SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1998
Commission file number 1-7823
ANHEUSER-BUSCH COMPANIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1162835
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Busch Place, St. Louis, Missouri 63118
(Address of principal executive offices) (Zip Code)
314-577-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to
file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the
latest practicable date.
$1 Par Value Common Stock - 477,918,663 shares as of
September 30, 1998.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
Third Quarter Ended Nine Months Ended
<S> September 30, September 30,
(In millions, except per share data) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------
<C> <C> <C> <C>
Sales........................................... $3,651.1 $3,584.9 $10,123.9 $9,912.1
Less excise taxes............................. (529.1) (483.3) (1,488.1) (1,353.3)
--------------------------------------
Net sales....................................... 3,122.0 3,101.6 8,635.8 8,558.8
Cost of products and services................. (1,895.6)(1,923.6) (5,397.8) (5,390.2)
--------------------------------------
Gross profit.................................... 1,226.4 1,178.0 3,238.0 3,168.6
Marketing, distribution and administrative
expenses...................................... (534.5) (519.2) (1,418.6) (1,395.5)
--------------------------------------
Operating income................................ 691.9 658.8 1,819.4 1,773.1
Other income and expenses:
Interest expense.............................. (70.7) (69.6) (218.4) (192.1)
Interest capitalized.......................... 2.6 10.3 19.7 30.1
Interest income............................... 1.3 1.4 4.4 5.3
Other income/(expense), net................... 1.1 1.0 (3.0) 2.1
--------------------------------------
Income before income taxes...................... 626.2 601.9 1,622.1 1,618.5
Provision for income taxes...................... (237.9) (231.1) (616.6) (621.6)
Equity income, net of tax....................... 20.0 22.7 59.2 35.5
--------------------------------------
Net income...................................... 408.3 393.5 1,064.7 1,032.4
Retained earnings, beginning of period.......... 8,008.8 7,325.4 7,604.9 6,924.5
Common stock dividends (per share: 3rd quarter,
1998--$.28; 1997--$.26; nine months, 1998-
$.80; 1997--$.74)............................. (134.8) (127.7) (387.3) (365.7)
--------------------------------------
Retained earnings, end of period................ $8,282.3 $7,591.2 $8,282.3 $7,591.2
=======================================
Basic earnings per share........................ $ .85 $ .80 $ 2.20 $ 2.09
=======================================
Diluted earnings per share...................... $ .84 $ .79 $ 2.18 $ 2.06
=======================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
on Pages 3 and 4.
2
<PAGE>
Notes to Consolidated Financial Statements
1. UNAUDITED FINANCIAL STATEMENTS: The accompanying unaudited
financial statements have been prepared in accordance with
generally accepted accounting principles and applicable
SEC guidelines pertaining to interim financial information,
and include all adjustments necessary for a fair presentation.
These statements should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included
in the company's Annual Report to Shareholders for the year
ended December 31, 1997.
2. COMPREHENSIVE INCOME: Effective with the first quarter 1998,
the company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130
requires that noncash changes in shareholders equity be combined
with net income and reported in a new financial statement category
entitled "comprehensive income." Adoption of FAS 130 had no impact
on the results of the company's operations.
<TABLE>
The following table sets forth the components of comprehensive
income for the third quarter and nine months of 1998 (in millions):
- -----------------------------------------------------------------------------------------------
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<C> <C> <C> <C>
Net Income $408.3 $393.5 $1,064.7 $1,032.4
Foreign currency translation adjustment 6.7 (8.1) 8.7 (200.5)
-------------------------------------------------
Comprehensive Income $415.0 $385.4 $1,073.4 $831.9
=================================================
- -----------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
3. NEW DERIVATIVES ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). The
Standard requires all derivative financial instruments to be
reflected on an entity's balance sheet at fair value, with
changes in fair value recognized quarterly in either earnings or
equity, depending on the nature of the exposure being hedged.
Adoption of FAS 133 requires a one-time recognition on the
balance sheet of the fair value of the company's derivatives
portfolio plus a cumulative effect adjustment to earnings for the
impact of hedges that are not highly correlated. The company's
derivatives portfolio is not material to its balance sheet.
Anheuser-Busch uses only derivative instruments that are highly
correlated to the underlying exposure and therefore anticipates
no earnings impact from the initial adoption of FAS 133. The
company plans no changes to its risk management policies or
approach as a result of adopting the new Standard.
FAS 133 is required to be adopted by Anheuser-Busch no later than
January 1, 2000. Early adoption of the Standard is permitted.
The company has not yet made a determination as to when FAS 133
will be adopted.
4
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
SEPTEMBER 30,
<S> -------------------
(In millions) 1998 1997
- --------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
<C> <C>
Cash and marketable securities........... $ 126.5 $ 116.2
Receivables, less allowance for
doubtful accounts...................... 798.4 804.3
Inventories:
Raw materials and supplies............. 321.8 292.1
Work in progress....................... 92.6 85.0
Finished goods......................... 199.2 155.8
Total inventories.................... 613.6 532.9
Other current assets..................... 189.3 180.4
------------------------
Total current assets................... 1,727.8 1,633.8
INVESTMENTS IN AFFILIATED COMPANIES...... 1,857.6 1,228.6
INVESTMENTS AND OTHER ASSETS............. 1,095.5 1,071.4
PLANT AND EQUIPMENT, NET................. 7,853.8 7,608.8
------------------------
TOTAL ASSETS........................... $12,534.7 $11,542.6
========================
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable....................... $ 763.1 $ 702.0
Accrued salaries, wages and benefits... 251.6 230.6
Accrued taxes.......................... 284.1 264.0
Other current liabilities.............. 368.5 355.6
------------------------
Total current liabilities............ 1,667.3 1,552.2
------------------------
POSTRETIREMENT BENEFITS.................. 522.8 525.9
------------------------
LONG-TERM DEBT........................... 4,735.9 4,065.6
------------------------
DEFERRED INCOME TAXES.................... 1,345.3 1,257.1
------------------------
SHAREHOLDERS EQUITY:
Common stock........................... 711.8 708.7
Capital in excess of par value......... 1,067.9 982.4
Retained earnings...................... 8,282.3 7,591.2
Foreign currency translation adjustment (205.3) (209.3)
------------------------
9,856.7 9,073.0
Treasury stock, at cost................ (5,346.1) (4,649.1)
ESOP debt guarantee.................... (247.2) (282.1)
------------------------
4,263.4 4,141.8
------------------------
COMMITMENTS AND CONTINGENCIES............ -- --
------------------------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $12,534.7 $ 11,542.6
========================
</TABLE>
5
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
Nine months ended September 30,
<S> -------------------------------
(In millions) 1998 1997
- ---------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES: <C> <C>
Net income.........................................$1,064.7 $ 1,032.4
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization.................. 548.4 501.1
Increase in deferred income taxes.............. 51.7 48.9
Undistributed earnings of affiliated companies. (49.4) (35.5)
(Increase) Decrease in noncash working capital. 1.9 (24.1)
Other, net..................................... 3.7 (76.1)
---------- --------
Cash provided by operating activities.............. 1,621.0 1,446.7
---------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures............................... (603.8) (880.4)
New business acquisitions.......................... (556.5) (619.2)
---------- --------
Cash (used for) investing activities...............(1,160.3) (1,499.6)
---------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in long-term debt......................... 435.2 914.5
Decrease in long-term debt......................... (30.0) (86.5)
Dividends paid to stockholders..................... (387.3) (365.7)
Acquisition of treasury stock...................... (552.8) (442.9)
Shares issued under stock plans.................... 53.4 56.1
---------- --------
Cash provided by (used for) financing activities... (481.5) 75.5
---------- --------
Net increase (decrease) in cash and marketable
securities during the period..................... (20.8) 22.6
Cash and marketable securities, beginning of
period........................................... 147.3 93.6
---------- --------
Cash and marketable securities, end of period...... $ 126.5 $116.2
===================
</TABLE>
Additional information regarding the company's financial position and
business can be obtained by reference to the Anheuser-Busch Companies,
Inc. Annual Report on Form 10-K for the year ended December 31, 1997.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Operations
and Financial Condition
INTRODUCTION
- ------------
This discussion summarizes the significant factors affecting
the consolidated operating results, financial condition and
liquidity/cash flows of Anheuser-Busch Companies, Inc. for the
third quarter and nine months ended September 30, 1998 compared
to the third quarter and nine months ended September 30, 1997,
and the year ended December 31, 1997. This discussion should be
read in conjunction with the Consolidated Financial Statements
and Notes thereto included in the company's Annual Report to
Shareholders for the year ended December 31, 1997. Additional
information concerning the company's consolidated financial and
operating results is contained in the Letter to Shareholders
section of the third quarter Financial Report contained in the
quarterly Anheuser-Busch publication Horizons.
This discussion contains statements regarding the company's
expectations concerning its operations, earnings and prospects.
These statements are forward-looking statements that involve
significant risks and uncertainties, and accordingly no
assurances can be given that such expectations will be correct.
These expectations are based upon many assumptions that the
company believes to be reasonable but such assumptions may
ultimately prove to be inaccurate or incomplete, in whole or in
part. Important factors that could cause actual results to
differ from the expectations stated in this discussion include,
among others, changes in the pricing environment for the
company's products; factors that may affect domestic demand for
malt beverage products; changes in customer preference for the
company's malt beverage products; changes in raw materials
prices; changes in interest rates; changes in foreign currency
exchange rates; 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; and the effect of stock
market conditions on the company's share repurchase program.
GRUPO MODELO INVESTMENT
- -----------------------
On September 14, 1998, the company completed the purchase of
an additional 13.25 % of Diblo, S.A. de C.V., the operating
subsidiary of Grupo Modelo, S.A. de C.V., Mexico's largest brewer
and leading exporter of beer in Mexico. The purchase price was
$556.5 million, bringing Anheuser-Busch's total investment to
$1.6 billion. The additional investment will increase Anheuser-
Busch's total direct and indirect holdings in Grupo Modelo's
operating subsidiary, Diblo, to 50.2%. The increase in ownership
7
<PAGE>
will not give Anheuser-Busch voting control of either Grupo
Modelo or Diblo. As such, the company will continue to account
for its Modelo investment on the equity basis.
THIRD QUARTER AND NINE MONTHS 1998 FINANCIAL RESULTS
- ----------------------------------------------------
Key operating results for the third quarter and nine months
of 1998 versus the comparable periods in 1997 are summarized
below:
<TABLE>
- -----------------------------------------------------------------------------
| Third Quarter (in millions, except per share) |
| ---------|-----------|--------------------------
| 1998 | 1997 | 1998 vs. 1997 |
| ---------|-----------|--------------------------
| <S> <C> | <C> | <C> $ | <C>% |
| Gross Sales $3,651 | $3,585 | Up $66 | Up 1.8% |
| Excise Taxes $529 | $483 | Up $46 | Up 9.5% |
| Net Sales $3,122 | $3,102 | Up $20 | Up 0.7% |
| Operating Income $692 | $659 | Up $33 | Up 5.0% |
| Equity Income, Net of Tax $20 | $23 | Dn $3 | Dn 11.5% |
| Net Income $408 | $393 | Up $15 | Up 3.8% |
| Diluted Earnings per Share $.84 | $.79 | Up $.05 | Up 6.3% |
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------
| Nine Months Ended September 30 |
| (in millions, except per share) |
| -------------------------------------------------
| | | 1998 vs. 1997 |
| | |---------------------------
| 1998 | 1997 | $ | % |
| ---------|-----------|------------|--------------
|<S> <C> | <C> | <C> | <C> |
|Gross Sales $10,124 | $9,912 | Up $212 | Up 2.1% |
|Excise Taxes $1,488 | $1,353 | Up $135 | Up 10.0% |
|Net Sales $8,636 | $8,559 | Up $77 | Up 0.9% |
|Operating Income $1,819 | $1,773 | Up $46 | Up 2.6% |
|Equity Income, Net of Tax $59 | $35 | Up $24 | Up 67.0% |
|Net Income $1,065 | $1,032 | Up $33 | Up 3.1% |
|Diluted Earnings per Share $2.18 | $2.06 | Up $.12 | Up 5.8% |
- ------------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
Anheuser-Busch achieved gross sales of $3.7 billion and
$10.1 billion, and net sales of $3.1 billion and $8.6 billion,
respectively in the third quarter and nine months of 1998. This
represents gross sales increases over 1997 of $66 million, or
1.8%, for the third quarter and $212 million, or 2.1%, for the
nine months. Net sales increased over 1997 by $20 million, or
0.7%, and $77 million, or 0.9%, for the third quarter and nine
months, respectively. For the third quarter of 1998 the
increases are due to higher domestic beer sales volume, partially
offset by lower sales from international beer and entertainment
operations. Increases for the nine months of 1998 are due to
8
<PAGE>
higher domestic volume partially offset by lower international
beer sales. For both the third quarter and nine months of 1998,
gross sales and excise taxes include the impact of consolidating
the Stag Brewery operations in the United Kingdom versus equity
accounting in 1997.
The company's beer volume information for the third quarter
and nine months of 1998 is summarized in the following table:
<TABLE>
- ------------------------------------------------------------------------------------
| Beer Volume (millions of barrels) |
- ------------------------------------------------------------------------------------
| Third Quarter || Nine Months Ended Sept. 30|
| --------------------------||----------------------------
| | vs. 1997 || | vs. 1997 |
| |-------------------|| |---------------------
| 1998 | Barrels % || 1998 | Barrels % |
| ------|--------- ------- || -----| ------- ------- |
|<S> <C> | <C> <C> || <C> | <C> <C> |
|Domestic.................. 25.3 | Up 0.8 Up 3.3% || 70.9 | Up 2.3 Up 3.3% |
|International............. 1.9 | - Up 1.3% || 5.2 | Up 0.1 Up 1.8% |
| ------|--------- ------- || -----| ------- ------- |
|Worldwide - A-B Brands.... 27.2 | Up 0.8 Up 3.1% || 76.1 | Up 2.4 Up 3.2% |
| | || | |
|International Equity | || | |
| Partner Brands........ 2.9 | Up 0.3 Up 12.0% || 7.9 | Up 3.3 Up 74.3% |
| ------|--------- ------- || -----| ------- ------- |
| | || | |
|Total Brands.............. 30.1 | Up 1.1 Up 3.9% || 84.0 | Up 5.7 Up 7.3% |
| ======|========= ======= || =====| ======= ======= |
- ------------------------------------------------------------------------------------
</TABLE>
Worldwide volume for Anheuser-Busch beer brands was up 3.1%
in the third quarter and 3.2% for the nine months of 1998. Total
volume, which combines equity volume (representing the company's
share of its foreign equity partner barrelage) with worldwide
Anheuser-Busch brand volume, was up 1.1 million barrels, or 3.9%,
in the third quarter and up 5.7 million barrels, or 7.3%, for the
nine months. International equity partner brands reflects the
company's 37% ownership interest in Grupo Modelo brands for the
nine months of 1998, compared with a combination of 37% ownership
interest in the third quarter and 17.7% for the first six months
during 1997.
Anheuser-Busch's reduction in price discounting initiated at
the beginning of 1998 is generating positive results. Domestic
revenue per barrel was level in the third quarter 1998 compared
to the same period last year and up 1.4% compared to the end of
1997.
The company initiated its planned revenue enhancement
strategy of additional discount reductions or selective price
increases in approximately 70% of the country, representing about
50% of the company's volume, at the beginning of October 1998 and
although in the early stages, preliminary results are
encouraging. The company anticipates domestic revenue per barrel
growth will resume in the fourth quarter 1998 compared to the
same period last year. This improved pricing environment is
expected to support accelerated profit growth in 1999.
9
<PAGE>
Anheuser-Busch domestic beer shipments grew 3.3% in both the
third quarter and for the nine months of 1998. The increase in
domestic beer shipments reflects strong retail demand, with sales-
to-retailers up more than 4% for the third quarter and up
approximately 4% for the nine months. A portion of the sales-to-
retailers increase was due to pre-buying in advance of the
October price increase. Bud Family sales-to-retailers increased
over 3% for the nine months of 1998 compared to last year, led by
Bud Light which continues to grow at a double-digit pace. The
third quarter of 1998 included the single highest sales-to-
retailers month in Anheuser-Busch and industry history --- with
9.1 million barrels of beer sold in July.
The company's domestic market share (excluding exports) for
the nine months of 1998 was 45.9%, an increase of 0.7 percentage
points over 1997 market share of 45.2%. Including exports, the
company's share of U.S. shipments was 45.7% versus 44.9% for the
nine months of 1997. Domestic market share and share of U.S.
shipments are determined based on industry sales estimates
provided by the Beer Institute. Anheuser-Busch has led the U.S.
brewing industry in sales volume and market share since 1957.
International beer volume (excluding equity partner brands)
was up 1.3 percent in the third quarter and 1.8 percent for the
nine months of 1998 compared to the same periods last year.
Positive sales volume performances in the United Kingdom,
Ireland, Continental Europe and Canada were partially offset by
sales declines in Asia. Operating profits declined for the nine
months due to the weakness in Japan.
In Japan, Anheuser-Busch performance has been impacted by
lower industry sales due to the current economic recession and
introduction of a tax-advantaged happoshu beer category.
Anheuser-Busch has introduced its own happoshu beer to
participate in this growing segment and announced a significant
restructuring of the sales force. Although the restructuring
will result in a one-time charge in the fourth quarter 1998, the
initiatives should lead to lower costs and improved performance
in 1999.
In June 1998, the company restructured its alliance
granting Labatt Brewing Company perpetual rights to brew and sell
the Budweiser and Bud Light brands in Canada. In return, Labatt
10
<PAGE>
will significantly increase marketing support behind the two
brands and provide Anheuser-Busch with a greater share of
associated profits. Budweiser is currently the third-largest-
selling beer in Canada.
During the second quarter of 1998, the company completed its
expansion of the Wuhan brewery in China. The expansion doubles
Wuhan's capacity, bringing it to 2.1 million barrels.
Cost of products and services was $1.9 billion and $5.4
billion, respectively, for the third quarter and nine months of
1998, decreasing 1.5% and increasing 0.1% compared to the same
periods in 1997.
The change in costs of products and services in the third
quarter and nine months of 1998 is primarily due to a change in
the method of accounting for the Stag brewery operation and
improved brewery operating efficiencies. In 1997, before Stag
was 100% owned by Anheuser-Busch, the company accounted for its
50% share of the operations under the equity method. Excise
taxes paid on beer sold were included in the cost of beer
purchased from Stag. In 1998, under full consolidation
accounting, excise taxes are shown as a deduction from gross
sales.
Gross profit as a percentage of net sales was 39.3% for the
third quarter 1998, an increase of 1.3 percentage points versus
the third quarter 1997, and 37.5% for the nine months of 1998, an
increase of 0.5 percentage points versus prior year.
Marketing, distribution and administrative expenses for the
third quarter 1998 were $534.5 million compared with $519.2
million for the third quarter 1997, an increase of $15.3 million,
or 2.9%. For the nine months of 1998, these expenses were $1.42
billion, an increase of $23.1 million, or 1.7%, compared with
$1.4 billion in 1997. The increase for the third quarter is
primarily attributable to higher international beer marketing
costs and higher domestic distribution costs associated with
expanded company-owned territory. For the nine months, the
increase is primarily due to higher domestic and international
marketing expense in support of premium brands, primarily the Bud
Family, partially offset by reduced general and administrative
costs.
Operating income for the third quarter 1998 was $691.9
million, an increase of $33.1 million, or 5.0%, over the
comparable period last year. Operating income for the nine months
of 1998 was $1.8 billion, an increase of $46.3 million, or 2.6%
11
<PAGE>
versus the nine months of 1997. The increase in operating income
for the third quarter and nine months is primarily due to
increased domestic beer sales volume, continued brewery operating
efficiencies and improved performance by can manufacturing
operations, partially offset by lower entertainment profits due
to weakness in Florida, and lower results from international beer
operations primarily due to weakness in Japan.
Equity income, net of tax, decreased $2.7 million, or 11.5%,
to $20.0 million, for the third quarter and increased $23.7
million, or 67.0%, to $59.2 million, for the nine months of 1998.
The third quarter decline in equity income is entirely due to
depreciation in the value of the Mexican peso during the period
and the impact of hyperinflation accounting, which more than
offset Modelo's strong underlying sales volume and profit
performance. The increase for the nine months is due to the
company's larger equity stake in Grupo Modelo and the strong
underlying results of Modelo operations, partially offset by peso
depreciation and hyperinflation accounting.
For the nine months of 1998, equity income reflects the
company's 37% share of net earnings of Modelo (December 1997
through August 1998 reported on a one-month-delay basis) compared
with a 37% ownership interest in the third quarter (June through
August 1997 on a one-month-delay) and 17.7% for the first six
months of 1997 (January through May 1997 only, consistent with
the initial adoption of the equity method of accounting).
In May 1998, the International Accounting Task Force of the
American Institute of Certified Public Accountants, in
conjunction with the Securities and Exchange Commission (SEC),
concluded that the Mexican economy continues to be highly
inflationary for accounting purposes. Accordingly, the company
will continue to apply hyperinflationary accounting for its
investment in Grupo Modelo for at least the remainder of 1998.
The Task Force and the SEC will reconsider Mexico's inflationary
status in November 1998 to determine if hyperinflationary
accounting should continue into 1999. The change to non-
hyperinflation accounting, when approved by the SEC, is expected
to be favorable to Anheuser-Busch due to the strong net monetary
asset position of Modelo.
Net interest cost (interest expense less interest income)
was $69.4 million for the third quarter 1998, an increase of $1.2
million, or 1.6%, compared to net interest cost of $68.2 million
for the third quarter 1997. Net interest cost for the nine
months of 1998 was $214.0 million, an increase of $27.2 million,
or 14.5%, over net interest cost of $186.8 million for the
12
<PAGE>
corresponding period in 1997. The increases in 1998 compared to
similar 1997 periods reflect higher average outstanding debt
balances during the periods, primarily due to the increased
Modelo investments.
Interest capitalized declined $7.7 million and $10.4 million
for the third quarter and nine months of 1998, to $2.6 million
and $19.7 million, respectively. The decreases are the result of
lower construction-in-progress balances due to reduced capital
expenditures as the company completes its brewery modernization
projects.
The components of other income/(expense), net, provided
income of $1.1 million for the third quarter and reflected
expense of $3.0 million for the nine months of 1998. Other
income/(expense), net, includes numerous items of a nonoperating
nature which do not have a material impact on the company's
consolidated results of operations, either individually or in the
aggregate.
The effective tax rate was 38.0% of pretax earnings for the
third quarter and nine months of 1998, a decline of 0.4
percentage points in both periods versus the comparable periods
in 1997. The decline is principally due to lower state taxes.
Net income was $408.3 million for the third quarter 1998, an
increase of $14.8 million, or 3.8%, compared to the third quarter
1997. For the nine months of 1998, net income was $1.1 billion,
an increase of $32.3 million, or 3.1%, compared to 1997.
Diluted earnings per share for the third quarter 1998 were
$.84, an increase of $.05, or 6.3%, compared to the third quarter
1997. For the nine months of 1998, diluted earnings per share
were $2.18, an increase of $.12, or 5.8%, compared to 1997.
Diluted earnings per share are based on the weighted average
outstanding shares of the company's common stock. Earnings per
share growth continues to benefit from fewer shares outstanding
due to the company's ongoing share repurchase program. The
company has repurchased over 11.5 million shares through the nine
months of 1998 and continues to anticipate the repurchase in 1998
of approximately 3% of total shares outstanding at the beginning
of the year.
13
<PAGE>
FINANCIAL CONDITION
- -------------------
Cash and marketable securities at September 30, 1998 totaled
$126.5 million, representing an increase of $10.3 million from
September 30, 1997 and a decrease of $20.8 million since December
31, 1997. The principal source of the company's cash flow is
cash generated by operations. Additional sources of cash during
the twelve-month period ended September 30, 1998 were financing
activities, as outlined below. Principal uses of cash during the
period were capital expenditures, share repurchases, dividends,
and the additional Modelo investment.
Total long-term debt increased $670.3 million during the
twelve-month period ended September 30, 1998. The net increase
in debt during this period is shown below, by key component:
<TABLE>
Debt Issuances...$790.2 million, comprised of the following:
---------------
<S>
- $200.0 million of long-term notes (interest rates: $100.0 million
at 5.375% and $100.0 million at 5.65%)
- $200.0 million of debentures (interest rates: $100.0 million at
6.75% and $100.0 million at 6.5%)
- $167.3 million of commercial paper (wtd. avg. interest rate: 5.6%)
- $162.8 million of dual-currency notes (quarterly floating interest rate)
- $20.8 million of industrial revenue bonds (various fixed interest rates)
- $39.3 million of other miscellaneous borrowings
Debt Reduction...$119.9 million, comprised of the following:
---------------
<S>
- $45.0 million of debentures (interest rates: $22.5 million at 8.625%
and $22.5 million at 8.5%)
- $40.0 million of medium-term notes (various fixed interest rates)
- $34.9 million reduction of the ESOP debt guarantee (interest rate: 8.3%)
</TABLE>
14
<PAGE>
At September 30, 1998, $698.1 million of commercial paper
borrowings were outstanding, an increase of $167.3 million
compared to the September 30, 1997 balance and $106.1 million
over the balance at December 31, 1997. Commercial paper is
classified as long-term debt since it is intended to be
maintained on a long-term basis with on-going credit support
provided by the company's $1 billion revolving credit agreement.
Capital expenditures during the third quarter 1998 were
$159.7 million compared to $283.5 million for the third quarter
1997, a decrease of $123.8 million, or 43.7%, and $603.8 million
for the nine months of 1998 versus $880.4 million for 1997, a
decrease of $276.6 million, or 31.4%. Capital expenditures are
down compared to the prior year due to reduced brewery
modernization expenditures.
RISK MANAGEMENT
- ---------------
The company's derivatives holdings will fluctuate during the
year based on normal and recurring changes in purchasing and
production activity. Since December 31, 1997, there have been no
significant changes in the company's interest rate, commodity
price and foreign currency exposures, changes in the types of
derivative instruments used to hedge those exposures, or changes
in underlying market conditions.
SYSTEM-RELATED YEAR 2000 COSTS
- -------------------------------
Anheuser-Busch has identified its significant systems,
facilities and equipment issues related to Year 2000 date
recognition for key accounting and operating systems. The
company is working to resolve the Year 2000 matter through either
the replacement of existing systems with new Year 2000 ready
systems or reprogramming of existing systems. There may be some
diversion of information systems funding for the year 2000
effort, but material delays of critical non-Year 2000 information
technology initiatives are not anticipated. Completion of all
reprogramming, hardware replacement and appropriate testing is
expected prior to June 30, 1999.
All costs related to the assessment, reprogramming and
testing of existing systems for the Year 2000 effort are expensed
as incurred. Costs associated with replacement of hardware that
is not Year 2000 ready will be capitalized in accordance with the
company's existing fixed asset accounting policies. The company
has incurred Year 2000-related reprogramming costs of $9.2
million for the first nine months of 1998, compared to total
costs of $6.6 million for the full year 1997 and nominal costs
15
<PAGE>
for 1996. The company estimates incurring an additional $27
million to complete the Year 2000 reprogramming effort. Hardware
replacement costs are not expected to be significant.
Although the company expects to be Year 2000 ready when
necessary, failure of the company or significant key suppliers or
customers to be fully Year 2000 ready could potentially have a
material adverse impact on the results of the company's
operations. However, due to the many factors involved, including
factors impacting third parties which the company cannot readily
ascertain, Anheuser-Busch is currently unable to estimate the
potential impact. The company is currently assessing important
third party Year 2000 preparedness and is working with its key
suppliers and customers to ensure Year 2000 issues are adequately
addressed to the extent possible. In that regard, the company is
developing methodology to monitor those third party remediation
efforts.
The company considers the likelihood of Year 2000 non-
readiness by Anheuser-Busch to be remote, but is currently unable
to determine the likelihood of Year 2000 non-readiness by key
suppliers or customers. Contingency plans are being developed to
ensure critical operations continue uninterrupted in the event
either Anheuser-Busch or key suppliers or customers fails to
resolve their respective year 2000 issues in a timely manner.
Such plans will be in place prior to December 31, 1999.
Environmental Matters
- ---------------------
The company is subject to federal, state and local
environmental protection laws and regulations and is operating
within such laws or is taking action aimed at assuring compliance
with such laws and regulations. Compliance with these laws and
regulations is not expected to materially affect the company's
competitive position. None of the Environmental Protection
Agency (EPA) designated clean-up sites for which Anheuser-Busch
has been identified as a Potentially Responsible Party (PRP)
would have a material impact on the company's consolidated
financial statements.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings
As reported in the Company's Form 10-K for the fiscal year
ended December 31, 1997, in connection with its initial
investment in Grupo Modelo and its operating subsidiary, Diblo,
the Company acquired options to purchase additional interests in
Group Modelo and Diblo from trusts for the benefit of certain
shareholders of Grupo Modelo and Diblo (the "Controlling
16
<PAGE>
Shareholders"), including the wife of Carlos Fernandez G., a
director of the Company, and other members of his family, and
entered into an investment agreement with Grupo Modelo, Diblo and
the Controlling Shareholders. In connection with the exercise by
the Company of its option to purchase an additional 13.25% share
in Diblo in 1997, the Company and the Controlling Shareholders
pursued arbitration to resolve a dispute concerning the purchase
price of the Diblo option shares, using the procedures specified
in the investment agreement.
On September 4, 1998, the arbitration panel determined that
the Company would pay approximately $556 million (U.S.) for the
Diblo option shares. On September 14, 1998, the Company and the
Controlling Shareholders completed the purchase and sale of the
Diblo option shares in accordance with the terms of the decision
of the arbitration panel.
ITEM 5. Other Information
Labor Negotiations
- ------------------
Talks with the Teamsters union regarding a new labor
agreement covering U.S. brewery employees represented by the
union are at impasse and, as a result, the company is
implementing its final contract offer. Implementation began
September 21, 1998. The company's final offer includes an 11.5
percent pay increase over the five-year life of the contract and
enhanced pension benefits. Also included in the offer are
provisions to support productivity improvement, promote workplace
flexibility, reduce absenteeism, improve the grievance procedure
and institute a random drug-testing program.
In late July, results of a second vote on the company's
final offer showed that 46 percent of those voting favored
ratification.
On September 18, 1998, the National Labor Relations Board
notified the company that all charges made by the Teamsters
against the company relating to national bargaining issues had
been dismissed, validating Anheuser-Busch's position that the
company bargained in good faith. New charges have been filed by the
Teamsters in connection with the implementation and are currently
under investigation by the National Labor Relations Board.
On October 22, 1998, members of St. Louis Teamsters Local
367, representing about 68 Firemen and Oilers, walked off the job
at the St. Louis brewery. Other local St. Louis unions
representing approximately 1,700 employees at the brewery
17
<PAGE>
indicated they would honor the picket lines. The strike ended on
October 23 with no change in the implemented offer and employees
represented by the Teamsters reported back to work the week of
October 26. The St. Louis brewery was operated by salaried
personnel during the strike and there was no disruption in the
production or distribution of the company's products. Operations
at the company's other 11 breweries were unaffected.
Justice Department Inquiry
- --------------------------
In September 1998, the Justice Department informed the
company that it has discontinued its investigation into the
distribution and sale of beer in the U.S., including the
marketing and distribution policies and practices of Anheuser-
Busch and its major competitors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
12 - Ratio of Earnings to Fixed Charges
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three month period ending
September 30, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ANHEUSER-BUSCH COMPANIES, INC.
(Registrant)
/s/ W. Randolph Baker
___________________________________
W. Randolph Baker
Vice President and Chief Financial Officer
(Chief Financial Officer)
November 12, 1998
/s/ John F. Kelly
_________________________________
John F. Kelly
Vice President and Controller
(Chief Accounting Officer)
November 12, 1998
19
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of the Company's earning
to fixed charges, on a consolidated basis, for the periods
indicated:
Nine Months
Ended
Sept. 30, Year Ended December 31,
- ---------------- ----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ------- ------- ------- ------- -------
7.8X 8.6X 7.3X 8.1X 1/ 6.6X 2/ 7.7X 5.8X 3/
For purposes of this ratio, earnings have been calculated by
adding to income before income taxes the distributed earnings of
investees accounted for under the equity method and the amount of
fixed charges. Fixed charges consist of interest on all
indebtedness, amortization of debt discount and that portion of
rental expense deemed to represent interest.
1/ The ratio for 1996 includes the gain from the sale of the
Cardinals, which increased income before income taxed by $54.7
million for the year. Excluding this one-time gain, the ratio
would have been 7.9X.
2/ The ratio for 1995 includes the impact of the Tampa Brewery
shutdown and the reduction of beer wholesaler inventories.
Excluding these non-recurring items, the ratio would have been
7.6X.
3/ Includes the impact of the one-time, pretax restructuring
charge of $401.3 million as a result of the company's
Profitability Enhancement Program. Excluding this non-recurring
special charge, the ratio would have been 7.5X.
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<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 126,500
<SECURITIES> 0
<RECEIVABLES> 798,400
<ALLOWANCES> 0
<INVENTORY> 613,600
<CURRENT-ASSETS> 1,727,800
<PP&E> 13,717,300
<DEPRECIATION> 5,863,500
<TOTAL-ASSETS> 12,534,700
<CURRENT-LIABILITIES> 1,667,300
<BONDS> 4,735,900
0
0
<COMMON> 711,800
<OTHER-SE> 3,551,600
<TOTAL-LIABILITY-AND-EQUITY> 12,534,700
<SALES> 8,635,800
<TOTAL-REVENUES> 8,635,800
<CGS> 5,397,800
<TOTAL-COSTS> 6,816,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218,400
<INCOME-PRETAX> 1,622,100
<INCOME-TAX> 616,600
<INCOME-CONTINUING> 1,064,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,064,700
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.18
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