<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 September 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 - 465,289,596 shares as of September 30, 1999
<PAGE> 2
<TABLE>
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
<CAPTION>
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30,
-----------------------------------------------
(In millions, except per share data) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $3,765.2 $3,651.1 $10,523.2 $10,123.9
Less excise taxes (542.9) (529.1) (1,535.0) (1,488.1)
-------------------------------------------------
Net sales 3,222.3 3,122.0 8,988.2 8,635.8
Cost of products and services (1,905.5) (1,895.6) (5,482.1) (5,397.8)
-------------------------------------------------
Gross profit 1,316.8 1,226.4 3,506.1 3,238.0
Marketing, distribution and administrative expenses (575.2) (534.5) (1,533.3) (1,418.6)
-------------------------------------------------
Operating income 741.6 691.9 1,972.8 1,819.4
Interest expense (76.3) (70.7) (231.3) (218.4)
Interest capitalized 4.2 2.6 11.7 19.7
Interest income 1.7 1.3 3.5 4.4
Other income/(expense), net 0.2 1.1 (4.1) (3.0)
-------------------------------------------------
Income before income taxes 671.4 626.2 1,752.6 1,622.1
Provision for income taxes (255.2) (237.9) (666.0) (616.6)
Equity income, net of tax 45.3 20.0 125.0 59.2
-------------------------------------------------
Net income 461.5 408.3 1,211.6 1,064.7
Retained earnings, beginning of period 8,805.5 8,008.8 8,320.7 7,604.9
Common stock dividends (per share: 3rd quarter,
1999--$.30; 1998--$.28; nine months, 1999-$.86;
1998--$.80) (140.2) (134.8) (405.5) (387.3)
-------------------------------------------------
Retained earnings, end of period $9,126.8 $8,282.3 $ 9,126.8 $ 8,282.3
=================================================
Basic earnings per share $ .99 $ .85 $ 2.57 $ 2.20
=================================================
Diluted earnings per share $ .97 $ .84 $ 2.53 $ 2.18
=================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements on Pages 3
through 5.
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 THIRD QUARTER ENDED
SEPTEMBER 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 $2,914.3 209.1 523.7 306.5 33.5 (221.9) $3,765.2
- -----------------------------------------------------------------------------------------------------------------------
Net Sales:
- - Intersegment -- -- $216.1 -- 5.8 (221.9) $--
- - External $2,410.8 169.7 307.6 306.5 27.7 -- $3,222.3
- -----------------------------------------------------------------------------------------------------------------------
Income Before
Income Taxes $634.6 (4.4) 47.4 104.9 5.7 (116.8) $671.4
- -----------------------------------------------------------------------------------------------------------------------
Equity Income,
Net of Tax -- $45.3 -- -- -- -- $45.3
- -----------------------------------------------------------------------------------------------------------------------
Net Income $393.5 42.6 29.4 65.0 3.5 (72.5) $461.5
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1998 Domestic Beer Int'l Beer Packaging Entertain. Other Corp. & Elims. Consol.
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Sales $2,810.8 203.6 489.8 311.5 40.1 (204.7) $3,651.1
- -----------------------------------------------------------------------------------------------------------------------
Net Sales:
- - Intersegment -- -- $197.2 -- 7.5 (204.7) $--
- - External $2,312.2 173.1 292.6 311.5 32.6 -- $3,122.0
- -----------------------------------------------------------------------------------------------------------------------
Income Before
Income Taxes $574.9 4.0 48.9 104.1 3.7 (109.4) $626.2
- -----------------------------------------------------------------------------------------------------------------------
Equity Income,
Net of Tax -- $20.0 -- -- -- -- $20.0
- -----------------------------------------------------------------------------------------------------------------------
Net Income $356.4 22.5 30.3 64.5 2.3 (67.7) $408.3
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
<TABLE>
BUSINESS SEGMENT INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 ($ 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 $8,394.9 550.5 1,473.7 646.1 91.6 (633.6) $10,523.2
- -----------------------------------------------------------------------------------------------------------------------
Net Sales:
- - Intersegment -- -- $613.0 -- 20.6 (633.6) $--
- - External $6,954.2 456.2 860.7 646.1 71.0 -- $8,988.2
- -----------------------------------------------------------------------------------------------------------------------
Income Before
Income Taxes $1,840.8 -- 120.1 138.9 11.0 (358.2) $1,752.6
- -----------------------------------------------------------------------------------------------------------------------
Equity Income,
Net of Tax -- $125.0 -- -- -- -- $125.0
- -----------------------------------------------------------------------------------------------------------------------
Net Income $1,141.3 125.0 74.5 86.1 6.8 (222.1) $1,211.6
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1998 Domestic Beer Int'l Beer Packaging Entertain. Other Corp. & Elims. Consol.
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Sales $7,938.0 581.8 1,417.5 653.3 106.7 (573.4) $10,123.9
- -----------------------------------------------------------------------------------------------------------------------
Net Sales:
- - Intersegment -- -- $551.4 -- 22.0 (573.4) $--
- - External $6,543.8 487.9 866.1 653.3 84.7 -- $8,635.8
- -----------------------------------------------------------------------------------------------------------------------
Income Before
Income Taxes $1,643.3 12.9 115.0 144.1 6.7 (299.9) $1,622.1
- -----------------------------------------------------------------------------------------------------------------------
Equity Income,
Net of Tax -- $59.2 -- -- -- -- 59.2
- -----------------------------------------------------------------------------------------------------------------------
Net Income $1,018.8 67.2 71.3 89.3 4.2 (186.1) $1,064.7
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
3. COMPREHENSIVE INCOME ($ In Millions)
<TABLE>
<CAPTION>
Third Quarter Ended September 30, 1999
- ----------------------------------------------------------------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net Income $461.5 $408.3
Foreign Currency Translation
for Existing Investments 2.0 6.7
Foreign Currency Translation for
Terminated Investments 29.0 --
-------------------------------------
Comprehensive Income $492.5 $415.0
=====================================
- ----------------------------------------------------------------------------------------------
<CAPTION>
Nine Months Ended September 30, 1999
- ----------------------------------------------------------------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net Income $1,211.6 $1,064.7
Foreign Currency Translation
for Existing Investments 24.8 8.7
Foreign Currency Translation for
Terminated Investments 29.0 --
-------------------------------------
Comprehensive Income $1,265.4 $1,073.4
=====================================
</TABLE>
5
<PAGE> 6
<TABLE>
CONSOLIDATED BALANCE SHEET
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
<CAPTION>
September 30,
----------------------------
(In millions) 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and marketable securities $ 131.7 $ 126.5
Receivables, less allowance for doubtful accounts 785.6 798.4
Inventories:
Raw materials and supplies 311.3 321.8
Work in progress 85.9 92.6
Finished goods 174.6 199.2
Total inventories 571.8 613.6
Other current assets 195.2 189.3
------------------------------
Total current assets 1,684.3 1,727.8
INVESTMENTS IN AFFILIATED COMPANIES 1,983.9 1,857.6
INVESTMENTS AND OTHER ASSETS 1,101.8 1,095.5
PLANT AND EQUIPMENT, NET 7,907.9 7,853.8
------------------------------
TOTAL ASSETS $12,677.9 $12,534.7
==============================
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable $ 881.4 $ 763.1
Accrued salaries, wages and benefits 248.4 251.6
Accrued taxes 287.5 284.1
Other current liabilities 405.1 368.5
------------------------------
Total current liabilities 1,822.4 1,667.3
------------------------------
POSTRETIREMENT BENEFITS 517.3 522.8
------------------------------
LONG-TERM DEBT 4,834.8 4,735.9
------------------------------
DEFERRED INCOME TAXES 1,357.4 1,345.3
------------------------------
SHAREHOLDERS EQUITY:
Common stock 715.5 711.8
Capital in excess of par value 1,179.6 1,067.9
Retained earnings 9,126.8 8,282.3
Foreign currency translation adjustment (151.8) (205.3)
------------------------------
10,870.1 9,856.7
Treasury stock, at cost (6,513.6) (5,346.1)
ESOP debt guarantee (210.5) (247.2)
------------------------------
4,146.0 4,263.4
------------------------------
COMMITMENTS AND CONTINGENCIES -- --
------------------------------
TOTAL LIABILITIES AND EQUITY $12,677.9 $12,534.7
==============================
</TABLE>
6
<PAGE> 7
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
<CAPTION>
Nine months ended Sept. 30,
-----------------------------
(In millions) 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $1,211.6 $1,064.7
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 571.6 548.4
Deferred income taxes 53.8 51.7
Undistributed earnings of affiliated companies (123.1) (49.4)
(Increase) Decrease in noncash working capital (44.9) 1.9
Other, net 7.9 3.7
-----------------------------
Cash provided by operating activities 1,676.9 1,621.0
-----------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (610.4) (603.8)
New business acquisitions -- (556.5)
Proceeds from sale of business 59.6 --
-----------------------------
Cash (used for) investing activities (550.8) (1,160.3)
-----------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in long-term debt 344.5 435.2
Decrease in long-term debt (191.6) (30.0)
Dividends paid to stockholders (405.5) (387.3)
Acquisition of treasury stock (1,031.5) (552.8)
Shares issued under stock plans 64.9 53.4
-----------------------------
Cash (used for) financing activities (1,219.2) (481.5)
-----------------------------
Net (decrease) in cash and marketable securities
during the period (93.1) (20.8)
Cash and marketable securities, beginning of period 224.8 147.3
-----------------------------
Cash and marketable securities, end of period $ 131.7 $ 126.5
=============================
</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 third quarter and nine months ended
September 30, 1999 compared to the third quarter and nine months ended
September 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 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.
8
<PAGE> 9
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; 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 adventure 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 partners; the effect of stock market conditions on the company's
share repurchase program; and the inability of key customers or suppliers to
adequately address the Year 2000 computer programming issue.
THIRD QUARTER AND NINE MONTHS 1999 FINANCIAL RESULTS
- ----------------------------------------------------
Key operating results for the third quarter and nine months of 1999 versus
the comparable periods in 1998 are summarized below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Third Quarter Ended Sept. 30,
(in millions, except per share)
------------------------------------------------
1999 1998 1999 vs. 1998
------ ------ ----------------------
$ %
------- -----------
<S> <C> <C> <C> <C>
Gross Sales $3,765 $3,651 Up $114 Up 3.1%
Net Sales $3,222 $3,122 Up $100 Up 3.2%
Operating Income $742 $692 Up $50 Up 7.2%
Equity Income, Net of Tax $45 $20 Up $25 Up 126.5%
Net Income $462 $408 Up $54 Up 13.0%
Diluted Earnings per Share $.97 $.84 Up $.13 Up 15.5%
- ---------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Nine Months Ended Sept. 30,
(in millions, except per share)
------------------------------------------------
1999 1998 1999 vs. 1998
------ ------ ----------------------
$ %
------- -----------
<S> <C> <C> <C> <C>
Gross Sales $10,523 $10,124 Up $399 Up 3.9%
Net Sales $8,988 $8,636 Up $352 Up 4.1%
Operating Income $1,973 $1,819 Up $154 Up 8.4%
Equity Income, Net of Tax $125 $59 Up $66 Up 111.2%
Net Income $1,212 $1,065 Up $147 Up 13.8%
Diluted Earnings per Share $2.53 $2.18 Up $.35 Up 16.1%
- ---------------------------------------------------------------------------------
</TABLE>
Domestic beer industry fundamentals are the best the company has
experienced this decade. Anheuser-Busch believes improving demographics,
higher capacity utilization and an improved pricing environment are creating
opportunities for margin enhancement and earnings growth. The company
expects its favorable earnings per share growth momentum to continue in the
fourth quarter, and is increasingly confident of achieving full-year 1999
earnings per share growth in the mid-teens, consistent with third quarter and
year-to-date results. Furthermore, the combination of favorable domestic
beer pricing and volume trends provides a positive outlook for achieving
Anheuser-Busch's double-digit earnings per share growth objective in the year
2000.
RESULTS OF OPERATIONS
- ---------------------
Anheuser-Busch achieved gross sales of $3.8 billion and $10.5 billion,
and net sales of $3.2 billion and $9.0 billion, respectively, in the third
quarter and nine months of 1999. Gross sales increased over 1998 by $114
million, or 3.1%, for the third quarter and $399 million, or 3.9%, for the
nine months. Net sales increased over 1998 by $100 million, or 3.2%, and
$352 million, or 4.1%, for the same periods. For the third quarter
10
<PAGE> 11
the increases are due to increased domestic revenue per barrel combined with
higher domestic beer volume. Increases for the nine months are due to
increased domestic revenue per barrel and higher domestic beer volume,
partially offset by lower international beer sales, lower sales prices by the
company's commodity-based aluminum recycling operations and lower theme park
revenues due to lower attendance.
Domestic revenue per barrel grew approximately 3% in the third quarter
1999, and is up over 2.5% for the nine months, compared to the same periods
last year. Strong revenue per barrel growth in the third quarter reflects
the company's focus on domestic beer profit margin growth.
At the beginning of October 1999, the company implemented the first stage
of its planned revenue enhancement strategy for 2000. Selected price
increases and discount reductions have been put into effect in markets
covering approximately 40% of the company's domestic volume, based on a
market-by-market assessment of competitive conditions. Although in the early
stages, preliminary results are encouraging.
11
<PAGE> 12
The company's beer volume information for the third quarter and nine
months of 1999 is summarized in the following table:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Reported Beer Volume (millions of barrels)
- ----------------------------------------------------------------------------------------------
Third Quarter Nine Months Ended Sept. 30
---------------------------- -----------------------------
vs. 1998 vs. 1998
-------------------- ---------------------
1999 Barrels % 1999 Barrels %
------ -------- -------- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Domestic 25.6 Up 0.3 Up 1.2% 73.5 Up 2.5 Up 3.6%
International 1.9 Up 0.1 Up 3.3% 5.2 Up 0.1 Up 1.5%
------ --------- --------- ------ --------- ----------
Worldwide - A-B Brands 27.5 Up 0.4 Up 1.4% 78.7 Up 2.6 Up 3.5%
Int'l Equity Partner Brands 4.0 Up 1.1 Up 37.8% 11.6 Up 3.7 Up 47.1%
------ --------- --------- ------ --------- ----------
Total Brands 31.5 Up 1.5 Up 4.9% 90.3 Up 6.3 Up 7.6%
====== ========= ========= ====== ========= ==========
- -----------------------------------------------------------------------------------------------
</TABLE>
Worldwide Anheuser-Busch beer brand shipments grew 1.4% to 27.5 million
barrels in the third quarter versus the third quarter 1998. Worldwide
shipments for the nine months of 1999 were 78.7 million barrels, up 3.5%,
compared to the same period last year. Worldwide beer volume is comprised of
domestic and international Anheuser-Busch branded sales 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.
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 31.5 million barrels, up 4.9%, in the third
quarter and 90.3 million barrels, up 7.6%, for the nine months of 1999.
12
<PAGE> 13
Domestic beer shipments grew 3.6% for the nine months, consistent with
nine month sales-to-retailer growth. Domestic beer shipments for the third
quarter were up 1.2% compared to third quarter 1998. Third quarter shipments
were below the third quarter sales-to-retailer growth of 2.1% as the company
reduced wholesaler inventories to further enhance product freshness. The
company continues to expect full-year 1999 domestic beer shipments to
increase more than 3% over 1998 shipments.
The company's domestic market share (excluding exports) for the nine
months of 1999 was 47.2%, an increase of 0.9 percentage points over 1998
market share of 46.3%. Including exports, the company's share of U.S.
shipments was 47.0% versus 46.1% for the nine months of 1998. Domestic
market share and share of U.S. shipments are determined based on industry
sales estimates provided by the Beer Institute. The company's market share
is higher than previously reported reflecting the Beer Institute's recent
revisions to their industry sales estimates. Anheuser-Busch has led the U.S.
brewing industry in sales volume and market share since 1957.
International beer volume (excluding Grupo Modelo) was up 3.3% for the
third quarter and up 1.5% for the nine months of 1999, to 1.9 million barrels
and 5.2 million barrels, respectively. The year-to-date increases were due
primarily to solid gains in the Americas, Ireland and Continental Europe,
partially offset by continued weakness in Asia and somewhat slower sales in
the United Kingdom.
In August 1999, the company recalled twist-off bottles in several
European countries as a quality assurance measure. The recall stemmed from
problems with the bottle manufacturing process. There were no quality issues
with the beer itself. The company estimates the total pretax cost for the
bottle recall will approximate $5 million.
13
<PAGE> 14
In September 1999, Anheuser-Busch and its Brazilian partner, Companhia
Antarctica Paulista (Antarctica), announced a joint decision not to apply to
CADE, Brazil's antitrust commission, for continued production of Budweiser by
Antarctica. Instead, Anheuser-Busch will convert its Brazilian production
agreement to an export arrangement and begin exporting Budweiser to Brazil
once current inventories are depleted. The pretax cost of discontinuing
Budweiser production was approximately $5 million.
On November 2, 1999, the company announced it reached agreement with its
local partner, Kirin, to convert its Japan joint venture operation into an
exclusive license agreement for the production and selling of Budweiser in
Japan, effective January 2000. The new agreement with Kirin is designed to
create new opportunities for Budweiser's growth and to improve profitability
by giving the brand full access to Kirin's national wholesaler distribution
and integrated selling systems. The one-time cost of converting to the
license agreement will be comparable to the cost incurred in 1998 to
restructure the company's sales force in Japan.
Although profits for Anheuser-Busch's international beer segment
(including Modelo) were up significantly, international beer operating profit
(excluding Modelo) declined for the nine months of 1999 compared to the same
period last year. International beer operations (excluding Modelo) are
expected to report a full-year operating loss for 1999 in the range of $10 -
$20 million, including termination of the Budweiser production joint venture
in Brazil, the impact of one-time costs related to the bottle recall in
Europe and the one-time cost to convert Japanese operations to the license
brewing and selling agreement.
14
<PAGE> 15
Cost of products and services was $1.9 billion and $5.5 billion,
respectively, for the third quarter and nine months of 1999, increasing 0.5%
and 1.6%, respectively, compared to the same periods in 1998.
Gross profit as a percentage of net sales was 40.9% for the third quarter
1999, an increase of 1.6 percentage points versus the third quarter 1998, and
39.0% for the nine months of 1999, an increase of 1.5 percentage points
versus the prior year.
Marketing, distribution and administrative expenses for the third quarter
1999 were $575.2 million compared with $534.5 million for the third quarter
1998, an increase of $40.7 million, or 7.6%. For the nine months of 1999,
these expenses were $1.53 billion, an increase of $114.7 million, or 8.1%,
compared with $1.42 billion in 1998. These increases are primarily
attributable to higher domestic marketing and sales promotion spending in
support of the Bud Family, increased spending on consumer awareness and
education programs and higher general and administrative costs.
Operating income for the third quarter 1999 was $741.6 million, an
increase of $49.7 million, or 7.2%, over the comparable period last year.
Operating income for the nine months of 1999 was $1.97 billion, an increase
of $153.4 million, or 8.4%, versus the nine months of 1998. The increase in
operating income for the third quarter and nine months is primarily due to
increased domestic beer sales volume and revenue per barrel. International
beer and packaging operations results declined in the third quarter. For the
nine months of 1999, operating results for international beer and theme parks
declined, while packaging operations improved over the prior year.
Equity income, net of tax, increased $25.3 million, to $45.3 million, for
the third quarter and increased $65.8 million, to $125.0 million, for the
nine months of 1999. The
15
<PAGE> 16
increases in equity income are due to Modelo's strong underlying operating
results and the company's 50.2% equity stake in Modelo in the third quarter
and nine months of 1999 compared to 37% ownership for the corresponding
periods in 1998. Additionally, equity income for 1998 was adversely impacted
by Mexican peso depreciation and hyperinflation accounting. Hyperinflation
accounting ceased January 1, 1999.
Net interest cost (interest expense less interest income) was $74.6
million for the third quarter 1999, an increase of $5.2 million, or 7.5%,
compared to net interest cost of $69.4 million for the third quarter 1998.
Net interest cost for the nine months of 1999 was $227.8 million, an increase
of $13.8 million, or 6.4%, over net interest cost of $214.0 million for the
corresponding period in 1998. The increases in 1999 compared to similar 1998
periods reflect higher average debt balances outstanding.
Interest capitalized increased $1.6 million, and declined $8.0 million,
for the third quarter and nine months of 1999, to $4.2 million and $11.7
million, respectively. The changes in 1999 compared to 1998 reflect
fluctuations in construction-in-progress balances due to capital spending
levels and timing of project completions.
Other income/(expense), net, was $0.2 million for the third quarter and
$(4.1) million for the nine months of 1999. Other income/(expense), net,
includes numerous items of a non-operating 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 both the third
quarter and nine months of 1999, unchanged from comparable periods in 1998.
16
<PAGE> 17
Net income was $461.5 million for the third quarter 1999, an increase of
$53.2 million, or 13.0%, compared to the third quarter 1998. For the nine
months of 1999, net income was $1.21 billion, an increase of $146.9 million,
or 13.8%, compared to 1998.
Diluted earnings per share for the third quarter 1999 were $.97, an
increase of $.13, or 15.5%, compared to the third quarter 1998. For the nine
months of 1999, diluted earnings per share were $2.53, an increase of $.35,
or 16.1%, 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
approximately 14 million shares through the nine months of 1999 and expects
to repurchase over 3% of total shares outstanding for the full year 1999.
FINANCIAL CONDITION
- -------------------
Cash and marketable securities at September 30, 1999 totaled $131.7
million, representing an increase of $5.2 million from September 30, 1998 and
a decrease of $93.1 million since December 31, 1998. The principal source of
the company's cash flow is cash generated by operations. Financing
activities, as outlined below, provided additional sources of cash during the
twelve-month period ended September 30, 1999. Principal uses of cash during
the period were capital expenditures, share repurchases and dividends.
Total long-term debt increased $98.9 million during the twelve-month
period ended September 30, 1999. The net increase in debt during this period
is shown below, by key component:
17
<PAGE> 18
Debt Issuances ... $444.9 million, comprised of the following:
--------------
- $400.0 million of long-term notes (interest rates: $100.0
million at 5.125% and $300.0 million at 5.75%)
- $13.5 million of industrial revenue bonds (various fixed
interest rates)
- $31.4 million of miscellaneous borrowings
Debt Reduction ... $346.0 million, comprised of the following:
--------------
- $241.6 million of commercial paper (weighted average interest
rate: 4.8%)
- $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 reduction of the ESOP debt guarantee (interest
rate: 8.25%)
- $7.2 million of miscellaneous borrowings
At September 30, 1999, $456.5 million of commercial paper borrowings were
outstanding, representing decreases of $241.6 million compared to September
30, 1998, and $158.8 million compared to December 31, 1998. 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 were $610.4 million for the nine months of 1999
versus $603.8 million for 1998, an increase of $6.6 million, or 1.1%.
18
<PAGE> 19
RISK MANAGEMENT
- ---------------
The company's derivatives holdings will fluctuate during the year based
on normal and recurring changes in financing activity, foreign currency
transactions and purchasing and production activity. Since December 31,
1998, 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 the reprogramming of existing systems. There has been some
diversion of information systems funding due to the Year 2000 effort, but
material delays of critical non-Year 2000 information technology initiatives
have not occurred. The company estimates its readiness efforts are 98%
complete, with remaining reprogramming, hardware replacement and appropriate
testing expected to be completed before the end of 1999. Readiness work on
all critical systems is complete.
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
19
<PAGE> 20
Year 2000-related reprogramming costs of $9.2 million for the first nine
months of 1999, compared to total costs of $15.5 million for the full year
1998, $6.6 million in 1997 and nominal costs for 1996. The company estimates
incurring an additional $7.7 million to complete the Year 2000 reprogramming
effort. Some of these costs will be incurred in 2000. 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 working with its key suppliers and customers
to ensure Year 2000 issues are adequately addressed to the extent possible,
and has completed 98% of its assessment of important third party readiness.
The company is monitoring 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 currently unable to determine with
certainty the likelihood of Year 2000 non-readiness by key suppliers or
customers. Anheuser-Busch has developed contingency plans to ensure each
critical system, process and activity continues uninterrupted in the event
either the company or its key suppliers fail to resolve their critical Year
2000 issues. The contingency plans are essentially complete and in place.
Contingency plans include the refinement of emergency back-up and recovery
procedures, replacement of certain electronic applications with manual
processes,
20
<PAGE> 21
adopting manual workaround procedures, adjusting facility shut-down and
start-up schedules, securing additional staff, and other appropriate
measures.
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 and
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 Ft. Collins, CO,
Cartersville, GA and Jacksonville, FL, and at certain locals in St. Louis,
MO, Newark, NJ and Los
21
<PAGE> 22
Angeles, CA, the approved contract will not go into effect until agreement is
reached on all national and local issues. Both the company and the Teamsters
have previously stated that there can be no final agreement until agreement
is reached on all national and local issues. As a result, the company
continues to operate its breweries under the terms of the offer implemented
in September 1998. The company remains committed to operate its breweries in
the event of any work stoppages.
The approved national contract includes wage and benefit increases, as
well as provisions to support productivity improvement, promote workplace
flexibility, reduce absenteeism, improve the grievance procedure and
institute a more effective drug-testing program. Additionally,
Anheuser-Busch 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.
PACKAGING OPERATIONS
- --------------------
Anheuser-Busch's Packaging Operations has entered into a preliminary
agreement to form a joint venture with Consumers Packaging Inc. The joint
venture will reopen a glass bottle manufacturing plant in Houston, Texas, to
supply bottles to the company's Houston brewery under a long-term,
cost-effective supply contract. Anheuser-Busch will invest approximately $50
million for a 49% ownership position. The agreement is subject to
negotiation of a definitive joint-venture contract.
ANTARCTICA INVESTMENT
- ---------------------
On July 2, 1999, Anheuser-Busch and 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
22
<PAGE> 23
to approximately 30% in the future. In originally 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. Due to receiving the original U.S.
dollar investment amount from Antarctica, there was no impact on earnings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10 - Anheuser-Busch Companies, Inc. Stock Plan for Non-Employee
Directors (Incorporated by reference to Exhibit 4.1 in the
Form S-8 of the Company, Registration Statement No. 333-88015)
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, 1999.
23
<PAGE> 24
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 10, 1999
/s/ John F. Kelly
---------------------------------
John F. Kelly
Vice President and Controller
(Chief Accounting Officer)
November 10, 1999
24
<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>
Nine Months
Ended
September 30, Year Ended December 31,
------------------------- --------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
7.8X 7.8X 6.8X 7.3X 8.1X <F1/> 6.6X <F2/> 7.7X
</TABLE>
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> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 131,700
<SECURITIES> 0
<RECEIVABLES> 785,600
<ALLOWANCES> 0
<INVENTORY> 571,800
<CURRENT-ASSETS> 1,684,300
<PP&E> 14,268,700
<DEPRECIATION> 6,360,800
<TOTAL-ASSETS> 12,677,900
<CURRENT-LIABILITIES> 1,822,400
<BONDS> 4,834,800
0
0
<COMMON> 715,500
<OTHER-SE> 3,430,500
<TOTAL-LIABILITY-AND-EQUITY> 12,677,900
<SALES> 8,988,200
<TOTAL-REVENUES> 8,988,200
<CGS> 5,482,100
<TOTAL-COSTS> 7,015,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231,300
<INCOME-PRETAX> 1,752,600
<INCOME-TAX> 666,000
<INCOME-CONTINUING> 1,211,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,211,600
<EPS-BASIC> 2.57
<EPS-DILUTED> 2.53
</TABLE>
