail beer price increases in excess of the CPI. The cost of these
increases would be borne directly by consumers.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 27
Anheuser-Busch's reported domestic sales volume is based on beer sales
to the company's network of independent wholesalers. Higher beer
sales-to-wholesalers volume will increase gross profit dollars and
potentially increase gross profit margin. Wholesaler sales-to-retailers
volume is a leading indicator of demand for the company's products at the
retail level. Higher wholesaler sales-to-retailers require increased beer
sales-to-wholesalers to meet ongoing demand.
In the fourth quarter of 2001, the company changed its presentation of
pass-through finished product delivery costs reimbursed by customers. The
company presents these items separately as sales and cost of sales. These
items were previously offset for zero impact within cost of sales. This
change in presentation had a minor impact on revenue and profit margins
growth, and had no impact on cash flows, operating income, net income and
earnings per share.
Worldwide Anheuser-Busch beer brands volume is composed of domestic
volume and international volume. Domestic volume represents Anheuser-Busch
brands produced and shipped within the United States. International volume
represents exports from the company's U.S. breweries, plus Anheuser-Busch
brands produced overseas by company-owned breweries in China and the United
Kingdom and under various license and contract-brewing agreements. Total
brands sales volume combines worldwide Anheuser-Busch brand volume with the
company's ownership percentage share of volume in its international equity
partners ... Grupo Modelo and CCU.
Worldwide Beer Volume
Total worldwide beer volume results for the three years ended December 31
are summarized in the following table (millions of barrels):
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2003 2002 Change
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Domestic 102.6 101.8 up 0.8%
International 8.4 8.0 up 5.0%
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Worldwide A-B brands 111.0 109.8 up 1.1%
International equity partner brands 18.8 18.1 up 4.0%
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Total brands 129.8 127.9 up 1.5%
======================================================= =====================
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2002 2001 Change
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Domestic 101.8 99.7 up 2.1%
International 8.0 7.5 up 5.4%
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Worldwide A-B brands 109.8 107.2 up 2.3%
International equity partner brands 18.1 17.2 up 5.3%
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Total brands 127.9 124.4 up 2.8%
======================================================= =====================
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2001 2000 Change
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Domestic 99.7 98.5 up 1.2%
International 7.5 7.1 up 5.6%
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Worldwide A-B brands 107.2 105.6 up 1.5%
International equity partner brands 17.2 15.7 up 9.7%(1)
- ------------------------------------------------------- ---------------------
Total brands 124.4 121.3 up 2.6%(1)
======================================================= =====================
<FN>
(1) Normalized to exclude incremental volume contributed by the 2001
acquisition of CCU, equity partner brands volume increased 4.9%, and total
brands volume increased 2.0%, for 2001 vs. 2000.
Sales*
(IN BILLIONS)
[graph]
Gross Sales Net Sales
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2003 $16.3 $14.1
2002 $15.7 $13.6
2001 $15.0 $12.9
2000 $14.5 $12.5
1999 $13.9 $11.9
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<FN>
*The difference between gross and net sales represents beer excise taxes.
Sales -- 2003 vs. 2002
Anheuser-Busch reported record gross sales of $16.3 billion and record net
sales of $14.1 billion in 2003, representing increases of 4%, or $633
million, and 4.3%, or $581 million, respectively, compared to 2002. The
increases in both gross and net sales were principally due to a $410
million, or 3.9% increase in domestic beer segment net sales resulting from
3.1% higher domestic revenue per barrel and a 0.8% increase in beer sales
volume. The increase in revenue per barrel generated $324 million in net
sales improvement and beer volume gains contributed $86 million of the
increase.
In addition to domestic beer sales increases, international beer net
sales increased $55 million, primarily due to volume growth in China and
Canada, packaging segment sales increased $30 million due to higher can
pricing, and entertainment sales increased $65 million on increased ticket
prices, higher in-park spending and slightly higher attendance in 2003. The
difference between gross and net sales represents beer excise taxes of $2.2
billion.
Reflecting the continuing strong pricing environment, domestic revenue
per barrel grew 3.1% for 2003 and enhanced gross and operating profit
margins. For the full year 2003, gross margin increased 20 basis points to
40.3%, while operating margin increased 60 basis points to 22.6%. Return on
capital employed improved to 18.4%, an increase of 90 basis points over the
past 12 months. Consumers trading up to the super premium Michelob family
enhanced the company's revenue per barrel results.
Consistent with the company's practice of implementing moderate annual
price increases in two phases, Anheuser-Busch completed the first stage of
its pricing plan for 2004 in October 2003, in markets representing
approximately 40% of the company's domestic volume. These pricing actions
were again very successful, as reflected in the company's strong fourth
quarter revenue per barrel performance. As planned, the company began
implementing the second stage of 2004 pricing initiatives earlier this year
on just over 25% of domestic volume. As in the past, these revenue
enhancement initiatives are being tailored to specific markets, brands and
packages.
28 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
Domestic beer sales-to-wholesalers volume increased 0.8%, to 102.6
million barrels for 2003. These results are due to the outstanding success
of the new Michelob ULTRA low-carbohydrate brand and increased Bud Light
sales volume. Bud Light also continued to grow its share of the premium
light beer category in 2003. Wholesaler sales-to-retailers volume
accelerated through the second half of 2003, increasing 1.7% in the fourth
quarter, and was up 0.9% for the year.
Worldwide Anheuser-Busch beer sales volume increased 1.1% for the year
to 111.0 million barrels and total volume increased 1.5%, to 129.8 million
barrels. International Anheuser-Busch brand beer volume for the year was up
5% vs. 2002, to 8.4 million barrels, principally due to increased beer
volume in China.
The company's domestic market share (excluding exports) for the full
year 2003 was approximately 50%, compared to 49% for the same period in
2002. Domestic market share is based on estimated beer industry sales using
information provided by the Beer Institute and the U.S. Department of
Commerce. The company has led the U.S. brewing industry in sales volume and
market share since 1957.
Sales -- 2002 vs. 2001
Anheuser-Busch achieved gross sales of $15.7 billion and net sales of $13.6
billion in 2002, representing increases of 4.8%, or $714 million, and 5.1%,
or $655 million, respectively, compared to 2001. The increases in gross and
net sales were principally due to a $570 million, or 5.7% increase in
domestic beer segment net sales resulting from higher domestic revenue per
barrel and higher domestic beer sales volume. Revenue per barrel generated
$354 million in net sales improvement, while higher beer volume contributed
$216 million of the increase.
International beer net sales increased $43 million, primarily due to
volume growth in China. Packaging segment net sales were up $24 million due
to higher soft drink can prices and increased volume. Entertainment segment
net sales increased $11 million due to higher ticket prices and increased
in-park spending, partially offset by slightly lower attendance. The
difference between gross and net sales represents beer excise taxes of $2.12
billion.
Domestic beer revenue per barrel grew 3.5% for 2002, reflecting a
favorable domestic pricing environment, and the introductions of Michelob
ULTRA and Bacardi Silver. Excluding favorable mix, domestic revenue per
barrel increased 2.8% for the year. The increases in revenue per barrel
enhanced both gross and operating profit margins, which improved 160 basis
points and 80 basis points, respectively, in 2002 vs. the prior year.
Domestic beer sales-to-wholesalers volume increased 2.1% vs. 2001, to
101.8 million barrels. This increase was led by Bud family sales, as well as
the successful introductions of Bacardi Silver and Michelob ULTRA.
Wholesaler inventories at December 31, 2002 were essentially the same as
inventory levels at the end of 2001. Wholesaler sales-to-retailers volume
was up 1.6% for the year. The company's domestic market share for 2002
(excluding exports) was 49.2% vs. 2001 market share of 48.7%.
Worldwide Anheuser-Busch beer sales volume increased 2.3% in 2002, to
109.8 million barrels. Total beer sales volume was 127.9 million barrels in
2002, up 2.8% vs. 2001. International Anheuser-Busch brand beer volume for
2002 was 8.0 million barrels, an increase of 5.4% vs. 2001. During 2002, the
company's three largest markets outside the U.S. -- Canada, China and the
United Kingdom -- all experienced volume growth.
Sales -- 2001 vs. 2000
Anheuser-Busch reported gross sales of $15.0 billion and net sales of $12.9
billion in 2001, representing increases of 3.0%, or $439 million, and 3.3%,
or $413 million, respectively, compared to 2000. The increases in gross and
net sales were principally due to a $429 million, or 4.5% increase in
domestic beer segment net sales resulting from higher domestic revenue per
barrel and a 1.2% increase in domestic beer sales volume. Revenue per barrel
generated $298 million in net sales improvement, while higher beer volume
contributed $131 million of the increase. Gross and net sales also benefited
from sales increases from the international beer and entertainment segments.
The difference between gross and net sales represents beer excise taxes of
$2.06 billion.
Domestic revenue per barrel grew 3.0% for 2001, reflecting a favorable
pricing environment. Gross and operating profit margins increased 100 and
110 basis points for the year, respectively, compared to 2000.
Domestic beer sales-to-wholesalers volume increased 1.2% for 2001, to
99.7 million barrels, compared to prior year. Wholesaler sales-to-retailers
grew 1.8% for the full year 2001. The Bud family, especially Bud Light, led
the increases in sales to both wholesalers and to retailers. The company's
domestic market share (excluding exports) for 2001 was 48.7%, compared to
market share of 48.5% in 2000.
Worldwide Anheuser-Busch brand sales volume for 2001 grew 1.5%, to
107.2 million barrels, compared to full year 2000. Total brands sales volume
was 124.4 million barrels for the year, up 2.6%. International beer volume,
excluding Modelo and CCU, grew 5.6% for the full year, to 7.5 million
barrels, due primarily to solid volume growth in Canada and China.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 29
COST OF SALES
The company continuously strives to reduce costs throughout its system.
Brewery modernizations have yielded long-term savings through reduced beer
packaging and shipping costs and reduced maintenance costs. The company's
focused production methods and wholesaler support distribution centers
concentrate small-volume brand and package production at three breweries to
create production efficiencies, reduce costs and enhance responsiveness to
changing consumer brand and package preferences. The company also works to
reduce distribution costs through better systemwide coordination with its
network of independent wholesalers.
Cost of sales was $8.4 billion in 2003, an increase of $318 million, or
3.9%, compared to 2002. The increase is due to higher costs in the domestic
beer segment, attributable to costs associated with higher beer sales
volume, higher production costs primarily resulting from increased brewing
and packaging materials and utilities costs. Brewing and packaging materials
costs and utilities were higher in the second half of the year than
experienced in the first half of the year. Cost of sales for international
beer operations also increased due to costs associated with increased beer
volume, while theme park and packaging operations and the company's
commodity recycling business all experienced increased cost of sales. Gross
profit as a percentage of net sales was 40.3% for the year, an increase of
20 basis points versus 2002.
Cost of sales was $8.13 billion in 2002, an increase of $192 million,
or 2.4% vs. 2001. The increase in 2002 was due primarily to higher domestic
beer segment costs, driven by costs associated with higher beer volume of
$78 million, partially offset by lower brewing materials, aluminum and
energy costs. Cost of sales also increased in the international beer
segment, due to costs associated with increased beer volume, and in the
packaging and entertainment businesses. Gross profit as a percentage of
sales was 40.1%, an increase of 160 basis points vs. 2001, reflecting higher
domestic beer margins generated by improved pricing and favorable costs.
Cost of sales for 2001 was $7.95 billion, an increase of 1.5%, or $121
million compared to 2000. The increase is principally due to increased costs
for the domestic beer segment, including costs of $44 million associated
with higher domestic beer volume, higher energy costs and increased
packaging material costs that reflect the impact of start-up costs related
to the company's bottle manufacturing operation in Houston, Texas. Gross
profit as a percentage of net sales was 38.4% for 2001, an increase of 100
basis points compared to 2000 and principally reflected higher domestic beer
margins.
MARKETING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES
Advertising and promotional activities for its beer brands and theme park
operations are important elements of Anheuser-Busch's strategy, and
represent significant annual expenditures. The company employs a variety of
national, regional and local media outlets in its promotional efforts,
including television, radio, print and outdoor advertising and event
sponsorships.
Marketing, distribution and administrative expenses for 2003 were $2.50
billion, an increase of $43 million, or 1.7% compared with 2002. This
increase is principally due to marketing costs related to Michelob ULTRA,
increased company-owned wholesale beer distribution costs, higher
international beer marketing costs in Europe and China, and increased theme
park advertising costs. Partially offsetting these increases were lower
domestic beer segment legal costs and reduced administrative expenses for
the entertainment segment.
Marketing, distribution and administrative expenses of $2.46 billion in
2002 represent an increase of $201 million vs. 2001 expenses, or 8.9%. The
increase is due to higher domestic beer marketing costs for the Bud and
Michelob families, introductory costs and ongoing support for Michelob ULTRA
and Bacardi Silver, increased distribution costs due to the acquisition of a
beer wholesaler in California, higher litigation costs and a $20 million
contribution to the company's charitable foundation.
Marketing, distribution and administrative expenses for 2001 were $2.26
billion, an increase of 3.7%, or $81 million vs. 2000. The increase in these
expenses in 2001 was principally due to higher domestic beer marketing
costs, higher distribution costs related to the acquisition of a wholesaler
in California and higher administrative costs.
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 increased $219 million, or 7.4% in 2003, to $3.2
billion. Operating margin for the year was 22.6%, an increase of 60 basis
points vs. 2002.
Operating income was $2.98 billion in 2002, an increase of $244
million, or 8.9%, vs. 2001. In 2001, the company had operating income of
$2.72 billion, representing a 9.2%, or $228 million, increase over 2000
operating income of $2.49 billion. Operating margin for 2002 was 22.0%, an
increase of 80 basis points vs. 2001. Operating margin in 2001 was 21.1%, a
110 basis point increase over the 2000 margin of 20.0%. Excluding the impact
of the $17.8 million gain on the sale of SeaWorld Cleveland recorded in the
first quarter 2001, operating margin for 2002 and 2001 increased 90 and 100
basis points, respectively.
30 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
Increases in operating income and margins for 2003, 2002 and 2001 are
due to higher domestic beer revenue per barrel, increased beer volume and
improved operating results from all business segments.
INTEREST EXPENSE LESS INTEREST INCOME
Interest expense less interest income was $399.8 million for 2003, $367.4
million for 2002 and $360.1 million for 2001, representing increases of
8.8%, 2.0% and 3.7%, respectively, compared to prior years. These increases
primarily result from higher average outstanding debt balances compared to
prior years, partially offset by lower interest rates for all three years.
See the Liquidity and Financial Condition section of this discussion for
additional information regarding the company's leverage philosophy and
specific changes in the company's debt portfolio.
INTEREST CAPITALIZED
Interest capitalized was $24.4 million in 2003, $17.7 million in 2002 and
$26.9 million in 2001. The amount of interest capitalized fluctuates
depending on construction-in-progress balances, which are impacted by the
amount and timing of capital spending, the timing of project completion
dates and by market interest rates. Compared to prior years, capital
spending increased in 2003, declined in 2002 and was essentially flat in
2001. The increase in 2003 and the decrease in 2002 are primarily due to the
deferral of 2002 spending into 2003. As noted in the interest expense
discussion above, interest rates have generally declined for the last three
years.
OTHER INCOME/EXPENSE, NET
Other income/expense, net includes earnings from the company's limited
partnership equity investments in beer wholesalers, in addition to other
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 income of $400,000 in 2003, and net other
expense of $6.4 million in 2002 and $12.2 million in 2001. In 2003, the
company recognized a $6 million gain from the sale of a company-owned beer
wholesalership in Washington state, and also incurred offsetting amounts
related to expenses associated with the early call of higher interest rate
debt and a gain from the receipt of proceeds from an insurance company.
Income Before Income Taxes
(IN MILLIONS)
[graph]
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2003 $2,824.3
2002 $2,623.6
2001 $2,377.6
2000 $2,179.9
1999 $2,007.6
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INCOME BEFORE INCOME TAXES
Income before income taxes was $2.8 billion in 2003, an increase of $200
million, or 7.7%, vs. 2002. Income before income taxes was $2.62 billion in
2002 and $2.38 billion in 2001, representing increases of $230 million, or
9.6%, and $198 million, or 9.1%, respectively, vs. prior years. Excluding
the impact of the gain on the SeaWorld Cleveland sale in 2001, which better
reflects ongoing operations, pretax income increased 10.4% in 2002 and 8.3%
in 2001.
2003 vs. 2002
The increase in pretax income for 2003 is primarily due
to increased domestic beer segment pretax results, along with improved
profit contribution from all of the company's remaining business segments.
Domestic beer segment pretax income was up 6.8%, reflecting higher revenue
per barrel and increased beer volume. International beer segment pretax
income increased 19%, primarily due to volume and profit growth in China.
Packaging segment pretax profits were up 1% in 2003, primarily due to
improved profits in the company's can, bottle and label manufacturing
operations. Entertainment segment operating profits increased 6.4% compared
to 2002, primarily due to higher admissions pricing and increased in-park
spending.
2002 vs. 2001
Domestic beer pretax income for the year was up 9.3%, to $2.92 billion,
reflecting higher revenue per barrel and increased beer volume.
International beer segment pretax income increased 37% for 2002, primarily
due to volume and profit growth in China. Packaging segment retax profits
were up 42%, primarily due to higher soft drink can prices and volume, along
with a profit contribution from the company's bottle manufacturing operation
in 2002 compared to a loss in the 2001 start-up year. Entertainment segment
pretax profits for the year were up 8% compared to 2001, excluding the $17.8
million gain on the sale of the company's SeaWorld Cleveland theme park in
2001.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 31
2001 vs. 2000
Domestic beer income before income taxes for 2001 was $2.67 billion, an
increase of $185 million, or 7.5% vs. 2000. This increase is due to higher
revenue per barrel and increased beer sales volume. Pretax profit for
international beer increased 86% for 2001 due to volume gains in China and
Canada, along with contributions from the United Kingdom and Ireland. Income
before income taxes for the packaging segment was up 6% for the year,
reflecting reduced manufacturing costs partially offset by lower soft drink
can pricing and the impact of start-up costs related to the company's bottle
manufacturing operation. To indicate underlying operating results only, this
comparison excludes an unfavorable adjustment related to the company's label
manufacturing business in 2000. Reported-basis pretax results for the
packaging segment increased 22% in 2001. Entertainment segment pretax
profits for 2001 increased 14% vs. the prior year primarily due to increased
attendance, increased in-park spending and a full year of Discovery Cove
operations in 2001 vs. a partial year in 2000. To indicate underlying
operating results only, these results exclude the impact of SeaWorld
Cleveland operating results and related gain on the sale of the park.
Including SeaWorld Cleveland, income before income taxes for the segment
increased 29%.
EQUITY INCOME, NET OF TAX
Equity income of $344.9 million in 2003 decreased $7 million vs. 2002,
primarily due to the $17 million one-time deferred income tax benefit
included in 2002 Modelo equity income, partially offset by a $6.5 million
charge in 2002 related to a brewery operation restructuring. The deferred
tax benefit, which resulted from lower Mexican statutory income tax rates
enacted in the first quarter of 2002, was largely offset by higher U.S.
deferred income taxes included in the 2002 consolidated income tax
provision. Equity income growth from Modelo for 2003 was also dampened by
lower export volume growth, Modelo not raising prices in 2003 and a weaker
peso. Anheuser-Busch's equity share of CCU earnings for the full year
benefited by a $5.5 million after tax gain from the sale of a brewery in
Croatia.
Equity income increased 28.2%, to $351.7 million for 2002 vs. 2001.
Equity income of $254.4 million in 2001 represents a 3.4% increase compared
to 2000 equity income of $246.0 million. The increases in equity income in
2002 and 2001 are primarily due to Modelo's underlying volume and earnings
growth. Excluding the impact of the Modelo tax rate benefit and brewery
restructuring charge, equity income on a comparable basis increased 24% in
2002.
INCOME TAXES
The company's effective tax rate of 38.7% in 2003 decreased 100 basis points
vs. the 39.7% rate in 2002, and was level with the comparable basis rate of
38.7% in 2001. The decrease stems from an unusually high effective tax rate
in 2002 due to the U.S. deferred income tax expense offset to the Mexican
income tax rate benefit that was included in equity income and a more
favorable foreign tax credit position in 2003.
The effective tax rate in 2002 was 100 basis points higher than 2001 on
a comparable basis, due to the Modelo deferred tax impact discussed
previously and higher foreign taxes, partially offset by the write-off in
2001 of goodwill associated with the sale of SeaWorld Cleveland.
The reported effective tax rates in 2001 and 2000 were 39.0% and 40.1%,
respectively. The decrease in 2001 was primarily due to lower foreign taxes
partially offset by the write-off of SeaWorld Cleveland goodwill.
In the first quarter 2002, the company began presenting U.S. income
taxes relating to foreign equity investment dividends in the consolidated
income tax provision. The company previously presented these taxes in equity
income. This change in presentation has no impact on net income, earnings
per share or cash flows. For comparability, 2001 information was recast to
conform to the 2002 presentation.
In 2003, the Internal Revenue Service completed its review of the
company's federal tax returns for the years 1999 - 2001. The results of the
IRS review did not have a material impact on Anheuser-Busch's results of
operations, financial position or cash flows.
NET INCOME
Anheuser-Busch net income for 2003 was $2.1 billion, an increase vs. 2002 of
$142 million, or 7.4%. The company earned net income of $1.93 billion in
2002, an increase of $193 million, or 11.1% over 2001. Net income was $1.70
billion in 2001, an increase of 9.9%, vs. 2000 net income of $1.55 billion.
Diluted Earnings Per Share*
[graph]
- ------------------------------------------------------------------------------
2003 $2.48
2002 $2.20
2001 $1.89
2000 $1.69
1999 $1.47
- ------------------------------------------------------------------------------
<FN>
*On a comparable basis, which excludes goodwill amortization, diluted earnings
per share for 2001, 2000 and 1999 would have been $1.93, $1.72 and $1.50,
respectively.
32 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
DILUTED EARNINGS PER SHARE
Diluted earnings per share were $2.48 in 2003, an increase of 12.7%, or $.28
compared to 2002 results. Diluted earnings per share were $2.20 for 2002, an
increase of $.27 per share, or 14%, vs. 2001. Diluted earnings per share of
$1.89 for 2001 represent an increase of 11.8% over 2000 earnings per share.
Diluted earnings per share benefit from the company's ongoing share
repurchase program. The company repurchased 39.4 million common shares in
2003, 40.7 million shares in 2002 and 28.2 million shares in 2001. Diluted
earnings per share for 2002 include a two-thirds cent negative impact from
Modelo's brewery restructuring, while the amount reported for 2001 includes
a one-half cent benefit from the sale of SeaWorld Cleveland.
EMPLOYEE-RELATED COSTS
Employee-related costs were $2.19 billion in 2003, an increase of 6.0% vs.
2002 costs. Employee-related costs totaled $2.07 billion in 2002, an
increase of 4.2% vs. 2001 costs of $1.98 billion, which had increased 3.6%
vs. 2000. The changes in employee-related costs primarily reflect normal
increases in salaries, wages and benefit levels. Salaries and wages comprise
the majority of employee-related costs and totaled $1.68 billion in 2003,
$1.63 billion in 2002 and $1.61 billion in 2001, representing increases vs.
prior year of 2.8%, 1.7% and 1.8%, respectively. The remainder of
employee-related costs consists of pension benefits, life insurance, health
care benefits and payroll taxes.
The company had 23,316 full-time employees at December 31, 2003.
Full-time employees numbered 23,176 and 23,432 at the end of 2002 and 2001,
respectively.
Employee-Related Costs
(IN MILLIONS)
[graph]
- ------------------------------------------------------------------------------
2003 $2,189.0
2002 $2,065.8
2001 $1,983.5
2000 $1,915.3
1999 $1,877.0
- ------------------------------------------------------------------------------
OTHER TAXES
In addition to income taxes, the company is significantly impacted by other
federal, state and local taxes, most notably beer excise taxes. Taxes
related to 2003 operations, not including the many indirect taxes included
in materials and services purchased, totaled $3.52 billion, an increase of
3.4% vs. total taxes paid in 2002 of $3.41 billion. These amounts highlight
the burden of taxation on the company and the brewing industry in general.
Taxes paid in 2002 increased 5.8% compared to total taxes in 2001 of $3.22
billion.
Proposals to increase excise taxes on beer are addressed by the company
and the brewing industry every year, and there has been added pressure
recently to increase taxes to help offset state budget deficits.
Anheuser-Busch understands spending cuts or temporary tax increases may be
necessary for states to address budget concerns; however, the company
believes states should accomplish this objective in the most efficient and
least harmful way possible. The company does not believe excise taxes, which
are regressive and primarily burden working men and women, are the solution.
To ensure its views on this important matter are known, company and industry
representatives meet proactively on an ongoing basis with legislators and
administration officials from various states to present arguments against
increases in beer excise taxes.
RETURN ON CAPITAL EMPLOYED
Value for shareholders is created when companies earn rates of return in
excess of their cost of capital. Anheuser-Busch views the rate of return on
capital employed to be a key performance measure because it gauges how
efficiently the company is deploying its capital assets. Also, increases in
the rate are often considered by the investment community to be a strong
driver of stock price, especially in conjunction with earnings per share
growth.
Return on capital employed for 2003 was 18.4%, an increase of 90 basis
points over the 2002 rate of 17.5%. Return on capital employed is computed
as net income for the year plus after-tax net interest (interest expense
less interest capitalized), divided by average net investment. Net
investment is defined as total assets less non-debt current liabilities. For
2003, after-tax net interest expense was $234 million, calculated as pretax
net interest expense of $377 million less income taxes applied using a 38%
tax rate. For 2002, after-tax net interest expense was $218 million,
calculated as pretax net interest expense of $351 million less income taxes
applied at 38%. The return on capital employed ratio measures after-tax
performance, therefore the company must tax-effect net interest cost in the
computation for consistency.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 33
LIQUIDITY AND FINANCIAL CONDITION
Anheuser-Busch's strong financial position allows it to pursue its growth
strategies while providing substantial direct returns to shareholders.
Accordingly, the company has established well-defined priorities for its
available cash:
o Reinvest in core businesses to achieve profitable growth. To enhance
shareholder value, the company will continue to make investments to
improve efficiency and add capacity as needed in its existing
operations, and intends to make selected equity investments in leading
international brewers in higher-growth beer markets.
o Make substantial cash payments directly to shareholders through
consistent dividend growth and the repurchase of common shares. The
company has paid cash dividends in each of the last 70 years, and has
repurchased approximately 3% of outstanding shares annually for over 10
years. In July 2003, Anheuser-Busch announced a change in the company's
dividend policy in reaction to the reduction in the federal tax rate on
corporate dividends enacted earlier in the year. It is the company's
intent to increase dividends per share in line with the company's
earnings per share growth, vs. a prior policy of increasing dividends
per share somewhat less than the growth in earnings per share.
The company considers its ratio of cash flow to total debt to be the
most important measure of ongoing liquidity, and currently targets a ratio
toward the upper end of the 30% to 40% range, in order to maintain its
strong credit ratings of A1 and A+, from Moody's and Standard & Poor's,
respectively. Based on its specific financial position and risk tolerance,
Anheuser-Busch believes a strong Single A rating strikes the best balance
between a low cost-of-capital and maintaining adequate financial
flexibility. The company's ratio of cash flow to total debt was 40.3% in
2003, 39.7% in 2002 and 38.8% in 2001.
Ratio of Cash Flow To Total Debt
[graph]
- ------------------------------------------------------------------------------
2003 40.3%
2002 39.7%
2001 38.8%
2000 41.6%
1999 41.8%
- ------------------------------------------------------------------------------
Sources and Uses of Cash
The company's primary source of liquidity is cash provided by operations.
Principal uses of cash are capital expenditures, share repurchases,
dividends and business investments. Information on the company's
consolidated cash flows for the years 2003, 2002 and 2001 is presented in
the consolidated statement of cash flows (categorized by operating
activities, financing activities and investing activities) and in the
business segments information in Note 15.
Cash generated by each of the company's business segments is projected
to exceed funding requirements for that segment's anticipated capital
expenditures. However, corporate spending on dividend payments and share
repurchases, plus possible additional investments in international brewers,
will require external financing while the company maintains its target cash
flow to total debt ratio. The nature, extent and timing of external
financing will vary depending on the company's evaluation of existing market
conditions and other economic factors. The company uses its share repurchase
program to manage its leverage position, and typically operates at a working
capital deficit as it manages its cash flows. The company had working
capital deficits of $227 million, $283 million and $186 million at December
31, 2003, 2002 and 2001, respectively.
The company made accelerated contributions to its pension plans
totaling $75 million and $201 million, respectively, in the fourth quarters
of 2003 and 2002. Projections indicated Anheuser-Busch would have been
required to contribute these amounts between 2003 and 2005, but chose
instead to make the contributions early in order to enhance the funded
status of the plans.
Operating Cash Flow Before Change In Working Capital
(IN MILLIONS)
[graph]
- ------------------------------------------------------------------------------
2003 $2,938.3
2002 $2,624.3
2001 $2,316.0
2000 $2,230.0
1999 $2,141.6
- ------------------------------------------------------------------------------
Off-Balance-Sheet Obligations, Commitments and Contingencies
Anheuser-Busch has a long history of paying dividends and expects to
continue paying dividends each year. The company also has an active common
share repurchase program and anticipates continued share repurchase in the
future. However, Anheuser-Busch has no commitments or obligations related to
dividends, or for the repurchase or pledging of common shares. The company
has no off-balance-sheet obligations or guarantees and does not use special
purpose entities for any transactions.
34 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
The 9% debentures due 2009 and the ESOP debt guarantee that expires in
March 2004 (both of which are included in debt on the consolidated balance
sheet) permit holders to require repayment of the debt prior to its maturity
after a decline in the company's credit rating below investment grade. In
the case of the 9% debentures, the credit downgrade must be preceded by a
change in control. The total outstanding balance for this debt at December
31, 2003 is $396 million.
The 5.35% notes due 2023 permit beneficiaries of deceased note owners
to require repayment of the debt at any time prior to maturity, subject to
an annual limit of $25,000 per decedent and a cap on aggregate redemptions
of $3.6 million per year. The company redeemed $130,000 of these notes in
2003.
The company has occasionally provided short-term, small-scale loan
guarantees for beer wholesalers to assist them in obtaining long-term bank
financing. The duration of these guarantees varies. At December 31, 2003 and
2002, there were no guarantees outstanding and no guarantees were provided
during either year.
The company's fixed charge coverage ratio was 7.8X, 7.6X and 7.0X for
the years ended December 31, 2003, 2002 and 2001, respectively. See Note 12
for details of the company's future cash commitments.
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 financial measure of acceptability
for a discretionary capital project is whether its projected discounted cash
flow return on investment exceeds the company's cost of capital.
Total capital expenditures amounted to $993 million in 2003, $835
million in 2002 and $1.0 billion in 2001. The increase in 2003 and the
decline in 2002 are both primarily attributable to the deferral of spending
in 2002. Capital expenditures over the past five years totaled $4.8 billion.
The company expects capital expenditures in 2004 of approximately $900
million to $1 billion and is projecting capital spending during the
five-year period 2004 - 2008 of approximately $4.6 billion.
Capital Expenditures/Depreciation & Amortization
(IN MILLIONS)
[graph]
Capital Expenditures Depreciation & Amortization
- ------------------------------------------------------------------------------
2003 $993.0 $877.2
2002 $834.7 $847.3
2001 $1,022.0 $834.5
2000 $1,074.5 $803.5
1999 $865.3 $777.0
- ------------------------------------------------------------------------------
Share Repurchase
The company spent $1.96 billion, $2.0 billion and $1.2 billion to repurchase
common shares in 2003, 2002 and 2001, respectively. From an economic
perspective, the company's share repurchase program represents an effective
cash flow and opportunity cost offset to stock option grants, because the
market value increase of repurchased shares directly offsets the increase in
the in-the-money value of outstanding options. Anheuser-Busch has
historically repurchased significantly more shares each year than it has
issued under stock option plans, with average net repurchases of 2% to 3% of
outstanding shares each year. Additionally, assuming the company borrows
each year to repurchase shares, the cash flow benefit the company receives
related to the tax treatment of exercised stock options has historically
exceeded the related interest cost. See Note 7 for details of common stock
activity.
Dividends
Cash dividends paid to shareholders were $685.4 million in 2003, $649.5
million in 2002 and $614.1 million in 2001. Dividends are paid in the months
of March, June, September and December of each year. In the third quarter
2003, effective with the September dividend, the Board of Directors
increased the quarterly dividend rate by 12.8%, from $.195 to $.22 per
share. This increased annual dividends per share to $.83 in 2003, a 10.7%
increase compared with $.75 per share in 2002. Dividends were $.18 per share
for the first two quarters and $.195 per share for the last two quarters of
2002, representing an annual increase vs. 2001 of 8.7%. In 2001, dividends
were $.165 per share for the first two quarters and $.18 per share for the
last two quarters.
Net Income/Dividends
(IN MILLIONS)
[graph]
Net Income Dividends
- ------------------------------------------------------------------------------
2003 $2,075.9 $685.4
2002 $1,933.8 $649.5
2001 $1,704.5 $614.1
2000 $1,551.6 $571.0
1999 $1,402.2 $544.7
- ------------------------------------------------------------------------------
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 35
Financing Activities
The company utilizes SEC shelf registration statements to provide
flexibility and efficiency when obtaining long-term financing. At December
31, 2003, a total of $1.1 billion of debt was available for issuance under
an existing registration.
The company's debt balance increased a total of $682.2 million in 2003,
compared to a total increase of $619.3 million in 2002. Debt issuances of
$1.39 billion and $1.17 billion in 2003 and 2002, respectively, are detailed
below.
- ----------------------------------------------------------------------------------------
Amount
Year Description (millions) Interest Rate (fixed unless noted)
- ----------------------------------------------------------------------------------------
2003 U.S. Dollar Notes $1,273.7 $397.7 at 5.05%; $299.2 at
4.95%; $198.0 at 4.5%; $198.9
at 4.625%; $179.9 at 5.35%
Commercial Paper $ 113.5 1.08% weighted average
floating
Industrial Revenue Bonds $ 0.7 6.25%
Other, net $ 4.0 Various
- ----------------------------------------------------------------------------------------
2002 U.S. Dollar Debentures $ 843.9 $297.9 at 5.95%; $546.0 at 6.5%
U.S. Dollar Notes $ 299.1 4.375%
Industrial Revenue Bonds $ 8.8 6.11% weighted average
Other, net $ 15.3 Various
- ----------------------------------------------------------------------------------------
Debt reductions totaled $709.7 million and $547.8 million,
respectively, during 2003 and 2002, as shown below.
- ----------------------------------------------------------------------------------------
Amount
Year Description (millions) Interest Rate (fixed unless noted)
- ----------------------------------------------------------------------------------------
2003 U.S. Dollar Notes $450.0 6.75%
U.S. Dollar Debentures $200.0 7.375%
ESOP Note $ 44.0 8.25%
Other, net $ 15.7 Various
- ----------------------------------------------------------------------------------------
2002 U.S. Dollar Notes $300.0 $200.0 at 6.75%; $100.0 at 7.0%
Commercial Paper $187.3 1.98% weighted average floating
ESOP Note $ 41.9 8.25%
Other, net $ 18.6 Various
- ----------------------------------------------------------------------------------------
In addition to long-term debt, Anheuser-Busch issues commercial paper as
a source of shorter-term financing. Commercial paper borrowings generally
fluctuate in conjunction with the seasonality of operations and the timing
of long-term financing issuance, with the company experiencing its strongest
cash flows in the second and third quarters of the year, and relatively
lower cash flows in the first and fourth quarters. Peak levels of commercial
paper borrowing occurred in April in both 2003 and 2002, at $694 million and
$726 million, respectively. During portions of June 2003 and October,
November and December of 2002, the company had zero commercial paper
borrowing. Average outstanding commercial paper balances were $373 million
during 2003 and $336 million during 2002.
The company has additional access to the short-term credit markets
through its committed $2 billion syndicated revolving bank credit agreement
that expires in 2008. The credit agreement provides the company with an
immediate and continuing source of liquidity.
See Note 4 for additional information.
Common Stock
At December 31, 2003, registered common stock shareholders numbered 56,094
compared with 57,259 at the end of 2002. The company's common stock is
listed on the New York Stock Exchange under the symbol BUD. The closing
price of the company's common stock at December 31, 2003 and 2002 was $52.68
and $48.40, respectively. Comparative 2003 and 2002 high and low quarterly
closing prices for BUD are provided in the following table.
Price Range of Anheuser-Busch Common Stock (BUD)
- --------------------------------------------------------------
2003 2002
- ------------------------------------ -------------------
Quarter High Low High Low
- ------------------------------------ -------------------
First 50.27 45.92 52.73 45.24
Second 53.69 46.45 53.95 49.10
Third 52.29 49.34 54.08 44.00
Fourth 52.90 48.69 54.97 47.70
- --------------------------------------------------------------
CRITICAL ACCOUNTING POLICIES
The SEC has defined a critical accounting policy as a policy for which there
is a choice among alternatives available under U.S. generally accepted
accounting principles (GAAP), and for which choosing a legitimate
alternative would yield materially different results. Outlined below are
accounting policies Anheuser-Busch believes are key to a full understanding
of the company's operations and financial results. All the company's
accounting policies are in compliance with U.S. GAAP.
Revenue Recognition
The company's revenue recognition policies are simple, straightforward and
comply with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements." The company recognizes revenue only when title
transfers or services have been rendered to unaffiliated customers, based on
negotiated arrangements and normal industry practices. As such, alternative
recognition and accounting methods are not available to the company.
Equity Method Accounting
Anheuser-Busch applies the equity method of accounting whenever it can exert
significant influence on an investee company, typically 20% to 50% owned
investments. Equity accounting involves recognizing the company's pro rata
share of the net earnings of investee companies in the income statement.
36 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
Cash is received and recognized only when distributed by the investee
company. As an equity investor, Anheuser-Busch does not control the amount
or timing of cash distributions by investees. In 2003, Anheuser-Busch
recognized equity income of $344.9 million and received cash distributions
from investees of $169.2 million. Consolidation of the company's equity
investees would not be appropriate because Anheuser-Busch does not have
effective control of these entities. Therefore, alternative accounting
methods are not available.
Derivatives
The company's use of derivative financial instruments is limited to hedges
of either firm commitments or anticipated transactions that expose
Anheuser-Busch to cash flow or fair value fluctuations in the ordinary
course of business. Company policy expressly prohibits active trading or
speculating with derivatives. Accordingly, all the company's derivative
holdings are designated as hedges and qualify for hedge accounting under FAS
133, "Accounting for Derivatives and Related Hedging Activity." The only
accounting alternative available would be to forego hedge accounting, which
would ignore the highly effective nature of the company's hedging programs
and needlessly introduce volatility into the company's reported earnings.
Advertising and Promotional Costs
Advertising and promotional activities are a key element of the company's
strategy and represent significant annual costs incurred by the company.
Advertising production costs are accumulated and expensed the first time the
advertisement is shown, while advertising media costs are expensed as
incurred. Both of these approaches are acceptable under GAAP and the company
applies each consistently, based on the nature of the spending. Applying
either method exclusively would not materially alter the timing of expense
recognition.
Sales promotion costs are recognized as a reduction of net sales when
incurred, as required by GAAP. There are no alternative accounting methods
available.
Pension Costs
Anheuser-Busch provides pension plans covering substantially all of its
regular employees. The accounting for the majority of these plans under FAS
87, "Employer's Accounting for Pensions," requires that the company use
three key assumptions when computing estimated annual pension expense. These
assumptions are the long-term rate of return on plan assets, the discount
rate applied to the projected pension benefit obligation and the long-term
growth rate for salaries.
Of the three key assumptions, only the discount rate is determined by
observable market pricing, with the Standard & Poor's or Moody's long-term
average corporate bond yield indices being the common benchmarks. The
discount rate used to value the company's pension obligation at any year-end
is used for expense calculations the next year -- e.g., the December 31,
2003 rate is being used for 2004 expense calculations.
For the rates of return on plan assets and salary growth, the company
uses estimates based on experience as well as future expectations. Due to
the long-term nature of pension liabilities, Anheuser-Busch attempts to
choose rates for these assumptions that will have long-term applicability.
Following is a summary of the three key assumptions that will be used in
determining 2004 annual pension expense, along with the impact on pension
expense of a 1% change in each assumed rate ($ in millions). Brackets
indicate annual pension expense would be reduced. Modification of these
assumptions does not impact the company's pension funding requirements.
- ---------------------------------------------------------------------------
Impact of Impact of
Assumption 2004 Rate 1% Increase 1% Decrease
- ---------------------------------------------------------------------------
Long-term asset return 8.5% $(22) $ 22
Discount rate 6.25% $(27) $ 37
Salary growth rate 4.25% $ 19 $(16)
- ---------------------------------------------------------------------------
Retiree Medical Costs
Anheuser-Busch provides health care coverage for most of its retirees after
achieving certain age and years of service requirements. Under FAS 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions," the
company is required to estimate the future health care cost inflation rate
in order to recognize annual retiree health care expense and value the
related health care liability on the balance sheet. The company uses health
care inflation rates recommended by its actuarial consultants each year. See
Note 8 for information on the impact of a 1% change in the assumed health
care cost rate on annual retiree medical expense and the company's accrued
health care liability.
RISK MANAGEMENT
Through its operations, Anheuser-Busch is exposed to foreign currency
exchange, interest rate and commodity price risks. These exposures primarily
relate to beer sales to foreign customers, purchases from foreign suppliers,
royalty receipts from foreign license and contract brewers, acquisition of
raw materials from both domestic and foreign suppliers, and changes in
interest rates. The company uses derivative financial instruments, including
forward exchange contracts, futures contracts, swaps and purchased options
and collars to manage certain of these exposures. The company has
experienced higher derivatives use the last few years as raw material inputs
have increased in conjunction with increases in domestic beer volume.
Changes in underlying market conditions during 2003, including changes in
interest rates, U.S. dollar foreign currency exchange rates and certain
commodity prices, have not had a material impact on Anheuser-Busch's risk
profile. There have been no significant changes in the types or duration of
derivative instruments used to hedge the company's exposures.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 37
Anheuser-Busch has well-established policies and procedures governing the
use of derivatives. The company hedges only firm commitments or anticipated
transactions in the ordinary course of business and corporate policy
prohibits the use of derivatives for speculation, including the sale of
freestanding instruments. The company neither holds nor issues financial
instruments for trading purposes. Specific hedging strategies used depend on
several factors, including the magnitude and volatility of the exposure,
cost and availability of appropriate hedging instruments, the anticipated
time horizon, commodity basis exposure, opportunity cost and the nature of
the underlying hedged item. The company's overall risk management goal is to
strike a balance between managing its exposures to market volatility while
obtaining the most favorable transaction costs possible. The company
monitors the effectiveness of its hedging structures, based either on cash
offset between changes in the value of the underlying hedged exposure and
changes in the fair value of the derivative, or by ongoing correlation
between the price of the underlying hedged exposure and the pricing upon
which the derivative is based. The fair value of derivatives is the amount
the company would pay or receive when terminating any contracts.
Derivatives are either exchange-traded instruments that are highly
liquid, or over-the-counter instruments transacted with highly rated
financial institutions. In the event the rating of any of the company's
financial institution counterparties declines after a hedge transaction has
been executed, bilateral collateral posting arrangements are in place with
all over-the-counter derivatives counterparties. For counterparties rated at
least A2 or A by Moody's and Standard and Poor's, respectively, collateral
is required to be deposited with the company (position favorable to
Anheuser-Busch) or posted by the company (position un-favorable to
Anheuser-Busch) on any fair value amounts in excess of $30 million. For
derivatives transactions with counterparties rated A3 and A-, collateral is
required to be posted for any fair value amounts in excess of $15 million.
For transactions with counterparties rated below A3 or A-, full
collateralization is required for all outstanding balances. All collateral
is cash, U.S. Treasury securities or letters of credit. At December 31,
2003, the company held $2.8 million in collateral from an Aa3/A+ rated
counterparty and had none outstanding. Given the company's derivatives
portfolio, current market prices for derivatives held and the company's
credit rating, material funding needs arising from the company's collateral
arrangements are not expected.
Following is a sensitivity analysis indicating potential unfavorable
changes in the fair value of the company's derivative holdings under certain
market movements discussed below. The company uses value-at-risk (VAR)
analysis for foreign currency and interest rate derivatives exposures, and
sensitivity analysis for long-term debt interest exposure and commodity
price exposures. VAR forecasts fair value changes using a statistical model
(Monte Carlo simulation method) that incorporates historical correlations
among various currencies and interest rates.
Estimated Fair Value Volatility at December 31, 2003 (in millions)
- -----------------------------------------------------------------------
Foreign Currency Risk--Forwards and Options (VAR) $0.4
Interest Rate Risk--Interest Rate Swaps (VAR) $0.5
Commodity Price Risk--Futures, Swaps and Options (Sensitivity) $4.5
- -----------------------------------------------------------------------
The average daily change in fair value for interest rate swaps in 2003
was $120,000, with a computed one-day high of $500,000 and a one-day low of
$5,000. The average daily change in fair value for foreign exchange
derivatives in 2003 was $50,000, with a computed one-day high of $120,000
and a one-day low of $5,000. Average daily changes are computed as the
monthly variance in fair value divided by the number of business days in the
month.
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 the company
could experience on each portfolio at a 95% confidence level, based on
history. Sensitivity analysis reflects the impact of a hypothetical 10%
adverse change in the market price for the company's underlying price
exposures.
The volatility of foreign currencies, interest rates and commodity prices
is dependent on many factors that cannot be forecasted with accuracy.
Therefore, changes in fair value over time could differ substantially from
the illustration. Additionally, the preceding derivatives volatility
analysis ignores changes in the value of the underlying hedged transactions,
although the company expects offsetting impacts between changes in
derivative values and changes in the pricing of the underlying hedged
transactions.
Anheuser-Busch's exposure to interest rate volatility related to its debt
portfolio is low, because the company predominantly issues fixed-rate debt.
At December 31, 2003, fixed-rate debt with an average maturity of 17.5 years
represented 88% of the company's outstanding debt. Assuming the percentage
of floating-rate debt at year-end remains constant in 2004, and including
the impact of existing fixed-to-floating interest rate swaps, an immediate
100 basis points (1.0 percentage point) increase in interest rates would
result in incremental interest expense of approximately $9 million over the
course of the full year.
INTERNATIONAL EQUITY INVESTMENTS
Grupo Modelo
From 1993 to 1998, the company accumulated a 50.2% direct and indirect
equity interest in Diblo, S.A. de C.V., the operating subsidiary of Grupo
Modelo, S.A. de C.V., Mexico's largest brewer and producer of the Corona
brand. Anheuser-Busch's total initial investment in Modelo was $1.6 billion.
Anheuser-Busch does not have effective control of either Grupo Modelo or
Diblo and, accordingly, the company accounts for its investment on the
equity basis. The company has applied the equity method of accounting since
its ownership interest first exceeded 20% in 1997.
38 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
The economic benefit of the company's Modelo investment can be measured
in two ways -- through equity income, which represents Anheuser-Busch's pro
rata share in the net earnings of Modelo and by the excess of the fair
market value of the investment over its cost. The excess of fair value over
the company's cost, based on Grupo Modelo's closing stock price on the
Mexican stock exchange at December 31, 2003, was $3.5 billion. Although this
amount is appropriately not reflected in the company's income statement or
balance sheet, it represents economic value to Anheuser-Busch and its
shareholders.
CCU
During the first quarter of 2001, the company purchased a 20% equity
interest in Compania Cervecerias Unidas S.A. (CCU), the largest brewer in
Chile, for $321 million. Anheuser-Busch had partnered with CCU in Argentina
for the six years prior to the CCU investment through the company's equity
ownership in CCU-Argentina, a CCU subsidiary that is licensed to brew
Budweiser for Argentina, Chile, Brazil and other Latin American markets.
Tsingtao
In April 2003, the company invested $116 million in two convertible bonds of
Tsingtao, the largest brewer in China, and invested an additional $33
million in a third convertible bond in October. The company plans to make a
final investment of $33 million in the first half of 2004. In July 2003, the
company converted the first bond, which increased its equity interest in
Tsingtao from 4.5% to 9.9%. The company currently uses the cost method of
accounting for the Tsingtao investment and anticipates adopting the equity
method of accounting when it believes it has the ability to exert
significant influence on Tsingtao.
In the fourth quarter 2003, the company loaned Tsingtao $15 million for a
term of 5 years at an annual interest rate of 1%. The loan will provide
Tsingtao with funding to reacquire minority interests in three of its
brewery subsidiaries.
OTHER MATTERS
Agreement With Teamsters
In December 2003, employees represented by the International Brotherhood of
Teamsters overwhelmingly approved a new five-year labor contract covering
approximately 7,500 employees at the company's 12 U.S. breweries. The new
contract agreement will run through February 28, 2009, and calls for wage
increases of $.65 per hour in year one, $.60 per hour in years two, three
and four, and $.55 cents per hour in year five. The agreement maintains a
health care package with no employee-paid premiums in company-sponsored
plans and also includes total pension increases of 14% for defined benefit
plans. By ratifying the contract on the first vote and having results
submitted to the company by December 2, the Teamsters-represented employees
qualified for a signing bonus of $1,000 each and an accelerated merit
increase, and received a renewal of Anheuser-Busch's commitment to keep all
12 breweries open throughout the life of the new agreement, provided there
are no new or increased federal or state excise taxes or other unforeseen
extraordinary events which negatively impact the company's business. The $7
million signing bonus and merit increase was recognized in the income
statement in the fourth quarter of 2003. The current contract expires
February 28, 2009.
Wholesaler Acquisition
In October 2003, the company purchased the assets of a beer wholesale
operation in Pomona, CA for $84 million in Anheuser-Busch common stock and
cash. Included in the purchase were cash and other working capital of $22
million, fixed and other long-term assets of $21 million and product
distribution rights of $41 million. The distribution rights are held in
perpetuity and have an indefinite life, and will therefore not be amortized.
See Note 11 for additional information.
Certifications
The company has included required CEO and CFO financial statement
certifications as exhibits to its 2003 annual report on Form 10-K filed with
the SEC. Also, a CEO financial statement certification has been submitted to
the New York Stock Exchange, as required by its listing rules.
Sale of SeaWorld Cleveland
In February 2001, the company sold its SeaWorld Cleveland adventure park to
Six Flags, Inc. for $110 million in cash, and recognized a pretax gain of
$17.8 million. The sale did not include killer whales, dolphins or any
rights to the SeaWorld name. The sale had only an insignificant ($.005 per
share after-tax) impact on earnings per share growth in 2001. Anheuser-Busch
continues to operate and support its remaining U.S. theme parks.
Environmental Issues
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 plan capital
projects or changes in processes. Anheuser-Busch also encourages its
suppliers to adopt similar environmental management practices and policies.
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. It is the opinion of management
that potential costs, either individually or in the aggregate, related to
any federal or state designated cleanup sites for which Anheuser-Busch has
been identified as a Potentially Responsible Party will not materially
affect the company's financial position, results of operations or liquidity.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 39
CONSOLIDATED BALANCE SHEET
ANHEUSER-BUSCH COMPANIES AND SUBSIDIARIES
- --------------------------------------------------------------------------------------
Year Ended December 31 (in millions) 2003 2002
- --------------------------------------------------------------------------------------
Assets
Current Assets:
Cash $ 191.1 $ 188.9
Accounts receivable 669.4 630.4
Inventories:
Raw materials and supplies 320.3 294.1
Work in process 81.9 82.8
Finished goods 185.3 186.7
Total inventories 587.5 563.6
Other current assets 182.3 121.8
- ------------------------------------------------------------------------ -----------
Total current assets 1,630.3 1,504.7
Investments in affiliated companies 3,052.0 2,827.9
Plant and equipment, net 8,498.9 8,363.9
Intangible assets, including goodwill of $349.0
and $348.7, respectively 486.6 437.7
Other assets 1,021.7 985.3
- ------------------------------------------------------------------------ -----------
Total Assets $ 14,689.5 $ 14,119.5
======================================================================== ===========
Liabilities and Shareholders Equity
Current Liabilities:
Accounts payable $ 1,093.7 $ 986.6
Accrued salaries, wages and benefits 288.9 287.5
Accrued taxes 163.1 181.0
Other current liabilities 311.5 332.6
- ------------------------------------------------------------------------ -----------
Total current liabilities 1,857.2 1,787.7
- ------------------------------------------------------------------------ -----------
Postretirement benefits 470.4 474.2
- ------------------------------------------------------------------------ -----------
Debt 7,285.4 6,603.2
- ------------------------------------------------------------------------ -----------
Deferred income taxes 1,462.1 1,345.1
- ------------------------------------------------------------------------ -----------
Other long-term liabilities 902.7 857.0
- ------------------------------------------------------------------------ -----------
Shareholders Equity:
Common stock, $1.00 par value, authorized 1.6 billion
shares 1,457.9 1,453.4
Capital in excess of par value 1,194.0 1,024.5
Retained earnings 13,935.4 12,544.0
Treasury stock, at cost (12,939.0) (11,008.6)
Accumulated other comprehensive loss (890.3) (870.7)
ESOP debt guarantee (46.3) (90.3)
- ------------------------------------------------------------------------ -----------
Total Shareholders Equity 2,711.7 3,052.3
- ------------------------------------------------------------------------ -----------
Commitments and contingencies -- --
- ------------------------------------------------------------------------ -----------
Total Liabilities and Shareholders Equity $ 14,689.5 $ 14,119.5
======================================================================== ===========
The footnotes on pages 44-56 of this report are an integral component of the
company's consolidated financial statements.
40 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
CONSOLIDATED STATEMENT OF INCOME
ANHEUSER-BUSCH COMPANIES AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------
Year Ended December 31 (in millions, except per share) 2003 2002 2001
- -------------------------------------------------------------------------------------------------
Gross sales $16,320.2 $15,686.8 $14,973.0
Excise taxes (2,173.5) (2,120.4) (2,061.5)
- ------------------------------------------------------------------------ ---------------------
Net sales 14,146.7 13,566.4 12,911.5
Cost of sales (8,449.1) (8,131.3) (7,950.4)
- ------------------------------------------------------------------------ ---------------------
Gross profit 5,697.6 5,435.1 4,961.1
Marketing, distribution and administrative expenses (2,498.3) (2,455.4) (2,255.9)
Gain on sale of business -- -- 17.8
- ------------------------------------------------------------------------ ---------------------
Operating income 3,199.3 2,979.7 2,723.0
Interest expense (401.5) (368.7) (361.2)
Interest capitalized 24.4 17.7 26.9
Interest income 1.7 1.3 1.1
Other income/(expense), net 0.4 (6.4) (12.2)
- ------------------------------------------------------------------------ ---------------------
Income before income taxes 2,824.3 2,623.6 2,377.6
Provision for income taxes (1,093.3) (1,041.5) (927.5)
Equity income, net of tax 344.9 351.7 254.4
- ------------------------------------------------------------------------ ---------------------
Net income $ 2,075.9 $ 1,933.8 $ 1,704.5
======================================================================== =====================
Earnings per share:
Basic $ 2.51 $ 2.23 $ 1.91
======================================================================== =====================
Diluted $ 2.48 $ 2.20 $ 1.89
======================================================================== =====================
The footnotes on pages 44-56 of this report are an integral component of the
company's consolidated financial statements.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 41
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
ANHEUSER-BUSCH COMPANIES AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------
Year Ended December 31 (in millions, except per share) 2003 2002 2001
- -------------------------------------------------------------------------------------------------------
Common Stock, $1.00 Par Value
Balance, beginning of period $ 1,453.4 $ 1,445.2 $ 1,441.5
Shares issued under stock plans 4.5 8.2 3.7
- ------------------------------------------------------------------------ -------------------------
Balance, end of period $ 1,457.9 $ 1,453.4 $ 1,445.2
======================================================================== =========================
Capital in Excess of Par Value
Balance, beginning of period $ 1,024.5 $ 810.2 $ 725.3
Shares issued under stock plans 125.4 214.3 84.9
Shares issued for acquisition 44.1 -- --
- ------------------------------------------------------------------------ -------------------------
Balance, end of period $ 1,194.0 $ 1,024.5 $ 810.2
======================================================================== =========================
Retained Earnings
Balance, beginning of period $ 12,544.0 $ 11,258.2 $10,164.4
Net income 2,075.9 1,933.8 1,704.5
Common dividends paid (per share: 2003 - $.83;
2002 - $.75; 2001 - $.69) (685.4) (649.5) (614.1)
Shares issued under stock plans 0.9 1.5 3.4
- ------------------------------------------------------------------------ -------------------------
Balance, end of period $ 13,935.4 $ 12,544.0 $11,258.2
======================================================================== =========================
Treasury Stock
Balance, beginning of period $(11,008.6) $ (8,981.6) $(7,817.8)
Treasury stock acquired (1,958.9) (2,027.0) (1,163.8)
Treasury stock issued for acquisition 28.5 -- --
- ------------------------------------------------------------------------ -------------------------
Balance, end of period $(12,939.0) $(11,008.6) $(8,981.6)
======================================================================== =========================
Accumulated Other Comprehensive Loss
Balance, beginning of period $ (870.7) $ (338.3) $ (212.3)
Foreign currency translation gains/(losses) (229.8) (271.8) 44.5
Deferred hedging gains/(losses) 65.7 33.0 (38.9)
Deferred securities valuation gains 169.3 3.0 --
Minimum pension liability (24.8) (296.6) (131.6)
- ------------------------------------------------------------------------ -------------------------
Net other comprehensive income adjustments (19.6) (532.4) (126.0)
- ------------------------------------------------------------------------ -------------------------
Balance, end of period $ (890.3) $ (870.7) $ (338.3)
======================================================================== =========================
ESOP Debt Guarantee
Balance, beginning of period $ (90.3) $ (132.2) $ (172.2)
Annual debt service 44.0 41.9 40.0
- ------------------------------------------------------------------------ -------------------------
Balance, end of period $ (46.3) $ (90.3) $ (132.2)
======================================================================== =========================
Total Shareholders Equity $ 2,711.7 $ 3,052.3 $ 4,061.5
======================================================================== =========================
Comprehensive Income
Net income $ 2,075.9 $ 1,933.8 $ 1,704.5
Net other comprehensive income adjustments (19.6) (532.4) (126.0)
- ------------------------------------------------------------------------ -------------------------
Total Comprehensive Income $ 2,056.3 $ 1,401.4 $ 1,578.5
======================================================================== =========================
The footnotes on pages 44-56 of this report are an integral component of the
company's consolidated financial statements.
42 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
CONSOLIDATED STATEMENT OF CASH FLOWS
ANHEUSER-BUSCH COMPANIES AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------
Year Ended December 31 (in millions) 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------
Cash Flow from Operating Activities:
Net income $ 2,075.9 $ 1,933.8 $ 1,704.5
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 877.2 847.3 834.5
Deferred income taxes 129.5 160.2 (15.8)
Gain on sale of business -- -- (17.8)
Undistributed earnings of affiliated companies (175.7) (305.0) (227.6)
Other, net 31.4 (12.0) 38.2
- ------------------------------------------------------------------------------------ ---------------------
Operating cash flow before change in working capital 2,938.3 2,624.3 2,316.0
Decrease in working capital 32.6 140.9 44.6
- ------------------------------------------------------------------------------------ ---------------------
Cash provided by operating activities 2,970.9 2,765.2 2,360.6
- ------------------------------------------------------------------------------------ ---------------------
Cash Flow from Investing Activities:
Capital expenditures (993.0) (834.7) (1,022.0)
New business acquisitions (156.9) (19.0) (370.4)
Proceeds from sale of business -- -- 110.0
- ------------------------------------------------------------------------------------ ---------------------
Cash used for investing activities (1,149.9) (853.7) (1,282.4)
- ------------------------------------------------------------------------------------ ---------------------
Cash Flow from Financing Activities:
Increase in debt 1,389.0 1,151.8 1,213.4
Decrease in debt (652.1) (505.9) (572.8)
Dividends paid to shareholders (685.4) (649.5) (614.1)
Acquisition of treasury stock (1,958.9) (2,027.0) (1,163.8)
Shares issued under stock plans 88.6 145.4 61.8
- ------------------------------------------------------------------------------------ ---------------------
Cash used for financing activities (1,818.8) (1,885.2) (1,075.5)
- ------------------------------------------------------------------------------------ ---------------------
Net increase in cash during the year 2.2 26.3 2.7
Cash, beginning of year 188.9 162.6 159.9
- ------------------------------------------------------------------------------------ ---------------------
Cash, end of year $ 191.1 $ 188.9 $ 162.6
==================================================================================== =====================
The footnotes on pages 44-56 of this report are an integral component of the
company's consolidated financial statements.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ANHEUSER-BUSCH COMPANIES AND SUBSIDIARIES
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 provided to assist in
evaluating the company's consolidated financial statements. These principles
and policies conform to U.S. generally accepted accounting principles. The
company is required to make certain estimates in preparing the financial
statements that impact the reported amounts of some assets and liabilities
and the reported amounts of some revenues and expenses. All estimates are
based on the company's best information at the time and are in conformity
with U.S. generally accepted accounting principles. Actual results could
differ from the estimates and differences are recognized when incurred.
Revenue Recognition
The company's revenue recognition practices comply with Securities and
Exchange Commission (SEC) Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements."
The company recognizes revenue only when legal title transfers or
services have been rendered to unaffiliated customers. For malt beverages
shipped to independent wholesalers, title transfers on shipment of product
from the company's breweries. For company-owned wholesalers, title transfers
when products are delivered to retail customers. The company does not
recognize any revenue when independent wholesalers sell the company's
products to retail customers. For cans and lids, title transfers on customer
receipt. Entertainment operations recognize revenue when customers actually
visit or make purchases in a park location, rather than when tickets are
sold.
Principles of Consolidation
The consolidated financial statements include the company and all its
subsidiaries. The company consolidates all majority-owned and controlled
subsidiaries, uses the equity method of accounting for investments in which
the company is able to exercise significant influence, and uses the cost
method for all other investments. All significant intercompany transactions
have been eliminated. Minority interests in the company's China subsidiary
are not material.
Cash
Cash includes cash in banks, demand deposits and investments in short-term
marketable securities with original maturities of 90 days or less.
Intangible Assets
The company recognizes the excess of the cost of acquired businesses over
the fair value of net assets as goodwill. The company has goodwill related
to both consolidated businesses and equity method investments. In 2001,
goodwill was amortized to expense over a period of 40 years. Effective
January 1, 2002, Anheuser-Busch adopted FAS No. 142, "Goodwill and Other
Intangible Assets," and was therefore required to cease the amortization of
goodwill existing at the adoption date. In lieu of amortization,
consolidated goodwill and other intangible assets are now reviewed for
impairment at least annually, with ongoing recoverability based on
applicable operating unit performance and consideration of significant
events or changes in the overall business environment.
Anheuser-Busch performs impairment analyses at the business unit level for
consolidated goodwill and at the investee level for equity method goodwill.
Impairment testing for consolidated goodwill is a two-step process. The
first step is a comparison of the fair value of the business or investment
to its recorded amount on the balance sheet. If the recorded amount exceeds
the fair value, the second step quantifies any impairment write-down by
comparing the current implied value of goodwill and the recorded goodwill
balance. Recoverability testing for equity investment goodwill is based on
impairment analysis of the entire equity investment, using projected future
cash flows combined with review of pertinent business and economic factors.
Anheuser-Busch's nongoodwill intangible assets consist of both domestic and
international purchased beer distribution rights. Domestic beer distribution
rights are associated with company-owned wholesale operations and represent
the exclusive ability to sell the company's products in defined geographic
areas. The carrying values of these rights have indefinite lives and are not
being amortized, due to the company's intent to operate its wholesalerships
in perpetuity, the use and economic benefits of the rights not being
dependent on the value of other assets and the lives not being contractually
or statutorily limited. International distribution rights relate to
operations in the United Kingdom and are being amortized over the contract
life of 32 years, with 25 years remaining as of December 31, 2003. The
company analyzes its product distribution rights for potential impairment
annually, based on projected future cash flows and observation of the market
for independent beer wholesaler exchange transactions.
The company completed a required transitional impairment analysis for FAS
142 adoption purposes and found no impairment of any intangible assets. A
review of consolidated goodwill and distribution rights completed in the
fourth quarter of 2003 found no impairment as of December 31, 2003. See Note
13 for additional information on intangible asset balances and the impact of
goodwill amortization in 2001.
44 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
Foreign Currency
Financial statements of foreign subsidiaries where the local currency is the
functional currency are translated into U.S. dollars using period-end
exchange rates for assets and liabilities and average exchange rates during
the period for revenues and expenses. Cumulative translation adjustments
associated with net assets are reported as a separate component of other
comprehensive loss within shareholders equity.
Exchange rate gains or losses related to foreign currency transactions are
recognized in the income statement as incurred, in the same category as the
underlying transaction, and are not material for any year shown.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
under the last-in, first-out method (LIFO) for approximately 76% of total
inventories at December 31, 2003 and 72% of inventories at December 31,
2002. Average cost valuation is used for the remainder. Had average cost
been used for all inventories at December 31, 2003 and 2002, the value of
total inventories would have been $110.0 million and $96.7 million higher,
respectively.
Delivery Costs
Pass-through finished goods delivery costs reimbursed by customers are
reported in sales, while an offsetting expense is included in cost of sales.
Delivery costs incurred by company-owned beer wholesalers are included in
marketing, distribution and administrative expenses.
Fixed Assets
Fixed assets are carried at original cost less accumulated depreciation, and
include expenditures for new facilities as well as those that increase the
useful lives of existing facilities. The cost of routine maintenance,
repairs and minor renewals is expensed as incurred. Depreciation expense is
recognized using the straight-line method based on the following weighted-
average useful lives: buildings, 25 years; production machinery and
equipment, 15 years; furniture and fixtures, 10 years; computer equipment, 3
years. When fixed assets are retired or sold, the net carrying amount is
eliminated and any gain or loss on disposition is recognized in cost of
sales.
The components of plant and equipment as of December 31 are summarized
below (in millions):
- -------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------
Land $ 278.8 $ 272.8
Buildings 4,546.1 4,326.0
Machinery and equipment 11,208.0 10,995.9
Construction in progress 488.3 373.2
- -------------------------------------------------------------------------
Plant and equipment at cost 16,521.2 15,967.9
Accumulated depreciation (8,022.3) (7,604.0)
- -------------------------------------------------------------------------
Net plant and equipment $ 8,498.9 $ 8,363.9
=========================================================================
Advertising and Promotional Costs
Advertising production costs are accumulated and expensed the first time the
advertisement is shown. Advertising media costs are expensed as incurred.
Advertising costs are recognized in marketing, distribution and
administrative expenses and totaled $806.7 million, $821.7 million and
$722.3 million in 2003, 2002 and 2001, respectively.
Sales promotion costs are recognized as a reduction of net sales when
incurred, and totaled $511.8 million in 2003, $543.5 million in 2002 and
$569.5 million in 2001.
Income Taxes
The provision for income taxes is based on the income and expense amounts
reported in the consolidated statement of income. The company utilizes
federal, state and foreign income tax laws and regulations to reduce current
cash taxes payable. Deferred income taxes are recognized for the effect of
temporary differences between financial reporting and tax filing in
accordance with the requirements of FAS No. 109, "Accounting for Income
Taxes."
See Note 10 for additional information on the company's provision
for income taxes, deferred income tax assets and liabilities and effective
tax rate.
Derivatives
Anheuser-Busch uses derivatives to mitigate the company's exposure to
volatility in commodity prices, interest rates and foreign currency exchange
rates. The company hedges only exposures in the ordinary course of business
and company policy prohibits holding or trading derivatives for profit. All
derivatives held by the company are designated as hedges at inception, with
an expectation they will be highly effective in offsetting the associated
underlying price exposures. The company requires liquidation of derivative
positions whenever it is determined that an underlying transaction will not
occur, with related gains or losses recognized in the income statement on
liquidation.
The company accounts for its derivatives in accordance with FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activity," which requires
all derivatives to be carried on the balance sheet at fair value. Changes in
fair value are recognized either in the income statement or deferred in
shareholders equity, depending on the nature of the underlying exposure
being hedged and how effective the derivative is at offsetting price
movements in the underlying exposure. The company adopted FAS 133 in January
2001. The impact of adoption was not material. All of the company's
derivative positions qualify for hedge accounting under FAS 133.
The company classifies foreign currency denominated firm commitments and
interest rate hedges as fair value hedges, while commodity price hedges are
classified as cash flow hedges. Derivatives generally have initial terms of
five years or less, and all hedged transactions are expected to occur within
the next five years.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 45
Option premiums paid to counterparties are initially recorded as assets and
subsequently adjusted to fair value each period, with the effective portion
of the change in fair value deferred in shareholders equity until the
underlying transaction occurs. Amounts receivable from, or owed to,
derivatives counterparties are included in current assets and current
liabilities, respectively.
See Note 3 for additional information on underlying hedge categories,
notional and fair values of derivatives, types of derivatives used and gains
and losses from hedging activity.
Valuation of Securities
For investments accounted for under the cost basis, Anheuser-Busch applies
FAS 115, "Accounting for Certain Investments in Debt and Equity Securities."
Under FAS 115, the company classifies its cost-based investments as
"available for sale," and adjusts the carrying values of those securities to
fair market value each period. These market valuation gains or losses are
deferred in shareholders equity and not recognized in the income statement
until investments are liquidated.
Research and Development Costs and Start-Up Costs
Research and development costs and plant start-up costs are expensed as
incurred, and are not material for any year presented.
Computer Systems Development Costs
The company capitalizes computer systems development costs that meet
established criteria, and amortizes those costs to expense on a
straight-line basis over five years. Systems development costs not meeting
the proper criteria for capitalization, including systems reengineering
costs, are expensed as incurred.
Stock-Based Compensation
The company accounts for employee stock options using the intrinsic value
method in accordance with APB 25, "Accounting for Stock Issued to
Employees." The company has recognized no compensation expense related to
employee stock options for any year shown, since options are always granted
at a price equal to the market price on the day of grant. See Note 5 for
information regarding the company's stock option plans, options outstanding
and options exercisable.
Had employee compensation expense been recognized based on the fair
value of stock options on the grant date under the methodology prescribed by
FAS 123, "Accounting for Stock-Based Compensation," the company's net income
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):
- -------------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------------
Reported net income $2,075.9 $1,933.8 $1,704.5
Pro forma stock option expense (113.4) (93.1) (68.6)
- ------------------------------------------------------------ ---------------------
Adjusted net income $1,962.5 $1,840.7 $1,635.9
============================================================ =====================
Reported basic earnings per share $ 2.51 $ 2.23 $ 1.91
Pro forma stock option expense (.14) (.11) (.08)
- ------------------------------------------------------------ ---------------------
Adjusted basic earnings per share $ 2.37 $ 2.12 $ 1.83
============================================================ =====================
Reported diluted earnings per share $ 2.48 $ 2.20 $ 1.89
Pro forma stock option expense (.14) (.11) (.08)
- ------------------------------------------------------------ ---------------------
Adjusted diluted earnings per share $ 2.34 $ 2.09 $ 1.81
============================================================ =====================
The fair value of stock options granted, which is hypothetically amortized
to compensation expense over the vesting period to determine the earnings
impact illustrated above, has been estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
- ------------------------------------------------------------------------------------
2003 2002 2001
- ------------------------------------------------------------------------------------
Expected life of option 7 yrs. 7 yrs. 7 yrs.
Risk-free interest rate 4.0% 4.1% 4.9%
Expected volatility of Anheuser-Busch stock 22% 23% 24%
Expected dividend yield on Anheuser-Busch stock 1.7% 1.6% 1.7%
- ------------------------------------------------------------ ------------------
The fair value of options granted during 2003, 2002 and 2001 determined
using the Black-Scholes model is as follows (in millions, except per
option):
- ------------------------------------------------------------------------------------
2003 2002 2001
- ------------------------------------------------------------------------------------
Fair value of each option granted $13.58 $13.86 $12.76
Total number of options granted 14.4 14.2 13.9
- ------------------------------------------------------------ ------------------
Total fair value of options granted $195.6 $196.8 $177.4
============================================================ ==================
For FAS 123 disclosure purposes, the fair value of stock options granted
is required to be based on a theoretical option-pricing model. In actuality,
because the company's employee stock options are not traded on an exchange,
employees can receive no value nor derive any benefit from holding stock
options under these plans without an increase in the market price of
Anheuser-Busch stock. Such an increase in stock price benefits all
shareholders.
46 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
2. INTERNATIONAL EQUITY INVESTMENTS
Grupo Modelo
From 1993 to 1998, Anheuser-Busch accumulated a 50.2% 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 a total cost of $1.6 billion. The company holds 9 of
19 positions on Modelo's Board of Directors (with the Controlling
Shareholders holding the other 10 positions) and also has membership on the
Audit Committee. Anheuser-Busch does not have voting or other effective
control of either Diblo or Modelo and consequently accounts for its
investment using the equity method. The carrying amount of the Modelo
investment was $2,350.9 million and $2,410.6 million, respectively, at
December 31, 2003 and 2002.
Included in the carrying amount of the Modelo investment is goodwill of
$514.9 million and $565.6 million, respectively, at December 31, 2003 and
2002. In 2001, goodwill was amortized over a period of 40 years. Effective
with the adoption of FAS 142 in January 2002, the company ceased
amortization of Modelo-related goodwill. Changes in goodwill for 2003 and
2002 are due to changes in exchange rates between the U.S. dollar and
Mexican peso. Dividends received from Grupo Modelo in 2003 totaled $118.3
million, compared to $40.5 million in 2002 and $13.5 million in 2001.
Dividends are paid based on a free cash flow distribution formula in
accordance with the investment agreement between the companies and are
recorded as a reduction in the carrying value of the company's investment.
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 represent 100% of Grupo Modelo's consolidated operating results and
financial position based on U.S. generally accepted accounting principles,
and include the impact of Anheuser-Busch's purchase accounting adjustments.
- -------------------------------------------------------------
2003 2002
- -------------------------------------------------------------
Cash $1,044.7 $1,042.4
Other current assets 744.7 782.4
Noncurrent assets 3,700.1 3,892.2
Current liabilities 382.1 393.1
Noncurrent liabilities 330.4 368.1
Gross sales 3,909.0 3,964.1
Net sales 3,594.6 3,659.4
Gross profit 1,959.1 1,999.0
Minority interest 4.6 17.3
Net income 651.0 692.0
- ------------------------------------------------ --------
Other International Equity Investments
During 2001, the company purchased a 20% equity interest in Compania
Cervecerias Unidas S.A. (CCU), the largest brewer in Chile, for $321
million. CCU imports and distributes Budweiser in Chile. Anheuser-Busch has
Board of Directors representation of two of nine directors, and also has
membership on the Audit Committee. The company believes it has the ability
to exercise significant influence and therefore accounts for the CCU
investment using the equity method.
From 1996 to 1999, Anheuser-Busch accumulated a 10.8% direct equity
interest in the Argentine subsidiary of CCU, CCU-Argentina, for a total
cost of $23.9 million. CCU-Argentina brews Budweiser under license for
Argentina, Chile, Brazil and other Latin American markets. The CCU-Argentina
investment was accounted for on the cost basis through all of 2000. The 20%
acquisition of CCU in 2001 increased Anheuser-Busch's direct and indirect
interest in CCU-Argentina to 28.6%, and the company began using the equity
method of accounting at that time.
The carrying value of the CCU investments was $215.7 million and $229.5
million, respectively, at December 31, 2003 and 2002, including goodwill of
$126.0 million and $111.1 million, respectively. The company ceased
amortization of CCU-related goodwill on adoption of FAS 142 in January 2002.
Changes in goodwill for 2003 and 2002 are due to changes in exchange rates
between the U.S. dollar and Chilean and Argentine peso. Dividends received
from CCU totaled $50.9 million in 2003, $6.2 million in 2002 and $12.3
million in 2001.
The earnings impact resulting from the unpegging in December 2001 of the
Argentine peso from its 1:1 exchange position relative to the U.S. dollar
was recognized in 2001, and did not have a material impact on equity income.
In April 2003, the company announced the completion of its strategic
alliance with Tsingtao Brewery Company, Ltd., the largest brewer in China,
and producer of the Tsingtao brand. As of December 31, 2003, Anheuser-Busch
has invested $149 million under its agreement with Tsingtao in three
convertible bonds, and will make a final investment of $33 million in the
first half of 2004 for a total investment of $182 million. Conversion of the
bonds into equity is mandatory within seven years.
The first bond was converted in July 2003, which increased the company's
voting stake in Tsingtao from 4.5% to 9.9%. Anheuser-Busch continues to
account for its investment on the cost basis, as it is currently unable to
exercise significant influence over Tsingtao's business policies and
operations. When additional bonds are converted and the company's voting
stake in Tsingtao reaches 20%, Anheuser-Busch will gain additional seats on
the Board of Directors, to 2 of 11, and related Board committees and
believes it will then be able to exercise significant influence. The company
anticipates adopting the equity method of accounting at that time. When all
bonds are converted, the company's economic ownership interest will increase
to 27% of Tsingtao.
In the fourth quarter 2003, the company loaned Tsingtao $15 million for a
term of 5 years at an annual interest rate of 1%. The loan will provide
Tsingtao with funding to reacquire minority interests in three of its
brewery subsidiaries.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 47
3. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
Derivatives
Under FAS 133, Anheuser-Busch appropriately defers the recognition of most
unrealized derivatives gains or losses until the related underlying hedged
transactions occur. Gains and losses that relate to any portion of a hedge
that is not 100% effective at offsetting price movements in the hedged
exposure are immediately recognized in the income statement.
The following table shows (in millions) derivatives gains and losses
deferred as of December 31, 2003, 2002 and 2001. The amounts shown for 2002
and 2001 were recognized in the income statement the next year. For the
gains and losses deferred as of December 31, 2003, the majority are expected
to be recognized in cost of sales in 2004. However, the amounts ultimately
recognized may differ, favorably or unfavorably, from those shown because
many of the company's derivative positions are not yet settled and therefore
remain subject to ongoing market price fluctuations. Deferred losses shown
include $26.2 million, $9.5 million and $19.9 million of option premium
costs for 2003, 2002 and 2001, respectively. Also shown below are net
amounts recognized in earnings as ineffective during the year.
- -------------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------------
Deferred gains $ 86.0 $ 20.5 $ 1.8
Deferred losses (26.2) (19.4) (31.6)
- ------------------------------------------------------------ -------------------
Net deferred gains/(losses) $ 59.8 $ 1.1 $(29.8)
============================================================ ===================
Net ineffective gains/(losses) recognized
in earnings $ 1.3 $ (0.4) $ (0.3)
============================================================ ===================
The table below summarizes the notional transaction amounts and fair
values for the company's outstanding derivatives, by risk category and
instrument type, at December 31 (in millions). Because the company hedges
only with derivatives that have high correlation with the underlying
transaction pricing, changes in derivatives fair values and the underlying
prices are expected to essentially offset.
2003 2002
- -------------------------------------------------------------------------------------
Notional Fair Notional Fair
Amount Value Amount Value
- ------------------------------------------------------------ ---------------------
Foreign Currency:
Forwards $ 87.3 $ 1.0 $ 74.1 $ 0.2
Options 161.2 5.4 94.2 1.2
- ------------------------------------------------------------ ---------------------
248.5 6.4 168.3 1.4
- ------------------------------------------------------------ ---------------------
Interest Rate:
Swaps 401.0 19.2 401.0 32.8
- ------------------------------------------------------------ ---------------------
Commodity Price:
Swaps 235.5 28.5 248.9 1.6
Futures and forwards 21.5 1.2 65.8 2.6
Options 461.4 54.0 217.7 6.3
- ------------------------------------------------------------ ---------------------
718.4 83.7 532.4 10.5
- ------------------------------------------------------------ ---------------------
Total outstanding derivatives $1,367.9 $109.3 $1,101.7 $44.7
============================================================ =====================
Anheuser-Busch's primary foreign currency exposures are
to transactions and investments denominated in Mexican, Chilean and
Argentine pesos; Chinese renminbi; Canadian dollars; British pounds sterling
and euros. Hedged commodity exposures include aluminum, rice, corn, natural
gas and diesel fuel. The primary foreign currency exposures are long,
meaning the company generates a surplus of these currencies, while the
commodity exposures are short, meaning the company must acquire additional
quantities to meet its operating needs.
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, accounts payable and long-term debt. Accounts
receivable include allowances for doubtful accounts of $6.6 million and $5.6
million, at December 31, 2003 and 2002, respectively. The fair value of
long-term debt, estimated based on future cash flows discounted at interest
rates currently available to the company for debt with similar maturities
and characteristics, was $7.2 billion and $7.3 billion at December 31, 2003
and 2002, respectively.
4. DEBT
The company uses SEC shelf registrations for debt issuance efficiency and
flexibility, and currently has $1.1 billion in registered debt available for
issuance. Gains or losses on debt redemptions (either individually or in the
aggregate) were not material for any year presented.
Debt at December 31 consisted of the following (in millions):
- -------------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------------
U.S. dollar notes due 2006 to 2023,
interest rates from 4.375% to 7.5% $2,929.9 $2,100.0
U.S. dollar debentures due 2009 to 2043,
interest rates from 5.95% to 9.0% 2,950.0 3,150.0
EuroNotes due 2004 to 2006,
interest rates from 4.51% to 6.5% 351.0 351.0
Medium-term notes due 2010, interest rate 5.625% 200.0 200.0
Commercial paper, interest rates of 1.00% and 1.24%,
respectively, at year-end 526.4 412.9
Industrial revenue bonds due 2006 to 2038, interest
rates from 4.6% to 7.4% 270.8 270.1
ESOP note guarantee due 2004, interest rate 8.25% 46.3 90.3
Miscellaneous items 33.5 48.0
Unamortized debt discounts (22.5) (19.1)
- ------------------------------------------------------------------------ ---------
Total debt $7,285.4 $6,603.2
======================================================================== =========
48 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
The fixed interest rates on the company's EuroNotes and 5.6% U.S. dollar
notes (total notional value of $401.0 million in both 2003 and 2002) were
swapped to LIBOR-based floating rates when issued. The weighted-average
effective interest rates for this debt were 1.11% and 1.75% during 2003 and
2002, respectively. Year-end rates were 1.00% and 1.53%, respectively.
The weighted-average interest rates for commercial paper borrowings
during 2003, 2002 and 2001 were 1.08%, 1.98% and 4.39%, respectively. The
company has in place a single, committed $2 billion revolving credit
agreement that expires in August 2008, to support the company's commercial
paper program. The agreement is syndicated among 16 banks, has no financial
covenants and does not designate a material adverse change as a default
event or prohibiting a borrowing. Credit rating triggers in the agreement
pertain only to the pricing of any potential borrowing, not to the
availability of funds. At December 31, 2003 and 2002, the company had no
outstanding borrowings under the agreement. Annual fees under the agreement
were $1.2 million for all years presented. Commercial paper borrowings up to
$2 billion have been classified as long-term as they are supported on a
long-term basis by the revolving credit agreement. Any commercial paper
borrowings in excess of $2 billion will be classified as short-term.
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 a price equal to 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, 2003, 2002 and 2001, a total of
100 million, 89 million and 98 million shares, respectively, were designated
for future issuance of common stock under existing stock option plans.
The company's stock option plans provide for accelerated exercisability
on the occurrence of certain events relating to a change in control, merger,
sale of substantially all company assets or complete liquidation of the
company.
The income tax benefit related to the exercise of employee stock
options (recognized as a reduction of current taxes payable and an increase
in paid-in-capital) was $41.3 million, $77.1 million and $26.7 million for
the years ended December 31, 2003, 2002 and 2001, respectively.
Presented below is a summary of stock option activity and pricing for the
years shown:
- -------------------------------------------------------------------------------------------
Wtd. Avg. Wtd. Avg.
Options Exercise Options Exercise
Outstanding Price Exercisable Price
- -------------------------------------------------------------------------------------------
Balance, Dec. 31, 2000 59,171,074 $30.44 36,151,446 $22.53
Granted 13,895,238 42.95
Exercised (3,986,476) 18.29
Cancelled (180,803) 44.39
----------
Balance, Dec. 31, 2001 68,899,033 $33.63 44,100,568 $27.71
Granted 14,181,841 49.93
Exercised (8,821,350) 20.15
Cancelled (146,254) 43.61
----------
Balance, Dec. 31, 2002 74,113,270 $38.33 44,001,757 $33.09
Granted 14,445,318 52.23
Exercised (5,024,710) 22.54
Cancelled (145,213) 45.15
----------
Balance, Dec. 31, 2003 83,388,665 $41.67 55,249,010 $37.43
==========
- -------------------------------------------------------------------------------------------
Nonemployee directors may elect to receive their annual retainer in
shares of Anheuser-Busch common stock, in lieu of cash. If all nonemployee
directors eligible to own the company's common stock elected to receive
their annual retainer in shares, the total number of shares issued would be
14,356, based on the closing price for the company's common stock at
December 31, 2003.
The following table provides additional information regarding options
outstanding and options that were exercisable as of December 31, 2003:
- -------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
---------------------------------- -----------------------
Range of Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Remaining Exercise Exercise
Prices Number Life Price Number Price
- -------------------------------------------------------------------------------------------------
$10-19 2,769,797 2 yrs $15.30 2,769,797 $15.30
20-29 16,313,455 4 yrs 25.37 16,313,455 25.37
30-39 9,617,923 5 yrs 37.84 9,617,923 37.84
40-49 40,348,717 8 yrs 47.22 26,519,242 46.99
50-59 14,338,773 10 yrs 52.26 28,593 52.97
---------- ----------
$10-59 83,388,665 7 yrs $41.67 55,249,010 $37.43
========== ==========
- -------------------------------------------------------------------------------------------------
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 49
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 (401(k) plans).
Most regular employees are eligible for participation in the ESOPs. The
ESOPs initially borrowed $500 million for a 15-year term at an interest rate
of 8.25% and used the proceeds to buy approximately 45.4 million shares of
common stock from the company at a then market price of $11.03 per share.
ESOP shares are being allocated to participants over the 15-year period as
contributions are made to the plans. The ESOPs purchased an additional
400,000 shares from the company using proceeds from the sale of
spin-off-related Earthgrains shares in 1996. Of this 45.8 million total
shares purchased, 44.9 million shares have been allocated to plan
participants through December 31, 2003.
ESOP cash contributions and expense recorded during the year are
determined by several factors, including the market price of Anheuser-Busch
common stock, number of shares allocated to participants, debt service
requirements, 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. The company guarantees the ESOP debt. The guarantee expires when
the ESOPs expire in March 2004. The company anticipates benefits expense in
2004 will increase by approximately $30 million compared to 2003, due to the
expiration of the ESOPs.
ESOP expense is allocated to operating and interest expense based on
the ratio of principal and interest payments on the underlying ESOP debt.
Total ESOP expense for the three years ended December 31 is presented below
(in millions):
- -----------------------------------------------------------------------------
2003 2002 2001
- -----------------------------------------------------------------------------
Operating expense $15.1 $13.3 $5.2
Interest expense 1.9 2.7 1.0
- ---------------------------------------------------- ------------------
Total ESOP expense $17.0 $16.0 $6.2
==================================================== ==================
Cash contributions are made to the ESOPs 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):
- -----------------------------------------------------------------------------
2003 2002 2001
- -----------------------------------------------------------------------------
Cash contributions $10.2 $6.1 $1.3
Dividends 1.7 3.7 5.2
- ---------------------------------------------------- ------------------
7. PREFERRED AND COMMON STOCK
Common Stock Activity
Common stock activity for the three years ended December 31 is summarized
below (in millions of shares):
- -------------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------------
Common Stock:
Beginning common stock 1,453.4 1,445.2 1,441.5
Shares issued under stock plans 4.5 8.2 3.7
- ------------------------------------------------------------ --------------------
Common stock 1,457.9 1,453.4 1,445.2
- ------------------------------------------------------------ --------------------
Treasury Stock:
Beginning treasury stock (606.8) (566.1) (537.9)
Treasury stock acquired (39.4) (40.7) (28.2)
Treasury stock issued 1.4 -- --
- ------------------------------------------------------------ --------------------
Cumulative treasury stock (644.8) (606.8) (566.1)
- ------------------------------------------------------------ --------------------
Net common stock outstanding 813.1 846.6 879.1
============================================================ ====================
Stock Repurchase Programs
The Board of Directors has approved various resolutions authorizing the
company to repurchase shares of its common stock in order to return cash to
shareholders and to meet the requirements of the company's various stock
purchase and incentive plans. At December 31, 2003, approximately 77 million
shares remained available for repurchase under a March 2003 Board
authorization totaling 100 million shares.
The company repurchased 39.4 million common shares in 2003, 40.7
million shares in 2002 and 28.2 million shares in 2001, for $1,958.9
million, $2,027.0 million and $1,163.8 million, respectively.
Stockholder Rights Plan
The Board of Directors adopted in 1985, and extended in 1994, a Stockholder
Rights Plan that would permit shareholders to purchase common stock at
prices substantially below market value under certain change-in-control
scenarios.
Preferred Stock
At December 31, 2003 and 2002, 40 million shares of $1.00 par value
preferred stock were authorized and unissued.
Earnings Per Share of Common Stock
Earnings per share are computed by dividing net income by weighted-average
common shares outstanding. Basic earnings per share are computed using an
unadjusted weighted-average number of shares of common stock. Diluted
earnings per share are computed using the weighted-average number of shares
of common stock, plus an adjustment for the dilutive effect of unexercised
in-the-money stock options.
50 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
A reconciliation between basic and diluted weighted-average common shares
outstanding for the three years ended December 31 follows (millions of
shares). There were no adjustments to income available to common
shareholders for purposes of calculating earnings per share for any year
shown.
- -------------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------------
Basic weighted average shares outstanding 826.2 866.0 890.1
Stock option shares 10.8 12.9 11.5
- ------------------------------------------------------------ ------------------
Diluted weighted average shares outstanding 837.0 878.9 901.6
============================================================ ==================
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 in the following table (in millions). Contributions to
multi-employer plans in which the company and its subsidiaries participate
are determined in accordance with the provisions of negotiated labor
contracts, based on employee hours or weeks worked. Pension expense
recognized for multi-employer and defined contribution plans equals cash
contributions for all years shown.
- -------------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------------
Single-employer defined benefit plans $ 73.7 $43.5 $12.1
Multi-employer plans 16.8 16.9 16.2
Defined contribution plans 18.4 17.8 20.2
- ------------------------------------------------------------ ------------------
Total pension expense $108.9 $78.2 $48.5
============================================================ ==================
Net annual pension expense for single-employer defined benefit plans
was composed of the following for the three years ended December 31 (in
millions):
- -------------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------------
Service cost (benefits earned during the year) $ 74.7 $ 66.7 $ 59.8
Interest cost on projected benefit obligation 151.9 143.6 136.7
Assumed return on plan assets (188.9) (194.5) (201.6)
Amortization of prior service cost and net
actuarial losses 36.0 27.7 17.2
- ------------------------------------------------------------ --------------------
Net annual pension expense $ 73.7 $ 43.5 $ 12.1
============================================================ ====================
The key actuarial assumptions used in determining the annual pension
expense and funded status for single-employer defined benefit plans for the
three years ended December 31 follow. The measurement date for the company's
pension accounting is October 1.
- -------------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------------
Annual expense:
Discount rate 6.75% 7.25% 7.5%
Long-term rate of return on plan assets 8.50% 9.25% 10.0%
Wtd avg rate of compensation increase 4.25% 4.75% 4.75%
- ------------------------------------------------------------ ------------------
Funded status:
Discount rate 6.25% 6.75% 7.25%
Wtd avg rate of compensation increase 4.25% 4.75% 4.75%
- ------------------------------------------------------------ ------------------
The following table provides a reconciliation between the funded status
of single-employer defined benefit plans and the prepaid pension cost asset
recorded on the balance sheet for the two years ended December 31 (in
millions):
- -------------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------------
Funded status -- plan assets (less than)
projected benefit obligation $(640.5) $(591.9)
Unrecognized net actuarial loss 964.2 881.6
Unamortized prior service cost 113.2 125.6
- ------------------------------------------------------------------------ --------
Prepaid pension cost asset $ 436.9 $ 415.3
======================================================================== ========
The following tables present changes in the projected benefit
obligation, changes in the fair value of plan assets and a comparison of
plan assets and the accumulated benefit obligation for single-employer
defined benefit plans for the two years ended December 31 (in millions):
- -------------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------------
Projected benefit obligation, beginning of year $ 2,323.6 $ 2,051.3
Service cost 74.7 66.7
Interest cost 151.9 143.6
Plan amendments 13.3 6.7
Actuarial loss 179.4 210.1
Benefits paid (167.3) (154.8)
- ------------------------------------------------------------------------ ----------
Projected benefit obligation, end of year $ 2,575.6 $ 2,323.6
======================================================================== ==========
- -------------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------------
Fair value of plan assets, beginning of year $ 1,731.7 $ 1,834.4
Actual return on plan assets 275.0 (174.5)
Employer contributions 95.7 226.6
Benefits paid (167.3) (154.8)
- ------------------------------------------------------------------------ ----------
Fair value of plan assets, end of year $ 1,935.1 $ 1,731.7
======================================================================== ==========
- -------------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------------
Plans with assets in excess of accumulated benefit obligation:
Accumulated benefit obligation $ (91.6) $ (85.3)
Plan assets 94.6 86.2
- ------------------------------------------------------------------------ ----------
Assets exceeding accumulated benefit obligation 3.0 0.9
- ------------------------------------------------------------------------ ----------
Plans with accumulated benefit obligation in excess of assets:
Accumulated benefit obligation (2,250.1) (2,038.2)
Plan assets 1,840.5 1,645.5
- ------------------------------------------------------------------------ ----------
Accumulated benefit obligation exceeding assets (409.6) (392.7)
- ------------------------------------------------------------------------ ---------
Net excess accumulated benefit obligation $ (406.6) $ (391.8)
======================================================================== ==========
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 51
Recognition of an alternative minimum pension liability is necessary
whenever the accumulated benefit obligation exceeds available plan assets.
Recording a minimum pension liability has no impact on the results of
operations or cash flows. Summarized in the following table are the
components of the company's minimum pension liability for the two years
ended December 31 (in millions):
- ------------------------------------------------------------------------------------
2003 2002
- ------------------------------------------------------------------------------------
Minimum pension liability -- domestic plans $(807.9) $(770.4)
Minimum pension liability -- equity investments (31.9) (35.5)
Intangible asset -- unrecognized prior service costs 112.2 116.9
Deferred income taxes 274.6 260.8
- ----------------------------------------------------------------------- --------
Net minimum pension liability $(453.0) $(428.2)
======================================================================= ========
Minimum funding for the company's defined benefit pension plans is
determined in accordance with guidelines set forth in the federal Employee
Retirement Income Security Act (ERISA). The company will make required
minimum pension contributions totaling $71 million for all plans in 2004.
Additional contributions to enhance the funded status of pension plans can
be made at the company's discretion, and Anheuser-Busch made accelerated
contributions of $75 million and $201 million in the fourth quarters of 2003
and 2002, respectively. Following is information regarding the allocation of
the company's pension plan assets as of December 31, 2003 and 2002, target
allocation for 2004 and weighted average expected long-term rates of return
by asset category.
- ---------------------------------------------------------------------------------------------
Percentage of Percentage of Target Asset Wtd Avg Expected
Plan Assets at Plan Assets at Allocation for Long-Term
Asset Category Dec. 31, 2002 Dec. 31, 2003 2004 Rate of Return
- ---------------------------------------------------------------------------------------------
Equity securities 65% 69% 68% 10.0%
Debt securities 30% 27% 27% 5.0%
Real estate 5% 4% 5% 7.0%
- ---------------------------------------------------------------------------------------------
Total 100% 100% 100% 8.5%
=============================================================================================
The company's pension assets are currently invested in domestic and
international stocks, domestic fixed income securities and real estate.
Target asset allocations are intended to achieve a desired total asset
return over the long term, with an acceptable level of risk in the shorter
term. Risk is measured in terms of likely volatility of annual investment
returns, pension expense and funding requirements. Expected returns, risk
and correlation among asset classes are based on historical data and
investment advisor input.
The assumed rate of return is consistent with Anheuser-Busch's long-term
investment return objective, which enables the company to provide
competitive and secure employee retirement pension benefits. The company
desires to minimize unfunded pension liabilities, while balancing expected
long-term returns and short-term volatility.
The company assumes prudent levels of risk to meet overall pension
investment goals. Risk levels are managed through formal and written
investment guidelines. Portfolio risk is managed by having well defined
long-term strategic asset allocation targets. The company avoids tactical
asset allocation and market timing and has established disciplined
rebalancing policies to ensure asset allocations remain close to targets.
The company believes this approach ensures broad market diversification,
which reduces exposure to individual companies, industries and sectors of
the market and reduces overhead costs. With the exception of the U.S.
government and its agencies, investment exposure to any single entity is
limited to a maximum 5% of any single fund. Pension assets do not include
any direct investment in Anheuser-Busch debt or equity securities.
Options and futures are used to hedge exposure to foreign currency
denominated stocks and securitize cash in investment portfolios. By policy,
derivatives used must be simple structures with high liquidity and be either
exchange-traded or executed with highly rated counterparties. Leveraged
transactions, short selling, illiquid derivative instruments and margin
transactions are prohibited.
Postretirement Health Care and Insurance Benefits
The company provides certain health care and life insurance benefits to
eligible retired employees. Participants must have 10 years of continuous
service after reaching age 45 to become eligible for partial retiree health
care benefits. Employees become eligible for full retiree health care
benefits after achieving specific age and total years of service
requirements, based on hire date.
Net periodic postretirement benefits expense for company health care and
life insurance plans was comprised of the following for the three years
ended December 31 (in millions):
- -------------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------------
Service cost $ 19.7 $ 19.8 $ 18.9
Interest cost on accumulated postretirement
benefits obligation 37.9 33.0 30.4
Amortization of prior service benefit (11.5) (11.6) (11.6)
Amortization of actuarial loss/(gain) 2.3 (3.6) (5.4)
- ------------------------------------------------------------ -------------------
Net periodic postretirement benefits expense $ 48.4 $ 37.6 $ 32.3
============================================================ ===================
52 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
The following tables summarize changes in the accumulated and total
postretirement benefit obligations for all company single-employer defined
benefit health care and life insurance plans for the two years ended
December 31 (in millions). As of December 31, 2003 and 2002, $41.6 million
and $36.1 million, respectively, of the company's total postretirement
benefits liability was classified as current. Postretirement benefit
obligations are not prefunded and there are no assets associated with the
plans.
The company's postretirement benefits liability does not include the impact
of the Medicare Prescription Drug Improvement and Modernization Act of 2003,
which was signed into law on December 8, 2003. The Act provides a federal
subsidy to sponsors of retiree health care plans, such as Anheuser-Busch.
Specific accounting guidance for the Act is pending. Preliminary estimates
indicate the impact to the company will be insignificant. Accounting
guidance is expected in 2004.
- -------------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------------
Accumulated postretirement benefits obligation,
beginning of year $ 478.5 $466.5
Service cost 19.7 19.8
Interest cost 37.9 33.0
Actuarial loss 111.1 0.8
Benefits paid (46.8) (41.6)
- ------------------------------------------------------------------------ -------
Accumulated postretirement benefits obligation,
end of year 600.4 478.5
Unrecognized prior service benefits 28.2 41.3
Unrecognized net actuarial losses (116.6) (9.5)
- ------------------------------------------------------------------------ -------
Total postretirement benefits liability $ 512.0 $510.3
======================================================================== =======
The key actuarial assumptions used to determine net postretirement benefits
expense and the accumulated postretirement benefits obligation for the three
years ended December 31 are provided in the table below. For actuarial
purposes, the initial health care trend rate is assumed to decline ratably
to the future rate and then remain constant thereafter.
- --------------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------------
Discount rate 6.25% 7.25% 7.75%
Initial health care cost trend rate 10.45% 11.3% 10.6%
Future health care cost trend rate 5.0% 5.5% 5.3%
Year health care trend rate becomes constant 2012 2011 2010
- ------------------------------------------------------------ ------------------
Following is a summary of the impact on net periodic postretirement
benefits expense and the accrued postretirement benefits liability of a
hypothetical 1% change in the assumed health care cost trend rate (in
millions). Brackets indicate a reduction in expense or liability.
- ---------------------------------------------------------------------------------------
1% Increase 1% Decrease
- ---------------------------------------------------------------------------------------
Net periodic postretirement benefits expense $ 6.8 $ (5.7)
Accrued postretirement benefits liability 57.6 (49.8)
- ---------------------------------------------------------------------------------------
9. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss recorded in
shareholders equity as of December 31 are summarized below (in millions):
- ------------------------------------------------------------------------------------
2003 2002
- ------------------------------------------------------------------------------------
Foreign currency translation losses $(669.4) $(439.6)
Deferred hedging gains/(losses) 59.8 (5.9)
Deferred securities valuation gains 172.3 3.0
Net minimum pension liability (453.0) (428.2)
- ----------------------------------------------------------------------- --------
Accumulated other comprehensive loss $(890.3) $(870.7)
======================================================================= ========
10. INCOME TAXES
In the first quarter 2002, the company began presenting net incremental U.S.
income taxes relating to foreign equity investment earnings in the
consolidated income tax provision. The company previously presented these
taxes in equity income. This change in presentation has no impact on net
income, earnings per share or cash flow. For comparability, 2001 information
was recast to conform to the revised presentation.
Following are the components of the provision for income taxes for the
three years ended December 31 (in millions):
- -------------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------------
Current tax provision:
Federal $ 813.1 $ 747.5 $816.0
State 142.6 128.5 124.2
Foreign 8.1 5.3 3.1
- ------------------------------------------------------------ ---------------------
Total current provision 963.8 881.3 943.3
- ------------------------------------------------------------ ---------------------
Deferred tax provision:
Federal 112.1 141.4 (11.0)
State 17.0 19.0 (2.3)
Foreign 0.4 (0.2) (2.5)
- ------------------------------------------------------------ ---------------------
Total deferred provision 129.5 160.2 (15.8)
- ------------------------------------------------------------ ---------------------
Total tax provision $1,093.3 $1,041.5 $927.5
============================================================ =====================
The deferred tax provision results from temporary differences between
financial reporting and income tax filing for the basis of assets and
liabilities, and in the timing of recognition of certain income and expense
items. The primary temporary differences relate to depreciation on fixed
assets and accrued U.S. taxes on equity income, net of foreign tax credits.
The deferred tax provisions for 2003 and 2002 include the tax impacts of the
$75 million and $201 million accelerated pension contributions,
respectively. The 2001 deferred tax provision includes the impact of
reversing a deferred tax liability in conjunction with the sale of SeaWorld
Cleveland.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 53
The company's deferred tax liabilities and deferred tax assets as of
December 31, 2003 and 2002 are summarized by category below (in millions).
Deferred tax liabilities result primarily from tax deductions being received
prior to expense recognition for financial reporting purposes. Deferred tax
assets relate primarily to expenses being recognized for financial reporting
purposes that are not yet deductible for tax purposes, and to the
recognition of minimum pension liabilities. Deferred taxes are not provided
on undistributed earnings of foreign subsidiaries that are considered to be
permanently reinvested outside the U.S. Foreign earnings considered
permanently reinvested totaled $169.1 million and $141.9 million,
respectively, at December 31, 2003 and 2002.
- -------------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------------
Deferred tax liabilities:
Fixed assets $1,795.6 $1,691.1
Accrued net U.S. taxes on equity earnings 124.1 111.1
Other 308.5 275.1
- ------------------------------------------------------------------------ ---------
Total deferred tax liabilities 2,228.2 2,077.3
- ------------------------------------------------------------------------ ---------
Deferred tax assets:
Minimum pension obligation 264.4 248.3
Postretirement benefits 205.6 194.4
Spare parts and production supplies 72.5 67.7
Compensation-related obligations 67.1 63.9
Accrued liabilities and other 156.5 157.9
- ------------------------------------------------------------------------ ---------
Total deferred tax assets 766.1 732.2
- ------------------------------------------------------------------------ ---------
Net deferred tax liabilities $1,462.1 $1,345.1
======================================================================== =========
A reconciliation between the U.S. federal statutory tax rate and
Anheuser-Busch's effective tax rate for the three years ended December 31 is
presented below:
- -------------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 3.7 3.6 3.3
Impact of foreign operations 0.7 1.5 0.7
Other items, net (0.7) (0.4) --
- ----------------------------------------------------------- -----------------
Effective tax rate 38.7% 39.7% 39.0%
=========================================================== =================
11. SUPPLEMENTAL CASH FLOWS INFORMATION
Accounts payable include $111.0 million and $87.4 million, respectively, of
outstanding checks at December 31, 2003 and 2002.
Supplemental cash flows information for the three years ended
December 31 is presented in the following table (in millions).
- -------------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------------
Cash paid during the year:
Interest, net of interest capitalized $ 369.0 $ 343.0 $ 313.1
Income taxes 952.2 788.7 889.8
Excise taxes 2,169.4 2,119.5 2,052.6
Noncash investing activity:
Issuance of treasury stock related to
wholesaler acquisition (1) $ 72.6 $ -- $ --
Change in working capital:
(Increase)/decrease in current assets:
Accounts receivable $ (39.0) $ (9.5) $ (20.5)
Inventories (23.9) 28.2 16.5
Other current assets (60.5) 53.3 4.2
Increase/(decrease) in current liabilities:
Accounts payable 107.1 41.6 4.2
Accrued salaries, wages and benefits 1.4 31.7 (20.6)
Accrued taxes (17.9) 19.9 33.7
Other current liabilities (21.1) (42.0) 43.5
Derivatives fair value adjustment 77.2 17.7 (16.4)
Noncash change in working capital due to
wholesaler acquisition 9.3 -- --
- ------------------------------------------------------------ ---------------------
Net decrease in working capital $ 32.6 $ 140.9 $ 44.6
============================================================ =====================
<FN>
Note 1: Recorded as a reduction in treasury stock for the company's average
cost of the shares ($28.5), and an increase in paid-in-capital for the
remainder ($44.1).
12. COMMITMENTS AND CONTINGENCIES
Following are the company's cash commitments as of December 31, 2003 (in
millions):
- -------------------------------------------------------------------------------------------------
2005 2007 2009 and
2004 and 2006 and 2008 Thereafter Total
- -------------------------------------------------------------------------------------------------
Capital expenditures $108 $ 62 $ -- $ -- $ 170
Maturities of long-term debt (1) 251 170 550 5,742 6,713
Operating leases 37 61 32 286 416
Brewing and packaging materials 546 139 183 574 1,442
- -------------------------------------------------------------------------------------------------
$942 $432 $765 $6,602 $8,741
=================================================================================================
<FN>
Note 1: Excludes commercial paper and the ESOP debt guaranteed by the
company.
In January 1997, Maris Distributing Company, Inc., a former Anheuser-Busch
wholesaler in Florida, initiated litigation against the company alleging
breach of contract and 12 other claims. Anheuser-Busch terminated its
distribution agreement with Maris Distributing in March 1997. During the
course of litigation, nine claims were resolved in favor of Anheuser-Busch
and a defamation claim brought by Maris was mistried. In August 2001, a jury
rendered a verdict against the company in the amount of $50 million on two
remaining claims. The court subsequently awarded plaintiffs an additional
$22.6 million in accumulated prejudgment interest on the jury award, which
may continue to accrue at a rate that is fixed annually. Anheuser-Busch
continues to believe it acted appropriately in terminating the distribution
agreement of Maris Distributing. In May 2003, the Court of Appeals remanded
the case to the trial court for resolution of issues relating to the
defamation claim. In September 2003, the trial court determined that Maris
Distributing's amended defamation claim
54 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
could proceed. Anheuser-Busch is vigorously contesting that claim and is
seeking review of the decision of the trial court to permit the defamation
claim to proceed. The appeals of the 2001 verdict cannot be heard by the
Court of Appeals until matters relating to the defamation claim are
resolved. The company continues to vigorously contest the verdict. However,
resolution is not expected to occur quickly and the ultimate impact of this
matter on the company's financial position, results of operations or cash
flows cannot presently be predicted. The company's results do not include
any expense related to the Maris Distributing judgment or interest for any
year shown.
The company and certain of its subsidiaries are involved in additional
claims and legal proceedings in which monetary damages and other relief is
sought. The company is vigorously contesting these claims; however
resolution is not expected to occur quickly, and their ultimate outcome
cannot presently be predicted. It is the opinion of management that the
ultimate resolution of these claims, legal proceedings and other
contingencies, either individually or in the aggregate, will not materially
affect the company's financial position, results of operations or liquidity.
13. GOODWILL AND BEER DISTRIBUTION RIGHTS
On adoption of FAS 142, the company reclassified out of goodwill purchased
beer distribution rights that met specific criteria for distinct asset
recognition. The company also reclassified into goodwill certain
miscellaneous intangible assets that did not meet the criteria for separate
asset recognition. The following table shows the activity in goodwill and
beer distribution rights since the adoption of FAS 142 (in millions). Beer
distribution rights include international rights having a gross cost of
$26.1 million and a remaining unamortized balance of $22.0 million at
December 31, 2003. Amortization expense for these rights will remain
constant over the next five years.
- -----------------------------------------------------------------------------------
Beer Distribution
Goodwill Rights
- -----------------------------------------------------------------------------------
Balance at December 31, 2001 $1,256.9 $ --
Reclassification on adoption of FAS 142 (151.4) 158.9
Distribution rights acquired -- 13.6
Amortization of international distribution rights -- (0.8)
Foreign currency translation and other (80.1) 2.0
- -----------------------------------------------------------------------------------
Balance at December 31, 2002 1,025.4 173.7
Distribution rights acquired -- 47.3
Distribution rights sold -- (1.0)
Amortization of international distribution rights -- (0.8)
Foreign currency translation and other (35.5) 2.1
- -----------------------------------------------------------------------------------
Balance at December 31, 2003 $ 989.9 $221.3
===================================================================================
FAS 142 does not permit restatement of previously issued financial
statements. Therefore, the company's results for 2003 and 2002 do not
include any goodwill amortization while results for 2001 include goodwill
amortization. For comparability, the following table sets forth net income
and earnings per share for 2001 assuming FAS 142 had been applied.
- -------------------------------------------------------------
2001
- -------------------------------------------------------------
Reported net income $1,704.5
Add back goodwill amortization 35.8
- -------------------------------------------------------------
Adjusted net income $1,740.3
=============================================================
Reported basic earnings per share $ 1.91
Add back goodwill amortization .04
- -------------------------------------------------------------
Adjusted basic earnings per share $ 1.95
=============================================================
Reported diluted earnings per share $ 1.89
Add back goodwill amortization .04
- -------------------------------------------------------------
Adjusted diluted earnings per share $ 1.93
=============================================================
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Year ended December 31, 2003
- -------------------------------------------------------------------------------------------------
Earnings per Share
Net Gross Net -------------------
Sales Profit Income Basic Diluted
- -------------------------------------------------------------------------------------------------
1st Qtr $ 3,280.6 $1,306.2 $ 484.8 $ .58 $ .57
2nd Qtr 3,770.2 1,580.3 632.6 .76 .75
3rd Qtr 3,880.5 1,676.4 664.3 .81 .80
4th Qtr 3,215.4 1,134.7 294.2 .36 .36
- -------------------------------------------------------------------------------------------------
Annual $14,146.7 $5,697.6 $2,075.9 $2.51 $2.48
=================================================================================================
Year ended December 31, 2002
- -------------------------------------------------------------------------------------------------
Earnings per Share
Net Gross Net -------------------
Sales Profit Income Basic Diluted
- -------------------------------------------------------------------------------------------------
1st Qtr $ 3,136.6 $1,222.0 $ 456.1 $ .52 $ .51
2nd Qtr 3,626.1 1,506.3 586.5 .67 .66
3rd Qtr 3,706.2 1,601.0 622.0 .72 .71
4th Qtr 3,097.5 1,105.8 269.2 .32 .32
- -------------------------------------------------------------------------------------------------
Annual $13,566.4 $5,435.1 $1,933.8 $2.23 $2.20
=================================================================================================
15. 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
manufacturing and wholesale sales operations, including vertically
integrated rice, barley and hops operations.
The international beer segment consists of the company's export sales and
overseas beer production and marketing operations, which include
company-owned operations in China and the United Kingdom, administration of
contract and license brewing arrangements and equity investments. Principal
foreign markets for sale of the company's products are China, the United
Kingdom, Canada and Ireland. The company attributes foreign sales based on
the domicile of the purchaser of the product.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 55
The packaging segment is composed of the company's aluminum beverage
can and lid manufacturing, aluminum recycling, label printing and glass
manufacturing operations. Cans and lids are produced for both the company's
domestic beer operations and external customers in the U.S. soft drink
industry.
The entertainment segment consists of the company's SeaWorld, Busch
Gardens and other adventure park operations. In the first quarter of 2001,
the company sold its SeaWorld Cleveland theme park to Six Flags, Inc. for
$110 million, and recognized a $17.8 million pretax gain ($.005 per share,
after-tax), which is shown as a separate line item in the consolidated
income statement.
The other segment is comprised of the company's real estate development
and transportation businesses.
Summarized below is the company's business segment information for
2003, 2002 and 2001 (in millions). Intersegment sales are fully eliminated
in consolidation. No single customer accounted for more than 10% of sales.
General corporate expenses, including net interest expense, are not
allocated to the operating segments.
- -------------------------------------------------------------------------------------------------------------------------
Domestic Int'l Corp.
2003 Beer Beer Pkg. Enter. Other & Elims (1) Consol.
- -------------------------------------------------------------------------------------------------------------------------
Income Statement Information:
Gross sales $12,997.5 797.0 2,093.6 923.9 74.4 (566.2) $16,320.2
Net sales - intersegment $ -- -- 869.2 -- 4.3 (873.5) $ --
Net sales - external $10,984.4 636.6 1,224.4 923.9 70.1 307.3 $14,146.7
Depreciation and amortization $ 642.3 24.6 79.2 87.3 4.9 38.9 $ 877.2
Income before income taxes $ 3,118.7 90.8 155.5 162.8 (12.0) (691.5) $ 2,824.3
Equity income, net of tax $ -- 344.9 -- -- -- -- $ 344.9
Net income $ 1,933.6 401.2 96.4 100.9 (7.4) (448.8) $ 2,075.9
Balance Sheet Information:
Total assets $ 7,804.7 3,517.9 782.4 1,341.9 202.9 1,039.7 $14,689.5
Equity method investments $ -- 2,566.6 -- -- -- -- $ 2,566.6
Goodwill $ -- 679.7 21.9 288.3 -- -- $ 989.9
Foreign-located fixed assets $ -- 250.1 -- -- -- -- $ 250.1
Capital expenditures $ 744.9 39.0 42.6 127.9 4.0 34.6 $ 993.0
- -------------------------------------------------------------------------------------------------------------------------
Domestic Int'l Corp.
2002 Beer Beer Pkg. Enter. Other & Elims (1) Consol.
- -------------------------------------------------------------------------------------------------------------------------
Income Statement Information:
Gross sales $12,562.9 713.6 2,072.0 858.6 92.8 (613.1) $15,686.8
Net sales - intersegment $ -- -- 877.3 -- 18.1 (895.4) $ --
Net sales - external $10,574.1 582.0 1,194.7 858.6 74.7 282.3 $13,566.4
Depreciation and amortization $ 615.3 22.1 82.5 84.9 5.5 37.0 $ 847.3
Income before income taxes $ 2,919.2 76.1 154.0 153.0 (3.4) (675.3) $ 2,623.6
Equity income, net of tax $ -- 351.7 -- -- -- -- $ 351.7
Net income $ 1,809.9 398.9 95.5 94.9 (2.1) (463.3) $ 1,933.8
Balance Sheet Information:
Total assets $ 7,559.1 3,182.3 830.1 1,298.2 210.2 1,039.6 $14,119.5
Equity method investments $ -- 2,640.1 -- -- -- -- $ 2,640.1
Goodwill $ -- 715.2 21.9 288.3 -- -- $ 1,025.4
Foreign-located fixed assets $ -- 225.5 -- -- -- -- $ 225.5
Capital expenditures $ 670.7 28.2 31.9 72.2 3.4 28.3 $ 834.7
- -------------------------------------------------------------------------------------------------------------------------
Domestic Int'l Corp.
2001 Beer Beer Pkg. Enter. Other & Elims (1) Consol.
- -------------------------------------------------------------------------------------------------------------------------
Income Statement Information:
Gross sales $11,950.7 654.1 1,999.8 847.6 108.0 (587.2) $14,973.0
Net sales - intersegment $ -- -- 829.0 -- 25.0 (854.0) $ --
Net sales - external $10,003.9 539.4 1,170.8 847.6 83.0 266.8 $12,911.5
Depreciation and amortization $ 585.7 22.2 85.7 93.5 5.4 42.0 $ 834.5
Income before income taxes $ 2,667.1 54.4 107.5 147.4 7.3 (606.1) $ 2,377.6
Equity income, net of tax $ -- 254.4 -- -- -- -- $ 254.4
Net income $ 1,648.8 288.0 66.5 85.6 4.5 (388.9) $ 1,704.5
Balance Sheet Information:
Total assets $ 7,607.5 3,109.0 904.6 1,307.3 210.2 806.3 $13,944.9
Equity method investments $ -- 2,623.4 -- -- -- -- $ 2,623.4
Goodwill $ 158.6 788.1 21.9 288.3 -- -- $ 1,256.9
Foreign-located fixed assets $ -- 209.6 -- -- -- -- $ 209.6
Capital expenditures $ 710.0 21.5 108.4 88.8 23.2 70.1 $ 1,022.0
- -------------------------------------------------------------------------------------------------------------------------
<FN>
Note 1: Corporate assets principally include cash, marketable securities,
deferred charges and certain fixed assets. Eliminations impact only gross
and intersegment sales. External net sales reflects the reporting of
pass-through delivery costs reimbursed by customers of $298.9 million,
$282.3 million and $266.8 million in 2003, 2002 and 2001, respectively.
56 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Anheuser-Busch Companies is responsible for the
preparation and presentation of the financial statements and other financial
information included in this annual report. Management is also responsible
for the reasonableness of estimates and judgments inherent in the
preparation of the financial statements, which are prepared in accordance
with accounting principles generally accepted in the United States.
It is management's responsibility to ensure the company maintains
accounting and reporting systems, supported by a system of internal
accounting controls, designed to provide reasonable assurance as to the
integrity of the underlying financial records and the protection of assets.
These systems include written policies and procedures, selection and
training of qualified personnel, organizational segregation of duties and a
program of internal reviews and appropriate follow-up.
Management believes the company's systems 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 2003, the company's internal
auditors, in conjunction with PricewaterhouseCoopers LLP, the company's
independent auditors, performed a comprehensive review of the adequacy of
the company's internal accounting controls system. Based on that
comprehensive review, it is management's opinion that the company has an
effective system of internal accounting controls.
The Board of Directors is responsible for ensuring the independence and
qualifications of Audit Committee members under applicable New York Stock
Exchange and U.S. Securities and Exchange Commission guidelines. The Audit
Committee of the Board of Directors, which consists of five nonmanagement
directors, oversees the company's financial reporting and internal controls
systems and meets with management, the independent auditors and internal
auditors periodically to review auditing and financial reporting matters.
The Audit Committee is solely responsible for the selection and retention of
the company's independent auditors, subject to shareholder approval. The
Audit Committee held five meetings during 2003. Its report for 2003 can be
found in the company's proxy statement.
PricewaterhouseCoopers LLP is responsible for conducting an independent
examination of the company's financial statements in accordance with
auditing standards generally accepted in the United States, and expressing
an opinion as to whether the financial statements fairly present, in all
material respects, the company's financial position, operating results, cash
flows and changes in shareholders equity.
REPORT OF INDEPENDENT AUDITORS
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, 2003
and 2002, 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, 2003. 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 of America. 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 referred to above
present fairly, in all material respects, the financial position of
Anheuser-Busch Companies, Inc. and its subsidiaries at December 31, 2003 and
2002, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the Consolidated Financial Statements, the
company changed its method of accounting for goodwill and other intangible
assets as of January 1, 2002.
/s/ PricewaterhouseCoopers LLP
800 Market Street
St. Louis, MO 63101
February 2, 2004
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 57
FINANCIAL SUMMARY -- OPERATIONS
ANHEUSER-BUSCH COMPANIES AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------
Year ended December 31 (in millions, except per share) 2003 2002 2001
- -------------------------------------------------------------------------------------------------
Barrels of Anheuser-Busch beer brands sold worldwide 111.0 109.8 107.2
- ------------------------------------------------------------------------ ----------------------
Gross sales $16,320.2 $15,686.8 $14,973.0
Excise taxes (2,173.5) (2,120.4) (2,061.5)
- ------------------------------------------------------------------------ ----------------------
Net sales 14,146.7 13,566.4 12,911.5
Cost of sales (8,449.1) (8,131.3) (7,950.4)
- ------------------------------------------------------------------------ ----------------------
Gross profit 5,697.6 5,435.1 4,961.1
Marketing, distribution and administrative expenses (2,498.3) (2,455.4) (2,255.9)
Gain on sale of business (1) -- -- 17.8
Shutdown of Tampa brewery -- -- --
Restructuring charge -- -- --
- ------------------------------------------------------------------------ ----------------------
Operating income 3,199.3 2,979.7 2,723.0
Interest expense (401.5) (368.7) (361.2)
Interest capitalized 24.4 17.7 26.9
Interest income 1.7 1.3 1.1
Other income/(expense), net 0.4 (6.4) (12.2)
- ------------------------------------------------------------------------ ----------------------
Income before income taxes 2,824.3 2,623.6 2,377.6
Provision for income taxes (1,093.3) (1,041.5) (927.5)
Revaluation of deferred tax liability under FAS 109 -- -- --
Equity income, net of tax 344.9 351.7 254.4
- ------------------------------------------------------------------------ ----------------------
Income from continuing operations 2,075.9 1,933.8 1,704.5
Income/(loss) from discontinued operations -- -- --
- ------------------------------------------------------------------------ ----------------------
Income before accounting changes 2,075.9 1,933.8 1,704.5
Cumulative effect of accounting changes -- -- --
- ------------------------------------------------------------------------ ----------------------
Net income $ 2,075.9 $ 1,933.8 $ 1,704.5
======================================================================== ======================
Basic earnings per share:
Income from continuing operations $ 2.51 $ 2.23 $ 1.91
Income/(loss) from discontinued operations -- -- --
- ------------------------------------------------------------------------ ----------------------
Income before accounting changes 2.51 2.23 1.91
Cumulative effect of accounting changes -- -- --
- ------------------------------------------------------------------------ ----------------------
Net income $ 2.51 $ 2.23 $ 1.91
======================================================================== ======================
Diluted earnings per share:
Income from continuing operations $ 2.48 $ 2.20 $ 1.89
Income/(loss) from discontinued operations -- -- --
- ------------------------------------------------------------------------ ----------------------
Income before accounting changes 2.48 2.20 1.89
Cumulative effect of accounting changes -- -- --
- ------------------------------------------------------------------------ ----------------------
Net income $ 2.48 $ 2.20 $ 1.89
======================================================================== ======================
Weighted average number of common shares:
Basic 826.2 866.0 890.1
Diluted 837.0 878.9 901.6
- -------------------------------------------------------------------------------------------------
All share and per share information reflects the two-for-one common stock
splits distributed September 18, 2000 and September 12, 1996 and the 1997
adoption of FAS 128, "Earnings per Share." Gross sales, net sales and cost
of sales for all years reflect the change made in 2001 for the presentation
of pass-through finished product delivery costs reimbursed by customers.
This change had a minor impact on revenue and profit margin growth, and had
no impact on cash flow, operating income, net income and earnings per share.
All information has been restated to recognize the 1995 divestiture of the
food products segment.
<FN>
Note 1: Sale of SeaWorld Cleveland in 2001; Sale of the St. Louis
Cardinals in 1996.
Note 2: 1997 change in accounting for deferred systems reengineering costs,
net of tax benefit of $6.2 million.
58 ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT
FINANCIAL SUMMARY -- OPERATIONS
ANHEUSER-BUSCH COMPANIES AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------
Year ended December 31 (in millions, except per share) 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Barrels of Anheuser-Busch beer brands sold worldwide 105.6 102.9 99.8 96.6
- --------------------------------------------------------------------------------------------------------------------
Gross sales $14,534.2 $13,914.5 $13,342.5 $12,936.0
Excise taxes (2,034.8) (2,019.6) (1,962.1) (1,766.2)
- --------------------------------------------------------------------------------------------------------------------
Net sales 12,499.4 11,894.9 11,380.4 11,169.8
Cost of sales (7,829.9) (7,445.6) (7,297.1) (7,200.5)
- --------------------------------------------------------------------------------------------------------------------
Gross profit 4,669.5 4,449.3 4,083.3 3,969.3
Marketing, distribution and administrative expenses (2,174.8) (2,147.0) (1,958.0) (1,916.3)
Gain on sale of business (1) -- -- -- --
Shutdown of Tampa brewery -- -- -- --
Restructuring charge -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Operating income 2,494.7 2,302.3 2,125.3 2,053.0
Interest expense (348.2) (307.8) (291.5) (261.2)
Interest capitalized 33.3 18.2 26.0 42.1
Interest income 1.1 4.3 5.8 7.9
Other income/(expense), net (1.0) (9.4) (13.0) (9.3)
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,179.9 2,007.6 1,852.6 1,832.5
Provision for income taxes (874.3) (784.1) (732.2) (715.2)
Revaluation of deferred tax liability under FAS 109 -- -- -- --
Equity income, net of tax 246.0 178.7 112.9 61.9
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations 1,551.6 1,402.2 1,233.3 1,179.2
Income/(loss) from discontinued operations -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Income before accounting changes 1,551.6 1,402.2 1,233.3 1,179.2
Cumulative effect of accounting changes -- -- -- (10.0)(2)
- --------------------------------------------------------------------------------------------------------------------
Net income $ 1,551.6 $ 1,402.2 $ 1,233.3 $ 1,169.2
====================================================================================================================
Basic earnings per share:
Income from continuing operations $ 1.71 $ 1.49 $ 1.28 $ 1.19
Income/(loss) from discontinued operations -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Income before accounting changes 1.71 1.49 1.28 1.19
Cumulative effect of accounting changes -- -- -- (.01)(2)
- --------------------------------------------------------------------------------------------------------------------
Net income $ 1.71 $ 1.49 $ 1.28 $ 1.18
====================================================================================================================
Diluted earnings per share:
Income from continuing operations $ 1.69 $ 1.47 $ 1.27 $ 1.18
Income/(loss) from discontinued operations -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Income before accounting changes 1.69 1.47 1.27 1.18
Cumulative effect of accounting changes -- -- -- (.01)(2)
- --------------------------------------------------------------------------------------------------------------------
Net income $ 1.69 $ 1.47 $ 1.27 $ 1.17
====================================================================================================================
Weighted average number of common shares:
Basic 906.1 939.0 964.2 985.3
Diluted 919.7 953.7 975.0 999.4
- --------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31 (in millions, except per share) 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
Barrels of Anheuser-Busch beer brands sold worldwide 95.1 90.9 91.3 89.7
- ---------------------------------------------------------------------------------------------------------------------
Gross sales $12,721.8 $12,100.1 $11,793.9 $11,232.5
Excise taxes (1,737.8) (1,664.0) (1,679.7) (1,679.8)
- ---------------------------------------------------------------------------------------------------------------------
Net sales 10,984.0 10,436.1 10,114.2 9,552.7
Cost of sales (7,064.9) (6,886.6) (6,581.0) (6,252.8)
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 3,919.1 3,549.5 3,533.2 3,299.9
Marketing, distribution and administrative expenses (1,890.0) (1,756.6) (1,679.9) (1,612.1)
Gain on sale of business (1) 54.7 -- -- --
Shutdown of Tampa brewery -- (160.0) -- --
Restructuring charge -- -- -- (401.3)
- ---------------------------------------------------------------------------------------------------------------------
Operating income 2,083.8(3) 1,632.9(4) 1,853.3 1,286.5(5)
Interest expense (232.8) (225.9) (219.3) (205.1)
Interest capitalized 35.5 24.3 21.8 35.2
Interest income 9.4 9.9 2.6 3.4
Other income/(expense), net (3.0) 20.5 17.6 21.0
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,892.9(3) 1,461.7(4) 1,676.0 1,141.0(5)
Provision for income taxes (736.8) (575.1) (661.5) (452.6)
Revaluation of deferred tax liability under FAS 109 -- -- -- (31.2)
Equity income, net of tax -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Income from continuing operations 1,156.1(3) 886.6(4) 1,014.5 657.2(5)
Income/(loss) from discontinued operations 33.8 (244.3) 17.6 (62.7)
- ---------------------------------------------------------------------------------------------------------------------
Income before accounting changes 1,189.9 642.3 1,032.1 594.5
Cumulative effect of accounting changes -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 1,189.9 $ 642.3 $ 1,032.1 $ 594.5
=====================================================================================================================
Basic earnings per share:
Income from continuing operations $ 1.16 $ .86 $ .96 $ .60
Income/(loss) from discontinued operations .03 (.23) .02 (.05)
- ---------------------------------------------------------------------------------------------------------------------
Income before accounting changes 1.19 .63 .98 .55
Cumulative effect of accounting changes -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 1.19 $ .63 $ .98 $ .55
=====================================================================================================================
Diluted earnings per share:
Income from continuing operations 1.14(3) $ .85(4) $ .95 $ .60(5)
Income/(loss) from discontinued operations .03 (.23) .02 (.05)
- ---------------------------------------------------------------------------------------------------------------------
Income before accounting changes 1.17 .62 .97 .55
Cumulative effect of accounting changes -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 1.17 $ .62 $ .97 $ .55
=====================================================================================================================
Weighted average number of common shares:
Basic 998.2 1,021.7 1,049.2 1,088.7
Diluted 1,021.2 1,048.8 1,076.1 1,117.2
- ---------------------------------------------------------------------------------------------------------------------
<FN>
Note 3: 1996 results include the impact of the gain on the sale of the
St. Louis Cardinals. Excluding the Cardinals 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 $1.10, respectively.
Note 4: 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 $.99, respectively.
Note 5: 1993 results include the impact of a $401.3 million pretax
restructuring charge and a $31.2 million after-tax charge
resulting from revaluation of the deferred tax liability due to a
1% increase in U.S. federal income tax rates. 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 $.84, respectively.
ANHEUSER-BUSCH COMPANIES, INC. 2003 ANNUAL REPORT 59
FINANCIAL SUMMARY -- BALANCE SHEET AND OTHER INFORMATION
ANHEUSER-BUSCH COMPANIES AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------
Year ended December 31 (in millions, except per share) 2003 2002 2001
- -----------------------------------------------------------------------------------------------------
Balance Sheet Information:
Working capital (deficit) $ (226.9) $ (283.0) $ (186.1)
Current ratio 0.9 0.8 0.9
Debt 7,285.4 6,603.2 5,983.9
Shareholders equity 2,711.7 3,052.3 4,061.5
Return on shareholders equity 72.0% 54.4% 41.6%
Book value per share 3.33 3.61 4.62
Total assets 14,689.5 14,119.5 13,944.9
- -----------------------------------------------------------------------------------------------------
Other Information:
Operating cash flow before change in working capital $ 2,938.3 $ 2,624.3 $ 2,316.0
Capital expenditures 993.0 834.7 1,022.0
Free cash flow 1,977.9 1,930.5 1,338.6
Cash dividends paid on common stock 685.4 649.5 614.1
Per share .83 .75 .69
Price/earnings ratio 21.2 22.0 23.9
Market price range of common stock (high and low closing) 53.69-45.92 54.97-44.00 46.51-38.50
- -----------------------------------------------------------------------------------------------------
All share and per share information reflects the two-for-one common stock
splits distributed September 18, 2000 and September 12, 1996.
All information has been restated to recognize the 1995 divestiture of the
food products segment.
FINANCIAL SUMMARY -- BALANCE SHEET AND OTHER INFORMATION
ANHEUSER-BUSCH COMPANIES AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------
Year ended December 31 (in millions, except per share) 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Balance Sheet Information:
Working capital (deficit) $ (127.8) $ (350.4) $ (89.9) $ 83.2
Current ratio 0.9 0.8 0.9 1.1
Debt 5,362.7 5,122.9 4,718.6 4,365.6
Shareholders equity 4,128.9 3,921.5 4,216.0 4,041.8
Return on shareholders equity 38.5% 34.5% 29.9% 29.2%(1)
Book value per share 4.57 4.25 4.42 4.15
Total assets 13,148.3 12,680.5 12,504.5 11,738.4
- ------------------------------------------------------------------------------------------------------------------------
Other Information:
Operating cash flow before change in working capital $ 2,230.0 $ 2,141.6 $ 1,977.2 $ 1,839.0
Capital expenditures 1,074.5 865.3 817.5 1,199.3
Free cash flow 1,183.0 1,270.6 1,395.9 644.4
Cash dividends paid on common stock 571.0 544.7 521.0 492.6
Per share .63 .58 .54 .50
Price/earnings ratio 26.9 24.1 25.9 18.6(1)
Market price range of common stock (high and low closing) 49.81-27.47 40.81-32.59 34.13-21.72 23.94-19.75
- ------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Year ended December 31 (in millions, except per share) 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
Balance Sheet Information:
Working capital (deficit) $ 34.9 $ 268.6 $ 57.0 $ (41.3)
Current ratio 1.0 1.2 1.0 1.0
Debt 3,270.9 3,270.1 3,066.4 3,019.7
Shareholders equity 4,029.1 4,433.9 4,415.5 4,255.5
Return on shareholders equity 30.0%(2) 25.0%(3) 29.9% 18.8%(4)
Book value per share 4.05 3.61 3.32 3.35
Total assets 10,463.6 10,590.9 10,547.4 10,267.7
- ----------------------------------------------------------------------------------------------------------------------------
Other Information:
Operating cash flow before change in working capital $ 1,751.7 $ 1,700.5 $ 1,729.6 $ 1,535.4
Capital expenditures 1,084.6 952.5 662.8 656.3
Free cash flow 909.2 494.5 1,009.8 991.1
Cash dividends paid on common stock 458.9 429.5 398.8 370.0
Per share .46 .42 .38 .34
Price/earnings ratio 17.6(2) 19.6(3) 13.1 22.6(4)
Market price range of common stock (high and low closing) 21.44-16.25 17-12.69 13.81-11.75 15-11
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
Note 1: Ratios calculated based on income from continuing operations before
the cumulative effect of accounting changes.
Note 2: Ratios 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 Cardinals gain, return on
shareholders equity would have been 29.2% and the price/earnings ratio
would have been 18.1.
Note 3: Ratios 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.
Note 4: Ratios 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.
APPENDIX
Pages 28, 31, 32, 33, 34 and 35 of the Annual Report contain a bar graph.
The information in the bar graph has been presented in a tabular format that
may be processed by the EDGAR system.