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 March 31, 2004
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 by check mark whether the registrant is an
accelerated filer (as defined in Rule
12b-2 of the Exchange Act)
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 - 804,216,404 shares as of March 31, 2004
1
Anheuser-Busch Companies, Inc. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
---------------------------------------------------------------------------------------------------------------
March 31, December 31,
(In millions) 2004 2003
------------------- ------------------
Assets
Current Assets:
Cash $ 138.4 $ 191.1
Accounts receivable 898.1 669.4
Inventories:
Raw materials and supplies 367.8 320.3
Work in progress 99.5 81.9
Finished goods 239.3 185.3
Total inventories 706.6 587.5
Other current assets 176.1 182.3
------------------- ------------------
Total current assets 1,919.2 1,630.3
Investments in affiliated companies 3,213.9 3,052.0
Plant and equipment, net 8,483.9 8,498.9
Intangible assets, including goodwill of
$349.0 million in both periods 497.8 486.6
Other assets 996.9 1,021.7
------------------- ------------------
Total Assets $ 15,111.7 $ 14,689.5
=================== ==================
Liabilities and Shareholders Equity
Current Liabilities:
Accounts payable $ 979.1 $ 1,093.7
Accrued salaries, wages and benefits 237.0 288.9
Accrued taxes 419.1 163.1
Other current liabilities 363.6 311.5
------------------- ------------------
Total current liabilities 1,998.8 1,857.2
------------------- ------------------
Postretirement benefits 464.7 470.4
------------------- ------------------
Debt 7,532.3 7,285.4
------------------- ------------------
Deferred income taxes 1,501.9 1,462.1
------------------- ------------------
Other long-term liabilities 894.2 902.7
------------------- ------------------
Shareholders Equity:
Common stock, $1.00 par value, 1.6 billion
shares authorized 1,459.9 1,457.9
Capital in excess of par value 1,251.9 1,194.0
Retained earnings 14,307.0 13,935.4
Treasury stock, at cost (13,492.7) (12,939.0)
Accumulated other comprehensive loss (806.3) (890.3)
ESOP debt guarantee -- (46.3)
------------------- ------------------
Total Shareholders Equity 2,719.8 2,711.7
------------------- ------------------
Commitments and contingencies -- --
------------------- ------------------
Total Liabilities and Shareholders Equity $ 15,111.7 $ 14,689.5
=================== ==================
---------------------------------------------------------------------------------------------------------------
See the accompanying footnotes on pages 5 -- 10.
2
Anheuser-Busch Companies, Inc., and Subsidiaries
Consolidated Statement Of Income And Retained Earnings (Unaudited)
-----------------------------------------------------------------------------------------------------
(In millions, except per share data) First Quarter Ended March 31,
----------------------------------------
2004 2003
---------------- -----------------
Gross sales $ 4,003.0 $ 3,794.9
Excise taxes (526.0) (514.3)
---------------- -----------------
Net sales 3,477.0 3,280.6
Cost of sales (2,073.3) (1,974.4)
---------------- -----------------
Gross profit 1,403.7 1,306.2
Marketing, distribution & administrative
expenses (582.3) (542.1)
---------------- -----------------
Operating income 821.4 764.1
Interest expense (101.7) (98.7)
Interest capitalized 5.2 4.4
Interest income 1.1 0.1
Other income/(expense), net 27.6 (0.2)
---------------- -----------------
Income before income taxes 753.6 669.7
Provision for income taxes (292.6) (259.3)
Equity income, net of tax 88.9 74.4
---------------- -----------------
Net income 549.9 484.8
Retained earnings, beginning of period 13,935.4 12,544.0
Common stock dividends (per share:
2004 - $.22; 2003 - $.195) (178.3) (164.1)
---------------- -----------------
Retained earnings, end of period $14,307.0 $12,864.7
================ =================
Basic earnings per share $.68 $.58
================ =================
Diluted earnings per share $.67 $.57
================ =================
-----------------------------------------------------------------------------------------------------
See the accompanying footnotes on pages 5 -- 10.
3
Anheuser-Busch Companies, Inc. and Subsidiaries
Consolidated Statement Of Cash Flows (Unaudited)
----------------------------------------------------------------------------------------------------------------------
Three Months Ended
(In millions) March 31,
----------------------------------------
2004 2003
---------------- -----------------
Cash flow from operating activities:
Net Income $ 549.9 $ 484.8
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 224.0 214.5
Deferred income taxes 39.8 16.5
Undistributed earnings of affiliated companies (85.4) (57.4)
Other, net 64.3 42.9
---------------- -----------------
Operating cash flow before change in working capital 792.6 701.3
Increase in working capital (199.4) (103.5)
---------------- -----------------
Cash provided by operating activities 593.2 597.8
---------------- -----------------
Cash flow from investing activities:
Capital expenditures (199.0) (222.2)
Acquisitions (32.9) --
---------------- -----------------
Cash used for investing activities (231.9) (222.2)
---------------- -----------------
Cash flow from financing activities:
Increase in debt 500.3 396.9
Decrease in debt (200.8) (84.0)
Dividends paid to shareholders (178.3) (164.1)
Acquisition of treasury stock (578.6) (609.5)
Shares issued under stock plans 43.4 11.1
---------------- -----------------
Cash used for financing activities (414.0) (449.6)
---------------- -----------------
Net decrease in cash during the period (52.7) (74.0)
Cash, beginning of period 191.1 188.9
---------------- -----------------
Cash, end of period $ 138.4 $ 114.9
================ =================
----------------------------------------------------------------------------------------------------------------------
See the accompanying footnotes on pages 5 -- 10.
4
ANHEUSER-BUSCH COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Unaudited Financial Statements
------------------------------
The unaudited financial statements have been prepared in accordance
with U.S. generally accepted accounting principles and applicable SEC
guidelines pertaining to quarterly financial reporting, and include all
adjustments necessary for a fair presentation. These statements should
be read in combination with the consolidated financial statements and
notes included in the company's annual report on Form 10-K for the year
ended December 31, 2003.
2. Business Segments Information
-----------------------------
Comparative business segment information for the first quarter ended
March 31 (in millions):
---------------------------------------------------------------------------------------
Domestic Int'l Corporate &
Beer Beer Packaging Entertain. Other Elims. Consol.
----------------------------------------------------------------------------------------------------------------
2004
Gross Sales $3,258.1 193.1 521.4 154.1 10.8 (134.5) $4,003.0
Net Sales:
- Intersegment -- -- $210.1 -- 1.0 (211.1) $ --
- External $2,766.4 158.8 311.3 154.1 9.8 76.6 $3,477.0
Income Before Income
Taxes $ 862.7 22.9 36.8 (11.0) (4.5) (153.3) $ 753.6
Equity Income,
Net of Tax -- $ 88.9 -- -- -- -- $ 88.9
Net Income $ 534.9 103.1 22.8 (6.8) (2.8) (101.3) $ 549.9
----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Domestic Int'l Corporate &
Beer Beer Packaging Entertain. Other Elims. Consol.
----------------------------------------------------------------------------------------------------------------
2003
Gross Sales $3,138.8 166.2 497.0 125.8 12.1 (145.0) $3,794.9
Net Sales:
- Intersegment -- -- $214.5 -- 1.1 (215.6) $ --
- External $2,650.7 140.0 282.5 125.8 11.0 70.6 $3,280.6
Income Before Income
Taxes $ 799.6 20.2 33.8 (20.5) (2.6) (160.8) $ 669.7
Equity Income,
Net of Tax -- $ 74.4 -- -- -- -- $ 74.4
Net Income $ 495.8 86.9 21.0 (12.7) (1.6) (104.6) $ 484.8
----------------------------------------------------------------------------------------------------------------
5
3. Earnings Per Share
------------------
Earnings per share are calculated by dividing net income by
weighted-average common shares outstanding for the period. The
difference between basic and diluted weighted-average common shares is
the dilutive impact of unexercised in-the-money stock options. There
were no adjustments to net income for any period shown for purposes of
calculating earnings per share. Weighted-average common shares
outstanding for the first quarter ended March 31 are shown below
(millions of shares):
First Quarter
---------------------------
2004 2003
------------- -----------
Basic weighted average shares outstanding 810.6 840.7
============= ===========
Diluted weighted average shares outstanding 820.6 850.5
============= ===========
4. Comprehensive Income / (Loss)
-----------------------------
The components of accumulated other comprehensive loss as of March 31,
2004 and December 31, 2003 follow (in millions):
Mar. 31, 2004 Dec. 31, 2003
--------------------- --------------------
Foreign currency translation loss $(587.8) $(669.4)
Deferred hedging gains 49.1 59.8
Deferred securities valuation gains 185.4 172.3
Minimum pension liability (453.0) (453.0)
--------------------- --------------------
Total accumulated other comprehensive loss $(806.3) $(890.3)
===================== ====================
------------------------------------------------------------------------------
Comprehensive income for the first quarter ended March 31 follows (in
millions):
First Quarter
-----------------------------
2004 2003
------------ -------------
Net income $549.9 $ 484.8
Foreign currency translation gains/(losses) 81.6 (207.4)
Net change in deferred hedging gains and losses (10.7) (2.5)
Deferred securities valuation gains 13.1 7.7
------------ -------------
Comprehensive income $633.9 $ 282.6
============ =============
6
5. Derivatives
-----------
Anheuser-Busch accounts for its derivatives under FAS 133, "Accounting
for Derivatives and Other Hedging Instruments," and therefore defers
hedging gains and losses that are effective at offsetting price changes
in the underlying hedged exposures. The company reclassified deferred
gains of $17.7 million and deferred losses of $0.4 million from
accumulated other comprehensive loss into operating income during the
first quarter 2004 as underlying hedged transactions occurred.
The company recognized net gains due to hedge ineffectiveness totaling
$24.1 million for the first quarter 2004, compared to net gains of $0.1
million for first quarter 2003. The first quarter 2004 gain includes
$19.5 million related to the sale of commodity hedges, which is
reported in other income. The hedges were originally placed using
estimates of costs to be contained in the renewal of supply contracts.
Anheuser-Busch lowered its cost estimates during the quarter, resulting
in significant hedge ineffectiveness in compliance with FAS 133. Due to
the hedge ineffectiveness, the company sold these hedges and realized
the ineffective portion of the gain.
6. Goodwill
--------
Following is goodwill by business segment, as of March 31, 2004 and
December 31, 2003 (in millions). Goodwill is included in either other
assets or investment in affiliated companies, as appropriate, in the
consolidated balance sheet. The change in goodwill is entirely due to
changes in foreign currency exchange rates.
Mar. 31, 2004 Dec. 31, 2003
--------------------- --------------------
Domestic Beer $ -- $ --
International Beer 701.0 679.7
Packaging 21.9 21.9
Entertainment 288.3 288.3
--------------------- --------------------
Total goodwill $1,011.2 $989.9
===================== ====================
7
7. Stock Based Compensation
------------------------
The company accounts for employee stock options in accordance with APB
25, "Accounting for Stock Issued to Employees," and therefore
recognizes no compensation expense related to employee stock options,
since options are always granted at a price equal to the market price
on the day of grant.
Following is the pro forma impact on net income and earnings per share
for the first quarter ended March 31, as if compensation expense had
been recognized based on the fair value of the stock options on the
grant date (in millions, except per share). To determine the pro forma
impact, the fair value of stock options is estimated on the date of
grant using the Black-Scholes option-pricing model and is then
hypothetically amortized to compensation expense over the three-year
vesting period.
First Quarter
-------------------------
2004 2003
------------ ------------
Reported Net Income $549.9 $484.8
Pro Forma Impact of Expensing Stock Options (29.1) (27.8)
------------ ------------
Pro Forma Net Income $520.8 $457.0
============ ============
Reported Basic Earnings Per Share $ .68 $ .58
Pro Forma Impact of Expensing Stock Options (.04) (.04)
------------ ------------
Pro Forma Basic Earnings Per Share $ .64 $ .54
============ ============
Reported Diluted Earnings Per Share $ .67 $ .57
Pro Forma Impact of Expensing Stock Options (.04) (.03)
------------ ------------
Pro Forma Diluted Earnings Per Share $ .63 $ .54
============ ============
For disclosure purposes, the fair value of stock options granted is
required to be based on a theoretical option-pricing model. In
actuality, because the company's employee stock options are not traded
on an exchange, employees can receive no
8
value nor derive any benefit from holding stock options under these
plans without an increase in the market price of Anheuser-Busch stock.
Such an increase in stock price benefits all stockholders.
8. Contingencies
-------------
In January 1997, Maris Distributing Company, Inc., a former
Anheuser-Busch wholesaler in Florida, initiated litigation against the
company alleging breach of contract and 12 other claims. Anheuser-Busch
terminated its distribution agreement with Maris Distributing in March
1997. During the course of litigation, nine claims were resolved in
favor of Anheuser-Busch and a defamation claim brought by Maris was
mistried. In August 2001, a jury rendered a verdict against the company
in the amount of $50 million on two remaining claims. The court
subsequently awarded plaintiffs an additional $22.6 million in
accumulated prejudgment interest on the jury award, which may continue
to accrue at a rate that is fixed annually. Anheuser-Busch continues to
believe it acted appropriately in terminating the distribution
agreement of Maris Distributing. In May 2003, the Court of Appeals
remanded the case to the trial court for resolution of issues relating
to the defamation claim. In September 2003, the trial court determined
that Maris Distributing's amended defamation claim could proceed.
Anheuser-Busch is vigorously contesting that claim and is seeking
review of the decision of the trial court to permit the defamation
claim to proceed. The appeals of the 2001 verdict cannot be heard by
the Court of Appeals until matters relating to the defamation claim are
resolved. The company continues to vigorously contest the verdict.
However, resolution is not expected to occur quickly and the ultimate
impact of this matter on the company's financial position, results of
operations or cash flows cannot presently be predicted. The company's
results do not include any expense related to the Maris Distributing
judgment or interest for any period shown.
The company and certain of its subsidiaries are involved in additional
claims and legal proceedings in which monetary damages and other relief
is sought. The company is vigorously contesting these claims; however
resolution is not expected
9
to occur quickly, and their ultimate outcome cannot presently be
predicted. It is the opinion of management that the ultimate resolution
of these claims, legal proceedings and other contingencies, either
individually or in the aggregate, will not materially affect the
company's financial position, results of operations or liquidity.
9. Pension and Other Postretirement Benefits Expense
-------------------------------------------------
The components of total quarterly expense for pensions and other
postretirement benefits are shown below for the first quarter of 2004
and 2003 (in millions):
Pensions Postretirement
----------------------- -----------------------
2004 2003 2004 2003
---------- --------- --------- --------
Service cost (benefits earned during the period) $ 20.3 $18.6 $ 5.9 $4.9
Interest cost on benefit obligation 39.6 38.0 9.4 9.5
Assumed return on plan assets (47.7) (47.2) --- ---
Amortization of prior service cost and net
actuarial (gains)/losses 15.6 9.0 (0.8) (2.3)
---------- --------- --------- --------
Expense for defined benefit plans 27.8 18.4 14.5 12.1
Cash contributed to multi-employer pension plans 4.1 4.2 --- ---
Cash contributed to defined contribution pension
plans 4.6 4.6 --- ---
---------- --------- --------- --------
Total quarterly benefits expense $ 36.5 $27.2 $14.5 $12.1
========== ========= ========= ========
10
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 and cash
flows of Anheuser-Busch Companies, Inc. for the first quarter ended March
31, 2004, compared to the first quarter ended March 31, 2003, and the year
ended December 31, 2003. 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, 2003.
This discussion contains forward-looking statements regarding the
company's expectations concerning its future operations, earnings and
prospects. On the date the forward-looking statements are made, the
statements represent the company's expectations, but the company's
expectations concerning its future operations, earnings and prospects may
change. The company's expectations involve risks and uncertainties (both
favorable and unfavorable) and are based on many assumptions that the
company believes to be reasonable, but such assumptions may ultimately prove
to be inaccurate or incomplete, in whole or in part. Accordingly, there can
be no assurances that the company's expectations and the forward-looking
statements will be correct. Important factors that could cause actual
results to differ (favorably or unfavorably) from the expectations stated in
this discussion include, among others, changes in the pricing environment
for the company's products; changes in U.S. demand for malt beverage
products; changes in consumer preference for the company's malt beverage
products; regulatory or legislative changes, including changes in beer
excise taxes at either the federal or state level; changes in the litigation
to which the company is a party; changes in raw materials prices; changes in
packaging materials costs; changes in interest rates; changes in foreign
currency exchange rates; unusual weather conditions that could impact beer
consumption in the U.S.; changes in attendance and consumer spending
patterns for the company's theme park operations; changes in demand for
aluminum beverage containers; changes in the company's international beer
business or in the
11
beer business of the company's international equity partners; changes in the
company's credit rating resulting from future acquisitions or divestitures;
and the effect of stock market conditions on the company's share repurchase
program. Anheuser-Busch disclaims any obligation to update any of these
forward-looking statements.
RESULTS OF OPERATIONS
---------------------
With strong growth from all its major operating segments,
Anheuser-Busch achieved record sales and earnings during the first quarter
2004. Consolidated net sales increased 6.0% in the first quarter and
earnings per share increased 17.5%. First quarter results benefited from a
$19.5 million pretax gain ($.015 per share) from the sale of commodity
hedges. This gain is reported in other income/(expense) on the consolidated
income statement and as such does not impact gross profit or operating
income. Earnings per share excluding this gain increased 14.9% versus first
quarter 2003.
Anheuser-Busch had another excellent quarter and continued its
track record of delivering consistent and dependable earnings growth. The
company has now achieved 22 consecutive quarters of solid double-digit
earnings per share growth and remains confident in its ability to
consistently achieve its double-digit earnings per share growth objective
over the long-term, and the 12% earnings per share growth target for 2004
(excluding the benefit of the commodity hedge gain).
Strong growth in domestic revenue per barrel drove a continued
enhancement in profit margins in the quarter. Gross and operating profit
margins improved 60 basis points and 30 basis points, respectively, compared
to the first quarter 2003. Return on capital employed increased 100 basis
points over the past twelve months to 18.8%.
12
BEER SALES RESULTS
------------------
The company's beer volume is summarized in the following table:
------------------------------------------------------------------------------------------------------------
Beer Volume (millions of barrels)
------------------------------------------------------------------------------------------------------------
First Quarter 2004 versus 2003
------------------------------ ------------------------------
2004 2003 Barrels %
------------- --------------- --------------- -------------
Domestic 25.1 24.9 Up 0.2 Up 0.8%
International 1.9 1.8 Up 0.1 Up 6.1%
--------------------------------------------------------------
Worldwide A-B Brands 27.0 26.7 Up 0.3 Up 1.2%
Int'l Equity Partner Brands 4.4 4.3 Up 0.1 Up 1.9%
--------------------------------------------------------------
Total Brands 31.4 31.0 Up 0.4 Up 1.3%
==============================================================
------------------------------------------------------------------------------------------------------------
Domestic volume represents Anheuser-Busch beer produced and shipped
within the United States. Led by Bud Light and Michelob ULTRA sales,
domestic beer sales-to-wholesalers increased 0.8%, to 25.1 million barrels
for the first quarter of 2004 versus 2003. Wholesaler sales-to-retailers
volume was up 2.5% in the first quarter 2004, including the benefit of leap
day.
The company's domestic market share (excluding exports) for the
first quarter 2004 was 51.7%, compared to first quarter 2003 market share of
52.0%. The slight decline in market share is due to the timing of 2004 beer
shipments. Market share is based on company sales-to-wholesalers. During the
quarter, wholesaler sales-to-retailers significantly exceeded the company's
shipments to wholesalers, further reducing wholesaler inventory levels. The
company expects full year market share to increase. Domestic market share is
based on estimated U.S. beer industry sales using information provided by
the Beer Institute and the U.S. Department of Commerce.
International volume consists of Anheuser-Busch brands produced
overseas by company-owned breweries and under license and contract brewing
agreements, plus exports from the company's U.S. breweries to markets around
the world. International Anheuser-Busch brand beer volume for the first
quarter 2004 was 1.9 million barrels, an increase of 6.1% compared to the
first quarter 2003, primarily due to volume increases in China and Canada.
Worldwide Anheuser-Busch brands volume is comprised of domestic
volume and international volume, and rose 1.2% for the first quarter 2004
versus 2003, to 27.0
13
million barrels. Total brands volume, which combines worldwide
Anheuser-Busch brand volume with equity partner volume (representing the
company's share of its foreign equity partners' volume) was 31.4 million
barrels in the first quarter 2004, up 0.4 million barrels, or 1.3% over
first quarter 2003. International equity partner brands volume grew 1.9% for
the first quarter of 2004 versus 2003, primarily due to Modelo volume
growth.
FIRST QUARTER 2004 FINANCIAL RESULTS
------------------------------------
Key operating results for the first quarter 2004 versus 2003 are
summarized below:
--------------------------------------------------------------------------------------------------------
($ in millions, except per share)
------------------------------------------------------------------
Growth
First Quarter 2004 versus 2003
------------------------------ -------------------------------
2004 2003 $ %
------------ ------------ ------------- --------------
Gross Sales $4,003 $3,795 Up $208 Up 5.5%
Net Sales $3,477 $3,281 Up $196 Up 6.0%
Income Before Income Taxes $754 $670 Up $84 Up 12.5%
Equity Income, Net of Tax $89 $74 Up $15 Up 19.4%
Net Income $550 $485 Up $65 Up 13.4%
Diluted Earnings per Share $.67 $.57 Up $.10 Up 17.5%
--------------------------------------------------------------------------------------------------------
A discussion of financial highlights for the first quarter 2004
follows.
Anheuser-Busch achieved record gross sales of $4 billion during the
first quarter 2004, an increase of $208 million, or 5.5% over first quarter
2003 gross sales. Net sales were a record $3.5 billion, an increase of $196
million, or 6% compared to the first quarter 2003. The difference between
gross and net sales reflects beer excise taxes of $526 million on sales of
the company's products.
The increases in both gross and net sales were primarily due to a
$116 million, or 4.4% increase in domestic beer segment sales resulting from
higher domestic revenue per barrel and higher domestic beer sales volume.
Revenue per barrel generated $93 million in net sales improvement, while
higher beer volume contributed $23 million of the increase. Net sales also
benefited from sales increases in the company's remaining
14
business segments, with net sales up 13%, 10% and 23%, respectively, for
international beer, packaging and entertainment operations.
Domestic revenue per barrel grew 3.1% in the first quarter 2004
versus first quarter 2003. This growth reflects the company's successful
implementation of pricing actions on approximately two-thirds of its
domestic volume in two phases - October 2003 and February 2004, and the
continued consumer trading up to the super premium Michelob family. Domestic
revenue per barrel is calculated as net sales generated by the company's
domestic beer operations on barrels of beer sold, determined on a U.S. GAAP
basis, divided by the volume of beer shipped from the company's breweries to
U.S. wholesalers.
Cost of sales for the first quarter 2004 was $2.1 billion, an
increase of $99 million, or 5% compared to the first quarter 2003. The
increase in cost of sales is attributable to higher costs for all of the
company's major business segments. The increase in domestic beer costs
primarily due to $8 million associated with increased beer volume versus
prior year, plus increased costs for brewing materials and packaging
materials. International beer experienced higher costs associated with
increased beer volume. Packaging operations incurred higher aluminum costs
and entertainment operations incurred higher park operating expenses. Gross
profit as a percentage of net sales was 40.4% for the first quarter 2004, up
60 basis points from 39.8% for the first quarter 2003, primarily due to the
impact of higher revenue per barrel and beer volume.
Marketing, distribution and administrative expenses for the first
quarter 2004 were $582 million, an increase of $40 million, or 7.4% compared
with first quarter 2003. The increase in marketing, distribution and
administrative expenses in the first quarter 2004 is due to increased
domestic marketing costs, primarily for the Bud Family, the Bacardi Silver
Family and Michelob ULTRA, increased international beer marketing costs,
higher distribution costs associated with owning an additional wholesale
operation and higher legal and administrative costs.
Operating income was $821 million, an increase of $57 million, or
7.5% for the first quarter 2004 versus 2003. Operating margin for the first
quarter 2004 increased 30 basis points to 23.6%.
15
Interest expense less interest income was $101 million for the
first quarter 2004, an increase of $2 million, or 2% compared to the first
quarter 2003. The increase for 2004 is due to higher average outstanding
debt balances compared to prior year. Interest capitalized increased $1
million, to $5 million for the first quarter 2004, primarily due to higher
construction-in-progress balances.
Other income/expense, net primarily includes earnings from the
company's limited partnership investments in beer wholesalers, in addition
to numerous other items of a nonoperating nature. For the first quarter of
2004 and 2003, the company had other income of $27.6 million and other
expense of $0.2 million, respectively. Other income for the first quarter
2004 includes the one-time pretax gain of $19.5 million from the sale of
commodity derivatives. The hedges were originally placed using estimates of
costs to be contained in the renewal of supply contracts. Anheuser-Busch
lowered its cost estimates during the quarter, resulting in significant
hedge ineffectiveness in compliance with FAS 133. Due to the hedge
ineffectiveness, the company sold these hedges and realized the ineffective
portion of the gain. For business segment reporting purposes, the gain is
reported as a corporate item. Other income/(expense), net also includes a
$19.1 million pretax gain ($.014 per share) related to the sale of two beer
wholesaler partnerships in the first quarter 2004.
Income before income taxes was $754 million, an increase of $84
million, or 12.5% versus first quarter 2003. This increase reflects improved
results for all the company's major business segments.
Pretax income for the domestic beer segment was up 7.9% for the
quarter, reflecting higher revenue per barrel and higher beer sales volume.
Domestic beer pretax income for the quarter includes the $19.1 million
pretax gain related to the sale of two beer wholesaler partnerships.
International beer segment pretax income improved 13% in the first
quarter versus 2003 primarily due to continued strong volume and profit
growth in China, Canada and the United Kingdom. Packaging segment pretax
profits were up 9% in the first quarter 2004. This increase is primarily due
to higher soft drink can volume and improved plant operations. Entertainment
segment pretax results improved by $9.5
16
million, up 46% compared to the first quarter 2003, primarily due to
increased attendance and admissions pricing, primarily in Florida.
Equity income increased $15 million in the first quarter 2004 versus
2003, primarily reflecting the benefit of price increases implemented by
Grupo Modelo coupled with volume growth.
Anheuser-Busch's effective tax rate was 38.8% in the first quarter
2004 versus 38.7% in the first quarter 2003.
Net income of $550 million represented an increase of $65 million,
or 13% over first quarter 2003. Diluted earnings per share were $.67, an
increase of 17.5% compared to the first quarter 2003. Earnings per share
benefited from the company's repurchase of 10.8 million shares in the first
quarter 2004. Excluding the one-time gain from the sale of commodity hedges,
which better reflects underlying operations, diluted earnings per share
would have been $.66, or an increase of 14.9%, as shown below:
Diluted Increase
Earnings Per Share versus 2003
------------------------ -----------
2004 2003
---------- ---------
Reported $.670 $.570 17.5%
===========
Commodity Hedge Gain (.015) --
---------- ---------
Excluding Hedge Gain $.655 $.570 14.9%
========== ========= ===========
LIQUIDITY AND FINANCIAL CONDITION
---------------------------------
Cash at March 31, 2004 was $138 million, a decrease of $53 million
from the December 31, 2003 balance. The primary source of the company's
liquidity is cash generated by operations. Principal uses of cash are
capital expenditures, share repurchase, dividends and business investments.
The company generated operating cash flow before the change in working
capital of $793 million for the first quarter 2004. See the consolidated
statement of cash flows for detailed information. Cash generated by the
company's business segments is projected to exceed funding requirements for
each segment's anticipated capital spending. The net issuance of debt
provides an
17
additional source of cash as necessary for share repurchase, dividends and
business investments. The nature, extent and timing of debt financing varies
depending on the company's evaluation of existing market conditions and
other factors.
The company's debt balance increased $247 million since December
31, 2003, compared to an increase of $263 million during the first quarter
2003. The detail of changes in debt are outlined below.
Debt issuances were $501 million and $397 million, respectively, in
the first quarter 2004 and 2003, as shown below:
-----------------------------------------------------------------------------------------------
Amount Interest Rate
Description (Millions) (Fixed Unless Noted)
-----------------------------------------------------------------------------------------------
2004
----
U.S. Dollar Notes $300.0 5%
Commercial Paper 192.0 1.02% Weighted average floating
Industrial Revenue Bonds 1.0 5.875%
Issuance Discounts (0.8) N/A
Other, net 8.4 Various
2003
----
U.S. Dollar Notes $400.0 $200.0 at 4.5%; $200.0 at 4.625%
Issuance discounts (3.1) N/A
Other, net 0.3 Various
-----------------------------------------------------------------------------------------------
Debt reductions were $254 million and $134 million, respectively,
in the first quarter 2004 and 2003, as shown below.
-----------------------------------------------------------------------------------------------
Amount Interest Rate
Description (Millions) (Fixed Unless Noted)
-----------------------------------------------------------------------------------------------
2004
----
Euro Notes $200.0 6.5%
ESOP Note 46.3 8.25%
Other, net 7.4 Various
2003
----
Commercial Paper $83.1 1.25% Weighted average floating
ESOP Note 44.0 8.25%
Other, net 7.0 Various
-----------------------------------------------------------------------------------------------
18
The company's ESOP debt guarantee expired on March 31, 2004. In
April 2004, the company issued $250 million of 4.7% Notes due 2012. The
company now has $550 million of debt available for issuance through existing
SEC shelf registrations.
The company's commercial paper borrowings of $718 million at March
31, 2004 were classified as long-term, since commercial paper is maintained
on a long-term basis with on-going support provided by the company's $2
billion revolving credit agreement.
Capital expenditures during the first quarter 2004 were $199
million, compared to $222 million for the first quarter 2003. Full year 2004
capital expenditures are expected in the range of $900 million to $1
billion.
At its April meeting, the Board of Directors declared a regular
quarterly dividend of $.22 per share on outstanding shares of the company's
common stock, payable June 9, 2004, to shareholders of record May 10, 2004.
CASH COMMITMENTS
----------------
Following are the company's future cash commitments as of March 31,
2004 (in millions):
----------------------------------------------------------------------
2005 2007 2009 and
2004 and 2006 and 2008 Thereafter Total
----------------------------------------------------------------------
Capital expenditures $245 $ 82 $ -- $ -- $ 327
Maturities of long-term debt (1) 51 170 550 6,043 6,814
Operating leases 28 61 32 285 406
Brewing and packaging materials 655 181 183 573 1,592
----------------------------------------------------------------------
$979 $494 $765 $6,901 $9,139
======================================================================
Note (1) Excludes maturities of commercial paper.
RETURN ON CAPITAL EMPLOYED
--------------------------
Return on capital employed is computed as 12 months of net income
before after-tax net interest (interest expense less interest capitalized)
divided by average net investment. Net investment is defined as total assets
less non-debt current liabilities. For the 12 months ended March 31, 2004,
after-tax net interest expense was $235
19
million, calculated as pretax net interest expense of $379 million less
income taxes applied using a 38% tax rate. For the 12 months ended March 31,
2003, after-tax net interest expense was $223 million, calculated as pretax
net interest expense of $360 less income taxes applied using a 38% tax rate.
TSINGTAO INVESTMENT
-------------------
In March 2004, the company made its planned final investment of $33
million in convertible bonds of Tsingtao, the largest brewer in China,
bringing its total investment in Tsingtao to $182 million. The company's
equity ownership interest remains at 9.9% and continues to be accounted for
using the cost method.
ITEM 3. RISK MANAGEMENT
The company's derivatives holdings fluctuate during the year based
on normal and recurring changes in purchasing and production activity. The
company has experienced slightly higher derivatives use over the last few
years as raw material inputs have increased in conjunction with increases in
domestic beer volume. Since December 31, 2003, there have been no
significant changes in the company's interest rate and foreign currency
exposures. As previously discussed, certain of the company's commodity
exposures have been reduced as Anheuser-Busch now anticipates lower future
pricing in supply agreements currently being finalized. There have been no
changes in the types of derivative instruments used to hedge the company's
exposures. Underlying commodity market conditions have been somewhat
volatile, with recent trends towards higher prices.
ITEM 4. CONTROLS AND PROCEDURES
It is the responsibility of the chief executive officer and chief
financial officer to ensure the company maintains disclosure controls and
procedures designed to provide reasonable assurance that material
information, both financial and non-financial, and other information
required under the securities laws to be disclosed is identified and
communicated to senior management on a timely basis. The company's
disclosure controls and procedures include mandatory communication of
material subsidiary
20
events, automated accounting processing and reporting, management review of
monthly and quarterly results, periodic subsidiary business reviews, an
established system of internal controls and rotating internal control
reviews by the company's internal auditors.
The chief executive officer and chief financial officer evaluated
the company's disclosure controls and procedures as of the end of the
quarter ended March 31, 2004 and have concluded that they are effective as
of March 31, 2004 in providing reasonable assurance that such information is
identified and communicated on a timely basis. Additionally, there were no
changes in the company's internal control over financial reporting
identified in connection with the evaluation that have materially affected,
or are reasonably likely to materially affect, the company's internal
control over financial reporting.
21
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On January 5, 2004, the company issued out of treasury shares a
total of 3,343 shares of the company's common stock ($1 par value) to four
members of the Board of Directors of the company in lieu of cash for all or
a portion of those members' 2004 annual retainer fee pursuant to the
company's Non-Employee Director Elective Stock Acquisition Plan. These
transactions were exempt from registration and prospectus delivery
requirements of the Securities Act of 1933 pursuant to Section 4(2) of the
Act.
Following are the company's monthly common stock purchases during
the first quarter 2004 (in millions, except per share):
Avg. Price
Shares per Share
---------------- ----------------
Shares Remaining Authorized Under Disclosed Repurchase Programs at
January 1, 2004 77.4
================
Share Repurchases
-----------------
January 2.7 $50.81
February 1.2 $51.69
March 6.9 $51.45
---------------- ----------------
Total 10.8 $51.32
---------------- ----------------
Shares Remaining Authorized Under Disclosed Repurchase Programs at
March 31, 2004 66.6
================
As of March 31, 2004, the company had disbursed $24.9 million for 490,600
shares for which title had not yet been received due to normal three-day
securities settlement protocol. All shares are repurchased under Board of
Directors authorization. The Board authorized the current program to
repurchase 100 million shares in March 2003. There is no prescribed
termination date for this program.
22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of the company held April 28,
2004, the following matters were voted upon:
1. Election of August A. Busch III, Carlos Fernandez G., James R.
Jones, Andrew C. Taylor and Douglas A. Warner III to serve as
Directors of the company for a term of three years.
For Withheld
-------------------- --------------------
August A. Busch III 674,219,176 27,334,712
Carlos Fernandez G. 689,956,840 11,597,048
James R. Jones 691,093,100 10,460,788
Andrew C. Taylor 686,242,597 15,311,291
Douglas A. Warner III 681,411,065 20,142,823
2. Approve the appointment of PricewaterhouseCoopers LLP as
independent auditors for 2004.
For 674,182,841
Against 22,657,701
Abstain 4,713,346
Non-Votes 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
12 Ratio of Earnings to Fixed Charges
31.1 Certification of Chief Executive Officer
required by Rule 13a-14(a) or 15d-14(a) under
the Exchange Act
31.2 Certification of Chief Financial Officer
required by Rule 13a-14(a) or 15d-14(a) under
the Exchange Act
32.1 Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
23
(b) Reports on Form 8-K
-------------------
Item Reported Date of Report
------------- --------------
Item 7 (c) Exhibit - Press Release February 4, 2004
Item 12 Results of Operations and Financial
Condition February 4, 2004
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)
April 30, 2004
/s/ John F. Kelly
------------------------------------------
John F. Kelly
Vice President and Controller
(Chief Accounting Officer)
April 30, 2004
24