<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1999
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 - 467,500,984 shares as of June 30, 1999
<PAGE> 2
<TABLE>
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
(In millions, except per share data) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $3,600.8 $3,521.6 $ 6,758.0 $6,472.8
Less excise taxes (520.1) (515.3) (992.1) (959.0)
--------------------------------------------------------------
Net sales 3,080.7 3,006.3 5,765.9 5,513.8
Cost of products and services (1,864.5) (1,863.4) (3,576.6) (3,502.2)
--------------------------------------------------------------
Gross profit 1,216.2 1,142.9 2,189.3 2,011.6
Marketing, distribution and administrative
expenses (521.6) (483.7) (958.1) (884.1)
--------------------------------------------------------------
Operating income 694.6 659.2 1,231.2 1,127.5
Other income and expenses:
Interest expense (79.2) (72.2) (155.0) (147.7)
Interest capitalized 4.2 8.4 7.5 17.1
Interest income 0.9 1.6 1.8 3.1
Other income/(expense), net (3.1) 2.0 (4.3) (4.1)
--------------------------------------------------------------
Income before income taxes 617.4 599.0 1,081.2 995.9
Provision for income taxes (234.5) (227.7) (410.8) (378.7)
Equity income, net of tax 48.1 19.9 79.7 39.2
--------------------------------------------------------------
Net income 431.0 391.2 750.1 656.4
Retained earnings, beginning of period 8,506.4 7,743.5 8,320.7 7,604.9
Common stock dividends (per share: 2nd quarter,
1999--$.28; 1998--$.26; six months, 1999-
$.56; 1998--$.52) (131.9) (125.9) (265.3) (252.5)
--------------------------------------------------------------
Retained earnings, end of period $8,805.5 $8,008.8 $8,805.5 $8,008.8
==============================================================
Basic earnings per share $ .92 $ .81 $ 1.58 $ 1.35
==============================================================
Diluted earnings per share $ .90 $ .80 $ 1.56 $ 1.34
==============================================================
See accompanying Notes to Consolidated Financial Statements on Pages 3
through 5.
</TABLE>
2
<PAGE> 3
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 included in the Company's
Annual Report to Shareholders for the year ended December 31, 1998.
2. BUSINESS SEGMENT INFORMATION FOR THE SECOND QUARTER ENDED
JUNE 30, 1999 ($ In Millions):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
1999 Domestic Beer Int'l Beer Packaging Entertain. Other Corp. & Elims. Consol.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Sales $2,827.9 212.9 514.3 225.7 36.1 (216.1) $3,600.8
- -------------------------------------------------------------------------------------------------------------------------
Net Sales:
- - Intersegment -- -- $207.0 -- 9.1 (216.1) --
- - External $2,343.4 177.3 307.3 225.7 27.0 -- $3,080.7
- -------------------------------------------------------------------------------------------------------------------------
Income Before
Income Taxes $ 634.0 12.1 46.1 47.6 5.7 (128.1) $ 617.4
- -------------------------------------------------------------------------------------------------------------------------
Equity Income,
Net of Tax -- $48.1 -- -- -- -- $ 48.1
- -------------------------------------------------------------------------------------------------------------------------
Net Income $ 393.0 55.6 28.6 29.5 3.5 (79.2) $ 431.0
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
1998 Domestic Beer Int'l Beer Packaging Entertain. Other Corp. & Elims. Consol.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Sales $2,708.9 242.3 499.1 230.5 36.4 (195.6) $3,521.6
- -------------------------------------------------------------------------------------------------------------------------
Net Sales:
- - Intersegment -- -- $187.2 -- 8.4 (195.6) --
- - External $2,236.7 199.2 311.9 230.5 28.0 -- $3,006.3
- -------------------------------------------------------------------------------------------------------------------------
Income Before
Income Taxes $ 582.1 15.2 42.0 54.6 3.1 (98.0) $ 599.0
- -------------------------------------------------------------------------------------------------------------------------
Equity Income,
Net of Tax -- $19.9 -- -- -- -- $ 19.9
- -------------------------------------------------------------------------------------------------------------------------
Net Income $ 360.9 29.3 26.1 33.9 2.0 (61.0) $ 391.2
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
<TABLE>
BUSINESS SEGMENT INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1999 ($ In Millions):
<CAPTION>
----------------------------------------------------------------------------------------
1999 Domestic Beer Int'l Beer Packaging Entertain. Other Corp. & Elims. Consol.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Sales $5,480.6 341.4 950.0 339.6 58.1 (411.7) $6,758.0
- ------------------------------------------------------------------------------------------------------------------------
Net Sales:
- - Intersegment -- -- $396.9 -- 14.8 (411.7) --
- - External $4,543.4 286.5 553.1 339.6 43.3 -- $5,765.9
- -------------------------------------------------------------------------------------------------------------------------
Income Before
Income Taxes $1,206.2 4.4 72.7 34.0 5.3 (241.4) $1,081.2
- -------------------------------------------------------------------------------------------------------------------------
Equity Income,
Net of Tax -- $79.7 -- -- -- -- $ 79.7
- -------------------------------------------------------------------------------------------------------------------------
Net Income $ 747.8 82.4 45.1 21.1 3.3 (149.6) $ 750.1
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
------------------------------------------------------------------------------------------
1998 Domestic Beer Int'l Beer Packaging Entertain. Other Corp. & Elims. Consol.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Sales $5,127.2 378.2 927.7 341.8 66.6 (368.7) $6,472.8
- -------------------------------------------------------------------------------------------------------------------------
Net Sales:
- - Intersegment -- -- $354.2 -- 14.5 (368.7) --
- - External $4,231.6 314.8 573.5 341.8 52.1 -- $5,513.8
- -------------------------------------------------------------------------------------------------------------------------
Income Before
Income Taxes $1,068.4 8.9 66.1 40.0 3.0 (190.5) $ 995.9
- -------------------------------------------------------------------------------------------------------------------------
Equity Income,
Net of Tax -- $39.2 -- -- -- -- $ 39.2
- -------------------------------------------------------------------------------------------------------------------------
Net Income $ 662.4 44.7 41.0 24.8 1.9 (118.4) $ 656.4
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
3. COMPREHENSIVE INCOME ($ In Millions)
<TABLE>
<CAPTION>
Second Quarter Ended June 30, 1999
- --------------------------------------------------------------------------------------------------
1999 1998
-------- --------
<S> <C> <C>
Net Income $431.0 $391.2
Foreign Currency Translation 34.7 (1.0)
------------------------------
Comprehensive Income $465.7 $390.2
==============================
- --------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1999
- --------------------------------------------------------------------------------------------------
1999 1998
-------- --------
Net Income $750.1 $656.4
Foreign Currency Translation 22.8 (2.0)
------------------------------
Comprehensive Income $772.9 $658.4
==============================
- --------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
<TABLE>
CONSOLIDATED BALANCE SHEET
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
<CAPTION>
June 30,
-----------------------------------
(In millions) 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and marketable securities $ 133.5 $ 152.5
Receivables, less allowance for
doubtful accounts 834.6 866.6
Inventories:
Raw materials and supplies 311.7 313.7
Work in progress 97.5 100.6
Finished goods 206.5 200.3
Total inventories 615.7 614.6
Other current assets 178.2 182.2
-----------------------------------
Total current assets 1,762.0 1,815.9
INVESTMENTS IN AFFILIATED COMPANIES 1,978.7 1,287.7
INVESTMENTS AND OTHER ASSETS 1,096.0 1,109.9
PLANT AND EQUIPMENT, NET 7,884.8 7,869.3
-----------------------------------
TOTAL ASSETS $12,721.5 $12,082.8
===================================
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable $ 807.4 $ 708.6
Accrued salaries, wages and benefits 238.2 225.7
Accrued taxes 305.6 304.5
Other current liabilities 428.0 346.1
-----------------------------------
Total current liabilities 1,779.2 1,584.9
-----------------------------------
POSTRETIREMENT BENEFITS 521.2 525.8
-----------------------------------
LONG-TERM DEBT 5,064.3 4,417.4
-----------------------------------
DEFERRED INCOME TAXES 1,336.7 1,341.9
-----------------------------------
SHAREHOLDERS EQUITY:
Common stock 714.3 711.0
Capital in excess of par value 1,155.7 1,052.2
Retained earnings 8,805.5 8,008.8
Foreign currency translation adjustment (182.8) (212.0)
-----------------------------------
10,492.7 9,560.0
Treasury stock, at cost (6,262.1) (5,100.0)
ESOP debt guarantee (210.5) (247.2)
-----------------------------------
4,020.1 4,212.8
-----------------------------------
COMMITMENTS AND CONTINGENCIES -- --
-----------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $12,721.5 $12,082.8
===================================
</TABLE>
6
<PAGE> 7
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
<CAPTION>
Six months ended June 30,
----------------------------------
(In millions) 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 750.1 $ 656.4
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 378.5 360.1
Deferred income taxes 33.1 48.3
Undistributed earnings of affiliated companies (78.3) (23.4)
(Increase) in noncash working capital (164.0) (142.7)
Other, net 13.2 (13.9)
----------------------------------
Cash provided by operating activities 932.6 884.8
----------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (400.8) (444.1)
----------------------------------
Cash (used for) investing activities (400.8) (444.1)
----------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in long-term debt 547.1 116.7
Decrease in long-term debt (164.7) (30.0)
Dividends paid to stockholders (265.3) (252.5)
Acquisition of treasury stock (780.0) (306.7)
Shares issued under stock plans 39.8 37.0
----------------------------------
Cash (used for) financing activities (623.1) (435.5)
----------------------------------
Net increase (decrease) in cash and marketable
securities during the period (91.3) 5.2
Cash and marketable securities, beginning of
period 224.8 147.3
----------------------------------
Cash and marketable securities, end of period $ 133.5 $ 152.5
==================================
</TABLE>
A more complete understanding of the company's financial position and
business can be gained by reference to the Anheuser-Busch Companies, Inc.
Annual Report on Form 10-K for the year ended December 31, 1998.
7
<PAGE> 8
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 second quarter and first six months
ended June 30, 1999, compared to the second quarter and first six months
ended June 30, 1998, and the year ended December 31, 1998. This Discussion
should be read in conjunction with the Consolidated Financial Statements and
Notes included in the company's Annual Report to Shareholders for the year
ended December 31, 1998. Additional information concerning the company's
consolidated financial and operating results is located in the Letter to
Shareholders section of the second 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; changes in domestic demand
for malt beverage products; changes in customer preference for the company's
malt beverage products;
8
<PAGE> 9
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.
SECOND QUARTER AND FIRST SIX MONTHS OF 1999 FINANCIAL RESULTS
- -------------------------------------------------------------
Key operating results for the second quarter and first six months of
1999 versus the comparable periods in 1998 are summarized in the following
tables. First six months results are more indicative of the company's sales
and financial performance in 1999 than individual first and second quarter
results due to the first quarter wholesaler inventory build and second
quarter wholesaler inventory drawdown.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SECOND QUARTER (in millions, except per share)
-------------------------------------------------------------
1999 vs. 1998
--------------------------
1999 1998 $ %
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Sales $3,601 $3,522 Up $79 Up 2.2%
Net Sales $3,081 $3,006 Up $75 Up 2.5%
Operating Income $695 $659 Up $36 Up 5.4%
Equity Income, Net of Tax $48 $20 Up $28 Up 142.0%
Net Income $431 $391 Up $40 Up 10.2%
Diluted Earnings per Share $.90 $.80 Up $.10 Up 12.5%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30 (in millions, except per share)
-------------------------------------------------------------
1999 vs. 1998
--------------------------
1999 1998 $ %
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Sales $6,758 $6,473 Up $285 Up 4.4%
Net Sales $5,766 $5,514 Up $252 Up 4.6%
Operating Income $1,231 $1,127 Up $104 Up 9.2%
Equity Income, Net of Tax $80 $39 Up $41 Up 103.3%
Net Income $750 $656 Up $94 Up 14.3%
Diluted Earnings per Share $1.56 $1.34 Up $.22 Up 16.4%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The second quarter 1999 was Anheuser-Busch's third consecutive quarter
of solid double-digit earnings per share growth since implementing its
revenue enhancement strategy of selective, market-by-market price increases
or discount reductions. The company is currently evaluating opportunities
for additional discount reductions and selected price increases in the fourth
quarter 1999. The scope of these actions will again be based on a
market-by-market assessment of competitive conditions.
Given the favorable volume and pricing momentum, Anheuser-Busch is
confident of achieving its double-digit earnings per share growth objective,
with growth in the mid-teens expected for 1999.
RESULTS OF OPERATIONS
- ---------------------
Anheuser-Busch achieved gross sales of $3.6 billion and $6.8 billion,
and net sales of $3.1 billion and $5.8 billion, respectively, in the second
quarter and first six months of 1999. These amounts represent gross sales
increases over 1998 of $79.2 million, or 2.2%, for the second quarter and
$285.2 million, or 4.4%, for the first six
10
<PAGE> 11
months. Net sales increased over 1998 by $74.4 million, or 2.5%, and $252.1
million, or 4.6%, for the same periods.
The increases in gross and net sales are due to higher domestic beer
sales volume and higher domestic revenue per barrel, partially offset by
lower international sales and lower sales from the company's commodity-based
aluminum recycling operations. The difference between gross sales and net
sales represents beer excise taxes paid by the company on its products.
Domestic sales-to-retailer volume was up 3.7% for the second quarter and
approximately 4% for the first six months of 1999. This volume performance
was led by the Bud Family, with sales-to-retailers up 3.4%, and included
contributions from the Busch and Natural brand families as well as new
products. Domestic revenue per barrel grew over 2% for both the second
quarter and first six months of 1999, compared to the same periods last year.
The company's beer volume information is summarized in the following
table:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
REPORTED BEER VOLUME (millions of barrels)
- ----------------------------------------------------------------------------------------------------------------------
Second Quarter Six Months Ended June 30
-------------------------------- ------------------------------
Vs. 1998 Vs. 1998
---------------------- --------------------
1999 Barrels % 1999 Barrels %
------ -------- ---------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Domestic 24.7 Up 0.5 Up 2.3% 47.9 Up 2.2 Up 4.9%
International 2.0 Dn .02 Dn 1.2% 3.3 Up .01 Up 0.4%
------ -------- ---------- ------ -------- ----------
Worldwide - A-B Brands 26.7 Up 0.5 Up 2.0% 51.2 Up 2.3 Up 4.6%
International Equity Partner Brands 4.2 Up 1.6 Up 60.9% 7.6 Up 2.6 Up 52.5%
------ -------- ---------- ------ -------- ----------
Total Brands 30.9 Up 2.1 Up 7.4% 58.8 Up 4.9 Up 9.0%
====== ======== ========== ====== ======== ==========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
Worldwide Anheuser-Busch beer brands volume was 26.7 million barrels, up
2.0% in the second quarter, and 51.2 million barrels, up 4.6% for the first
six months of 1999, compared to similar periods last year. Worldwide beer
volume is comprised of domestic volume and international volume. Domestic
volume represents Anheuser-Busch beer produced and shipped within the United
States. International volume represents exports from the company's U.S.
breweries to markets around the world, plus Anheuser-Busch brands produced
overseas by company-owned breweries and under license and contract brewing
agreements.
Domestic beer shipments for the first six months of 1999 were up 4.9%,
to 47.9 million barrels versus the comparable period last year. Second
quarter domestic beer shipments grew 2.3% to 24.7 million barrels. The
company's domestic market share (excluding exports) for the first six months
of 1999 was 46.1%, an increase of 0.8 percentage points over 1998 market
share of 45.3%. Including exports, the company's share of U.S. shipments was
45.8%, versus 45.1% for the first six months of 1998. 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 Grupo Modelo, declined 1.2% in the
second quarter and grew 0.4% for the first six months of 1999. International
beer operations experienced solid volume growth in Canada, Latin America and
Continental Europe offset by continued weakness in Asia and a slowdown in the
United Kingdom. Overall, international beer profits, excluding Modelo,
declined versus last year in both the second quarter and first six months of
1999.
12
<PAGE> 13
Total beer volume, which combines equity volume (representing the
company's share of its foreign equity partners' volume) with worldwide
Anheuser-Busch brand volume, was 30.9 million barrels, up 2.1 million
barrels, or 7.4%, in the second quarter and 58.8 million barrels, up 4.9
million barrels, or 9.0%, for the first six months of 1999. International
equity partners' brands reflect the company's 50% ownership interest in
Modelo brands for 1999, compared with a 37% ownership interest in Modelo in
1998.
Cost of products and services was $1.9 billion and $3.6 billion,
respectively, for the second quarter and first six months of 1999, remaining
essentially level and increasing 2.1% compared to the same periods in 1998.
Cost of products and services remained level in the second quarter 1999
versus 1998 as the costs associated with higher domestic beer volume were
offset by lower costs due to productivity improvements, lower international
beer volume and lower cost of sales from commodity-based aluminum recycling
operations. The increase in cost of products and services for the first six
months is primarily attributable to higher domestic beer volume.
Gross profit as a percentage of net sales was 39.5% for the second
quarter and 38.0% for the first six months of 1999, both increases of 1.5
percentage points versus comparable periods in 1998.
Marketing, distribution and administrative expenses for the second
quarter 1999 were $521.6 million compared with $483.7 million for the second
quarter 1998, an increase of $37.9 million, or 7.8%. For the first six
months of 1999, these expenses were $958.1 million, an increase of $74.0
million, or 8.4% compared with $884.1 million in 1998. These increases are
primarily due to higher domestic marketing and sales
13
<PAGE> 14
promotion spending in support of the Bud Family, higher spending on consumer
awareness and education programs and higher general and administrative costs.
Operating income for the second quarter 1999 was $694.6 million, an
increase of $35.4 million, or 5.4%, over the comparable period last year.
Operating income for the first six months of 1999 was $1.2 billion, an
increase of $103.7 million, or 9.2% versus the first six months of 1998. The
increases in operating income were primarily due to domestic beer growth
attributable to increased beer sales volume and higher revenue per barrel,
partially offset by higher marketing expense. Performance by the company's
packaging operations improved, while operating results from theme park and
international beer operations declined in the first six months.
Equity income, net of tax increased $28.2 million, to $48.1 million for
the second quarter and increased $40.5 million, to $79.7 million for the
first six months of 1999. The increases reflect Modelo's strong underlying
operating results and the company's 50% equity stake in Modelo in 1999
compared to a 37% share in 1998.
Net interest cost (interest expense less interest income) was $78.3
million for the second quarter 1999, an increase of $7.7 million, or 10.9%,
compared to net interest cost of $70.6 million for the second quarter 1998.
Net interest cost for the first six months of 1999 was $153.2 million, an
increase of $8.6 million, or 5.9%, over net interest cost of $144.6 million
for the corresponding period in 1998. These increases reflect higher average
outstanding debt balances in 1999 versus 1998.
Interest capitalized declined $4.2 million and $9.6 million for the
second quarter and first six months of 1999, to $4.2 million and $7.5
million, respectively, due primarily to lower average
construction-in-progress balances.
14
<PAGE> 15
Other income/(expense), net was $3.1 million for the second quarter and
$4.3 million for the first six months of 1999. 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 of 38.0% of pretax earnings for the second
quarter and first six months of 1999, was consistent with the comparable
periods in 1998.
Net income was $431.0 million for the second quarter 1999, an increase
of $39.8 million, or 10.2%, compared to the second quarter 1998. For the
first six months of 1999, net income was $750.1 million, an increase of $93.7
million, or 14.3%, compared to 1998.
Diluted earnings per share for the second quarter 1999 were $.90, an
increase of $.10, or 12.5%, compared to the second quarter 1998. For the
first six months of 1999, diluted earnings per share were $1.56, an increase
of $.22, or 16.4%, compared to 1998. 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 10 million shares through the first six months
of 1999 and anticipates the repurchase in 1999 of just over 3% of total
shares outstanding.
FINANCIAL CONDITION
- -------------------
Cash and marketable securities at June 30, 1999 totaled $133.5 million,
representing decreases of $19.0 million from June 30, 1998 and $91.3 million
since December 31, 1998. The principal source of the company's cash flow is
cash
15
<PAGE> 16
generated by operations. Financing activities provided additional
sources of cash during the twelve-month period ended June 30, 1999.
Principal uses of cash during the period included capital expenditures, share
repurchases and dividends.
Total long-term debt increased $646.9 million during the twelve-month
period ended June 30, 1999. The net increase in debt during this period is
shown below, by key component:
Debt Issuances . . . $756.7 million, comprised of the following:
- --------------
- $600.0 million of long-term notes (interest rates: $100.0 million each
at 5.125%, 5.375% and 5.65%; $300.0 million at 5.75%)
- $90.9 million of commercial paper (weighted average interest rate:
5.25%)
- $14.0 million of industrial revenue bonds (floating interest rate)
- $51.8 million of miscellaneous borrowings
Debt Reduction . . . $109.8 million, comprised of the following:
- --------------
- $45.5 million of debentures (interest rates: $22.5 million at 8.625%
and $23.0 million at 8.5%)
- $15.0 million of medium-term notes (various fixed interest rates)
- $36.7 million of ESOP debt guarantee (interest rate: 8.25%)
- $5.4 million of industrial revenue bonds (interest rate: 6.5%)
- $7.2 million of miscellaneous reductions
Commercial paper borrowings were $683.3 million at June 30, 1999, which
represents an increase of $68.0 million compared to the balance at December
31, 1998. Commercial paper is classified as long-term since it is intended
to be maintained
16
<PAGE> 17
on a long-term basis with on-going credit support provided by the company's
$1 billion revolving credit agreement.
Capital expenditures during the second quarter 1999 were $216.4 million
compared to $206.7 million for the second quarter 1998, up 4.7%, and $400.8
million for the first six months of 1999, versus $444.1 million for the first
six months of 1998, a decrease of 9.8%.
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, 1998, there have been no significant changes in the company's
interest rate, commodity price and foreign exchange exposures, changes in the
types of derivative instruments used to hedge those exposures, or significant
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 financial 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 the 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. The company estimates its readiness efforts are 95%
complete, with remaining reprogramming, hardware
17
<PAGE> 18
replacement and testing of significant systems expected to be completed prior
to September 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 are
capitalized in accordance with the company's existing fixed asset accounting
policies. The company has incurred Year 2000-related reprogramming costs of
$6.8 million for the first six months of 1999, compared to costs of $15.5
million and $6.6 million, respectively, for the full years 1998 and 1997 and
nominal costs for 1996. The company continues to estimate total Year 2000
reprogramming costs will approximate $43 million. Hardware replacement costs
are not expected to be significant.
Although the company expects to be Year 2000 ready, 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 working with its key suppliers and customers to ensure Year 2000
issues are adequately addressed to the extent possible, and has completed
approximately 90% of its assessment of important third party preparedness.
The company is monitoring those third party remediation efforts as
circumstances allow.
The company considers the likelihood of Year 2000 non-readiness by
Anheuser-Busch to be remote, but is unable to determine with certainty the
likelihood of Year 2000 non-readiness by key suppliers or customers.
Contingency plans to ensure
18
<PAGE> 19
critical Anheuser-Busch operations continue uninterrupted in the event either
the company or its key suppliers fail to resolve their critical Year 2000
issues are approximately 95% complete. Such plans, which include performing
certain key production and support functions manually, 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 5: Other Information
Labor Negotiations
- ------------------
On August 7, 1999, Teamster-represented employees at the company's 12
U.S. breweries approved a new five-year national contract offer by a margin
of 59% to 41%. The proposed agreement had been endorsed by the Director of the
Teamsters Brewery and Soft Drink Workers Conference and by its terms will
expire February 28, 2004. Proposed terms covering local issues were approved by
employees at breweries in Columbus, OH, Williamsburg, VA, Baldwinsville, NY,
and certain locals in St. Louis, MO, Newark, NJ and Los Angeles, CA. Local
supplements had previously been approved in Houston, TX, Fairfield, CA and
Merrimack, NH.
However, because local terms were rejected in St. Louis, MO, Ft. Collins,
CO, Cartersville, GA, Jacksonville, FL, Newark, NJ and Los Angeles, CA, the
approved contract will not go into effect immediately. Both the company and
the Teamsters have previously stated that until agreement is reached on all
national and local issues, there can be no agreement. Although the company
expects to reach agreement, it remains committed to operate its breweries in
the event of any work stoppages.
The approved national contract includes wage and benefit increases, as
well as provisions to support productivity improvement, promote workplace
flexibility, reduce absenteeism,
19
<PAGE> 20
improve the grievance procedure and institute a more effective drug-testing
program. Additionally, Anheuser-Busch has reaffirmed its commitment to keep all
12 of its U.S. breweries open during the life of the contract, barring an
unforeseen event, providing its Teamster-represented employees with
unprecedented job security.
Dividend Increase
- -----------------
On July 28, 1999, the Board of Directors approved an increase in the
quarterly dividend on the company's common stock from 28 cents to 30 cents
per share, an increase of $.02 per share, or 7.1%. The dividend is payable
September 9, 1999, to shareholders of record on August 9, 1999.
Antarctica Investment
- ---------------------
On July 2, 1999, Anheuser-Busch and Companhia Antarctica Paulista
(Antarctica) jointly announced the end of their equity partnership in Brazil.
Anheuser-Busch purchased a 5% interest in Antarctica's principal operating
subsidiary in 1996, with options to increase its holdings to approximately
30% in the future. In approving the partnership, the Brazilian antitrust
agency, CADE, required Anheuser-Busch's options to be mandatorily exercised
at specified dates. One of the fixed-dollar investment options held by the
company was scheduled to expire in September and was no longer economically
attractive for Anheuser-Busch. In accordance with the partnership agreement,
Antarctica returned Anheuser-Busch's original U.S. dollar investment on July
29, 1999.
Anheuser-Busch and Antarctica also announced they intend to transform
their relationship into a contract production and distribution arrangement,
subject to CADE approval, with Anheuser-Busch independently arranging for the
marketing of
20
<PAGE> 21
Budweiser. Despite the end of the equity partnership, Anheuser-Busch remains
committed to exploring long-term investment opportunities in Brazil.
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
June 30, 1999.
21
<PAGE> 22
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)
August 12, 1999
/s/ John F. Kelly
-------------------------------------------
John F. Kelly
Vice President and Controller
(Chief Accounting Officer)
August 12, 1999
22
<PAGE> 1
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of the Company's earnings to fixed
charges, on a consolidated basis, for the periods indicated:
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
------------------ -------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ --------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
7.2X 7.2X 6.8X 7.3X 8.1X<F1/> 6.6X<F2/> 7.7X
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 discounts and that portion
of rental expense deemed to represent interest.
<FN>
<F1/> The ratio for 1996 includes the gain from the sale of the St. Louis
Cardinals Major League Baseball club, which increased income before income
taxes by $54.7 million for the year. Excluding this one-time gain, the ratio
would have been 7.9X.
<F2/> 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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 133,500
<SECURITIES> 0
<RECEIVABLES> 834,600
<ALLOWANCES> 0
<INVENTORY> 615,700
<CURRENT-ASSETS> 1,762,000
<PP&E> 14,088,000
<DEPRECIATION> 6,203,200
<TOTAL-ASSETS> 12,721,500
<CURRENT-LIABILITIES> 1,779,200
<BONDS> 5,064,300
0
0
<COMMON> 714,300
<OTHER-SE> 3,305,800
<TOTAL-LIABILITY-AND-EQUITY> 12,721,500
<SALES> 5,765,900
<TOTAL-REVENUES> 5,765,900
<CGS> 3,576,600
<TOTAL-COSTS> 4,534,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,500
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 750,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 750,100
<EPS-BASIC> 1.58
<EPS-DILUTED> 1.56
</TABLE>
