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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, 2003
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 - 826,765,606 shares as of June 30, 2003
1
CONSOLIDATED BALANCE SHEET
Anheuser-Busch Companies, Inc. and Subsidiaries (Unaudited)
- -----------------------------------------------------------------------------------------------------------------
June 30, December 31,
(In millions) 2003 2002
---------------------- ---------------------
Assets
Current Assets:
Cash $143.0 $188.9
Accounts receivable 912.6 630.4
Inventories:
Raw materials and supplies 218.8 294.1
Work in progress 88.1 82.8
Finished goods 224.5 186.7
Total inventories 531.4 563.6
Other current assets 177.3 121.8
---------------------- ---------------------
Total current assets 1,764.3 1,504.7
Investments in affiliated companies 2,940.4 2,827.9
Other assets 1,401.2 1,423.0
Plant and equipment, net 8,428.9 8,363.9
---------------------- ---------------------
Total Assets $14,534.8 $14,119.5
====================== =====================
Liabilities and Shareholders Equity
Current Liabilities:
Accounts payable $1,000.9 $986.6
Accrued salaries, wages and benefits 253.1 287.5
Accrued taxes 313.8 181.0
Other current liabilities 343.4 332.6
---------------------- ---------------------
Total current liabilities 1,911.2 1,787.7
---------------------- ---------------------
Postretirement benefits 470.4 474.2
---------------------- ---------------------
Debt 7,055.6 6,603.2
---------------------- ---------------------
Deferred income taxes 1,373.8 1,345.1
---------------------- ---------------------
Other long-term liabilities 865.4 857.0
---------------------- ---------------------
Shareholders Equity:
Common stock, $1.00 par value, 1.6 billion
shares authorized 1,456.0 1,453.4
Capital in excess of par value 1,095.6 1,024.5
Retained earnings 13,335.2 12,544.0
Treasury stock, at cost (12,102.3) (11,008.6)
Accumulated other comprehensive loss (879.8) (870.7)
ESOP debt guarantee (46.3) (90.3)
---------------------- ---------------------
Total Shareholders Equity 2,858.4 3,052.3
---------------------- ---------------------
Commitments and contingencies -- ---
---------------------- ---------------------
Total Liabilities and Shareholders Equity $14,534.8 $14,119.5
====================== =====================
- -----------------------------------------------------------------------------------------------------------------
See the accompanying footnotes on pages 5 -- 12.
2
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Anheuser-Busch Companies, Inc., and Subsidiaries (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Second Qtr. Ended June 30, Six Months Ended June 30,
------------------------------------ ------------------------------------
(In millions, except per share) 2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
Gross sales $4,339.3 $4,182.4 $8,134.2 $7,819.8
Excise taxes (569.1) (556.3) (1,083.4) (1,057.1)
---------------- ---------------- ---------------- ----------------
Net sales 3,770.2 3,626.1 7,050.8 6,762.7
Cost of sales (2,189.9) (2,119.8) (4,164.3) (4,034.4)
---------------- ---------------- ---------------- ----------------
Gross profit 1,580.3 1,506.3 2,886.5 2,728.3
Marketing, distribution &
administrative expenses (622.3) (609.6) (1,164.4) (1,126.6)
---------------- ---------------- ---------------- ----------------
Operating income 958.0 896.7 1,722.1 1,601.7
Interest expense (102.3) (91.3) (201.0) (180.9)
Interest capitalized 6.4 4.7 10.8 9.0
Interest income 0.2 0.5 0.3 0.6
Other income/(expense), net (0.8) 0.6 (1.0) (0.3)
---------------- ---------------- ---------------- ----------------
Income before income taxes 861.5 811.2 1,531.2 1,430.1
Provision for income taxes (334.9) (322.8) (594.2) (582.7)
Equity income, net of tax 106.0 98.1 180.4 195.2
---------------- ---------------- ---------------- ----------------
Net income 632.6 586.5 1,117.4 1,042.6
Retained earnings, beginning of period 12,864.7 11,556.2 12,544.0 11,258.2
Common stock dividends (per share:
2nd quarter, 2003 - $.195; 2002 - $.18
Six months, 2003 - $.39; 2002 - $.36) (162.1) (157.4) (326.2) (315.5)
---------------- ---------------- ---------------- ----------------
Retained earnings, end of period $13,335.2 $11,985.3 $13,335.2 $11,985.3
================ ================ ================ ================
Basic earnings per share $.76 $.67 $1.34 $1.19
================ ================ ================ ================
Diluted earnings per share $.75 $.66 $1.32 $1.17
================ ================ ================ ================
- -------------------------------------------------------------------------------------------------------------------------------
See the accompanying footnotes on pages 5 -- 12.
3
CONSOLIDATED STATEMENT OF CASH FLOWS
Anheuser-Busch Companies, Inc. and Subsidiaries (Unaudited)
- --------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30,
-----------------------------------------
(In millions) 2003 2002
---------------- -----------------
Cash flow from operating activities:
Net Income $1,117.4 $1,042.6
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 429.0 417.5
Deferred income taxes 28.7 50.0
Undistributed earnings of affiliated companies (50.7) (148.4)
Other, net 59.3 89.6
---------------- -----------------
Operating cash flow before change in working capital 1,583.7 1,451.3
Increase in working capital (119.3) (30.0)
---------------- -----------------
Cash provided by operating activities 1,464.4 1,421.3
---------------- -----------------
Cash flow from investing activities:
Capital expenditures (490.1) (392.6)
Business acquisitions (116.4) --
---------------- -----------------
Cash used for investing activities (606.5) (392.6)
---------------- -----------------
Cash flow from financing activities:
Increase in long-term debt 576.9 554.9
Decrease in long-term debt (77.2) (435.7)
Dividends paid to shareholders (326.2) (315.5)
Acquisition of treasury stock (1,126.6) (801.5)
Shares issued under stock plans 49.3 95.3
---------------- -----------------
Cash used for financing activities (903.8) (902.5)
---------------- -----------------
Net (decrease) / increase in cash during the period (45.9) 126.2
Cash beginning of period 188.9 162.6
---------------- -----------------
Cash, end of period $143.0 $288.8
================ =================
- --------------------------------------------------------------------------------------------------------------------
See the accompanying footnotes on pages 5 -- 12.
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 generally accepted accounting principles and applicable SEC
guidelines pertaining to quarterly financial information, and include
all adjustments necessary for a fair presentation. These statements
should be read in combination with the consolidated financial
statements and footnotes included in the company's annual report on
Form 10-K for the year ended December 31, 2002.
2. 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
due to 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 second quarter and six months ended June 30
are shown below (millions of shares):
Second Quarter Six Months
--------------------------- ---------------------------
2003 2002 2003 2002
----------- ------------ ----------- ------------
Basic weighted average shares
outstanding 831.2 872.3 836.0 875.4
=========== ============ =========== ============
Diluted weighted average shares
outstanding 842.0 885.3 846.5 888.5
=========== ============ =========== ============
5
3. Comprehensive Income / (Loss)
-----------------------------
Comprehensive income for the second quarter and six months ended June
30 follows (in millions):
Second Quarter Six Months
----------------------------- -----------------------------------
2003 2002 2003 2002
------------ ------------- --------------- ----------------
Net income $632.6 $586.5 $1,117.4 $1,042.6
Foreign currency translation
adjustment 176.3 (134.0) (31.1) (148.7)
Deferred hedging gains/(losses) 0.8 4.0 (1.7) 31.9
Deferred securities valuation gains 16.0 -- 23.7 --
------------ ------------- --------------- ----------------
Comprehensive income $825.7 $456.5 $1,108.3 $925.8
============ ============= =============== ================
- -------------------------------------------------------------------------------------------------------------------
The components of Accumulated Other Comprehensive Loss as of June 30,
2003 and December 31, 2002 follow (in millions):
June 30, 2003 Dec. 31, 2002
--------------------- --------------------
Foreign currency translation adjustment $(470.7) $(439.6)
Minimum pension obligation (428.2) (428.2)
Deferred hedging gains/(losses) (7.6) (5.9)
Deferred securities valuation gains 26.7 3.0
--------------------- --------------------
Total accumulated other comprehensive loss $(879.8) $(870.7)
===================== ====================
4. Derivatives
-----------
Derivatives are included on the balance sheet at fair value, with
changes in fair value recorded either in earnings or equity depending
on the nature of the underlying hedged exposure, and how effective the
derivative is at offsetting price movements in the underlying exposure.
All the company's derivative positions qualify for hedge accounting
under FAS 133, "Accounting for Derivative Instruments and Hedging
Activity."
6
Gains and losses due to commodity hedge ineffectiveness are recognized
as a component of cost of sales in the income statement. The company
recognized net gains due to hedge ineffectiveness totaling $0.8 million
for the second quarter and $0.9 million for the six months of 2003,
compared to net gains of $0.2 million and no net gain or loss for the
similar 2002 periods.
Gains and losses deferred in equity will be recognized in cost of sales
when the underlying transactions occur --- generally over the next 12
to 24 months. When recognized, these gains and losses will essentially
offset price changes in the underlying transaction compared to the
original hedged amount.
5. Goodwill
--------
Following is goodwill by business segment, as of June 30, 2003 and
December 31, 2002 (in millions). Goodwill is included in either Other
Assets or Investment in Affiliated Companies, as appropriate, in the
consolidated balance sheet.
June 30, 2003 Dec. 31, 2002
------------------ ------------------
Domestic Beer $ --- $ ---
International Beer 716.9 715.2
Packaging 21.9 21.9
Entertainment 288.3 288.3
------------------ ------------------
Total goodwill $1,027.1 $1,025.4
================== ==================
6. Stock Based Compensation
------------------------
The company accounts for employee stock options in accordance with
APB 25, "Accounting for Stock Issued to Employees." Under APB 25, the
company recognizes no compensation expense related to employee stock
options, since options are always granted with an exercise price
equal to the market price of the company's stock on the day of grant.
7
Because no compensation expense is recognized under APB 25, the
company makes pro forma disclosures of net income and diluted
earnings per share as if compensation expense had been recognized
based on the fair value of the stock options on the grant date as
determined under FAS 123.
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. The pro forma impact for the
second quarter and six months ended June 30 follows (in millions,
except per share):
Second Quarter Six Months
--------------------------- -------------------------------
2003 2002 2003 2002
----------- ----------- ------------- --------------
Reported Net Income $632.6 $586.5 $1,117.4 $1,042.6
Pro Forma Impact of Expensing
Stock Options (27.8) (23.1) (55.7) (46.2)
----------- ----------- ------------- --------------
Pro Forma Net Income $604.8 $563.4 $1,061.7 $996.4
=========== =========== ============= ==============
Reported Basic Earnings Per Share
$.76 $.67 $1.34 $1.19
Pro Forma Impact of Expensing
Stock Options (.03) (.02) (.07) (.05)
----------- ----------- ------------- --------------
Pro Forma Basic Earnings Per Share
$.73 $.65 $1.27 $1.14
=========== =========== ============= ==============
Reported Diluted Earnings Per Share
$.75 $.66 $1.32 $1.17
Pro Forma Impact of Expensing
Stock Options (.03) (.02) (.07) (.05)
----------- ----------- ------------- --------------
Pro Forma Diluted Earnings Per Share
$.72 $.64 $1.25 $1.12
=========== =========== ============= ==============
8
For FAS 123 disclosure purposes, the weighted-average fair value of
stock options granted is required to be based on a theoretical
option-pricing model. In actuality, because the company's employee
stock options are not traded on an exchange, employees can receive no
value nor derive any benefit from holding stock options under these
plans without an increase in the market price of Anheuser-Busch
stock. Such an increase in stock price benefits all stockholders.
7. Pension Plan Accounting Assumptions
-----------------------------------
In the first quarter 2003, the company lowered its assumed long-term
rate of return on its defined benefit pension plan assets from 9.25%
to 8.5%, and also reduced its assumed rate of compensation increases
from 4.75% to 4.25%. The company believes the revised asset return
assumption better reflects the current long-term market outlook,
while the lower compensation increase assumption is more
representative of the company's actual experience over the last five
years. Combined, these changes will increase annual pension expense
and therefore reduce income before income taxes approximately
$13 million ($.01 per share) in 2003.
8. Tsingtao Investment
-------------------
On April 3, 2003, the company announced the completion of its strategic
alliance with Tsingtao Brewery Company, Ltd., the largest brewer in
China, and producer of the Tsingtao brand. Under the agreement,
Anheuser-Busch invested $116.4 million for two convertible bonds, and
will invest an additional $65.2 million to purchase a third convertible
bond within 12 months for a total investment of $181.6 million.
The first bond was converted to voting stock on July 2, 2003,
increasing the company's voting stake in Tsingtao from 4.5% to 9.9%.
Anheuser-Busch continues to account for its investment on the cost
basis, as it is currently unable to exercise significant influence over
Tsingtao's business policies and operations. When the remaining bonds
are converted over the next seven years, the company's economic
ownership interest will ultimately increase to 27% of Tsingtao.
9
9. Business Segments Information
-----------------------------
Comparative business segment information for the second quarter ended
June 30, 2003 (in millions):
--------------------------------------------------------------------------------------------
Domestic Int'l Corporate &
Beer Beer Packaging Entertain. Other Elims. Consol.
- ---------------------------------------------------------------------------------------------------------------------
2003
Gross Sales $3,397.5 201.0 589.9 280.3 21.2 (150.6) $4,339.3
Net Sales:
- - Intersegment --- --- $232.9 --- 1.2 (234.1) $---
- - External $2,870.8 158.6 357.0 280.3 20.0 83.5 $3,770.2
Income Before $875.7 25.9 50.5 66.0 2.5 (159.1) $861.5
Income Taxes
Equity Income, --- $106.0 --- --- --- --- $106.0
Net of Tax
Net Income $542.9 122.1 31.3 40.9 1.5 (106.1) $632.6
- ---------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Domestic Int'l Corporate &
Beer Beer Packaging Entertain. Other Elims. Consol.
- ---------------------------------------------------------------------------------------------------------------------
2002
Gross Sales $3,279.3 199.7 576.7 265.0 32.3 (170.6) $4,182.4
Net Sales:
- - Intersegment --- --- $235.8 --- 8.9 (244.7) $---
- - External $2,759.1 163.6 340.9 265.0 23.4 74.1 $3,626.1
Income Before
Income Taxes $815.8 28.5 47.9 70.9 4.7 (156.6) $811.2
Equity Income,
Net of Tax --- $98.1 --- --- --- --- $98.1
Net Income $505.8 115.7 29.7 44.0 2.9 (111.6) $586.5
- ---------------------------------------------------------------------------------------------------------------------
10
Comparative business segment information for the six months ended
June 30, 2003 (in millions):
--------------------------------------------------------------------------------------------
Domestic Int'l Corporate &
Beer Beer Packaging Entertain. Other Elims. Consol.
- ---------------------------------------------------------------------------------------------------------------------
2003
Gross Sales $6,536.3 367.2 1,086.9 406.1 33.3 (295.6) $8,134.2
Net Sales:
- - Intersegment --- --- $447.4 --- 2.3 (449.7) $---
- - External $5,521.5 298.6 639.5 406.1 31.0 154.1 $7,050.8
Income Before $1,675.3 46.1 84.3 45.5 (0.1) (319.9) $1,531.2
Income Taxes
Equity Income, --- $180.4 --- --- --- --- $180.4
Net of Tax
Net Income $1,038.7 209.0 52.3 28.2 (0.1) (210.7) $1,117.4
- ---------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Domestic Int'l Corporate &
Beer Beer Packaging Entertain. Other Elims. Consol.
- ---------------------------------------------------------------------------------------------------------------------
2002
Gross Sales $6,306.9 343.7 1,046.3 390.8 49.7 (317.6) $7,819.8
Net Sales:
- - Intersegment --- --- $445.1 --- 13.2 (458.3) $---
- - External $5,307.3 286.2 601.2 390.8 36.5 140.7 $6,762.7
Income Before
Income Taxes $1,551.8 45.2 78.6 56.4 3.3 (305.2) $1,430.1
Equity Income,
Net of Tax --- $195.2 --- --- --- --- $195.2
Net Income $962.1 223.2 48.7 35.0 2.0 (228.4) $1,042.6
- ---------------------------------------------------------------------------------------------------------------------
11
10. Cash Commitments
----------------
At June 30, 2003, the company had the following cash commitments
through 2007 (in millions):
------------------------------------------------------------
2003 2004 2005 2006 2007
------------------------------------------------------------
Capital expenditures $ 261 -- -- -- --
Maturities of long-term debt 400 $251 -- $420 $250
Operating leases 17 32 $28 23 15
Brewing and packaging materials 521 85 64 80 80
-----------------------------------------------------------
$1,199 $368 $92 $523 $345
===========================================================
12
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 six months
ended June 30, 2003, compared to the second quarter and six months ended
June 30, 2002, and the year ended December 31, 2002. This discussion should
be read in combination with the consolidated financial statements and notes
included in the company's annual report to shareholders for the year ended
December 31, 2002.
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 such expectations may
change. These 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 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; changes in the litigation to which the company is a
party; changes in raw materials costs; changes in packaging materials costs;
changes in interest rates; changes in foreign currency exchange rates;
unusual weather conditions that could impact beer consumption in the U.S.;
changes in attendance and consumer spending patterns for the company's theme
park operations; changes in demand for aluminum beverage containers; changes
in the company's international beer business or in the beer business of the
company's international equity partners; 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.
If the company determines to update any forward-
13
looking statement, it will do so publicly. No private statements by the
company or its personnel should be interpreted as updating forward-looking
statements.
SECOND QUARTER AND FIRST SIX MONTHS OF 2003 FINANCIAL RESULTS
- -------------------------------------------------------------
Led by continued strong growth in its domestic beer business,
Anheuser-Busch achieved record sales and earnings for the second quarter and
first six months of 2003. Second quarter and first six months diluted
earnings per share increased 13.6% and 12.8%, respectively, versus the same
2002 periods.
Anheuser-Busch once again delivered strong, dependable growth in
earnings per share and return on capital. The second quarter represents the
company's 19th consecutive quarter of solid double-digit earnings per share
growth. Domestic revenue per barrel growth drove continued improvement in
profit margins, with gross profit margin improving 40 basis points in the
second quarter 2003 and 60 basis points for the first six months of the
year. Operating profit margin increased 70 basis points in both the second
quarter and first six months of 2003. Return on capital employed improved to
17.9%, an increase of 130 basis points over the past twelve months.
During the first six months of 2003, Anheuser-Busch has
significantly increased revenue per barrel, margins and earnings per share
while also achieving a significant increase in market share. The company is
confident of achieving full year 2003 earnings per share growth in the 12%
to 13% range. In addition, the company remains confident in its ability to
consistently achieve its double-digit earnings per share growth objective
over the long-term, targeting 12% growth in 2004.
14
RESULTS OF OPERATIONS
- ---------------------
Key operating results for the second quarter and first six months
of 2003 are summarized in the following tables:
- -----------------------------------------------------------------------------------------------------------------------
($ in millions, except per share)
---------------------------------------------------------------------
Second Quarter 2003 versus 2002
----------------------------- ---------------------------------
2003 2002 $ %
----------- ---------- ----------- ------------
Gross Sales $4,339 $4,182 Up $157 Up 3.8%
Net Sales $3,770 $3,626 Up $144 Up 4.0%
Income Before Income Taxes $862 $811 Up $51 Up 6.2%
Equity Income, Net of Tax $106 $98 Up $8 Up 8.1%
Net Income $633 $587 Up $46 Up 7.8%
Diluted Earnings per Share $.75 $.66 Up $.09 Up 13.6%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
($ in millions, except per share)
---------------------------------------------------------------------
First Six Months 2003 versus 2002
----------------------------- ---------------------------------
2003 2002 $ %
----------- ---------- ----------- ------------
Gross Sales $8,134 $7,820 Up $314 Up 4.0%
Net Sales $7,051 $6,763 Up $288 Up 4.3%
Income Before Income Taxes $1,531 $1,430 Up $101 Up 7.1%
Equity Income, Net of Tax $180 $195 Dn $15 Dn 7.6%
Net Income $1,117 $1,043 Up $74 Up 7.2%
Diluted Earnings per Share $1.32 $1.17 Up $.15 Up 12.8%
- -----------------------------------------------------------------------------------------------------------------------
A discussion of financial results for the second quarter and first
six months of 2003 follows.
Anheuser-Busch achieved record gross sales of $4.3 billion and
$8.1 billion, and record net sales of $3.8 billion and $7.1 billion,
respectively, in the second quarter and first six months of 2003. These
amounts represent gross sales increases over 2002 of 3.8% for the second
quarter, and 4% for the six months. Net sales increased over 2002 by 4% and
4.3%, respectively, for the same periods. The differences between gross and
net sales reflect beer excise taxes paid by the company on its products.
The increases in consolidated gross and net sales are primarily the
result of 4% sales increases in both the second quarter and first six months
of 2003 for the domestic beer segment, due to higher revenue per barrel and
beer volume. The second quarter sales increase also included higher sales
for the packaging and entertainment
15
segments partially offset by lower revenue from international beer
operations. International beer sales volume was down 4.7% in the second
quarter due primarily to impact of the SARS outbreak in China. In recent
weeks, Anheuser-Busch sales in China have rebounded and are now back on a
growth trend. Year-to-date, packaging, entertainment and international beer
registered sales increases of $38.3 million, $15.3 million and
$12.4 million, respectively.
Domestic beer revenue per barrel generated $95.2 million and $168.0
million in net sales improvement for the second quarter and first six months
of 2003, respectively, while higher beer volume contributed $16.5 million
and $46.2 million, respectively, to the increases for the same periods.
Domestic revenue per barrel grew 3.5% and 3.1% in the second quarter and
first six months of 2003, respectively, versus the same periods in 2002,
reflecting the continued favorable beer industry pricing environment.
Revenue per barrel has now increased by 2% or more for 19 consecutive
quarters. Consistent with the company's practice of implementing moderate
annual price increases in two phases, Anheuser-Busch plans to initiate
selected pricing actions in the fourth quarter 2003. The revenue enhancement
initiatives will again be tailored to specific markets, brands and packages.
Domestic beer sales-to-wholesalers volume increased 0.7% for the
second quarter of 2003 versus the second quarter 2002, and 1.0% for the
first six months of 2003. Wholesaler sales-to-retailers volume was up 0.3%
for both the second quarter and first six months of 2003 versus comparative
2002 periods. Second quarter and year-to-date volume has been impacted by
unfavorable weather over much of the country. Sales improved over the July
4th holiday, which experienced more normal weather.
16
The company's beer volume for the second quarter and first six
months of 2003 is summarized in the following table:
- -----------------------------------------------------------------------------------------------------------------------
Reported Beer Volume (millions of barrels) for Periods Ended June 30
- -----------------------------------------------------------------------------------------------------------------------
Second Quarter Six Months
------------------------------------- -------------------------------------
Versus 2002 Versus 2002
----------------------- ------------------------
2003 Barrels % 2003 Barrels %
-------- --------- -------- -------- --------- ---------
Domestic 26.8 Up 0.2 Up 0.7% 51.8 Up 0.5 Up 1.0%
International 2.1 Dn 0.1 Dn 4.7% 3.9 Up 0.03 Up 0.7%
-------- --------- -------- -------- --------- ---------
Worldwide A-B Brands 28.9 Up 0.1 Up 0.3% 55.7 Up 0.5 Up 1.0%
Int'l Equity Partner Brands 5.1 Up 0.2 Up 4.5% 9.4 Up 0.1 Up 1.1%
-------- --------- -------- -------- --------- ---------
Total Brands 34.0 Up 0.3 Up 0.9% 65.1 Up 0.6 Up 1.0%
======== ========= ======== ======== ========= =========
- -----------------------------------------------------------------------------------------------------------------------
Worldwide Anheuser-Busch beer sales volume increased 0.3% and 1.0%,
respectively, for the second quarter and first six months of 2003, to
28.9 million and 55.7 million barrels. 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.
Total volume, which combines worldwide Anheuser-Busch brand volume
with equity volume (representing the company's share of its foreign equity
partners' volume), was 34.0 million barrels in the second quarter 2003, up
300,000 barrels, or 0.9% versus second quarter 2002. Total volume for the
first six months increased 1.0%, to 65.1 million barrels.
Anheuser-Busch reported domestic beer sales-to-wholesalers of
26.8 million barrels in the second quarter 2003 and 51.8 million barrels in the
first six months. This represents increases of 0.7% for the second quarter
and 1.0% for the first six months, compared to 2002. These increases were
led by Bud Light and Michelob ULTRA. The company's domestic market share
(excluding exports) for the first six months of 2003 was 50.0%, compared to
2002 market share of 48.4%. Domestic market share is determined based on
beer industry sales estimates provided by the Beer Institute and the U.S.
Department of Commerce.
17
International Anheuser-Busch brand beer volume for the second
quarter and first six months of 2003 was 2.1 million and 3.9 million
barrels, respectively, representing a decrease of 4.7% in the second quarter
and an increase of 0.7% for the first six months, versus comparable 2002
periods. The decline in second quarter volume is primarily attributable to
lower beer volume sales in China, due to SARS, and in the United Kingdom.
The year-to-date increase is primarily due to volume growth in China.
Cost of sales was $2.19 billion and $4.16 billion, respectively,
for the second quarter and first six months of 2003, reflecting increases of
$70.1 million, or 3.3%, and $129.9 million, or 3.2%, respectively, compared
to 2002. The increases in cost of sales for the second quarter and first six
months are due to higher beer sales volume, higher domestic beer production
costs, primarily increased brewing and packaging material costs and
utilities costs, higher theme park operating costs and increased costs for
the company's commodity recycling business. Gross profit as a percentage of
net sales was 41.9% for the second quarter and 40.9% for the first six
months of 2003, representing increases of 40 and 60 basis points,
respectively, versus 2002.
Marketing, distribution and administrative expenses for the second
quarter 2003 were $622.3 million, an increase of $12.7 million, or 2.1%
compared with second quarter 2002. For the first six months of 2003, these
expenses were $1.16 billion, an increase of $37.8 million, or 3.4% versus
last year. The increase in marketing, distribution and administrative
expenses in the second quarter is principally due to higher international
beer marketing costs and increased theme park costs. The increase for the
first six months is primarily due to higher domestic beer marketing costs
related to Michelob ULTRA, increased company-owned beer distribution costs,
higher international beer marketing costs and increased theme park marketing
costs.
Operating income increased $61.3 million, or 6.8% in the second
quarter 2003, and was up $120.4 million, or 7.5% for the first six months,
versus comparable periods in 2002. Operating margins for the second quarter
and first six months were 25.4% and 24.4%, respectively, for increases of
70 basis points in both periods.
Interest expense net of interest income was $102.1 million for the
second quarter and $200.7 million for the first six months of 2003,
representing increases of 12.4% and 11.3%, respectively, compared to the
corresponding periods in 2002. The increases in
18
2003 are due to the impact of higher average outstanding debt balances
partially offset by lower effective interest rates compared to last year.
Interest capitalized increased 36% and 20.5% for the second quarter
and first six months of 2003, respectively, to $6.4 million and
$10.8 million. These increases are primarily due to increased capital
spending and the timing of project in-service dates, and are influenced by
lower average interest rates in 2003.
The company had other expense of $0.8 million in the second quarter
and $1.0 million for the first six months of 2003. Other income/expense, net
includes equity earnings from the company's limited partnership investments
in beer wholesalers and numerous other items of a nonoperating nature that
do not impact the company's results of operations, either individually or in
total.
Income before income taxes was $861.5 million, an increase of
$50.3 million, or 6.2% versus first quarter 2002. Income before income taxes
of $1.53 billion for the first six months increased $101.1 million, or 7.1%
compared to 2002. The increase for the second quarter reflects increased
domestic beer segment pretax income along with improved profit contribution
from packaging segment operations, while the year-to-date increase is due to
improved performance from the domestic and international beer segments and
the packaging segment.
Domestic beer pretax income was $875.7 million and $1.68 billion
for the second quarter and first six months of 2003, respectively. This
represents increases of $59.9 million, or 7.3% for the second quarter 2003
and $123.5 million, or 8.0% for the first six months versus prior year. Both
of these increases are due to higher revenue per barrel and increased beer
sales volume.
International beer segment pretax income (excluding equity income)
was $25.9 million for the second quarter of 2003 and $46.1 million for the
first six months, representing a decrease of $2.6 million, or 9.2% in the
second quarter and an increase of $0.9 million, or 2.0% for the first six
months versus 2002. Second quarter pretax declined primarily due to lower
volume in China and the United Kingdom. The increase for the first six
months is primarily due to volume and profit growth in China.
Packaging segment pretax profits in the second quarter 2003 were
$50.5 million, an increase of $2.6 million, or 5.4%. For the first six
months, pretax profits were $84.3 million, an increase of $5.7 million, or
7.2%. Packaging pretax profits were up both in
19
the second quarter and for the first six months due to improved operating
profits from the company's can, bottle and label manufacturing operations.
Entertainment segment pretax results for the second quarter 2003
decreased $4.9 million, or 6.8% compared to the second quarter 2002, and
were down $10.9 million, or 19.3% for the first six months. Results are down
for both the quarter and year-to-date primarily due to lower attendance and
higher park operating costs, partially offset by higher admissions pricing
and in-park spending. Entertainment results include the cost of Operation
Salute through June 30th. Operation Salute is Anheuser-Busch's theme park
military appreciation program, providing free single-day admission to
SeaWorld, Busch Gardens and Sesame Place parks to active duty military,
active reservists, U.S. Coast Guard, National Guardsmen and as many as four
of their direct dependents.
Equity income was $106.0 million in the second quarter and $180.4
million for the first six months of 2003, an increase of $7.9 million, or
8.1% for the quarter and a decrease of $14.8 million, or 7.6% for the first
six months versus the similar 2002 periods. The second quarter increase is
due to higher Modelo and CCU earnings. Modelo's domestic sales volume
improved during the second quarter, but the company's equity income growth
from Modelo was dampened by difficult export volume comparisons to 2002 and
a weaker peso. Anheuser-Busch's equity share of CCU earnings in the second
quarter benefited by $5.5 million after-tax from the sale of a brewery in
Croatia. The decrease in equity income for the first six months of 2003 is
due to the $17 million one-time deferred income tax benefit included in 2002
Modelo equity income. The tax benefit resulted from lower Mexican income tax
rates enacted in the first quarter of 2002. The Mexican deferred tax benefit
included in Modelo equity income was largely offset by a corresponding
higher U.S. deferred taxes included in the 2002 consolidated income tax
provision.
The company's effective tax rate decreased to 38.9% in the second
quarter 2003 versus 39.8% last year, primarily due to a more favorable
foreign tax credit position. The effective tax rate declined to 38.8% for
the first six months of 2003 versus 40.7% for the first six months of 2002.
The year-to-date effective tax rate in 2002 was unusually high due to the
U.S. deferred income tax offset to the Mexican income tax rate benefit
included in equity income. In addition, the effective tax rate in 2003
reflects the more favorable foreign tax credit position.
20
Net income increased $46.1 million, or 7.8% during the second
quarter 2003, and increased $74.8 million, or 7.2% for the first six months,
versus the same periods last year. Diluted earnings per share were $.75 for
the second quarter 2003, an increase of 13.6% compared to prior year, and
were $1.32 for the first six months, an increase of 12.8% compared to the
first half of 2002. Earnings per share continue to benefit from the
company's share repurchase program. The company repurchased over 22 million
shares in the first six months of 2003.
Return on Capital Employed
- --------------------------
Return on capital employed for the twelve months ended June 30,
2003, was 17.9%, an increase of 130 basis points over the twelve-month
period ended June 30, 2002. Return on capital employed is computed as twelve
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 2003,
after-tax net interest expense was $229 million, calculated as pretax net
interest expense of $369 million less income taxes applied using a 38% tax
rate. For 2002, after-tax net interest expense was $209 million, calculated
as pretax net interest expense of $337 million less income taxes applied
at 38%.
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Cash at June 30, 2003 was $143.0 million, a decrease of
$45.9 million from the December 31, 2002 balance. The principal source of the
company's cash flow is cash generated by operations. Principal uses of cash
are capital expenditures, share repurchase, dividends and business
investments. Operating cash flow before the change in working capital for
the first six months of 2003 was $1.58 billion. 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 currently anticipated capital spending. The net issuance of
debt provides an additional source of cash as necessary for share
repurchase, dividends and business investments. The use of debt financing
lowers the company's overall cost of capital. The company's debt balance has
increased $452.4 million since December 31, 2002.
21
Debt issuances were $577.5 million and $560.1 million,
respectively, during the first six months of 2003 and 2002, as shown below:
- ------------------------------------------------------------------------------------------------------------------
Amount Interest Rate
Description (millions) (fixed unless noted)
- ------------------------------------------------------------------------------------------------------------------
2003
U.S. Dollar Notes 576.9 $198.0 at 4.5%; $198.9 at 4.625%; $180.0 at 5.35%
Other, net 0.6 Various
2002
U.S. Dollar Debentures 550.0 6.5%
Industrial Revenue Bonds 8.8 6.07% weighted average
Other, net 1.3 Various
- ------------------------------------------------------------------------------------------------------------------
Debt reductions were $125.1 million and $477.6 million,
respectively, during the first six months of 2003 and 2002, as shown below.
- ------------------------------------------------------------------------------------------------------------------
Amount Interest Rate
Description (millions) (fixed unless noted)
- ------------------------------------------------------------------------------------------------------------------
2003
Commercial Paper 76.0 1.21% weighted average floating
ESOP Note 44.0 8.25%
Other, net 5.1 Various
2002
Commercial Paper 226.4 1.93% weighted average floating
U.S. Dollar Notes 200.0 6.75%
ESOP Note 41.9 8.25%
Other, net 9.3 Various
- ------------------------------------------------------------------------------------------------------------------
At June 30, 2003, the company's commercial paper borrowings of
$336.9 million were classified as long-term since they are maintained on a
long-term basis with on-going support provided by the company's $2 billion
revolving credit agreement.
Effective July 1, 2003, the company called its $200 million 7.375%
debentures due 2023. The company previously notified bondholders of this
action in May 2003.
22
Capital expenditures during the first six months of 2003 were
$490.1 million, compared to $392.6 million for the first half of 2002. The
increase in capital expenditures is essentially due to the timing of
spending. Full year 2003 capital expenditures are expected to approximate
$950 million to $1 billion.
At its July meeting, the Board of Directors increased the regular
quarterly dividend on outstanding shares of the company's common stock to
$.22 per share, an increase of 12.8% from the prior rate of $.195 per share.
This marks the 27th consecutive year of Anheuser-Busch dividend increases.
The new dividend rate is payable September 9, 2003, to shareholders of
record August 11, 2003. Anheuser-Busch's average annual dividend increase
during the past five years was 8.4%, which represented top quartile dividend
growth among S&P 500 companies. The higher dividend increase in 2003
reflects a change in the company's dividend policy. It is now the Board of
Directors' intent to increase dividends per share in line with the company's
earnings per share growth, versus a prior policy of increasing dividends per
share somewhat less than the growth in earnings per share. This policy
change reflects the recent reduction in the federal tax rate on corporate
dividends.
At its March meeting, the Board of Directors approved a new
100 million common share repurchase program. The program is similar to the
company's previous authorization, which was completed during the second
quarter 2003.
OTHER MATTERS
- -------------
Tsingtao Investment
- -------------------
On April 3, 2003, the company invested $116.4 million in two
convertible bonds of Tsingtao, the largest brewer in China. The company is
expected to invest an additional $65.2 million in a third Tsingtao
convertible bond in the next year for a total investment of $181.6 million.
On July 2, 2003, the company converted the first bond, which increased its
equity interest from 4.5% to 9.9%. See footnote 8 for additional
information.
Beer Excise Taxes
- -----------------
Proposals to increase excise taxes on beer are confronted by the
company and the brewing industry every year, and there is added pressure in
2003 to increase taxes to help offset state budget deficits. Anheuser-Busch
understands spending cuts or
23
temporary tax increases may be necessary for states to address their current
budget concerns. However, the company believes the states should accomplish
this objective in the most efficient and least harmful way possible, and
does not believe excise taxes, which are regressive and primarily burden the
working class, are the solution.
Several states have considered increasing excise taxes and some
legislation has been proposed. Company and industry representatives meet
proactively with legislators and state administration officials to present
arguments against increases in beer excise taxes. To date in 2003, there
have been 29 proposals to increase state excise taxes. Proposals to increase
taxes have been defeated in 17 states in 2003, and there are nine proposals
pending. Three states have passed excise tax increases this year, Utah,
Nebraska and Nevada.
Litigation Update
- -----------------
In January 1997, Maris Distributing Company, Inc., a former
Anheuser-Busch wholesaler in Florida, initiated litigation against the
company alleging breach of contract and twelve 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. 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
pre-judgment interest on the jury award, which may continue to accrue at a
rate which is fixed annually. Anheuser-Busch continues to believe it acted
appropriately in terminating the distribution agreement of Maris
Distributing. Both Maris and the company appealed. In May 2003, the Court of
Appeals remanded the case to the trial court for resolution of pending
matters. Neither appeal can be heard by the Court of Appeals until the trial
court resolves these matters. The company continues to vigorously contest
the judgment. 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 liquidity/cash flows cannot presently be predicted. The
company's reported results for 2003 do not include any expense related to
the Maris Distributing judgment.
24
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.
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 higher derivatives use as raw material inputs have
increased in conjunction with increases in domestic beer volume. Since
December 31, 2002, there have been no material changes in the company's
interest rate, commodity price and foreign currency exposures, no changes in
the types of derivative instruments used to hedge those exposures, and no
significant changes in underlying market conditions.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls
- -------------------
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 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 second
quarter, and have concluded the controls and procedures currently in place
are adequate to ensure material information and other information requiring
disclosure is identified and communicated on a timely basis.
25
Additionally, there have been no material changes to the company's system of
internal controls or changes in other factors affecting the operation of the
internal controls in the three months since Anheuser-Busch management last
evaluated the system of internal controls in conjunction with the
preparation of financial statements for the quarter ended March 31, 2003.
26
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
12 Ratio of Earnings to Fixed Charges
99.1 Certification of Chief Executive Officer required
by Rule 13a-14(a)/15d-14(a) under the Exchange Act
99.2 Certification of Chief Financial Officer required
by Rule 13a-14(a)/15d-14(a) under the Exchange Act
99.3 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.
99.4 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.
(b) Reports on Form 8-K
-------------------
Item Reported Date of Report
------------- --------------
Item 7(c) Exhibit - press release April 23, 2003
Item 9 Regulation FD disclosure April 23, 2003
27
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)
July 25, 2003
/s/ John F. Kelly
------------------------------------------
John F. Kelly
Vice President and Controller
(Chief Accounting Officer)
July 25, 2003
28