-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H4ot9KcW1YPQliB4wwoDSU1TO1ttA5Ci+lachTaVypCnonL9BY739w35FvzH98du eOS4zo5G5Ic1K6GtxkZYfA== 0000310569-99-000009.txt : 19990326 0000310569-99-000009.hdr.sgml : 19990326 ACCESSION NUMBER: 0000310569-99-000009 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANHEUSER BUSCH COMPANIES INC CENTRAL INDEX KEY: 0000310569 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] IRS NUMBER: 431162835 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-07823 FILM NUMBER: 99572043 BUSINESS ADDRESS: STREET 1: ONE BUSCH PL STREET 2: C/O OFFICE OF THE VP & SEC'Y CITY: ST LOUIS STATE: MO ZIP: 63118 BUSINESS PHONE: 3145772000 MAIL ADDRESS: STREET 1: ONE BUSCH PL CITY: ST LOUIS STATE: MO ZIP: 63118 10-K405 1 ANHEUSER-BUSCH COMPANIES, INC. FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ COMMISSION FILE NUMBER 1-7823 ANHEUSER-BUSCH COMPANIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN 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) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 314-577-2000 ________________________ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- COMMON STOCK--$1 PAR VALUE NEW YORK STOCK EXCHANGE PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE 6 1/2% SINKING FUND DEBENTURES, DUE JANUARY 1, 2028 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ________________________ 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by nonaffiliates of the registrant. $36,101,922,686 AS OF FEBRUARY 26, 1999 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. $1 PAR VALUE COMMON STOCK 475,927,117 SHARES AS OF MARCH 8, 1999 DOCUMENTS INCORPORATED BY REFERENCE Portions of Annual Report to Shareholders for the Year Ended December 31, 1998............................... PART I, PART II, and PART IV Portions of Definitive Proxy Statement for Annual Meeting of Shareholders on April 28, 1999............. PART III
================================================================================ 2 PART I ITEM 1. BUSINESS Anheuser-Busch Companies, Inc. (the "Company") is a Delaware corporation that was organized in 1979 as the holding company parent of Anheuser-Busch, Incorporated ("ABI"), a Missouri corporation whose origins date back to 1875. In addition to ABI, which is the world's largest brewer of beer, the Company is also the parent corporation to a number of subsidiaries that conduct various other business operations. The Company's operations are comprised of the following business segments: domestic beer, international beer, packaging, and entertainment. Financial information with respect to the Company's business segments appears in Note 5, "Business Segments," on pages 60-61 of the 1998 Annual Report to Shareholders, which Note hereby is incorporated by reference. Domestic beer volume was 92.7 million barrels in 1998 as compared with 89.6 million barrels in 1997. Worldwide sales of the Company's beer brands aggregated 99.8 million barrels in 1998 as compared with 96.6 million barrels in 1997 and accounted for approximately 82% of the Company's consolidated net sales dollars in 1998, 1997 and 1996, respectively. Worldwide beer volume is comprised of domestic and international volume. Domestic volume represents Anheuser-Busch beer produced and shipped within the United States. International volume represents 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. Total volume includes the Company's pro rata share of the volume of international equity partners, Grupo Modelo, S.A. de C.V. and Companhia Antarctica Paulista, combined with worldwide Anheuser-Busch brand volume. Total beer volume was 111.0 million barrels and 103.4 million barrels in 1998 and 1997, respectively. In 1996, the Company distributed all of the outstanding shares of stock of The Earthgrains Company, which was formerly named Campbell Taggart, Inc. ("Earthgrains") as a special dividend to the Company's shareholders. Earthgrains represented substantially all of the Company's food products business. During 1996, the Company also sold the majority of the assets of its Eagle Snacks, Inc. operation to Frito-Lay, Inc. The remaining assets of Eagle Snacks, Inc. and the Eagle brand were also sold in 1996. DOMESTIC BEER OPERATIONS The Company's principal product is beer, produced and distributed by its subsidiary, ABI, in a variety of containers primarily under the brand names Budweiser, Bud Light, Bud Dry, Bud Ice, Bud Ice Light, Michelob, Michelob Light, Michelob Dry, Michelob Golden Draft, Michelob Golden Draft Light, Michelob Classic Dark, Michelob Malt, Michelob Amber Bock, Michelob Pale Ale, Michelob Honey Lager, Michelob Porter, Michelob Hefe-Weizen, Busch, Busch Light, Busch Ice, Natural Light, Natural Ice, King Cobra, Red Wolf Lager, ZiegenBock Amber, Hurricane Malt Liquor, Hurricane Ice, Pacific Ridge Ale, Catalina Blonde, Tequiza, and Safari Lager. ABI's products also include three non-alcohol malt beverages, O'Doul's, Busch NA, and O'Doul's Amber. Pacific Ridge Ale and Michelob Malt were introduced during 1998. During 1998, ABI discontinued Michelob Amber Lager, Michelob Centennial, Michelob Maple Brown, Michelob Spiced Ale, Faust Golden Lager, Black & Tan Porter, Muenchener Munich Style Amber, Natural Pilsner, Elk Mountain Red Lager, Michelob Golden Pilsner, American Hop Ale, Michelob Pilsner, O'Doul's Caffeine, and Meridian Blonde. The Company imports Azteca from Cevercia Mexicana in Tecate, Mexico. ABI owns a 25% equity interest in Seattle-based Redhook Ale Brewery, Inc. Through this alliance, Redhook products are distributed exclusively by ABI wholesalers in all new U.S. markets entered by Redhook since 1994. ABI also owns a 31% interest in Portland-based Widmer Brothers Brewing Company. Widmer products are distributed exclusively by ABI wholesalers in all new U.S. markets entered by Widmer since 1997. The Company also brews Kirin Light, Kirin Lager, and Kirin-Ichiban through a joint venture agreement with Kirin Brewery Company, Ltd., of Japan for sale in the United States. Budweiser, Bud Light, Bud Dry, Bud Ice, Bud Ice Light, Michelob, Michelob Light, Michelob Dry, Michelob Golden Draft, Michelob Golden Draft Light, Michelob Classic Dark, Michelob Amber Bock, Michelob Honey Lager, Michelob Pale Ale, Michelob Porter, Michelob Hefe-Weizen, Busch, Busch Light, Natural Light, Natural Ice, Red Wolf Lager, ZiegenBock Amber, Pacific Ridge Ale, Azteca, Widmer Biers products, Redhook Ales, O'Doul's, and O'Doul's Amber are sold in both draught and packaged form. Busch Ice, King Cobra, Hurricane Malt Liquor, Michelob Malt, Catalina Blonde, Hurricane Ice, Kirin Lager, Kirin Light, Kirin-Ichiban, Tequiza, and Busch NA are sold only in packaged form. Safari Lager is sold only in draught form. 1 3 Budweiser, Bud Light, Bud Ice, Bud Ice Light, Michelob, Michelob Light, Natural Light, Natural Ice, Red Wolf Lager, Michelob Honey Lager, Michelob Hefe-Weizen, O'Doul's Amber, and O'Doul's are distributed and sold on a nationwide basis. Busch, Busch Light, Bud Dry, and Michelob Amber Bock are sold in 49 states; King Cobra in 48 states; Michelob Pale Ale and Busch NA in 47 states; Michelob Dry in 46 states; Michelob Classic Dark in 45 states; Hurricane Malt Liquor in 44 states; Tequiza in 42 states; Redhook Ale in 41 states; Kirin Lager in 24 states; Kirin-Ichiban and Busch Ice in 22 states; Kirin Light in 15 states; Michelob Golden Draft and Michelob Golden Draft Light in 14 states; Catalina Blonde in 10 states; Michelob Porter and Michelob Malt in 6 states; Widmer Biers products in 4 states; ZiegenBock Amber in 3 states; Pacific Ridge Ale and Safari Lager in 2 states; and Hurricane Ice and Azteca in 1 state. ABI has developed a system of twelve breweries, strategically located across the country, to economically serve its distribution system. (See Item 2 of Part I--Properties.) Ongoing modernization programs are part of ABI's overall strategic initiatives. By using controlled environment warehouses and stringent inventory monitoring policies, the quality and freshness of the product are protected, thus providing Anheuser-Busch a significant competitive advantage. During 1998 approximately 95% of the beer sold by ABI, measured in barrels, reached retail channels through approximately 700 independent wholesalers. ABI utilizes its regional vice-presidents, sales directors, key account and market managers, as well as certain other field sales personnel, to provide merchandising and sales assistance to its wholesalers. In addition, ABI provides national and local media advertising, point-of-sale advertising, and sales promotion programs to help stimulate sales. The remainder of ABI's domestic beer sales in 1998 were made through twelve ABI owned and operated branches, which perform similar sales, merchandising, and delivery services as wholesalers in their respective areas. There are more than 100 companies engaged in the highly competitive brewing industry in the United States. ABI's domestic beers are distributed and sold in competition with other nationally distributed beers, with locally and regionally distributed beers and, to a lesser extent, with imported beers. Although the methods of competition in the industry vary widely, in part due to differences in applicable state laws, the principal methods of competition are product quality, taste and freshness, packaging, price, advertising (including television, radio, sponsorships, billboards, stadium signs, and print media), point-of-sale materials, and service to retail customers (including the replacement of over-age products with retailer). ABI's beers compete in different price categories. Although all brands compete against the total market, Budweiser, Bud Light, Bud Dry, Bud Ice, Bud Ice Light, Michelob Golden Draft, and Michelob Golden Draft Light compete primarily with premium priced beers. Michelob, Michelob Light, Michelob Dry, Michelob Classic Dark, and Michelob Amber Bock compete in the super-premium price category. Busch, Busch Light, Natural Light, Busch Ice, and Natural Ice compete with the sub-premium or popular priced beers. King Cobra, Hurricane Malt Liquor, Hurricane Ice, and Michelob Malt compete against other brands in the malt liquor segment. Kirin Lager, Kirin Light, Kirin-Ichiban, and Azteca compete primarily with imported malt beverages. Catalina Blonde, Michelob Honey Lager, Michelob Pale Ale, Michelob Porter, Tequiza, Red Wolf Lager, ZiegenBock Amber, Michelob Hefe-Weizen, Pacific Ridge Ale, Safari Lager, the Redhook products, and Widmer Biers products compete primarily in the specialty beers segment of the malt beverage market. O'Doul's and O'Doul's Amber (premium priced) and Busch NA (sub-premium priced) compete in the non-alcohol malt beverage category. Since 1957, ABI has led the United States brewing industry in total sales volume. In 1998, its sales exceeded those of its nearest competitor by more than 51 million barrels. ABI's domestic market share (excluding exports) for 1998 was 46.4%. Including exports, ABI's share of U.S. shipments for 1998 was 46.2%. Major competitors in the United States brewing industry during 1998 included Philip Morris, Inc. (through its subsidiary Miller Brewing Co.), Adolph Coors Co., and Stroh Brewery Co. The Company's wholly-owned subsidiary, Busch Agricultural Resources, Inc. ("BARI"), operates rice milling and research facilities in Arkansas and California; twelve grain elevators in the western and midwestern United States; barley seed processing plants in Moorhead, Minnesota, Fairfield, Montana, Idaho Falls, Idaho, and Powell, Wyoming; a barley research facility in Ft. Collins, Colorado; and a wild rice processing facility in Clearbrook, Minnesota. BARI also owns and operates malt plants in Manitowoc, Wisconsin, Moorhead, Minnesota, and Idaho Falls, Idaho. Through wholly-owned subsidiaries, BARI operates land application farms in Jacksonville, Florida and Fort Collins, Colorado; hop farms in northern Idaho and Germany; and an international office in Mar del Plata, Argentina. 2 4 Another wholly-owned subsidiary, Wholesaler Equity Development Corporation, shares equity positions with qualified partners in independent beer wholesalerships and is currently invested in 8 wholesalerships. INTERNATIONAL BEER OPERATIONS International beer volume was 7.1 million barrels in 1998, compared with 7.0 million barrels in 1997. Anheuser-Busch International, Inc. ("ABII"), a wholly-owned subsidiary of the Company, negotiates and administers license and contract brewing agreements on behalf of ABI with various foreign brewers. Labatt Brewing Co. brews Budweiser and Bud Light for sale in Canada. ABI, through ABII, participates with Kirin Brewery Company, Ltd. in a joint venture in Japan, Budweiser Japan Company, Ltd., of which the Company is a 90% shareholder, for marketing, distribution and sale of Budweiser. Through Anheuser-Busch European Trade Ltd. ("ABET"), an indirect, wholly-owned subsidiary of the Company, certain ABI beer brands are marketed, distributed and sold in twenty-nine European countries. In the United Kingdom (U.K.), ABET sells Budweiser, Bud Ice, Michelob, and Michelob Golden Draft brands to selected on-premise accounts, brewers, wholesalers and directly to the off-premise accounts. In 1995, ABET and Scottish Courage Ltd. entered into a joint venture, Stag Brewing Company Ltd., which brews and packages Budweiser at the Stag Brewery near London, England. In 1997, ABET purchased Scottish Courage's 50% interest in the joint venture company giving ABET full control over the management and operation of the brewery. Michelob, Bud Ice and Michelob Golden Draft continue to be imported into the U.K. by ABET. Budweiser is also brewed under license and sold by brewers in Korea (Oriental Brewery Ltd.), the Republic of Ireland and Northern Ireland (Guinness Ireland Ltd.), and Italy (Birra Peroni Industriale). In 1995, ABII entered into a contract brewing agreement with Sociedad Anonima Damm, one of the largest brewers in Spain, that gives the Spanish brewer rights to contract brew and package beer under the brand name Budweiser in Spain and supplements the brand's existing distribution. In 1996, ABII purchased a 5% equity interest in Antarctica Empreendimentos e Participacoes Ltda. ("ANEP"), the principal operating subsidiary of Companhia Antarctica Paulista ("Antarctica"), one of Brazil's leading brewers, and formed a strategic partnership with Antarctica. A component of the partnership is a joint venture company named Budweiser Brasil Ltda. that markets and distributes locally-produced Budweiser in Brazil. In 1995, the Company formed a three-way alliance with Compania Cervecerias Unidas S.A. ("CCU"), the leading Chilean brewer, and Buenos Aires Embotelladora S.A. ("BAESA"), a major soft drink bottler. Under the terms of the alliance, a wholly-owned subsidiary of CCU in Argentina ("CCU-Argentina") brews Budweiser under license in Argentina and BAESA distributes Budweiser and CCU-Argentina brands in certain geographic regions in Argentina. CCU also distributes Budweiser in Chile. The Company initially purchased a small minority stake in CCU-Argentina, and then increased its ownership to 8.2% in 1998. In 1998, the Company formed a new partnership with Brasseries Kronenbourg, the leading brewer in France, for sale and distribution of Bud in France. In 1996, ABI through ABII entered into a licensing agreement with Asia Brewery, Inc. for the production, sale and distribution of Budweiser in the Philippines. ABI's beer products are being sold under import-distribution agreements in more than 80 countries and U.S. territories and to the U.S. military and diplomatic corps outside the continental United States. ABII also negotiates and oversees the Company's investments in international brewing companies. In 1993, Anheuser-Busch purchased a 17.7% direct and indirect equity interest in Grupo Modelo's operating subsidiary, Diblo, for $477 million. In May 1997, the Company increased its direct and indirect equity ownership in Diblo to 37% for an additional $605 million. In September 1998 the Company completed the purchase of an additional 13.25% of Diblo for $556.5 million, bringing the Company's total investment to $1.6 billion. The Company now owns a 50.2% direct and indirect interest in Diblo. However, the Company does not have voting control in either Grupo Modelo or Diblo. The Company also owns a 5% equity interest in Tsingtao Brewery Company Ltd., a leading Chinese brewer. In 1995, the Company purchased an initial 80% equity interest in a joint venture, renamed the Budweiser Wuhan International Brewing Company, Ltd., that owns and operates a brewery in Wuhan, the fifth-largest city in China. This ownership interest was subsequently increased to 86.6%. PACKAGING OPERATIONS The Company's wholly-owned subsidiary, Metal Container Corporation ("MCC"), manufactures beverage cans at eight plants and beverage can lids at three plants for sale to ABI and to soft drink customers. (See Item 2 of Part 1--Properties). Another wholly-owned subsidiary of the Company, Anheuser-Busch Recycling Corporation ("ABRC"), recycles aluminum cans at its plant in Hayward, California, for conversion into new can sheet. During 1998, ABRC's plant in Marion, Ohio was closed. The Company's wholly-owned subsidiary, Precision Printing and 3 5 Packaging, Inc. ("PPPI"), manufactures metalized and paper labels at its plant in Clarksville, Tennessee. PPPI sold its plant in Paris, Texas, which manufactured folding cartons, during 1998. Packaging Business Services, Inc., another wholly-owned subsidiary of the Company, provides administrative services and develops existing and new businesses for MCC, ABRC and PPPI. FAMILY ENTERTAINMENT The Company is active in the family entertainment field, primarily through its wholly-owned subsidiary, Busch Entertainment Corporation ("BEC"), which currently owns, directly and through subsidiaries, nine theme parks. BEC operates Busch Gardens theme parks in Tampa, Florida and Williamsburg, Virginia, and Sea World theme parks in Orlando, Florida, San Antonio, Texas, Aurora, Ohio, and San Diego, California. BEC operates water park attractions in Tampa, Florida (Adventure Island) and Williamsburg, Virginia (Water Country, U.S.A.), and an educational play park for children near Philadelphia, Pennsylvania (Sesame Place). BEC also operates the Baseball City Sports Complex near Orlando, Florida. Due to the seasonality of the theme park business, BEC experiences higher revenues in the second and third quarters than in the first and fourth quarters. Through a Spanish affiliate, the Company also owns a 19.9% equity interest in Port Aventura, S.A., which is a theme park near Barcelona, Spain. The Company faces competition in the family entertainment field from other theme and amusement parks, public zoos, public parks, and other family entertainment events and attractions. OTHER Through its wholly-owned subsidiary, Busch Properties, Inc. ("BPI"), the Company is engaged in the business of real estate development. BPI also owns and operates a resort and conference center in Williamsburg, Virginia (The Kingsmill Resort and Conference Center). Through other wholly-owned subsidiaries, the Company owns and operates a marketing communications business (Busch Creative Services Corporation) and transportation service businesses (Manufacturers Railway Co. and St. Louis Refrigerator Car Co.). SOURCES AND AVAILABILITY OF RAW MATERIALS The products manufactured by the Company require a large volume of various agricultural products, including barley for malt; hops, malt, rice, and corn grits for beer; and rice for the rice milling and processing operations of BARI. The Company fulfills its commodities requirements through purchases from various sources, including purchases from its subsidiaries, through contractual arrangements, and through purchases on the open market. The Company believes that adequate supplies of the aforementioned agricultural products are available at the present time, but cannot predict future availability or prices of such products and materials. The commodity markets have experienced and will continue to experience major price fluctuations. The price and supply of raw materials will be determined by, among other factors, the level of crop production, weather conditions, export demand, and government regulations and legislation affecting agriculture. The Company requires aluminum can sheet for manufacture of cans and lids. Can sheet prices are impacted by supply and demand for aluminum ingot and fabrication. ENERGY MATTERS The Company uses natural gas, fuel oil, and coal as its primary fuel materials. Supplies of fuels in quantities sufficient to meet ABI's total requirements are expected to be available on a year-round basis during 1999. The supply of natural gas, fuel oil, and coal is normally covered by yearly contracts and no difficulty has been experienced in entering into these contracts. The cost of fuel used by ABI decreased in 1998 and is expected to be at comparable levels in 1999. Based upon information presently available, there can be no assurance that adequate supplies of fuel will always be available to the Company and, should such supplies not be available, the Company's sales and earnings would be adversely affected. 4 6 BRAND NAMES AND TRADEMARKS Some of the Company's major brand names used in its principal business segments are mentioned in the discussion above. The Company regards consumer recognition of and loyalty to all of its brand names and trademarks as extremely important to the long-term success of its principal business segments. RESEARCH AND DEVELOPMENT The Company is involved in a number of research activities relating to the development of new products or services or the improvement of existing products or services. The dollar amounts expended by the Company during the past three years on such research activities and the number of employees engaged full time therein during such period, however, are not considered to be material in relation to the total business of the Company. ENVIRONMENTAL PROTECTION All of the Company's plants are subject to federal, state, and local environmental protection laws and regulations, and the Company is operating within existing laws and regulations or is taking action aimed at assuring compliance therewith. Various proactive strategies are utilized to help assure this compliance. Compliance with such laws and regulations is not expected to materially affect the Company's capital expenditures, earnings, or competitive position. The Company has devoted considerable effort to research, development and engineering of cost effective innovative systems to minimize effects on the environment from its operating facilities. A major portion of pollution prevention and pollution control expenditures in 1998 and projected for 1999 was or will be justified on the basis of cost reduction. These projects, coupled with the Company's environmental management system and an overall Company emphasis on pollution prevention and resource conservation initiatives, are improving efficiencies and creating saleable by-products from residuals. They have generally resulted in low cost operating systems while reducing impact to air, water, and land. ENVIRONMENTAL PACKAGING LAWS AND REGULATIONS The states of California, Connecticut, Delaware, Iowa, Maine, Massachusetts, Michigan, New York, Oregon, and Vermont have adopted certain restrictive packaging laws and regulations for beverages that require deposits on packages. ABI continues to do business in these states. Such laws have not had a significant effect on ABI's sales, but have had a significant adverse impact on beer industry growth and are considered by the Company to be inflationary, costly, and inefficient for recycling packaging materials. Congress and a number of additional states continue to consider similar legislation, the adoption of which by Congress or a substantial number of states or additional local jurisdictions might require the Company to incur significant capital expenditures. NUMBER OF EMPLOYEES As of December 31, 1998, the Company had 23,344 full-time employees. As of December 31, 1998, approximately 8,120 employees were represented by the International Brotherhood of Teamsters. Seventeen other unions represented approximately 1,316 employees. The current labor agreement between ABI and the Brewery and Soft Drink Workers Conference of the International Brotherhood of Teamsters, which represents the majority of brewery workers, was scheduled to expire on February 28, 1998; it was extended to March 29, 1998 while the parties continued to negotiate a new agreement. Talks with the Teamsters are at an impasse, and as a result, the Company began implementing its final contract offer on September 21, 1998. The Company considers its employee relations to be good. ITEM 2. PROPERTIES ABI has twelve breweries in operation at the present time, located in St. Louis, Missouri; Newark, New Jersey; Los Angeles and Fairfield, California; Jacksonville, Florida; Houston, Texas; Columbus, Ohio; Merrimack, New Hampshire; Williamsburg, Virginia; Baldwinsville, New York; Fort Collins, Colorado; and Cartersville, Georgia. Title to the Baldwinsville, New York brewery is held by the Onondaga County Industrial Development Agency 5 7 ("OCIDA") pursuant to a Sale and Agency Agreement with ABI, which enabled OCIDA to issue tax exempt pollution control and industrial development revenue notes and bonds to finance a portion of the cost of the purchase and modification of the brewery. The brewery is not pledged or mortgaged to secure any of the notes or bonds, and the Sale and Agency Agreement with OCIDA gives ABI the unconditional right to require at any time that title to the brewery be transferred to ABI. ABI's breweries operated at approximately 97% of capacity in 1998; during the peak selling periods (second and third quarters), they operated at maximum capacity. The Company also owns an 86.6% equity interest in a joint venture that owns and operates a brewery in Wuhan, China. The Company also leases and operates the Stag Brewery near London, England. The Company, through wholly-owned subsidiaries, operates malt plants in Manitowoc, Wisconsin, Moorhead, Minnesota, and Idaho Falls, Idaho; rice mills in Jonesboro, Arkansas and Woodland, California; a wild rice processing facility in Clearbrook, Minnesota; can manufacturing plants in Jacksonville, Florida, Columbus, Ohio, Arnold, Missouri, Windsor, Colorado, Newburgh, New York, Ft. Atkinson, Wisconsin, Rome, Georgia, and Mira Loma, California; and can lid manufacturing plants in Gainesville, Florida, Oklahoma City, Oklahoma, and Riverside, California. BEC operates its principal family entertainment facilities in Tampa, Florida; Williamsburg, Virginia; San Diego, California; Aurora, Ohio; Orlando, Florida; and San Antonio, Texas. The Tampa facility is 265 acres, Williamsburg is 364 acres, San Diego is 182 acres, Aurora is 90 acres, Orlando is 224 acres, and the San Antonio facility is 496 acres. Except for the Baldwinsville brewery, the can manufacturing plants in Newburgh, New York and Rome, Georgia, the Sea World park in San Diego, California, the Stag Brewery, and the brewery in Wuhan, China, all of the Company's principal properties are owned in fee. The lease for the land used by the Sea World park in San Diego, California expires in 2048. The Company leases the Stag Brewery from Scottish Courage, Ltd. In 1995, the joint venture that operates the brewery in Wuhan was granted the right to use the property for a period of 50 years from the appropriate governmental authorities. The Company also leases a bottling line at its brewery in Cartersville, Georgia and a can manufacturing plant in Rome, Georgia. The Company considers its buildings, improvements, and equipment to be well maintained and in good condition, irrespective of dates of initial construction, and adequate to meet the operating demands placed upon them. The production capacity of each of the manufacturing facilities is adequate for current needs and, except as described above, substantially all of each facility's capacity is utilized. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect upon its financial condition or its operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter ended December 31, 1998. 6 8 EXECUTIVE OFFICERS OF THE REGISTRANT AUGUST A. BUSCH III (age 61) is presently Chairman of the Board and President, and a Director of the Company and has served in such capacities since 1977, 1974, and 1963, respectively. Since 1979 he has also served as Chairman of the Board and Chief Executive Officer of the Company's subsidiary, Anheuser-Busch, Incorporated. PATRICK T. STOKES (age 56) is presently Vice President and Group Executive of the Company and has served in such capacity since 1981. He is also presently President of the Company's subsidiary, Anheuser-Busch, Incorporated, and has served in such capacity since 1990. JOHN H. PURNELL (age 57) is presently Executive Vice President of the Company and has served in such capacity since January 1999. He previously served as Vice President and Group Executive of the Company (1991-1998). He is also Chairman of the Board of the Company's subsidiary, Anheuser-Busch International, Inc., and has served as Chairman since 1980 and had also served as Chief Executive Officer (1991-1998). W. RANDOLPH BAKER (age 52) is presently Vice President and Chief Financial Officer of the Company and has served in such capacity since 1996. He previously served as Vice President and Group Executive of the Company (1982-1996). STEPHEN K. LAMBRIGHT (age 56) is presently Group Vice President and General Counsel of the Company and has served in such capacity since 1997. He previously served as Vice President and Group Executive of the Company (1984-1997). ALOYS H. LITTEKEN (age 58) is presently Vice President-Corporate Engineering of the Company and has served in such capacity since 1981. WILLIAM L. RAMMES (age 57) is presently Vice President-Corporate Human Resources of the Company and has served in such capacity since 1992. He is also Chairman of the Board and President of the Company's subsidiary, Busch Properties, Inc., and has served in such capacities since 1995. JOHN B. ROBERTS (age 54) is presently Chairman of the Board and President of the Company's subsidiary, Busch Entertainment Corporation, and has served in such capacities since 1992 and 1991, respectively. JOSEPH L. GOLTZMAN (age 57) is presently Vice President and Group Executive of the Company and has served in such capacity since 1993. He is also presently Chairman, Chief Executive Officer and President of the Company's subsidiary, Anheuser-Busch Recycling Corporation, Chairman (since 1995), President and Chief Executive Officer (since 1993) of the Company's subsidiary, Metal Container Corporation, and Chairman (since 1993), President (since January 1999), and Chief Executive Officer (since 1993) of the Company's indirect subsidiary, Precision Printing and Packaging, Inc. DONALD W. KLOTH (age 57) is presently Vice President and Group Executive of the Company and has served in such capacity since 1994. He is also Chairman of the Board and Chief Executive Officer of the Company's subsidiary, Busch Agricultural Resources, Inc., and has served in such capacity since 1994. During the past five years, he also served as Vice President-Materials Acquisition of the Company (1983-1994) and President of Busch Agricultural Resources, Inc. (1983-1994). JOHN E. JACOB (age 64) is presently Executive Vice President and Chief Communications Officer, and a Director of the Company and has served in such capacities since 1994 and 1990, respectively. He also served as President and Chief Executive Officer of the National Urban League, Inc. (1982-1994). GERHARDT A. KRAEMER (age 66) is presently Senior Vice President-World Brewing and Technology and has served in such capacity since 1996. During the past five years, he also served as Vice President-Brewing of the Company's subsidiary, Anheuser-Busch, Incorporated (1985-1996). THOMAS W. SANTEL (age 40) is presently Vice President-Corporate Development of the Company and has served in such capacity since 1996. During the past five years, he also served as Director of Corporate Development (1994-1996) and Associate Director, Corporate Development (1993-1994). 7 9 STEPHEN J. BURROWS (age 47) is presently Vice President-International Operations of the Company and has served in such capacity since January 1999. He previously served as Vice President-International Marketing of the Company (1992-1998). He is also presently Chief Executive Officer and President of the Company's subsidiary, Anheuser-Busch International, Inc. and has served as Chief Executive Officer since January 1999 and as President since 1994. During the past five years, he also served as Chief Operating Officer of Anheuser-Busch International, Inc. (1994-1998). PART II The information required by Items 5, (except as set forth below), 6, 7, and 8 of this Part II are hereby incorporated by reference from pages 34 through 77 of the Company's 1998 Annual Report to Shareholders. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On December 2, 1998, the Company issued out of treasury shares a total of 27 shares of the Company's common stock ($1 par value) to one member of the Board of Directors of the Company in lieu of cash for a portion of her 1998 annual retainer fee for the month of December, 1998 pursuant to the Company's Non-Employee Director Elective Stock Acquisition Plan. The transaction was exempt from registration and prospectus delivery requirements of the Securities Act of 1933 pursuant to Section 4(2) of the Act. ITEM 6. SELECTED FINANCIAL DATA ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with PricewaterhouseCoopers LLP, the Company's independent accountants since 1961, on accounting principles or practices or financial statement disclosures. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item with respect to Directors is hereby incorporated by reference from pages 4 through 6 of the Company's Proxy Statement for the Annual Meeting of Shareholders on April 28, 1999. The information required by this Item with respect to Executive Officers is presented on pages 7 and 8 of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is hereby incorporated by reference from page 8 and pages 17 through 23 of the Company's Proxy Statement for the Annual Meeting of Shareholders on April 28, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is hereby incorporated by reference from page 7 of the Company's Proxy Statement for the Annual Meeting of Shareholders on April 28, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is hereby incorporated by reference from pages 24 through 26 of the Company's Proxy Statement for the Annual Meeting of Shareholders on April 28, 1999. 8 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
PAGE ---- 1. FINANCIAL STATEMENTS: Consolidated Balance Sheet at December 31, 1998 and 1997 50 Consolidated Statement of Income for the three years ended December 31, 1998 51 Consolidated Statement of Changes in Shareholders Equity for the three years ended December 31, 1998 52 Consolidated Statement of Cash Flows for the three years ended December 31, 1998 53 Notes to Consolidated Financial Statements 54-73 Report of Independent Accountants 49 Incorporated herein by reference from the indicated pages of the 1998 Annual Report to Shareholders. 2. FINANCIAL STATEMENT SCHEDULE: Report of Independent Accountants on Financial Statement Schedule F-1 For the three years ended December 31, 1998: Schedule VIII -- Valuation and Qualifying Accounts and Reserves F-2
3. EXHIBITS: Exhibit 3.1 -- Restated Certificate of Incorporation with amendments. (Incorporated by reference to Exhibit 3.1 to Form 10-K for the fiscal year ended December 31, 1994.) Exhibit 3.2 -- By-Laws of the Company (as amended and restated December 16, 1998). Exhibit 4.1 -- Form of Rights Agreement, dated as of October 26, 1994 between Anheuser-Busch Companies, Inc. and Boatmen's Trust Company. (Incorporated by reference to Exhibit 4 to Form 8-K filed November 7, 1994.) Exhibit 4.2 -- Letter Agreement dated March 19, 1998 between Anheuser-Busch Companies, Inc., Boatmen's Trust Company, and ChaseMellon Shareholder Services, L.L.C. amending the Form of Rights Agreement filed as Exhibit 4.1 of this report. Exhibit 4.3 -- Indenture dated as of August 1, 1995 between the Company and The Chase Manhattan Bank, as Trustee (Incorporated by reference to Exhibit 4.1 in the Form S-3 of the Company, Registration Statement No. 33-60885.) (Other indentures are not filed, but the Company agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request.) Exhibit 10.1 -- Anheuser-Busch Companies, Inc. Deferred Compensation Plan for Non-Employee Directors (Amended and Restated as of January 1, 1997.) (Incorporated by reference to Exhibit 10.1 to Form 10-K for the fiscal year ended December 31, 1996.) Exhibit 10.2 -- Anheuser-Busch Companies, Inc. Non-Employee Director Elective Stock Acquisition Plan effective January 1, 1996. (Incorporated by reference to Exhibit 10.6 to Form 10-K for the fiscal year ended December 31, 1995.) 9 11 Exhibit 10.3 -- Anheuser-Busch Companies, Inc. 1981 Incentive Stock Option/Non-Qualified Stock Option Plan (As amended December 18, 1985, December 16, 1987, December 20, 1988, July 22, 1992, September 22, 1993, December 20, 1995, and November 26, 1997.) (Incorporated by reference to Exhibit 10.3 to Form 10-K for the fiscal year ended December 31, 1997.) Exhibit 10.4 -- Anheuser-Busch Companies, Inc. 1981 Non-Qualified Stock Option Plan (As amended December 18, 1985, June 24, 1987, December 20, 1988, July 22, 1992, December 20, 1995, and November 26, 1997.) (Incorporated by reference to Exhibit 10.4 to Form 10-K for the fiscal year ended December 31, 1997.) Exhibit 10.5 -- Anheuser-Busch Companies, Inc. 1989 Incentive Stock Plan (As amended December 20, 1989, December 19, 1990, December 15, 1993, December 20, 1995, and November 26, 1997.) (Incorporated by reference to Exhibit 10.5 to Form 10-K for the fiscal year ended December 31, 1997.) Exhibit 10.6 -- Anheuser-Busch Companies, Inc. 1998 Incentive Stock Plan (Incorporated by reference to Exhibit A to the Definitive Proxy Statement for Annual Meeting of Shareholders on April 22, 1998.) Exhibit 10.7 -- Anheuser-Busch Companies, Inc. Excess Benefit Plan amended and restated effective as of October 1, 1993. (Incorporated by reference to Exhibit 10.9 to Form 10-K for the fiscal year ended December 31, 1994.) Exhibit 10.8 -- Anheuser-Busch Companies, Inc. Supplemental Executive Retirement Plan amended and restated as of October 1, 1993. (Incorporated by reference to Exhibit 10.10 to Form 10-K for the fiscal year ended December 31, 1994.) Exhibit 10.9 -- First Amendment to the Anheuser-Busch Companies, Inc. Supplemental Executive Retirement Plan as amended and restated October 1, 1993 effective as of December 14, 1994. (Incorporated by reference to Exhibit 10.11 to Form 10-K for the fiscal year ended December 31, 1994.) Exhibit 10.10-- Second Amendment to the Anheuser-Busch Companies, Inc. Supplemental Executive Retirement Plan as amended and restated October 1, 1993 effective as of January 1, 1996. (Incorporated by reference to Exhibit 10.13 to Form 10-K for the fiscal year ended December 31, 1995). Exhibit 10.11-- Third Amendment to the Anheuser-Busch Companies, Inc. Supplemental Executive Retirement Plan as amended and restated October 1, 1993, effective as of July 1, 1996. (Incorporated by reference to Exhibit 10.10 to Form 10-K for the fiscal year ended December 31, 1997.) Exhibit 10.12-- Anheuser-Busch Executive Deferred Compensation Plan effective January 1, 1994. (Incorporated by reference to Exhibit 10.16 to Form 10-K for the fiscal year ended December 31, 1993.) Exhibit 10.13-- First Amendment to Anheuser-Busch Executive Deferred Compensation Plan effective April 1, 1994. (Incorporated by reference to Exhibit 10.13 to Form 10-K for the fiscal year ended December 31, 1994.) Exhibit 10.14-- Anheuser-Busch 401(k) Restoration Plan effective January 1, 1994 (true and correct as of February 6, 1995). (Incorporated by reference to Exhibit 10.14 to Form 10-K for the fiscal year ended December 31, 1994.) Exhibit 10.15-- Form of Indemnification Agreement with Directors and Executive Officers. (Incorporated by reference to Exhibit 10.18 to Form 10-K for the fiscal year ended December 31, 1993.) 10 12 Exhibit 10.16-- Anheuser-Busch Officer Bonus Plan effective January 1, 1995. (Incorporated by reference to Exhibit A to the Definitive Proxy Statement for Annual Meeting of Shareholders on April 26, 1995.) Exhibit 10.17-- Investment Agreement By and Among Anheuser-Busch Companies, Inc., Anheuser-Busch International, Inc. and Anheuser-Busch International Holdings, Inc. and Grupo Modelo, S.A. de C.V., Diblo, S.A. de C.V. and certain shareholders thereof, dated as of June 16, 1993. (Incorporated by reference to Exhibit 10.19 to Form 10-K for the fiscal year ended December 31, 1993.) Exhibit 10.18-- Letter agreement between Anheuser-Busch Companies, Inc. and the Controlling Shareholders regarding Section 5.5 of the Investment Agreement filed as Exhibit 10.17 of this report. (Incorporated by reference to Exhibit 10.20 to Form 10-K for the fiscal year ended December 31, 1993.) Exhibit 12 -- Ratio of Earnings to Fixed Charges. Exhibit 13 -- Pages 33 through 77 of the Anheuser-Busch Companies, Inc. 1998 Annual Report to Shareholders, a copy of which is furnished for the information of the Securities and Exchange Commission. Portions of the Annual Report not incorporated herein by reference are not deemed "filed" with the Commission. Exhibit 21 -- Subsidiaries of the Company Exhibit 23 -- Consent of Independent Accountants, filed as page F-1 of this report. Exhibit 27 -- Financial Data Schedule [FN] - ------------ A management contract or compensatory plan or arrangement required to be filed by Item 14(c) of this report. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the fourth quarter of 1998. 11 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) By /s/ AUGUST A. BUSCH III ------------------------------------------- August A. Busch III Chairman of the Board and President Date: March 24, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ AUGUST A. BUSCH III Chairman of the Board and President and March 24, 1999 -------------------------------------------------- Director (Principal Executive (August A. Busch III) Officer) /s/ W. RANDOLPH BAKER Vice President and Chief Financial March 24, 1999 -------------------------------------------------- Officer (Principal Financial Officer) (W. Randolph Baker) /s/ JOHN F. KELLY Vice President and Controller March 24, 1999 -------------------------------------------------- (Principal Accounting Officer) (John F. Kelly) /s/ BERNARD A. EDISON Director March 24, 1999 -------------------------------------------------- (Bernard A. Edison) /s/ CARLOS FERNANDEZ G. Director March 24, 1999 -------------------------------------------------- (Carlos Fernandez G.) /s/ JOHN E. JACOB Director March 24, 1999 -------------------------------------------------- (John E. Jacob) /s/ JAMES R. JONES Director March 24, 1999 -------------------------------------------------- (James R. Jones) /s/ CHARLES F. KNIGHT Director March 24, 1999 -------------------------------------------------- (Charles F. Knight) /s/ VERNON R. LOUCKS, JR. Director March 24, 1999 -------------------------------------------------- (Vernon R. Loucks, Jr.) 12 14 /s/ VILMA S. MARTINEZ Director March 24, 1999 -------------------------------------------------- (Vilma S. Martinez) /s/ SYBIL C. MOBLEY Director March 24, 1999 -------------------------------------------------- (Sybil C. Mobley) /s/ JAMES B. ORTHWEIN Director March 24, 1999 -------------------------------------------------- (James B. Orthwein) /s/ WILLIAM PORTER PAYNE Director March 24, 1999 -------------------------------------------------- (William Porter Payne) /s/ JOYCE M. ROCHE Director March 24, 1999 -------------------------------------------------- (Joyce M. Roche) /s/ ANDREW C. TAYLOR Director March 24, 1999 -------------------------------------------------- (Andrew C. Taylor) /s/ DOUGLAS A. WARNER III Director March 24, 1999 -------------------------------------------------- (Douglas A. Warner III) /s/ WILLIAM H. WEBSTER Director March 24, 1999 -------------------------------------------------- (William H. Webster) /s/ EDWARD E. WHITACRE, JR. Director March 24, 1999 -------------------------------------------------- (Edward E. Whitacre, Jr.)
13 15 ANHEUSER-BUSCH COMPANIES, INC. INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE ---- Report of Independent Accountants on Financial Statement Schedule................. F-1 Consent of Independent Accountants................................................ F-1 Financial Statement Schedule for the Years 1998, 1997 and 1996: Valuation and Qualifying Accounts and Reserves (Schedule VIII)................ F-2
All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto. Separate financial statements of subsidiaries not consolidated have been omitted because, in the aggregate, the proportionate shares of their profit before income taxes and total assets are less than 20% of the respective consolidated amounts, and investments in such companies are less than 20% of consolidated total assets. 14 16 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Anheuser-Busch Companies, Inc. Our audits of the Consolidated Financial Statements referred to in our report dated February 2, 1999 appearing on page 49 of the 1998 Annual Report to Shareholders of Anheuser-Busch Companies, Inc. (which report and Consolidated Financial Statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related Consolidated Financial Statements. PricewaterhouseCoopers LLP St. Louis, Missouri February 2, 1999 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Forms S-3 (No. 333-31477 and No. 333-71105) and in the Registration Statements on Forms S-8 (No. 2-77829, No. 33-4664, No. 33-36132, No. 33-39714, No. 33-39715, No. 33-46846, No. 33-53333, No. 33-58221, No. 33-58241, No. 333-67027, No. 333-71309, and No. 333-71311) of Anheuser-Busch Companies, Inc. of our report dated February 2, 1999 appearing on page 49 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page F-1 of this Form 10-K. PricewaterhouseCoopers LLP St. Louis, Missouri March 24, 1999 F-1 17 ANHEUSER-BUSCH COMPANIES, INC. SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (CONTINUING OPERATIONS BASIS, IN MILLIONS)
1998 1997 1996 ---- ---- ---- Reserve for doubtful accounts (deducted from related assets): Balance at beginning of period.......................... $ 4.9 $ 3.1 $ 1.9 Additions charged to costs and expenses................. 1.3 2.0 1.8 Additions (recoveries of uncollectible accounts previously written off)............................... .3 .1 .4 Deductions (uncollectible accounts written off)......... (1.0) (.3) (1.0) ------ ------ ------ Balance at end of period................................ $ 5.5 $ 4.9 $ 3.1 ====== ====== ====== Deferred income tax asset valuation allowance under FAS 109: Balance at beginning of period.......................... $ 92.5 $ 81.7 $ 66.7 Additions to valuation allowance charged to costs and expenses.............................................. 28.1 13.2 16.6 Deductions from valuation allowance (utilizations and expirations).......................................... (3.6) (2.4) (1.6) ------ ------ ------ Balance at end of period................................ $117.0 $ 92.5 $ 81.7 ====== ====== ======
F-2 EX-3.2 2 BY-LAWS OF ANHEUSER-BUSCH COMPANIES, INC. BY-LAWS OF ANHEUSER-BUSCH COMPANIES, INC. (As Amended and Restated December 16, 1998) INCORPORATED UNDER THE LAWS OF DELAWARE TABLE OF CONTENTS BY-LAWS OF ANHEUSER-BUSCH COMPANIES, INC. Page Page ARTICLE I: Section 4:3 Executive Committee - LOCATION AND OFFICES Notice of Meetings.......8 Section 4:4 Executive Committee- Section 1:1 Principal Office............1 Quorum and Powers Section 1:2 Other Offices...............1 of Majority..............8 Section 4:5 Executive Committee- ARTICLE II: Reporting................9 STOCKHOLDERS Section 4:6 Other Committees..........9 Section 2:1 Annual Meeting..............1 ARTICLE V: Section 2:2 Business to be Conducted OFFICERS at Annual Meeting..........1 Section 2:3 Special Meetings............2 Section 5:1 Appointment...............9 Section 2:4 Place of Meetings...........2 Section 5:2 Tenure....................9 Section 2:5 Notice of Meetings..........2 Section 5:3 Salaries..................9 Section 2:6 Quorum and Voting...........2 Section 5:4 Chief Executive Officer...9 Section 2:7 Voting; Proxy...............3 Section 5:5 Chairman of the Board....10 Section 2:8 Voting by Fiduciaries, Section 5:6 President................10 Pledgee and Pledgors.......3 Section 5:7 Other Officers...........10 Section 2:9 Nomination of Directors.....4 Section 2:10 List of Stockholders........5 ARTICLE VI: Section 2:11 Appointment of Inspectors CAPITAL STOCK AND DIVIDENDS of Election and Resolution of Questions Concerning Section 6:1 Certificates for Shares..10 Right to Vote..............5 Section 6:2 Stock Records............10 Section 6:3 Transfers................10 ARTICLE III: Section 6:4 Regulations Governing DIRECTORS Issuance and Transfers of Shares.....11 Section 6:5 Transfer Agents and Section 3:1 General Powers..............5 Registrars..............11 Section 3:2 Number and Qualifications...5 Section 6:6 Lost or Destroyed Section 3:3 Election....................5 Certificates............11 Section 3:4 Place of Meetings...........5 Section 6:7 Fractions of Shares......11 Section 3:5 Regular Meetings............6 Section 6:8 Determination of Section 3:6 Special Meetings............6 Stockholders............11 Section 3:7 Quorum......................6 Section 6:9 Record Date..............11 Section 3:8 Waiver of Notice............7 Section 3:9 Consent.....................7 ARTICLE VII: Section 3:10 Notice to Members of the MISCELLANEOUS Board of Directors.........7 Section 3:11 Presiding Officer...........7 Section 7:1 Voting Shares in Other Corporations............12 Section 7:2 Execution of Other Papers ARTICLE IV: and Documents...........12 COMMITTEES Section 7:3 Corporate Seal...........12 Section 7:4 Amendments...............12 Section 4:1 Executive Committee - Section 7:5 Books and Records .......12 Appointment and Tenure.....8 Section 4:2 Executive Committee - Powers.....................8
BY-LAWS OF ANHEUSER-BUSCH COMPANIES, INC. (AS AMENDED AND RESTATED DECEMBER 16, 1998) ARTICLE I: LOCATION AND OFFICES Principal Office. SECTION 1:1. The principal office of the corporation shall be at such place as the Board of Directors may from time to time determine, but until a change is effected such principal office shall be at One Busch Place, in the City of St. Louis, Missouri. Other Offices. SECTION 1:2. The corporation may also have other offices, in such places (within or without the State of Delaware) as the Board of Directors may from time to time determine. ARTICLE II: STOCKHOLDERS Annual Meeting. SECTION 2:1. An annual meeting of the stockholders of the corporation shall be held at 10:00 o'clock a.m. on the fourth Wednesday in April of each year if not a legal holiday, and if a legal holiday then on the next succeeding day not a legal holiday. The purpose of the meeting shall be to elect directors and to transact such other business as properly may be brought before the meeting. If the corporation shall fail to hold said meeting for the election of directors on the date aforesaid, the Board of Directors shall cause the election to be held by the stockholders as soon thereafter as convenient. Business to be Conducted at Annual Meeting. SECTION 2:2.1 At an annual meeting of stockholders, only such business shall be conducted as shall have been brought before the meeting (i) pursuant to the corporation's notice of the meeting, (ii) by or at the direction of the Board of Directors (or any duly organized committee thereof), or (iii) by any stockholder of the corporation who is a stockholder of record on the date of giving of the notice provided for in this By-Law and on the record date for the determination of stockholders entitled to vote at such meeting and who has complied with the notice procedures set forth in this By-Law. SECTION 2:2.2 In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice in proper written form to the Secretary which notice is not withdrawn by such stockholder at or prior to such annual meeting. SECTION 2:2.3 To be timely, a stockholder's notice to the Secretary must be delivered or mailed to and received by the Secretary at the principal executive offices of the corporation, not less than ninety days nor more than one hundred twenty days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the meeting is changed by more than thirty days from such anniversary date, notice by the stockholder must be received not later than the close of business on the tenth day following the earlier of the day on which notice of the date of the annual meeting was mailed or public disclosure was made. SECTION 2:2.4 To be in proper written form, such stockholder's notice must set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business to be brought before the annual meeting and the reasons for conducting such business at such meeting; (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, and the name and address of the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class and the number of shares of the corporation's stock which are beneficially owned by the stockholder, and the beneficial owner, if any, on whose behalf the proposal is made; (iv) any material interest of the stockholder, and of the beneficial owner, if any, on whose behalf the proposal is made, in such business; and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. SECTION 2:2.5 Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this By-Law. The chairman of the meeting may, if the facts warrant, determine that the business was not properly brought before the meeting in accordance with the provisions of this By-Law; and if the chairman should so determine, the chairman shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Special Meetings. SECTION 2:3. At any time the Chief Executive Officer may, and either the Chief Executive Officer or the Secretary at the written request of any five members of the Board of Directors shall, issue a call for a special meeting of the stockholders. Such request shall state the purpose or purposes of the proposed meeting, and at such special meeting only such matters as may be specified in the call therefor shall be considered. Place of Meetings. SECTION 2:4. All meetings of the stockholders shall be held at the principal office of the corporation, or at such other place, within or without the State of Delaware, as may be determined by the Board of Directors and stated in the notice of the meeting. Notice of Meetings. SECTION 2:5. Written notice of each meeting of the stockholders stating the place, date, and hour of the meeting, and, in case of a special meeting or where otherwise required by statute, the purpose or purposes for which the meeting is called, shall be delivered by mail not less than ten nor more than sixty days before the date of the meeting, by or at the direction of the person calling the meeting, to each stockholder entitled to vote at such meeting. The notice of a stockholders' meeting shall be deemed to be delivered when deposited in the United States mail with postage prepaid, addressed to each stockholder at such stockholder's address as it appears on the records of the corporation. Quorum and Voting. SECTION 2:6.1 The holders of a majority of the outstanding shares (exclusive of treasury stock) entitled to vote at any meeting of the stockholders, when present in person or by proxy, shall constitute a quorum for the transaction of business, except as otherwise provided by statute, the Certificate of Incorporation, or these By-Laws; but in the absence of such a quorum the holders of a majority of the shares represented at the meeting shall have the right successively to adjourn the meeting to a specified date. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 2:6.2 The absence from any meeting of the number of shares required by statute, the Certificate of Incorporation or these By-Laws for action upon one matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting, if the number of shares required in respect of such other matters shall be present. SECTION 2:6.3 When a quorum is present at any meeting of the stockholders, the vote of the holders (present in person or represented by proxy) of a majority of the shares of stock which are actually voted (and have the power to vote) on any proposition or question properly brought to a vote at such meeting shall decide any such proposition or question, unless the proposition or question is one upon which by express provision of statute or of the Certificate of Incorporation, or of these By-Laws, a different vote is required, in which case such express provision shall govern and establish the number of votes required to determine such proposition or question. Voting; Proxy. SECTION 2:7.1 Whenever the law requires or the chairman orders that a vote be taken by ballot, each stockholder entitled to vote on a particular question at a meeting of stockholders, pursuant to law or the Certificate of Incorporation, shall be entitled to one vote for each share of voting stock held by such stockholder. The date for determining the stockholders entitled to vote at a meeting of the stockholders shall be determined pursuant to Section 6:9. SECTION 2:7.2 Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent in writing without a meeting may authorize another person or persons to act for such stockholder by proxy; but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. Voting by Fiduciaries, Pledgee and Pledgors. SECTION 2:8. Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the corporation the pledgor has expressly empowered the pledgee to vote thereon, in which case only the pledgee or the pledgee's proxy may represent such stock and vote thereon. If shares or other securities having voting power stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) If only one votes, that person's act binds all; (b) If more than one vote, the act of the majority so voting binds all; (c) If more than one vote, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or any person voting the shares, or a beneficiary, if any, may apply to the Court of Chancery or such other court as may have jurisdiction to appoint an additional person to act with the persons so voting the shares, which shall then be voted as determined by a majority of such persons and the person appointed by the Court. If the instrument so filed shows that any such tenancy is held in unequal interest, a majority or even-split for the purpose of this subsection shall be a majority or even-split in interest. Nomination of Directors. SECTION 2:9.1 Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the corporation, except as may be otherwise provided in the Certificate of Incorporation of the corporation with respect to the right of holders of preferred stock of the corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (i) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (ii) by any stockholder of the corporation who is a stockholder of record on the date of the giving of the notice provided for in this By-Law and on the record date for the determination of stockholders entitled to vote at such meeting and who complies with the notice procedures set forth in this By-Law. SECTION 2:9.2 In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the corporation. SECTION 2:9.3 To be timely, a stockholder's notice to the Secretary must be delivered or mailed to and received by the Secretary at the principal executive offices of the corporation (i) in the case of an annual meeting, not less than ninety days nor more than one hundred twenty days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever occurs first, and (ii) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever occurs first. SECTION 2:9.4 To be in proper written form, a stockholder's notice to the Secretary must set forth (i) as to each person whom the stockholder proposes to nominate for election as a director (A) the name, age, business address and residence address of the person, (B) the principal occupation or employment of the person, (C) the class or series and the number of shares of capital stock of the corporation which are owned beneficially or of record by the person and (D) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder; and (ii) as to the stockholder giving the notice or the beneficial owner on whose behalf the nomination is made, (A) the name and address of such stockholder as they appear on the corporation's books, (B) the class or series and the number of shares of capital stock of the corporation beneficially owned by such stockholder or beneficial owner, (C) a description of all arrangements or understandings between such stockholder or beneficial owner and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder or beneficial owner, (D) a representation that such stockholder or beneficial owner intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (E) any other information relating to such stockholder or beneficial owner that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. SECTION 2:9.5 No person shall be eligible for election as a director of the corporation, at any annual meeting of stockholders or at any special meeting of stockholders called for the purpose of electing directors, unless nominated in accordance with the procedures set forth in this By-Law. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. List of Stockholders. SECTION 2:10. The Secretary shall prepare and make, or cause to be made, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the election, either at a place within the city where the election is to be held and which place shall be specified in the notice of the meeting, or, if not so specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of election during the whole time thereof and subject to the inspection of any stockholder who may be present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this By-Law or the books of the corporation, or to vote in person or by proxy at any meeting of the stockholders. Appointment of Inspectors of Election and Resolution of Questions Concerning Right to Vote. SECTION 2:11. The Board of Directors, in advance of the meeting of stockholders or, if it does not act, the chairman of the meeting, shall appoint not less than two persons who are not directors to serve as inspectors of election. It shall be their duty to receive and canvass the votes for election of directors and on any proposal voted on by ballot and to certify the results to the chairman. In all cases where the right to vote upon any share of the corporation shall be questioned, it shall be the duty of the inspectors to examine the stock ledger of the corporation as evidence of the shares held, and all shares that appear standing thereon in the name of any person or persons may be voted upon by such person or persons. Each inspector of election before entering upon the duties of such office shall take and subscribe the following oath before an officer authorized by law to administer oaths: "I do solemnly swear that I will execute the duties of an inspector of the election now to be held with strict impartiality and according to the best of my ability." ARTICLE III: DIRECTORS General Powers. SECTION 3:1. The Board of Directors shall control and manage the business and property of the corporation. The Board may exercise all such powers of the corporation and do all lawful acts and things as are not by law, the Certificate of Incorporation, or these By-Laws directed or required to be exercised or done by the stockholders or some particular officer of the corporation. Number and Qualifications. SECTION 3:2. The number of directors shall be determined from time to time by resolution of the Board of Directors in accordance with the terms of Article FIFTH of the Certificate of Incorporation. From and after the first public distribution of the Common Stock of the corporation, each director shall be a stockholder of the corporation, except in such specific case or cases as shall be otherwise authorized by the Board of Directors upon a showing of reasonable cause therefor. Election. SECTION 3:3. The directors who are to be elected at the annual meeting of the stockholders shall be elected by ballot by the holders of shares entitled to vote. Place of Meetings. SECTION 3:4. The place where meetings of the Board of Directors are held shall be as follows: (a) The annual meeting shall be held in the city of the principal office of the corporation in Missouri, provided that in the event the annual meeting of shareholders is held in a metropolitan area other than St. Louis, Missouri, the annual meeting of the Board of Directors shall be held in the metropolitan area where the annual meeting of stockholders is held. (b) Regular meetings shall be held at such place within the City or County of St. Louis, Missouri as may be prescribed in the call, provided that any regular meeting may be held elsewhere, either within or without the State of Delaware, pursuant to resolution of the Board of Directors or pursuant to the call of the Chief Executive Officer acting with the consent of a majority of the directors. (c) Special meetings shall be held at such place as may be prescribed in the notice, provided that if a special meeting is held on less than three days' notice, it shall be held at the principal office of the corporation unless all directors agree upon a different location. (d) Members of the Board of Directors may participate in a meeting of the Board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participating in the meeting in this manner shall constitute presence in person at such meeting. Regular Meetings. SECTION 3:5. Regular meetings shall be held at such place or places, on such date or dates, and at such times as shall be established by the Board of Directors. A notice of each regular meeting shall not be required, except any meeting at which an amendment to or repeal of these By-Laws is to be considered. Special Meetings. SECTION 3:6. Special meetings of the Board of Directors may be held at the call of the Chief Executive Officer or five members of the Board at such time as may be prescribed in the call of the meeting. The purpose of the special meeting need not be stated in the notice of the meeting. Notice of a special meeting may be given by any one or more of the following methods and the method used need not be the same for each director being notified: (a) Written notice sent by mail at least three days prior to the meeting; (b) Personal service at least twenty-four (24) hours prior to the date of the meeting; (c) Telegraphic notice at least twenty-four (24) hours prior to the date of the meeting, said notice to be sent as a straight full-rate telegram; (d) Telephonic notice at least twenty-four (24) hours prior to the date of the meeting. (e) Facsimile transmission at least twenty-four (24) hours prior to the date of the meeting. Quorum. SECTION 3:7. A majority of the persons serving as directors of the corporation at the time of a meeting of the Board of Directors shall constitute a quorum for the transaction of any business by the Board at such meeting. At any meeting of the Board, no action shall be taken (except adjournment, in the manner provided below) until after a quorum has been established. The act of a majority of directors who are present at a meeting at which a quorum previously has been established (or at any adjournment of such meeting, provided that a quorum previously shall have been established at such adjourned meeting) shall be the act of the Board of Directors, regardless of whether or not a quorum is present at the time such action is taken. In determining the number of directors who are present at the time any such action is taken (for the purpose of establishing the number of votes required to take action on any proposition or question submitted to the Board), any director who is in attendance at such meeting but who, for just cause, is disqualified to vote on such proposition or question, shall not be considered as being present at the time of such action. In the event a quorum cannot be established at the beginning of a meeting, a majority of the directors present at the meeting, or the director, if there be only one person, or the Secretary of the corporation, if there be no director present, may adjourn the meeting from time to time until a quorum be present. Only such notice of such adjournment need be given as the Board may from time to time prescribe. Waiver of Notice. SECTION 3:8. Any notice which is required by law or by the Certificate of Incorporation or by these By-Laws to be given to any director may be waived in writing, signed by such director, whether before or after the time stated therein. Attendance of a director at any meeting shall constitute waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Consent. SECTION 3:9. Any action required or permitted to be taken at any meeting of the Board of Directors (or of any committee thereof) may be taken without a meeting if all members of the Board (or committee) consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board (or committee). Notice to Members of the Board of Directors. SECTION 3:10. Each member of the Board of Directors shall file with the Secretary of the corporation an address to which mail or telegraphic notices shall be sent and a telephone number to which a telephonic or facsimile notice may be transmitted. A notice mailed, telegraphed, telephoned or transmitted by facsimile in accordance with the instructions provided by the director shall be deemed sufficient notice. Such address or telephone number may be changed at any time and from time to time by a director by giving written notice of such change to the Secretary. Failure on the part of any director to keep an address and telephone number on file with the Secretary shall automatically constitute a waiver of notice of any regular or special meeting of the Board which might be held during the period of time that such address and telephone number are not on file with the Secretary. A notice shall be deemed to be mailed when deposited in the United States mail, postage prepaid. A notice shall be deemed to be telegraphed when the notice is delivered to the transmitter of the telegram and either payment or provision for payment is made by the corporation. Notice shall be deemed to be given by telephone if the notice is transmitted over the telephone to some person (whether or not such person is the director) answering the telephone at the number which the director has placed on file with the Secretary. Notice shall be deemed to be given by facsimile transmission when sent to the telephone number which the director has placed on file with the Secretary. Presiding Officer. SECTION 3:11. The Chairman of the Board shall preside at all meetings of the Board of Directors at which the Chairman is present. In the Chairman's absence, the Vice Chairman (if any) shall preside. In the absence of the Chairman and the Vice Chairman, the Board shall select a chairman of the meeting from among the directors present. ARTICLE IV: COMMITTEES Executive Committee--Appointment and Tenure. SECTION 4:1. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate six directors, including the Chief Executive Officer, to constitute an Executive Committee, provided that a majority of said committee shall at all times be made up of members of the Board who are neither officers nor employees of the corporation and who shall serve at the pleasure of the Board. In the case of the death, resignation or removal of any member of the Executive Committee or in case any such member shall cease to be a member of the Board, the vacancy shall be filled by the Board. The Board shall designate the chairman of the Executive Committee. Executive Committee--Powers. SECTION 4:2. The Executive Committee, to the extent provided in the resolution of the Board of Directors appointing such committee or in any subsequent resolution, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it, but shall not have the power or authority with respect to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, or recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets; nor shall the Executive Committee have the power or authority to declare a dividend or to authorize the issuance of stock; but the designation of such Executive Committee and the delegation of authority thereto shall not operate to relieve the Board, or any member thereof, of any responsibility imposed upon it or them by the provisions of the Delaware General Corporation Law, as amended. Executive Committee--Notice of Meetings. SECTION 4:3. A meeting of the Executive Committee may be held on call by the Chief Executive Officer or on the call of any three of the other members of the Committee. Meetings of the Executive Committee may be held, upon notice as short as twenty-four (24) hours, at such place or places as shall be determined by resolution of the Committee, or in the absence of a resolution of the Executive Committee with respect thereto, at such place or places as may be determined by the Chief Executive Officer. If notice is given at least three days prior to the meeting of the Committee, notice may be given in any of the ways set forth in Section 3:7, dealing with special meetings of the Board of Directors. If less than three days' notice is given, notice shall not be given by mail but shall be given by one of the other methods described in Section 3:7. With respect to any such notice, all the provisions of Section 3:11 shall be equally applicable in the case of notice of an Executive Committee meeting as they are in the case of a notice of a meeting of the Board of Directors. Meetings of the Executive Committee shall be held at such place either within or without the States of Missouri or Delaware as may be designated by a resolution of the Board; or in the absence of such resolution, at such place within the metropolitan St. Louis, Missouri area as may be designated in the notice. Any such notice may be waived in the same manner provided in Section 3:9 with respect to waiver of notice of a directors' meeting. Executive Committee--Quorum and Powers of Majority. SECTION 4:4. A majority of the members of the Executive Committee shall constitute a quorum for the transaction of business at any meeting of the Executive Committee. Unless otherwise provided by the Board of Directors, a majority of the members of the Executive Committee shall constitute a quorum, and the acts of a majority of the members present at a meeting at which a quorum is present shall be the acts of the Executive Committee. Executive Committee--Reporting. SECTION 4:5. At each regular meeting of the Board of Directors all actions taken by the Executive Committee since the last prior meeting of the Board shall be reported, and the Board shall take such action to approve or rescind such action of the Executive Committee as the Board may deem appropriate, but no rescission of such action shall affect any rights which have attached pursuant to such Executive Committee action. If no regular meeting of the Board is scheduled within seven days after the date of a meeting of the Executive Committee, then no later than five days after such meeting of the Executive Committee, the minutes thereof (even though they may not as yet have been approved by the Executive Committee) shall be deposited in the mail by the Secretary addressed to each member of the Board at the address on file with the Secretary pursuant to the provisions of Section 3:11, provided that if any member of the Board shall have failed to place an address on file with the Secretary, such member shall be deemed to have waived the right to receive a copy of the minutes of the Executive Committee meeting. Other Committees. SECTION 4.6. Other Committees may be established, and their members appointed, from time to time by the Board of Directors. Such other committees shall have such purpose(s) and such power(s) as the Board by resolution may confer. Unless otherwise provided by the Board, a majority of the members of such other Committee shall constitute a quorum, and the acts of a majority of the members present at a meeting at which a quorum is present shall be the act of such other Committee. ARTICLE V: OFFICERS Appointment. SECTION 5:1. The Board of Directors shall appoint from its membership a Chairman of the Board and a President. The Board shall appoint such number of Vice Presidents as the Board may from time to time determine, a Controller, a Secretary, a Treasurer, one or more Assistant Controllers, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers, as the Board may from time to time deem necessary or appropriate. The Board of Directors may appoint a Vice Chairman of the Board, but the person holding that position shall not be considered an officer of the corporation. Tenure. SECTION 5:2. Officers appointed by the Board of Directors shall hold their respective offices for the term of one year and until their respective successors shall have been duly appointed and qualified; provided, however, that any officer appointed by the Board may be removed by the Board with or without a hearing and with or without cause whenever in its judgment the best interests of the corporation will be served thereby. Salaries. SECTION 5:3. The salaries of all officers of the corporation shall be fixed by the Board of Directors. Chief Executive Officer. SECTION 5:4. So long as the offices of Chairman of the Board and President are held by the same person, that person shall be the Chief Executive Officer of the corporation. Otherwise, the Chief Executive Officer shall be the Chairman of the Board or the President, as designated by the Board of Directors. The Chief Executive Officer shall have general supervision and control over all the business and property of the corporation and shall be responsible at all times to the Board of Directors and the Executive Committee. The Chief Executive Officer shall also preside at all meetings of the stockholders. In the event the Chief Executive Officer shall fail or for any reason be unable to serve as such, the Board of Directors shall promptly act to fill such vacancy. Chairman of the Board. SECTION 5:5. The Chairman of the Board shall preside as chairman of all meetings of the Board of Directors at which the Chairman shall be present and shall have such other powers, responsibilities and duties as shall be assigned by the Board. President. SECTION 5:6. The President shall have such powers, responsibilities and duties as shall be assigned by the Board of Directors. Other Officers. SECTION 5:7. Subject to the ultimate authority of the Board of Directors, all other officers of the corporation shall have such powers, responsibilities and duties as shall be assigned to them from time to time by the Chief Executive Officer. ARTICLE VI: CAPITAL STOCK AND DIVIDENDS Certificates for Shares. SECTION 6:1. Certificates for shares of the capital stock of the Company shall be in such form, not inconsistent with the Certificate of Incorporation, as shall be approved by the Board of Directors, and shall be signed by the Chairman or Vice Chairman of the Board of Directors or by the President or a Vice-President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, provided that the signatures of any such officers thereon may be facsimiles. The seal of the corporation shall be impressed, by original or by facsimile, printed or engraved, on all such certificates. The certificate shall also be signed by the transfer agent and a registrar and the signature of either the transfer agent or the registrar may also be facsimile, engraved or printed. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the corporation with the same effect as if such officer, transfer agent, or registrar had not ceased to be such officer, transfer agent, or registrar at the date of its issue. Stock Records. SECTION 6:2. The corporation shall keep at its principal office stock books in which shall be recorded the number of shares issued, the names of the owners of the shares, the number owned by them respectively, and the transfer of such shares with the date of transfer. Transfers. SECTION 6:3. Certificates representing shares of stock of the corporation shall be transferable only on the books of the corporation by the person or persons named in the certificate or by the attorney lawfully constituted in writing representing such person or persons and upon surrender of the certificate or certificates being transferred which certificate shall be properly endorsed for transfer or accompanied by a duly executed stock power. Whenever a certificate is endorsed by or accompanied by a stock power executed by someone other than the person or persons named in the certificate, evidence of authority to transfer shall also be submitted with the certificate. All certificates surrendered to the corporation for transfer shall be cancelled. Regulations Governing Issuance and Transfers of Shares. SECTION 6:4. The Board of Directors shall have the power and authority to make all such rules and regulations as it shall deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the corporation. Transfer Agents and Registrars. SECTION 6:5. Transfer agents and registrars for the corporation's stock shall be banks, trust companies or other financial institutions located within or without the State of Delaware as shall be appointed by the Board of Directors. The Board shall also define the authority of such transfer agents and registrars. Lost or Destroyed Certificates. SECTION 6:6. Where a certificate for shares of the corporation has been lost or destroyed, the Board of Directors may authorize the issuance of a new certificate in lieu thereof upon satisfactory proof of such loss or destruction, and upon the giving of an open penalty bond with surety satisfactory to the corporation's General Counsel and Treasurer, to protect the corporation or any person injured by the issuance of the new certificate from any liability or expense which it or they may incur by reason of the original certificate's remaining outstanding, and upon payment of the corporation's reasonable costs incident thereto. Fractions of Shares. SECTION 6:7. The corporation shall not issue fractions of a share. It shall, however, (1) arrange for the disposition of fractional interests by those entitled thereto, and (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip or warrants aggregating a full share. Scrip or warrants shall not, unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, or to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board may impose. Determination of Stockholders. SECTION 6:8. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Delaware. Record Date. SECTION 6:9. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment or any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (2) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. ARTICLE VII: MISCELLANEOUS Voting Shares in Other Corporations. SECTION 7:1. The corporation may vote any and all shares of stock and other securities having voting rights which may at any time and from time to time be held by it in any other corporation or corporations and such vote may be cast either in person or by proxy by such officer of the corporation as the Board of Directors may appoint or, in default of such appointment, the Chief Executive Officer, the President or a Vice President. Execution of Other Papers and Documents. SECTION 7:2. All checks, bills, notes, drafts, vouchers, warehouse receipts, bonds, mortgages, contracts, registration certificates and all other papers and documents of the corporation shall be signed or endorsed for the corporation by such of its officers, other employees and agents as the Board of Directors may from time to time determine, or in the absence of such determination, by the Chief Executive Officer, the President or a Vice President, provided that instruments requiring execution with the formality of deeds shall be signed by the Chief Executive Officer, the President or a Vice President and impressed with the Seal of the corporation, duly attested by the Secretary or an Assistant Secretary. Corporate Seal. SECTION 7:3. The Board of Directors shall provide a suitable seal, containing the name of the corporation, which seal shall be in the custody of the Secretary of the corporation, and may provide for one or more duplicates thereof to be kept in the custody of such other officer of the corporation as the Board may prescribe. Amendments. SECTION 7:4. These By-Laws may be amended or repealed, or new By-Laws may be adopted (a) by the affirmative vote of a majority of the shares issued and outstanding and entitled to vote at any annual or special meeting of stockholders, or (b) by the affirmative vote of the majority of the Board of Directors at any regular or special meeting; provided that the notice of such meeting of stockholders or directors, whether regular or special, shall specify as one of the purposes thereof the making of such amendment or repeal, and provided further that any amendment of the By-Laws made by the Board may be further amended or repealed by the stockholders. Books and Records. SECTION 7:5. Except as the Board of Directors may from time to time direct or as may be required by law, the corporation shall keep its books and records at its principal office. EX-4.2 3 LETTER AGREEMENT March 19, 1998 Boatmen's Trust Company, as Rights Agent 510 Locust Street St. Louis, Missouri 63101 ChaseMellon Shareholder Services, L.L.C. as Successor Rights Agent, 200 North Broadway, Suite 1722 St. Louis, Missouri 63102 Re: Successor Rights Agent Ladies and Gentlemen: Pursuant to Section 21 of the Rights Agreement by and between Anheuser-Busch Companies, Inc. and Boatmen's Trust Company dated October 26, 1994 (the "Agreement") by execution and delivery of this letter agreement, Boatmen's Trust Company hereby resigns as Rights Agent under the Agreement, ChaseMellon Shareholder Services, L.L.C. (the "Successor Agent") is hereby appointed successor rights agent under the Agreement and the Successor Agent hereby accepts such appointment. Furthermore, the Agreement is amended as follows: (a) Section 2 hereby modified and amended by deleting: "as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Stock)" and replacing it with: "as rights agent hereunder." (b) The second sentence in Section 3(b) is hereby modified and amended by deleting: "and shall bear the following legend" and replacing it with: "and shall bear a legend substantially to the following effect." (c) Section 21 of the Rights Agreement is hereby modified and amended by deleting the fifth sentence in its entirety and replacing it with: "Any successor Rights Agent, whether appointed by the Company or by such a court, shall be either (a) a corporation organized and doing business under the laws of the United States or of any state of the United States, in good standing, which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $100,000,000 or (b) an Affiliate of such a corporation." (d) All provisions of the Agreement not amended hereby shall remain in full force and effect. (e) This letter agreement shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. (f) This letter agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. In executing this letter agreement, the Successor Agent shall be entitled to all the privileges and immunities afforded to the Rights Agent and assumes all obligations of the Rights Agent under the terms and conditions of the Agreement. ANHEUSER-BUSCH COMPANIES, INC. By: /s/ Stephen K. Lambright ------------------------------------- Title: Group Vice President and General Counsel BOATMEN'S TRUST COMPANY, as Rights Agent By: /s/ Jerry L. Rector -------------------------------------- Title: Vice President CHASEMELLON SHAREHOLDER SERVICES, L.L.C., as Successor Rights Agent By: /s/ H. Eugene Bradford -------------------------------------- Title: Vice President EX-12 4 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES (CONTINUING OPERATIONS) The following table sets forth the Company's ratio of earnings to fixed charges, on a consolidated basis, for the periods indicated: Year Ended December 31, - ----------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- ---- 6.8X 7.3X 8.1X 1/ 6.6x 2/ 7.7X 5.8X 3/ For purposes of this ratio, earnings have been calculated by adding to income before income taxes the distributed earnings of investees accounted for under the equity method and the amount of fixed charges. Fixed charges consist of interest on all indebtedness, amortization of debt discount and that portion of rental expense deemed to represent interest. 1/ The ratio for 1996 includes the gain from the sale of the St. Louis Cardinals, which increased income before income taxes by $54.7 million. Excluding the one-time gain, the ratio would have been 7.9X. 2/ The ratio for 1995 includes the impact of the Tampa Brewery shutdown and the reduction of beer wholesaler inventories. Excluding these non-recurring items, the ratio would have been 7.6X. 3/ Includes the impact of the one-time, pretax restructuring charge of $401.3 million for the company's Profitability Enhancement Program. Excluding the non-recurring special charge, the ratio would have been 7.5X. EX-13 5 ANNUAL REPORT [PHOTO] INVESTING IN OUR FUTURE: -------------------- > FINANCIAL REVIEW -------------------- OUR OBJECTIVES TO ENHANCE SHAREHOLDER VALUE ARE TO INCREASE OUR SHARE OF DOMESTIC BREWING INDUSTRY PROFITABILITY, CONTINUE THE GLOBALIZATION OF BEER OPERATIONS, AND SUPPORT PROFIT GROWTH IN ENTERTAINMENT AND PACKAGING OPERATIONS. [A-B STOCK CUMULATIVE TOTAL RETURN GRAPH]
CONTENTS Management's Discussion and Analysis of Operations and Financial Condition 34 Responsibility for Financial Statements 49 Report of Independent Accountants 49 Consolidated Balance Sheet 50 Consolidated Statement of Income 51 Consolidated Statement of Changes in Shareholders Equity 52 Consolidated Statement of Cash Flows 53 Notes To Consolidated Financial Statements 54 Financial Summary--Operations 74 Financial Summary--Balance Sheet and Other Information 76
ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 33 2 MANAGEMENT'S DISCUSSION & ANALYSIS OF OPERATIONS & 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 three-year period ended December 31, 1998. This discussion should be read in conjunction with the Letter to Shareholders, Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this annual report. This discussion contains statements regarding the company's expectations concerning its operations, earnings and prospects. These statements are forward-looking statements that involve significant risks and uncertainties, and accordingly, no assurances can be given that such expectations will be correct. These expectations are based upon many assumptions that the company believes to be reasonable, but such assumptions may ultimately prove to be inaccurate or incomplete, in whole or in part. Important factors that could cause actual results to differ from the expectations stated in this discussion include, among others, changes in the pricing environment for the company's products; factors that may affect domestic demand for malt beverage products; changes in customer preference for the company's malt beverage products; regulatory or legislative changes; changes in raw materials prices; changes in interest rates; changes in foreign currency exchange rates; changes in attendance and consumer spending patterns for the company's theme park operations; changes in demand for aluminum beverage containers; changes in the company's international beer business or in the beer business of the company's international equity partners; and the effect of stock market conditions on the company's share repurchase program. OBJECTIVES Anheuser-Busch remains focused on achieving three major objectives in future years in order to enhance shareholder value: 1. Gaining an increased share of brewing industry profits in the United States by increasing unit profitability and market share in the longer term. 2. Continued globalization of beer operations by building the Budweiser brand worldwide and making selected investments in leading brewers in key international beer growth markets. The company has made significant marketing investments to build Budweiser brand recognition outside the United States and owns overseas breweries in China and the United Kingdom. In September 1998, the company increased its equity stake in Grupo Modelo's operating subsidiary, Diblo, to 50.2%. The company's total investment in Grupo Modelo is $1.6 billion at December 31, 1998. 3. Continued support of profit growth in existing packaging and entertainment operations. Metal Container Corporation, the company's can manufacturing subsidiary, provides significant efficiencies, cost savings and quality assurance for domestic beer operations. The company continues to invest in packaging technology, capacity improvements and quality driven cost reductions. The company's Busch Entertainment adventure park subsidiary is a significant contributor to corporate earnings and provides Anheuser-Busch with a unique opportunity to showcase its heritage, values and commitment to quality and social responsibility to over 20 million visitors annually. CONTINUING OPERATIONS Financial results for 1997 and 1996 were impacted by certain nonrecurring events which make meaningful comparisons among 1998, 1997 and 1996 more difficult. Those events are discussed below: 1. In March 1996, the company completed the sale of the St. Louis Cardinals which included Busch Memorial Stadium and several nearby parking garages and other properties in downtown St. Louis. The sale price was $150 million, resulting in a $54.7 million pretax gain ($.06 per share after-tax) which is shown as a separate line item in the income statement. 2. In June 1996, Anheuser-Busch completed the sale of most of its Eagle Snacks production facilities to Frito-Lay, a subsidiary of PepsiCo. Accordingly, the company adjusted its previously estimated loss provision for the disposition of its food products segment and recognized a $33.8 million after-tax gain ($.07 per share) in the second quarter 1996. This gain is reported entirely in discontinued operations and has no impact on financial results from continuing operations. 34 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 3 3. In the fourth quarter 1997, the company expensed all previously capitalized and unamortized business reengineering costs associated with the development and installation of computer software, in accordance with the change in accounting practice mandated by EITF No. 97-13. The total write-off was $10 million after-tax ($.02 per share), is shown as a separate "cumulative effect of accounting change" line item in the income statement and had no impact on the company's results from operations. In order to facilitate a more complete and meaningful understanding of company operating results, key financial comparisons are presented in the following summaries and throughout this discussion on a "normalized" continuing operations basis only, which excludes the nonrecurring transactions discussed above. Key financial comparisons from normalized continuing operations are summarized in the following tables. COMPARISON OF OPERATING RESULTS
1998 VS. 1997 (IN MILLIONS, EXCEPT PER SHARE) - ----------------------------------------------------------------------------------------------------------- 1998 VS. 1997 ---------------------------------------------------------- 1998 1997 $ % ---------------------------------------------------------- Gross Sales $13,208 $12,832 Up $376 Up 2.9% Excise Taxes $1,962 $1,766 Up $196 Up 11.1% Net Sales $11,246 $11,066 Up $180 Up 1.6% Operating Income $2,125 $2,053 Up $72 Up 3.5% Equity Income, Net of Tax $85 $50 Up $35 Up 68.7% Income from Continuing Operations $1,233 $1,179 Up $54 Up 4.6% Diluted Earnings Per Share from Continuing Operations $2.53 $2.36 Up $.17 Up 7.2% - ----------------------------------------------------------------------------------------------------------- 1997 VS. 1996 (IN MILLIONS, EXCEPT PER SHARE) - ----------------------------------------------------------------------------------------------------------- 1997 1996 1997 VS. 1996 ---------------------------------------------------------- NORMALIZED OPERATIONS $ % ---------------------------------------------------------- Gross Sales $12,832 $12,622 Up $210 Up 1.7% Excise Taxes $1,766 $1,738 Up $28 Up 1.6% Net Sales $11,066 $10,884 Up $182 Up 1.7% Operating Income $2,053 $2,029 Up $24 Up 1.2% Equity Income, Net of Tax $50 -- Up $50 N/M Income from Continuing Operations $1,179 $1,123 Up $56 Up 5.0% Diluted Earnings Per Share from Continuing Operations $2.36 $2.21 Up $.15 Up 6.8% - ----------------------------------------------------------------------------------------------------------- N/M--Not Meaningful 1996 VS. 1995 (IN MILLIONS, EXCEPT PER SHARE) - ----------------------------------------------------------------------------------------------------------- 1996 1995 1996 VS. 1995 ---------------------------------------------------------- NORMALIZED NORMALIZED OPERATIONS OPERATIONS $ % ---------------------------------------------------------- Gross Sales $12,622 $12,131 Up $491 Up 4.0% Excise Taxes $1,738 $1,683 Up $55 Up 3.3% Net Sales $10,884 $10,448 Up $436 Up 4.2% Operating Income $2,029 $1,867 Up $162 Up 8.7% Income from Continuing Operations $1,123 $1,032 Up $91 Up 8.8% Diluted Earnings Per Share from Continuing Operations $2.21 $1.99 Up $.22 Up 11.1% - -----------------------------------------------------------------------------------------------------------
ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 35 4 > MANAGEMENT'S DISCUSSION & ANALYSIS OF OPERATIONS & FINANCIAL CONDITION SALES AND BEER VOLUME Total worldwide beer sales volume results are summarized in the following table:
WORLDWIDE BEER SALES VOLUME (BARRELS IN MILLIONS) - ----------------------------------------------------------------------------------------------------------------------- 1998 1997 CHANGE 1997 1996 CHANGE 1996 1995 CHANGE --------------------------------------------------------------------------------------------- Domestic 92.7 89.6 Up 3.5% 89.6 88.9 Up 0.7% 88.9 85.5 Up 4.0% International 7.1 7.0 Up 0.6% 7.0 6.2 Up 13.4% 6.2 5.4 Up 15.5% --------------------------------------------------------------------------------------------- Worldwide A-B Brands 99.8 96.6 Up 3.3% 96.6 95.1 Up 1.6% 95.1 90.9 Up 4.7% International Equity Partner Brands 11.2 6.8 Up 64.9% 6.8 4.0 Up 70.7% 4.0 3.7 Up 8.1% --------------------------------------------------------------------------------------------- Total Brands 111.0 103.4 Up 7.3% 103.4 99.1 Up 4.3% 99.1 94.6 Up 4.8% - -----------------------------------------------------------------------------------------------------------------------
[SALES GRAPH] WORLDWIDE BEER VOLUME Worldwide Anheuser-Busch beer volume is comprised of domestic volume and international volume of Anheuser-Busch brands. Domestic volume represents A-B brands 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 in China and the United Kingdom and under license and contract brewing agreements. Budweiser and other Anheuser-Busch beer brands are sold in more than 80 countries worldwide. Total volume includes the company's pro rata share of volume in international equity partners Grupo Modelo and Antarctica combined with worldwide Anheuser-Busch brand volume. 1998 VS. 1997 Anheuser-Busch achieved record gross sales of $13.2 billion and record net sales of $11.2 billion in 1998. These results represent a gross sales increase over 1997 of $376 million, or 2.9%, and a net sales increase over 1997 of $180 million, or 1.6%. The increases are primarily due to higher domestic beer volume. For 1998, sales and excise taxes include the impact of accounting for the Stag Brewery operations in the United Kingdom on a consolidated basis vs. equity accounting in 1997. The difference between gross and net sales for 1998 represents beer excise taxes of $2.0 billion. Worldwide volume for Anheuser-Busch beer brands was up 3.3% for 1998, compared to the prior year. Total volume, which combines equity volume (representing the company's share of its foreign equity partner barrelage) with worldwide Anheuser-Busch brand volume, was up 7.6 million barrels, or 7.3%, for the year. International equity partner brands reflects the company's 37% ownership interest in Grupo Modelo brands for the first nine months of 1998 and 50.2% for the fourth quarter, compared to a combination of 17.7% ownership interest for the first five months of 1997 and 37% thereafter. Anheuser-Busch's strategy to reduce domestic price discounting initiated at the beginning of 1998 was successful. This strategy was designed to increase revenues, reduce the spread between front-line and discounted prices to consumers, and protect the company's brand equities. In October 1998, the company initiated a revenue enhancement strategy of selective price increases and additional discount reductions based on a market-by-market assessment of competitive conditions. As a result of these and other actions, domestic revenue per barrel was up nearly 3% in the fourth quarter 1998 compared to the same period last year, and was level for the full year compared to 1997. This improved pricing environment, along with good volume growth trends, are expected to support accelerated revenue and profit growth in 1999. 36 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 5 Anheuser-Busch domestic beer shipments grew 3.5% during 1998, reflecting strong retail demand. Overall, sales-to-retailers were up 4% for the year. Combined Bud and Bud Light sales-to-retailers increased 3.4% for 1998 compared to 1997, the best performance this decade. This growth was led by Bud Light, which had its seventh consecutive double-digit growth year. The company's domestic market share (excluding exports) for 1998 was 46.4%, an increase of 0.8 market share points over 1997 market share of 45.6%. Including exports, the company's share of U.S. shipments was 46.2% vs. 45.4% for 1997. Domestic market share and share of U.S. shipments are determined based on industry sales estimates provided by the Beer Institute. Anheuser-Busch has led the U.S. brewing industry in sales volume and market share since 1957. International Anheuser-Busch brand volume (excluding equity partner brands) was up 0.6% in 1998 compared to last year. Strong Budweiser sales performances in the United Kingdom, Ireland, Continental Europe and Canada were mostly offset by sales declines in Asia. In Japan, Anheuser-Busch performance has been impacted by lower industry sales due to the current economic recession and introduction of a tax-advantaged "happoshu" beer category. Anheuser-Busch has introduced its own happoshu beer to participate in this growing segment and completed a significant restructuring of its sales force. The restructuring resulted in a one-time pretax charge of $8.6 million, or $.01 per share after-tax, in the fourth quarter 1998. The restructuring will result in significantly lower costs and should lead to improved performance in 1999. In June 1998, the company restructured its alliance granting Labatt Brewing Company perpetual rights to brew and sell the Budweiser and Bud Light brands in Canada. In return, Labatt will significantly increase marketing support behind the two brands and provide Anheuser-Busch with a greater share of associated profits. Budweiser is currently the third-largest-selling beer in Canada. During the second quarter of 1998, the company completed its expansion of the Wuhan brewery in China. The expansion doubles Wuhan's capacity, bringing it to 2.1 million barrels. The company is also expanding its brewery in London which will increase capacity to 1.9 million barrels when completed in 1999. 1997 VS. 1996 Gross sales were $12.8 billion and net sales were $11.1 billion in 1997, representing increases of $210 million and $182 million, respectively, or 1.7%, compared to 1996. The difference between gross and net sales for 1997 represents $1.77 billion of beer excise taxes. The primary factors responsible for the sales increases were higher domestic and international beer sales volume, partially offset by increased price discounting in the domestic beer market, and increased sales from the company's theme park operations. Theme park operations experienced an attendance increase of approximately 7% in 1997 vs. 1996, to nearly 21 million visitors, and also attained higher in-park per capita revenues. The increase in domestic volume during 1997 was driven by Bud Light, which was up approx-imately 10%, and improved Budweiser trends. Total Bud Family sales-to-retailers were up almost 2% in 1997 compared to 1996. Anheuser-Busch's domestic market share (excluding exports) for 1997 was 45.6%, compared to 45.5% in 1996. Anheuser-Busch's domestic market share (excluding exports) for 1997 was 45.6%, compared to 45.5% in 1996. Anheuser-Busch's share of shipments (including exports) for 1997 was 45.4%, up slightly compared with 1996 share. Operating performance for 1997 was significantly impacted by aggressive price discounting initiated by competition, which began in the first quarter and became progressively deeper throughout the year. Anheuser-Busch responded with comparable levels of discounting to keep its brands price-competitive and protect its market share, and the pricing environment had stabilized by the end of the year. Volume trends were favorable for the company's core premium brands in 1997 as consumers traded up to premium and higher-priced brands. Bud Light continued its double-digit growth. The company's quality initiatives, including a freshness advertising campaign and a renewed focus on Anheuser-Busch's 145 year heritage of quality and excellence, enhanced the company's quality perception among consumers. ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 37 6 > MANAGEMENT'S DISCUSSION & ANALYSIS OF OPERATIONS & FINANCIAL CONDITION Total international beer volume growth was strong for 1997, led by combined Budweiser sales volume increases in China and the United Kingdom of 44% for the full year. Significant gains in volume produced overseas in 1997 were partially offset by reduced exports from the company's U.S. facilities due in part to discontinuing Kirin Ice shipments to Japan and lower shipments of Michelob Classic Dark to Taiwan. Total international volume, excluding equity partner volume, was up 13.4% for the year. Budweiser volume outside the United States was up 18.3% for 1997 vs. 1996. 1996 VS. 1995 Anheuser-Busch had gross sales during 1996 of $12.6 billion, an increase of $491 million, or 4.0%, over 1995 gross sales of $12.1 billion. Gross sales include $1.74 billion in federal and state beer excise taxes for 1996. Net sales for 1996 were $10.9 billion, an increase of $436 million, or 4.2%, over 1995 net sales of $10.4 billion. The increase in gross and net sales in 1996 was driven primarily by increased beer sales volume, higher net revenue per barrel and higher theme park revenues. Beer volume in 1995 was negatively impacted by a reduction in beer wholesaler inventory levels. Excluding the inventory reduction, 1996 beer volume would have increased 2.3 million barrels, or 2.7%, over 1995. During 1996, Anheuser-Busch's core premium and super-premium brands (the Budweiser and Michelob Families) gained momentum, with Bud Light growing at an annualized double-digit pace. Overall, Bud Family sales were up almost 4%. Domestic market share (excluding exports) was 45.5% in 1996, compared to 44.7% in 1995, an increase of 0.8 market share points. Including exports, the company's share of U.S. shipments in 1996 was 45.3%, an increase of 1.2 share points compared to 1995 share of 44.1%. Excluding the impact of the wholesaler inventory reduction, Anheuser-Busch's share of 1995 U.S. shipments would have been 44.4%. The company's international beer volume was up 15.5% in 1996 compared to 1995, led by Budweiser sales expansion in the United Kingdom, Ireland and Japan. However, profit contribution was down slightly in 1996 compared to 1995 due to substantially higher investment spending on marketing for global Budweiser brand building and having a full year of operating results (losses) for the Wuhan brewery included in 1996 vs. only partial year results in 1995. COST OF PRODUCTS AND SERVICES The company strives to continuously drive operating costs out of its system. Brewery modernizations yield long-term savings through reduced beer packaging and shipping costs and reduced maintenance and equipment replacement costs. The company's focused production initiative and wholesaler support centers concentrate small-volume brand and package production at three breweries to create production efficiencies, reduce costs and enhance responsiveness to changing consumer brand/ package preferences. Also, the company is working with its network of wholesalers to reduce distribution costs through systemwide coordination. Cost of products and services was $7.16 billion in 1998, an increase of $66 million, or 0.9%, compared to 1997. The change in costs of products and services in 1998 is primarily due to increased beer volume, the change in the method of accounting for the Stag Brewery operation (consolidation in 1998 vs. equity accounting in 1997) and improved brewery operating efficiencies. In 1997, before the Stag Brewing Company Ltd. was 100% owned by Anheuser-Busch, the company accounted for its 50% share of the operations under the equity method and excise taxes paid on beer sold were included in the cost of beer purchased from Stag. In 1998, under full consolidation accounting, excise taxes are shown as a deduction from gross sales. 38 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 7 Gross profit as a percentage of net sales was 36.3% for 1998, an increase of 0.4 percentage points vs. 1997, primarily reflecting productivity improvements. Cost of products and services in 1997 was $7.10 billion, an increase of 1.9% compared to 1996. The increase in cost of products and services in 1997 is attributable to slightly higher materials costs plus costs associated with increased beer sales volume and theme park attendance. Gross profit as a percentage of net sales was 35.9% for 1997, a decrease of 0.1 percentage points compared to 36.0% for 1996, due to slightly lower revenue per barrel in 1997. Cost of products and services for 1996 was $6.96 billion, a 2.1% increase over the $6.82 billion reported for 1995. The increase in the cost of products and services in 1996 is attributable to increased beer sales volume and increased raw materials costs, particularly brewing materials, partially offset by increased production efficiency savings and lower scrap aluminum prices related to recycling operations. Gross profit as a percentage of net sales in 1996 increased 1.3 percentage points, compared to 34.7% for 1995. MARKETING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES Marketing, distribution and administrative expenses for 1998 were $1.96 billion, an increase of $42 million, or 2.2% compared to 1997. The increase is primarily due to higher domestic and international marketing expense in support of premium brands, primarily the Bud Family, partially offset by reduced general and administrative costs. Marketing, distribution and administrative expenses for 1997 were $1.92 billion, compared with $1.89 billion for 1996, an increase of $26 million, or 1.4%. The increase for 1997 is principally due to marketing costs related to the company's international beer activity, costs related to increased theme park attendance, additional costs due to an increase in the number of company-owned beer wholesale operations and increased administrative expenses, partially offset by lower promotional spending compared to 1996 when the Summer Olympic Games were held in Atlanta. Marketing, distribution and administrative expenses for 1996 increased 7.6% compared to 1995, due primarily to sponsorship of the Olympics, increased spending to support accelerated volume growth for premium brands and global Budweiser brand-building initiatives. OPERATING INCOME Operating income represents the measure of the company's financial performance before net interest cost, other nonoperating items and equity income. Operating income for 1998 was $2.13 billion, an increase of $72 million, or 3.5%, over last year. The increase in operating income for the year is primarily due to higher domestic beer sales volume and higher operating results from can manufacturing and entertainment, partially offset by weaker results from international beer operations. Packaging operations generated approximately $150 million in operating income in 1998, a significant improvement vs. the prior year, due to higher soft drink can volume and reduced costs. Despite weakness in Florida tourism, entertainment operations had a slight improvement in operating income compared to 1997, due to higher in-park spending. International beer operating income declined vs. 1997 primarily due to weakness in Japan. Operating income for 1997 was $2.05 billion, an increase of $24 million, or 1.2%, compared to 1996. The increase was primarily due to increased beer sales volume, continued brewery operating efficiencies and improved performance by the company's theme park operations. Domestic revenue per barrel for 1997 was down slightly vs. the 1996 level. Entertainment operations had strong attendance and profitability and contributed $115 million in operating income in 1997. Total attendance at Busch Entertainment facilities was up approximately 7% compared to 1996, to nearly 21 million visitors. International beer profitability was down in 1997 compared to 1996 primarily due to continued significant marketing expenditures for Budweiser. Packaging operations contributed $121 million in operating profits in 1997, down slightly when compared with 1996 performance. [OPERATING INCOME GRAPH] ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 39 8 > MANAGEMENT'S DISCUSSION & ANALYSIS OF OPERATIONS & FINANCIAL CONDITION Operating income for 1996 was $2.03 billion, an increase of $162 million, or 8.7%, compared to 1995. The increase in 1996 operating income was due primarily to higher beer sales volume and higher beer margins due to increased revenue per barrel and productivity improvements, which generated nearly $100 million in cost savings vs. 1995. Metal Container Corporation reported flat profits during 1996 vs. 1995 primarily due to weaker soft drink can pricing. Profit contribution from international beer operations was down somewhat in 1996 compared to 1995 due to substantially higher investment spending on marketing for global Budweiser brand building and having a full year of operating results (losses) for the Wuhan brewery included in 1996 vs. only partial year results in 1995. NET INTEREST COST Net interest cost (interest expense less interest income) was $285.7 million for 1998, $253.3 million for 1997 and $223.4 million in 1996, representing increases of 12.8%, 13.4% and 3.4% compared to prior years. The increases in 1998 and 1997 reflect higher average outstanding debt balances during the years, primarily due to increasing the company's Grupo Modelo investment. The increase in 1996 was due to higher average debt balances outstanding during the period, primarily as a result of financing capital expenditures and share repurchases, partially offset by lower average interest rates. INTEREST CAPITALIZED Interest capitalized declined $16.1 million in 1998, to $26.0 million, due to lower construction-in-progress balances resulting from reduced capital expenditures as the company completes its brewery modernization projects. Interest capitalized increased $6.6 million in 1997 compared to 1996, to $42.1 million, after an increase of $11.2 million, to $35.5 million in 1996. The increases in 1997 and 1996 were due primarily to higher construction-in- progress levels resulting from ongoing brewery modernization projects. OTHER INCOME/EXPENSE, NET Other income/expense, net includes numerous items of a nonoperating nature that do not have a material impact on the company's consolidated results of operations, either individually or in total. The company had net other expense of $13.0 million in 1998, compared to expense of $9.3 million in 1997. Other expense, net for 1997 represented an increase of $6.3 million compared to 1996, primarily attributable to the elimination of dividend income reporting for the Grupo Modelo investment due to the adoption of equity accounting in the second quarter 1997. Other expense, net was $3.0 million in 1996, a decline of $23.5 million vs. 1995. This change was primarily due to the reclassification of certain purchase discounts from other income/expense, net to cost of products and services. EQUITY INCOME, NET In 1997, the company began recognizing its pro rata equity interest in the net earnings of Grupo Modelo and Antarctica under the equity method of accounting, as a separate line item in the income statement. The company recognized equity income, net of tax, of $85.0 million during 1998, compared to $50.3 million in 1997. The increase in equity income is due to the company's larger equity stake in Grupo Modelo and the strong underlying sales volume and operating results for Modelo, partially offset by hyperinflation accounting. For 1998, equity income reflects the company's 37% share of net earnings of Modelo for the first nine months (December 1997 through August 1998 reported on a one-month-delay basis) and its 50.2% ownership in the fourth quarter. This compares with 17.7% ownership for the first five months of 1997 (January through May 1997, consistent with the initial adoption of the equity method of accounting) and a 37% ownership interest thereafter. 40 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 9 INCOME FROM CONTINUING OPERATIONS Income from continuing operations was $1.23 billion in 1998, an increase of $54 million or 4.6% vs. 1997. Income from continuing operations was $1.18 billion for 1997, an increase of $56 million, or 5.0%, compared to 1996 income from continuing operations of $1.12 billion, which was an increase of 8.8% compared to 1995. The company's effective tax rate was 38.0%, 38.4% and 38.9% in 1998, 1997 and 1996, respectively. The declines in 1998 and 1997 are principally due to lower state and foreign taxes and lower nondeductible costs. The effective rate in 1996 declined from a normalized 1995 rate of 39.1% due to lower state taxes and lower nondeductible costs. DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS Diluted earnings per share from continuing operations were $2.53 for 1998, an increase of 7.2% vs. 1997. Diluted earnings per share for 1997 were $2.36, an increase of $.15, or 6.8%, compared to $2.21 in 1996. Diluted earnings per share for 1996 increased $.22, or 11.1%, compared to 1995. Diluted earnings per share benefit from the company's ongoing share repurchase program. See Note 8 for additional information regarding share repurchases. [DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS GRAPH] EMPLOYEE-RELATED COSTS Employee-related costs totaled $1.84 billion in 1998, an increase of $46 million, or 2.6%, vs. 1997 costs of $1.79 billion. Employee-related costs during 1997 increased $10 million, or 0.5%, vs. 1996 costs of $1.78 billion. These costs increased $46 million, or 2.6%, in 1996 compared to 1995. The changes in employee-related costs reflect normal increases in salaries, wages and benefit levels, partially offset by lower combined pension and retiree medical expenses. Salaries and wages paid comprise the majority of employee-related costs and totaled $1.52 billion in 1998, an increase of $40 million, or 2.7% vs. 1997. Salaries and wages totaled $1.48 billion in 1997, an increase of $31 million, or 2.1%, compared to $1.45 billion paid in 1996. The 1996 amount represents an increase of 5.0% vs. 1995. The remainder of employee-related costs consists of pension, life insurance, and health care benefits and payroll taxes. Full-time employees numbered 24,344, 24,326 and 25,123 at December 31, 1998, 1997 and 1996, respectively. [TOTAL EMPLOYEE-RELATED COSTS GRAPH] TAXES The company is significantly impacted by federal, state and local taxes, including beer excise taxes. Taxes applicable to 1998 operations (not including the many indirect taxes included in materials and services purchased) totaled $2.89 billion, an increase of $216 million, or 8.1%, vs. 1997 total taxes of $2.67 billion, and highlight the burden of taxation on the company and the brewing industry in general. Taxes in 1997 decreased 0.3% compared to 1996 total taxes of $2.68 billion, which increased $241 million, or 9.9%, compared to 1995. Total taxes include the impact of all nonrecurring events and transactions. The increase in taxes in 1998 is due to higher excise taxes on increased beer volume and the full consolidation of Stag operations. The decrease in 1997 compared to 1996 is primarily attributable to reduced income taxes due to lower pretax income and a lower effective tax rate. The increase for 1996 compared to 1995 is primarily due to higher beer excise taxes from increased beer volume and higher income taxes on higher pretax earnings. ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 41 10 > MANAGEMENT'S DISCUSSION & ANALYSIS OF OPERATIONS & FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES The company's primary sources of liquidity are cash provided from operations and financing acti-vities. Information on the company's consolidated cash flows (categorized by operating activities, financing activities and investing activities) for the years 1998, 1997 and 1996 is presented in the statement of cash flows and Note 12. OPERATING CASH FLOW Anheuser-Busch's strong financial profile allows it to pursue growth while providing substantial direct returns to shareholders. Accordingly, the company has established well-defined priorities for its operating cash flow: * Reinvesting in core businesses to achieve profitable growth. To enhance shareholder value, the company will continue to make investments in its existing operations and make selected investments in international brewers. * Making substantial cash payments directly to shareholders. The company's objective is to return cash to shareholders through consistent dividend growth and the repurchase of approximately 3% to 4% of outstanding common shares each year. The company has paid cash dividends each of the last 65 years. Net working capital at December 31, 1998 was $(89.9) million compared to working capital of $83.2 million at December 31, 1997 and $34.9 million at December 31, 1996. Cash and marketable securities were $224.8 million at December 31, 1998, $147.3 million at December 31, 1997 and $93.6 million at December 31, 1996. Changes in cash and marketable securities for 1998 and 1997 were primarily due to cash generated from operations and debt issuance, partially offset by cash used for capital expenditures, share repurchases, dividends and business investments. Cash flow for 1996 is attributable to these same factors plus one-time proceeds from the sale of the assets of Eagle Snacks, Inc., the sale of the Cardinals and a spin-off-related dividend from Earthgrains. [CASH FLOW FROM CONTINUING OPERATIONS GRAPH] CAPITAL EXPENDITURES During the next five years, the company will continue capital expenditure programs designed to take advantage of growth and productivity improvement opportunities for its beer, packaging and entertainment operations. Due to approaching completion of the company's long-term brewery modernization program, domestic beer capital expenditures for the next few years are expected to be below the levels experienced during the modernization effort. The company has a formal and intensive review procedure for the authorization of capital expenditures. The most important measure of acceptability of a capital project is its projected discounted cash flow return on investment (DCFROI). Cash flow from operating activities is projected to exceed the funding requirements for anticipated capital expenditures. However, the combination of the company's capital spending, dividends and share repurchases, plus possible additional investments in international brewers, may require external financing from time to time. The nature, extent and timing of external financing will vary depending upon the company's evaluation of existing market conditions and other economic factors. Total capital expenditures in 1998 amounted to $817.5 million, a decrease of $382 million, or 31.8%, compared to 1997 capital spending of $1.2 billion. Capital expenditures over the past five years totaled $4.7 billion. The company expects its capital expenditures in 1999 to approximate $900 million. Capital expenditures during the five-year period 1999 - 2003 are expected to approximate $4.5 billion. [CAPITAL EXPENDITURES/DEPRECIATION & AMORTIZATION GRAPH] 42 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 11 SHARE REPURCHASE See Note 8 for a discussion of share repurchase activity. DIVIDENDS Cash dividends paid to common shareholders were $521.0 million in 1998 and $492.6 million in 1997. Dividends on common stock are paid in the months of March, June, September and December of each year. In the third quarter 1998, effective with the September dividend, the Board of Directors increased the quarterly dividend rate by 7.7%, from $.26 to $.28 per share. This increased annual dividends per common share 8.0%, to $1.08 in 1998, compared with $1.00 per common share in 1997. In 1997, dividends were $.24 per share for the first two quarters and $.26 per share for the last two quarters. FINANCING ACTIVITIES The company utilizes Securities and Exchange Commission "shelf" registration statements to provide flexibility and efficiency when obtaining long-term financing. At December 31, 1998, a total of $240 million of debt was available for issuance under an existing registration. The company filed a new $750 million shelf registration with the SEC and also issued $150 million in long-term notes in early 1999, bringing total registered debt available for issuance to $840 million. Long-term debt increased a net $353.0 million in 1998, compared to an increase of $1.09 billion in 1997. The change in debt during these years is detailed below, by key component. DEBT ISSUANCE -- $451.5 million in 1998 compared to $1.27 billion in 1997, as follows:
YEAR DESCRIPTION AMOUNT (MILLIONS) INTEREST RATE - ----------------------------------------------------------------------------------------------- 1998 Long-term notes $300.0 $100.0 MILLION EACH AT 5.125%, 5.375% AND 5.65%, FIXED Debentures $100.0 6.5%, FIXED Commercial paper $23.3 5.5%, WEIGHTED AVERAGE Industrial revenue bonds $13.8 VARIOUS FIXED RATES Miscellaneous $14.4 VARIOUS FIXED RATES - ----------------------------------------------------------------------------------------------- 1997 Long-term notes $500.0 $250.0 million each at 7.1% and 7.125%, fixed Debentures $100.0 6.75%, fixed Dual-currency notes $162.8 Quarterly, floating Commercial paper $436.4 5.5%, weighted average Industrial revenue bonds $41.0 Various fixed rates Miscellaneous $29.4 Various fixed rates - -----------------------------------------------------------------------------------------------
DEBT REDUCTION -- $98.5 million in 1998 versus $174.9 million in 1997, as follows:
YEAR DESCRIPTION AMOUNT (MILLIONS) INTEREST RATE - ----------------------------------------------------------------------------------------------- 1998 Debentures $45.0 $22.5 MILLION EACH AT 8.5% AND 8.625%, FIXED Medium-term notes $15.0 6.3%, WEIGHTED AVERAGE ESOP debt guarantee $34.9 8.3%, FIXED Miscellaneous $3.6 VARIOUS FIXED RATES - ----------------------------------------------------------------------------------------------- 1997 Debentures $83.3 8.625%, fixed Medium-term notes $32.5 7.4%, weighted average ESOP debt guarantee $33.3 8.3%, fixed Miscellaneous $25.8 Various fixed rates - -----------------------------------------------------------------------------------------------
[INCOME FROM CONTINUING OPERATIONS/DIVIDENDS ON COMMON STOCK GRAPH] ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 43 12 > MANAGEMENT'S DISCUSSION & ANALYSIS OF OPERATIONS & FINANCIAL CONDITION In addition to its long-term debt financing, the company has access to the short-term capital market through the utilization of commercial paper and its $1 billion revolving bank credit agreement that expires August 2001. The credit agreement provides the company with an immediate and continuing source of liquidity. No borrowings have been made under the credit agreement since its inception. Fee information on the credit agreement can be found in Note 4. The company's ratio of total debt to total capitalization was 52.8% and 51.9% at December 31, 1998 and 1997, respectively. The company's fixed charge coverage ratio was 6.8x, 7.3x and 7.9x for the years ended December 31, 1998, 1997 and 1996, respectively. [SHAREHOLDERS EQUITY/LONG-TERM DEBT GRAPH] COMMON STOCK At December 31, 1998, common stock shareholders of record numbered 62,110 compared with 64,815 at the end of 1997. See Note 8 for a summary of common stock activity. PRICE RANGE OF COMMON STOCK The company's common stock is listed on the New York Stock Exchange under the symbol "BUD." The following table summarizes 1998 quarterly high and low closing prices for BUD.
PRICE RANGE OF ANHEUSER-BUSCH COMMON STOCK (BUD) - ----------------------------------------------------------------- 1998 1997 -------------------------------------------------- QUARTER HIGH LOW HIGH LOW -------------------------------------------------- First 47 1/2 43 7/16 44 7/8 40 5/8 Second 49 1/4 45 7/16 44 1/4 41 Third 57 3/8 46 3/4 47 7/8 41 13/16 Fourth 68 1/4 52 1/2 45 39 1/2 - -----------------------------------------------------------------
The closing price of the company's common stock at December 31, 1998 and 1997 was $65 5-8 and $44, respectively. The book value of each common share of stock at December 31, 1998 was $8.84, compared to $8.30 at December 31, 1997. SYSTEMS-RELATED YEAR 2000 COSTS Anheuser-Busch has identified its significant systems, facilities and equipment issues related to Year 2000 date recognition for key accounting and operating systems. The company is working to resolve the Year 2000 matter through either the replacement of existing systems with new Year 2000 ready systems or by reprogramming existing systems. Completion of the majority of reprogramming, hardware replacement and appropriate testing is expected prior to June 30, 1999. All costs related to the assessment, reprogramming and testing of existing systems for the Year 2000 effort are expensed as incurred. Costs associated with replacement of hardware that is not Year 2000 ready will be capitalized in accordance with the company's existing fixed asset accounting policies. The company incurred Year 2000-related reprogramming costs of $15.5 million in 1998, compared to costs of $6.6 million for 1997 and nominal costs in 1996. The company estimates incurring approximately $21 million in additional costs to complete the Year 2000 reprogramming effort. Hardware replacement costs are not expected to be significant. Although the company expects to be Year 2000 ready when necessary, failure of the company or significant key suppliers or customers to be fully Year 2000 ready could potentially have a material adverse impact on the results of the company's operations. However, due to the many factors involved, including factors impacting third parties which the company cannot readily ascertain, Anheuser-Busch is currently unable to estimate the potential impact. The company is currently assessing important third party Year 2000 preparedness and is working with its key suppliers and customers to ensure Year 2000 issues are adequately addressed to the extent possible. In that regard, the company is developing a methodology to monitor those third party remediation efforts. 44 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 13 The company considers the likelihood of Year 2000 nonreadiness by Anheuser-Busch to be remote, but is currently unable to determine the likelihood of Year 2000 nonreadiness by key suppliers or customers. Contingency plans are being developed to ensure critical operations continue uninterrupted in the event either Anheuser-Busch or key suppliers orcustomers fails to resolve their respective Year 2000 issues in a timely manner. Such plans will be in place prior to December 31, 1999. RISK MANAGEMENT In the ordinary course of business, Anheuser-Busch is exposed to foreign currency exchange, interest rate and commodity price risks. These exposures primarily relate to the sale of product to foreign customers, purchases from foreign suppliers, acquisition of raw materials from both domestic and foreign suppliers, and changes in interest rates. The company utilizes derivative financial instruments, including forward exchange contracts, futures contracts, swaps and options to manage certain of these exposures that it considers practical to do so. Anheuser-Busch has well-established policies and procedures governing the use of derivatives. The company hedges only firm commitments or anticipated transactions in the normal course of business and corporate policy prohibits the use of derivatives for speculation, including the sale of free-standing instruments. The company neither holds nor issues financial instruments for trading purposes. Specific hedging strategies depend on several factors, including the magnitude and volatility of the exposure, offset through contract terms, cost and availability of appropriate instruments, the anticipated time horizon, basis, opportunity cost and the nature of the item being hedged. The company's overall risk management goal is to strike a balance between managing its exposure to market volatility and obtaining the most favorable transaction costs possible within the constraints of its financial objectives. Exposures the company currently is unable to hedge, or has elected not to hedge, primarily relate to its floating rate debt, net investments in foreign-currency-denominated operations and translated earnings of foreign subsidiaries. Derivatives are either exchange-traded instruments which are highly liquid, or over-the-counter instruments transacted with highly rated financial institutions. No credit loss is anticipated as the counterparties to over-the-counter instruments have long-term debt ratings from Standard and Poor's or Moody's no lower than A+ or A1, respectively, or the counterparty position is secured by a letter of credit from a bank having such a rating. The fair value of derivative financial instruments is monitored based on the estimated amounts the company would receive or have to pay when terminating the contracts. The company also monitors the effectiveness of its hedging structures on an ongoing basis. Following is a volatility analysis of the company's derivatives portfolio that indicates potential changes in the fair value of the company's derivative holdings under certain market movements. The company applies sensitivity analysis for commodity price exposures and value-at-risk (VAR) analysis for foreign currency and interest rate exposures.
ESTIMATED FAIR VALUE VOLATILITY AT DECEMBER 31, 1998 (IN MILLIONS) - ------------------------------------------------------------------------------- Foreign Currency Risk (VAR): Forwards, Options $(0.8) Interest Rate Risk (VAR): Swaps $(2.0) Commodity Price Risk (Sensitivity): Futures, Swaps, Options $(6.8) - -------------------------------------------------------------------------------
ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 45 14 > MANAGEMENT'S DISCUSSION & ANALYSIS OF OPERATIONS & FINANCIAL CONDITION VAR forecasts fair value changes using a statistical model (Monte Carlo simulation method for currencies and covariance method for interest rates) which incorporates historical correlations among various currencies and interest rates. The VAR model assumes the company could liquidate its currency and interest rate positions in a single day (one-day holding period). The volatility figures provided represent the maximum one-day loss each portfolio could experience for 19 out of every 20 trading days (95% confidence level), based on history. The sensitivity analysis for commodities reflects the impact of a hypothetical 10% adverse change in the market price for the company's principal commodities. The volatility of foreign currencies, interest rates and commodity prices are dependent on many factors that cannot be forecast with reliable accuracy. Therefore, changes in fair value over time could differ substantially from the illustration. The preceding volatility analysis ignores changes in the exposures inherent in the underlying hedged transactions. Because the company does not hold or trade derivatives for speculation or profit, all changes in derivative values are effectively offset by corresponding changes in pricing of an underlying exposure. See Note 3 for additional information. INTRODUCTION OF THE EURO The initial phase of the three-year phase-in of the new common currency of the European Economic and Monetary Union, the "euro," began on January 1, 1999. The company has made appropriate arrangements with key financial institutions to ensure smooth handling of euro receipts and disbursements. The company's financial systems can accommodate the initial euro introduction but additional updates and adaptation of computer systems will be necessary prior to the end of the euro transition period in 2001. Computer equipment and programming costs are not expected to be material and will be complete before the end of transition. The company's existing European contracts and currency hedges remain in force under the original terms. Prospectively, the company will denominate agreements and hedges in euros as necessary. The company cannot readily predict what impact, if any, single currency pricing will have on its European operations. SIGNIFICANT NON-U.S. EQUITY INVESTMENTS GRUPO MODELO In September 1998, the company completed the purchase of an additional 13.25% of Diblo, S.A. de C.V., the operating subsidiary of Grupo Modelo, S.A. de C.V., Mexico's largest brewer and leading exporter of beer. The purchase price was $556.5 million, bringing Anheuser-Busch's total investment in Modelo to $1.6 billion. The additional investment increased Anheuser-Busch's total direct and indirect holdings in Diblo to 50.2%. The increase in ownership does not give Anheuser-Busch voting control of either Grupo Modelo or Diblo and, accordingly, the company continues to account for its Modelo investment on the equity basis. The economic benefit of the company's Modelo investment can be measured in two ways--Anheuser-Busch's pro rata share in the earnings of Modelo (equity income) and the excess of the fair value of the investment over its carrying value. The excess of fair value over carrying value, based on Grupo Modelo's closing stock price at December 31, 1998, was $2.8 billion. Although this amount is appropriately not reflected in the company's income statement or balance sheet, it represents an economic benefit to Anheuser-Busch. Due to the structure and composition of Anheuser-Busch's initial investment, the company was not required to adjust its Grupo Modelo investment to fair market value while on the cost basis of accounting from 1993 to 1996. Additionally, the initial investment was configured such that the company's return was largely protected against a decline in the value of the Mexican peso. 46 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 15 The company adopted the equity method of accounting when ownership was increased to 37% in May 1997, which gave Anheuser-Busch additional minority rights and increased representation on the Grupo Modelo Board of Directors. At that time, the company adjusted the carrying value of its Modelo investment by $189.4 million to reflect the impact of cumulative peso depreciation from 1993 to 1996, the period for which the investment was accounted for under the cost method of accounting. The offset to this translation adjustment was the "foreign currency translation adjustment" account in shareholders equity. Throughout 1997 and 1998, Mexico was considered hyperinflationary for accounting purposes and the company effectively recognized the relative impact of Mexican peso depreciation on its investment in earnings during those periods. As of January 1, 1999, the Mexican economy ceased to be hyperinflationary for accounting purposes and translation adjustments will be reflected in equity rather than earnings. The change to nonhyperinflation accounting is expected to be favorable to Anheuser-Busch compared to hyperinflation accounting, due to the strong net monetary asset position of Modelo. ANTARCTICA In April 1996, the company purchased a 5% equity stake in a subsidiary of Companhia Antarctica Paulista (Antarctica), one of Brazil's leading brewers. The subsidiary, ANEP, controls 75% of Anarctica's operations. The investment agreement provided the company with options allowing it to increase its investment to approximately 30% of ANEP beginning April 22, 1996 and generally expiring on April 21, 2002. In December 1997, the Brazilian trade commission (CADE), ruled Anheuser-Busch's partnership with Antarctica was a restraint of trade and called for the company to divest its investment in ANEP, subject to review. The company and Antarctica appealed the ruling and on April 8, 1998, announced the successful conclusion of an agreement with CADE that approved the continuation of the two brewers' partnership in Brazil. CORPORATE MATTERS JUSTICE DEPARTMENT INQUIRY In October 1997, the company received notification from the U.S. Justice Department that the Department had begun a civil investigation into the distribution and sale of beer, including Anheuser-Busch's policies and practices in marketing and distribution. In September 1998, the Justice Department informed the company that it had discontinued its investigation. LABOR NEGOTIATIONS Talks with the Teamsters union regarding a new labor agreement covering U.S. brewery employees represented by the union are at impasse and as a result, the company began implementing its final contract offer September 21, 1998. The company's final offer includes an 11.5% pay increase over five years and enhanced pension benefits. Also included in the offer are provisions to support productivity improvement, promote workplace flexibility, reduce absenteeism, improve the grievance procedure and institute a more effective drug-testing program. The most recent contract vote, the second by Teamsters-represented employees, occurred in July 1998 with results showing that 46% of those voting favored ratification. On September 18, 1998, the National Labor Relations Board (NLRB) notified the company that charges brought by the Teamsters against the company relating to national bargaining issues had been dismissed, validating Anheuser-Busch's position that the company bargained in good faith throughout the negotiations. Charges brought by the union challenging the implementation of the company's final offer were also found by the NLRB to have no merit and were dismissed in February 1999. ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 47 16 > MANAGEMENT'S DISCUSSION & ANALYSIS OF OPERATIONS & FINANCIAL CONDITION On October 22, 1998, members of St. Louis Teamsters Local 367, representing about 68 Firemen and Oilers, walked off the job at the St. Louis brewery. Other local St. Louis unions representing approximately 1,700 employees at the brewery honored the picket lines. On October 23, 1998, Local 367 offered to end the strike, with no change in the implemented offer. Striking employees and other employees reported back to work the week of October 26. The St. Louis brewery was operated by salaried and other employees during the strike. There was no disruption in the production or distribution of the company's products. Operations at the company's other 11 breweries were unaffected. The company anticipates eventually reaching an agreement with the union but remains fully prepared to operate in the event of additional work stoppages. 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. The company is strongly committed to environmental protection. Its Environmental Management System provides specific guidance for how the environment must be factored into business decisions and mandates special consideration of environmental issues in conjunction with other business issues when any of the company's facilities or business units plans capital projects or changes in processes. 48 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 17 REPORT OF INDEPENDENT ACCOUNTANTS The management of Anheuser-Busch Companies, Inc. is responsible for the financial statements and other information included in this annual report. These statements are prepared in accordance with generally accepted accounting principles. The company maintains accounting and reporting systems, supported by a system of internal accounting control, which management believes are adequate to provide reasonable assurances that assets are safeguarded against loss from unauthorized use or disposition and financial records are reliable for preparing financial statements. During 1998, the company's internal auditors, in conjunction with PricewaterhouseCoopers LLP, the company's independent accountants, performed a comprehensive review of the adequacy of the company's internal accounting control system. Based on that comprehensive review, it is management's opinion that the company has an effective system of internal accounting control. The Audit Committee of the Board of Directors, which consists of eight nonmanagement directors, oversees the company's financial reporting and internal control systems, recommends selection of the company's independent accountants and meets with the independent accountants and internal auditors to review the overall scope and specific plans for their respective audits. The Committee held four meetings during 1998. A more complete description of the functions performed by the Audit Committee can be found in the company's proxy statement. The report of PricewaterhouseCoopers LLP appears below. - ------------------------------------------------------------------------------ 800 Market Street PRICEWATERHOUSECOOPERS [LOGO] St. Louis, MO 63101 February 2, 1999 To the Shareholders and Board of Directors of Anheuser-Busch Companies, Inc. We have audited the accompanying Consolidated Balance Sheet of Anheuser-Busch Companies, Inc. and its subsidiaries as of December 31, 1998 and 1997, and the related Consolidated Statements of Income, Changes in Shareholders Equity and Cash Flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the Consolidated Financial Statements audited by us present fairly, in all material respects, the financial position of Anheuser-Busch Companies, Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. As discussed in Note 2 and Note 13 to the Consolidated Financial Statements, in 1997 the company adopted the equity method of accounting for its investments in Grupo Modelo, S.A. de C.V. and its operating subsidiary, Diblo, S.A. de C.V. and changed its method of accounting for business process reengineering costs incurred in connection with information technology transformation projects, respectively. /s/ PRICEWATERHOUSECOOPERS LLP ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 49 18 CONSOLIDATED BALANCE SHEET Anheuser-Busch Companies and Subsidiaries (In millions)
- ----------------------------------------------------------------------------------------------------------- Year Ended December 31, 1998 1997 - ----------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and marketable securities $ 224.8 $ 147.3 Accounts and notes receivable, less allowance for doubtful accounts of $5.5 in 1998 and $4.9 in 1997 610.1 713.4 Inventories: Raw materials and supplies 362.9 328.7 Work in process 90.7 87.8 Finished goods 169.8 133.7 Total inventories 623.4 550.2 Other current assets 182.1 173.0 ------------------------------------- Total current assets 1,640.4 1,583.9 Investments in affiliated companies 1,880.6 1,296.8 Other assets 1,114.3 1,095.8 Plant and equipment, net 7,849.0 7,750.6 ------------------------------------- TOTAL ASSETS $12,484.3 $11,727.1 ===================================== LIABILITIES AND SHAREHOLDERS EQUITY Current Liabilities: Accounts payable $ 905.7 $ 791.8 Accrued salaries, wages and benefits 256.3 224.3 Accrued taxes 193.6 183.9 Other current liabilities 374.7 300.7 ------------------------------------- Total current liabilities 1,730.3 1,500.7 ------------------------------------- Postretirement benefits 515.8 525.4 ------------------------------------- Long-term debt 4,718.6 4,365.6 ------------------------------------- Deferred income taxes 1,303.6 1,293.6 ------------------------------------- Common Stock and Other Shareholders Equity: Common stock, $1.00 par value, authorized 800,000,000 shares 712.7 709.3 Capital in excess of par value 1,117.5 1,017.0 Retained earnings 8,320.7 7,604.9 Accumulated other comprehensive income: Foreign currency translation adjustment (205.6) (214.0) ------------------------------------- 9,945.3 9,117.2 Treasury stock, at cost (5,482.1) (4,793.3) ESOP debt guarantee (247.2) (282.1) ------------------------------------- 4,216.0 4,041.8 ------------------------------------- Commitments and contingencies -- -- ------------------------------------- TOTAL LIABILITIES AND EQUITY $12,484.3 $11,727.1 =====================================
The Notes to Consolidated Financial Statements appearing on pages 54-73 of this report are an integral component of the company's financial statements and should be read in conjunction with the statements. 50 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 19 CONSOLIDATED STATEMENT OF INCOME Anheuser-Busch Companies and Subsidiaries (In millions, except per share)
- ---------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- Sales $13,207.9 $12,832.4 $12,621.5 Less excise taxes (1,962.1) (1,766.2) (1,737.8) ------------------------------------------------------- Net sales 11,245.8 11,066.2 10,883.7 Cost of products and services (7,162.5) (7,096.9) (6,964.6) ------------------------------------------------------- Gross profit 4,083.3 3,969.3 3,919.1 Marketing, distribution and administrative expenses (1,958.0) (1,916.3) (1,890.0) Gain on sale of St. Louis Cardinals -- -- 54.7 ------------------------------------------------------- Operating income 2,125.3 2,053.0 2,083.8 Interest expense (291.5) (261.2) (232.8) Interest capitalized 26.0 42.1 35.5 Interest income 5.8 7.9 9.4 Other expense, net (13.0) (9.3) (3.0) ------------------------------------------------------- Income before income taxes 1,852.6 1,832.5 1,892.9 ------------------------------------------------------- Provision for income taxes: Current (669.8) (612.2) (643.0) Deferred (34.5) (91.4) (93.8) ------------------------------------------------------- (704.3) (703.6) (736.8) Equity income, net of tax 85.0 50.3 -- ------------------------------------------------------- Income from continuing operations 1,233.3 1,179.2 1,156.1 Income from discontinued operations -- -- 33.8 ------------------------------------------------------- Income before cumulative effect of accounting change 1,233.3 1,179.2 1,189.9 Cumulative effect of accounting change, net of tax of $6.2 -- (10.0) -- ------------------------------------------------------- Net income $ 1,233.3 $ 1,169.2 $ 1,189.9 ======================================================= Basic earnings per share: Continuing operations $ 2.56 $ 2.39 $ 2.31 Discontinued operations -- -- .07 ------------------------------------------------------- Income before cumulative effect of accounting change 2.56 2.39 2.38 Cumulative effect of accounting change -- (.02) -- ------------------------------------------------------- Net income $ 2.56 $ 2.37 $ 2.38 ======================================================= Diluted earnings per share: Continuing operations $ 2.53 $ 2.36 $ 2.27 Discontinued operations -- -- .07 ------------------------------------------------------- Income before cumulative effect of accounting change 2.53 2.36 2.34 Cumulative effect of accounting change -- (.02) -- ------------------------------------------------------- Net income $ 2.53 $ 2.34 $ 2.34 =======================================================
The Notes to Consolidated Financial Statements appearing on pages 54-73 of this report are an integral component of the company's financial statements and should be read in conjunction with the statements. ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 51 20 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY Anheuser-Busch Companies and Subsidiaries (In millions, except per share)
- ----------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------- COMMON STOCK Balance, beginning of period $ 709.3 $ 705.8 $ 347.3 Shares issued under stock plans 3.4 3.5 2.6 Conversion of convertible debentures -- -- 6.4 Two-for-one stock split -- -- 349.5 ------------------------------------------------------- Balance, end of period $ 712.7 $ 709.3 $ 705.8 ======================================================= CAPITAL IN EXCESS OF PAR VALUE Balance, beginning of period $ 1,017.0 $ 929.2 $ 1,012.2 Shares issued under stock plans 100.5 87.8 106.9 Conversion of convertible debentures -- -- 159.6 Two-for-one stock split -- -- (349.5) ------------------------------------------------------- Balance, end of period $ 1,117.5 $ 1,017.0 $ 929.2 ======================================================= RETAINED EARNINGS Balance, beginning of period $ 7,604.9 $ 6,924.5 $ 6,869.6 Income from continuing operations 1,233.3 1,169.2 1,189.9 Common dividends paid (per share: 1998 - $1.08; 1997 - $1.00; 1996 - $.92) (521.0) (492.6) (458.9) Shares issued under stock plans 3.5 3.8 3.9 Spin-off of the Earthgrains Company -- -- (680.0) ------------------------------------------------------- Balance, end of period $ 8,320.7 $ 7,604.9 $ 6,924.5 ======================================================= TREASURY STOCK Balance, beginning of period $(4,793.3) $(4,206.2) $(3,436.0) Treasury stock acquired (688.8) (587.1) (770.2) ------------------------------------------------------- Balance, end of period $(5,482.1) $(4,793.3) $(4,206.2) ======================================================= ESOP DEBT GUARANTEE Balance, beginning of period $ (282.1) $ (315.4) $ (347.1) Annual debt service 34.9 33.3 31.7 ------------------------------------------------------- Balance, end of period $ (247.2) $ (282.1) $ (315.4) ======================================================= ACCUMULATED OTHER COMPREHENSIVE INCOME Balance, beginning of period $ (214.0) $ (8.8) $ (12.1) Foreign currency translation adjustment 8.4 (205.2) 3.3 ------------------------------------------------------- Balance, end of period $ (205.6) $ (214.0) $ (8.8) ======================================================= TOTAL SHAREHOLDERS EQUITY $ 4,216.0 $ 4,041.8 $ 4,029.1 ======================================================= COMPREHENSIVE INCOME Net income $ 1,233.3 $ 1,169.2 $ 1,189.9 Foreign currency translation adjustment 8.4 (205.2) 3.3 ------------------------------------------------------- TOTAL COMPREHENSIVE INCOME $ 1,241.7 $ 964.0 $ 1,193.2 =======================================================
The Notes to Consolidated Financial Statements appearing on pages 54-73 of this report are an integral component of the company's financial statements and should be read in conjunction with the statements. 52 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 21 CONSOLIDATED STATEMENT OF CASH FLOWS Anheuser-Busch Companies and Subsidiaries (In millions)
- ------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 1,233.3 $ 1,169.2 $ 1,189.9 Income from discontinued operations -- -- (33.8) Cumulative effect of accounting change -- 10.0 -- ------------------------------------------------------- Income from continuing operations 1,233.3 1,179.2 1,156.1 Adjustments to reconcile income from continuing operations to cash provided by operating activities: Depreciation and amortization 738.4 683.7 611.5 Deferred income taxes 34.5 91.4 93.8 Undistributed earnings of affiliated companies (53.7) (49.9) -- After-tax gain on sale of St. Louis Cardinals -- -- (33.4) Decrease in noncash working capital 250.6 5.4 233.7 Other, net (27.1) (93.2) (92.8) ------------------------------------------------------- Cash provided by operating activities 2,176.0 1,816.6 1,968.9 Net cash provided by discontinued operations -- -- 52.0 ------------------------------------------------------- Total cash provided by operating activities 2,176.0 1,816.6 2,020.9 ------------------------------------------------------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures (817.5) (1,199.3) (1,084.6) New business acquisitions (566.5) (683.3) (135.7) Proceeds from sale of St. Louis Cardinals -- -- 116.6 Cash used for investing activities (1,384.0) (1,882.6) (1,103.7) ------------------------------------------------------- CASH FLOW FROM FINANCING ACTIVITIES: Increase in long-term debt 451.5 1,245.9 773.6 Decrease in long-term debt (63.6) (141.6) (575.1) Dividends paid to shareholders (521.0) (492.6) (458.9) Acquisition of treasury stock (688.8) (587.1) (770.2) Shares issued under stock plans 107.4 95.1 113.4 ------------------------------------------------------- Cash provided by/(used for) financing activities (714.5) 119.7 (917.2) ------------------------------------------------------- Net increase in cash and marketable securities during the year 77.5 53.7 -- Cash and marketable securities, beginning of year 147.3 93.6 93.6 ------------------------------------------------------- Cash and marketable securities, end of year $ 224.8 $ 147.3 $ 93.6 =======================================================
The Notes to Consolidated Financial Statements appearing on pages 54-73 of this report are an integral component of the company's financial statements and should be read in conjunction with the statements. ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 53 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES This summary of the significant accounting principles and policies of Anheuser-Busch Companies, Inc. and its subsidiaries is presented to assist in evaluating the company's Consolidated Financial Statements included in this annual report. These principles and policies conform to generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions which impact the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates and assumptions. PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements include the company and all its subsidiaries. The company generally consolidates all majority-owned and controlled subsidiaries, accounts for equity investments below the 20% level under the cost method, and applies the equity method of accounting for equity investments between 20% and 50%. All significant intercompany transactions have been eliminated. Minority interests in consolidated subsidiaries are not material. See Note 2 for additional discussion. FOREIGN CURRENCY TRANSLATION Financial statements of foreign operations where the local currency is the functional currency are translated using period-end exchange rates for assets and liabilities, and weighted average exchange rates during the period for the results of operations. Translation adjustments are reported as a separate component of other comprehensive income within shareholders equity. Translation practice differs for foreign operations in hyperinflationary economies. See Note 2 for additional discussion. Exchange rate adjustments related to foreign currency transactions are recognized in income as incurred. CASH AND MARKETABLE SECURITIES Cash and marketable securities include cash on hand, demand deposits and short-term investments with initial maturities generally of 90 days or less. EXCESS OF COST OVER NET ASSETS OF ACQUIRED BUSINESSES (GOODWILL) The excess of the cost over the net assets of acquired businesses, which is included in other assets on the balance sheet, is amortized on a straight-line basis over a period of 40 years. Accumulated amortization at December 31, 1998 and 1997 was $116.3 million and $106.6 million, respectively. The ongoing recoverability of goodwill is monitored based on appropriate operating unit performance and consideration of significant events or changes in the overall business environment. INVENTORIES AND PRODUCTION COSTS Inventories are valued at the lower of cost or market. Cost is determined under the last-in, first-out method (LIFO) for approximately 73% and 75%, respectively, of total inventories at December 31, 1998 and 1997. Had the average-cost method (which approximates replacement cost) been used with respect to such inventories at December 31, 1998 and 1997, total inventories would have been $100.3 million and $117.5 million higher, respectively. PLANT AND EQUIPMENT Plant and equipment is carried at cost and includes expenditures for new facilities and expenditures which substantially increase the useful lives of existing facilities. The cost of maintenance, repairs and minor renewals is expensed as incurred. When plant and equipment is retired or otherwise disposed, the related cost and accumulated depreciation are eliminated and any gain or loss on disposition is recognized in earnings. Depreciation is provided on the straight-line method over the estimated useful lives of the assets, resulting in annual depreciation rates on buildings ranging from 2% to 10% and on machinery and equipment ranging from 4% to 25%. 54 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 23 INCOME TAXES The provision for income taxes is based on income and expense amounts as reported in the Consolidated Statement of Income. The company utilizes certain provisions of federal and state income tax laws and regulations to reduce current taxes payable. Deferred income taxes are recognized for the effect of temporary differences between financial and tax reporting in accordance with the requirements of FAS No. 109, "Accounting for Income Taxes." DERIVATIVE FINANCIAL INSTRUMENTS All derivative instruments held by the company are designated as hedges, have high correlation with the underlying exposure and are highly effective in offsetting underlying price movements. Accordingly, gains and losses from changes in derivative fair values are deferred. Gains or losses upon settlement of derivative positions when the underlying transaction occurs are recognized in the income statement or recorded as part of the underlying asset or liability, as appropriate depending on the circumstances. Derivative positions are settled if the underlying transaction is no longer expected to occur, with related gains and losses recognized in earnings in the period settlement occurs. Option premiums paid are recorded as assets and amortized over the life of the option. Derivatives generally have initial terms of less than three years, and all currently hedged transactions are expected to occur within the next three years. See Note 3 for additional information regarding the company's derivatives portfolio. RESEARCH AND DEVELOPMENT COSTS, ADVERTISING AND PROMOTIONAL COSTS, AND INITIAL PLANT COSTS Research and development costs, advertising and promotional costs, and initial plant costs are expensed in the year in which these costs are incurred. Advertising and promotional expenses were $642.1 million, $603.6 million and $701.3 million in 1998, 1997 and 1996, respectively. SYSTEMS DEVELOPMENT COSTS The company capitalizes certain systems development costs that meet established criteria. Amounts capitalized are amortized to expense over a five-year period. In 1998, 1997 and 1996, the company capitalized systems development costs of $50.8 million, $32.6 million, and $83.0 million, respectively. Accumulated amortization related to capitalized systems costs was $95.4 million and $59.4 million at December 31, 1998 and 1997, respectively. Effective January 1, 1999, the company adopted AICPA Statement of Position No. 98-1, "Accounting for the Costs of Computer Systems Developed or Obtained for Internal Use" (SOP 98-1). Adoption of SOP 98-1 will require no significant changes to the company's systems development accounting methodology and will not have a material impact on the results of operations. STOCK-BASED COMPENSATION The company accounts for employee stock options in accordance with Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." Under APB 25, the company recognizes no compensation expense related to employee stock options, as no options are granted at a price below the market price on the day of grant. In 1996, FAS No. 123, "Accounting for Stock-Based Compensation," became effective for the company. FAS 123, which prescribes the recognition of compensation expense based on the fair value of options on the grant date, allows companies to continue applying APB 25 if certain pro forma disclosures are made assuming hypothetical fair value method application. See Note 6 for pro forma disclosures required by FAS 123 plus additional information on the company's stock options. START-UP COSTS Effective January 1, 1999, the company adopted AICPA Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5), which requires the costs of start-up activities to be expensed as incurred. Adoption of SOP 98-5 will require no significant changes to the company's current accounting methodology and will not have a material impact on the results of operations. ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 55 24 > Notes to Consolidated Financial Statements 2. INTERNATIONAL INVESTMENTS GRUPO MODELO In 1993, Anheuser-Busch purchased a 17.7% direct and indirect equity interest in Diblo S.A. de C.V. (Diblo), the operating subsidiary of Grupo Modelo S.A. de C.V. (Modelo), Mexico's largest brewer and producer of the Corona brand, for $477 million. In May 1997, the company increased its direct and indirect equity ownership in Diblo to 37% for an additional $605 million. Effective with the increase in equity ownership to 37%, the company received expanded minority rights, increased its representation on Modelo's Board of Directors to 10 of 21 members and adopted the equity method of accounting for the investment. In September 1998, the company completed its purchase of an additional 13.25% equity interest in Diblo for $557 million, and now owns a 50.2% direct and indirect interest in Diblo. Anheuser-Busch does not have voting or other effective control of either Diblo or Modelo and will therefore continue to account for its investment on the equity basis. Equity income recognized in 1997 reflected the company's 17.7% ownership from January through May and its 37% ownership thereafter. The difference between income recognized on the cost basis prior to 1997 and what would have been recognized had the company applied equity accounting in those years is not material. The company recorded a $189.4 million adjustment to the carrying value of the investment for cumulative Mexican peso depreciation between 1993 and 1996 prior to the adoption of equity accounting in 1997. The offset for the adjustment was to "foreign currency translation," a component of shareholders equity. Included in the carrying amount of the Modelo investment is goodwill of $553.6 million and $246.3 million, respectively, at December 31, 1998 and 1997 which is being amortized over 40 years. Accumulated amortization was $15 million and $6.9 million, respectively, at December 31, 1998 and 1997. Dividends received from Grupo Modelo in 1998 totaled $50.3 million, compared to $16.4 million in 1997 and $15.5 million in 1996. For foreign operations in countries whose economies are considered highly inflationary, the U.S. dollar is deemed the functional currency for financial reporting purposes. Foreign currency translation practice for highly inflationary economies under Financial Accounting Standard No. 52, "Foreign Currency Translation," requires that property, other long-lived assets, long-term liabilities and related profit and loss accounts be translated at historical rates of exchange. Additionally, net monetary asset and liability related translation adjustments are included in earnings in the current period. Effective January 1, 1997, Mexico's economy was deemed highly inflationary for accounting purposes and, accordingly, all monetary translation gains and losses related to the Modelo investment were recognized in equity income during 1997 and 1998. In November 1998, the International Accounting Task Force of the American Institute of Certified Public Accountants, in conjunction with the Securities and Exchange Commission, concluded that the Mexican economy ceased to be highly inflationary for accounting purposes as of January 1, 1999. Summary financial information for Grupo Modelo as of, and for the two years ended December 31, is presented in the following table, (in millions). The amounts presented are implied consolidated Grupo Modelo operating results and financial position after adjustment to account for differences between Mexican and U.S. generally accepted accounting principles, and reflect Anheuser-Busch's appropriate pro rata equity interest during the year. 56 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 25
- ----------------------------------------------------------------------------- 1998 1997 ------------------------------------ Current assets $ 859.8 $ 856.7 Noncurrent assets 3,008.4 2,297.5 Current liabilities 200.6 176.0 Noncurrent liabilities 172.0 58.2 Gross sales 1,748.3 1,353.6 Net sales 1,632.0 1,268.2 Gross profit 809.2 594.6 Minority interest 32.8 26.6 Income from continuing operations 180.3 138.0 Net income 180.3 138.0 - -----------------------------------------------------------------------------
OTHER INTERNATIONAL INVESTMENTS In April 1996, the company invested $52.5 million to purchase a 5% equity stake in Antarctica Empreendimentos e Participacoes (ANEP), a subsidiary controlling approximately 75% of the operations of Companhia Antarctica Paulista (Antarctica), one of Brazil's leading brewers. Anheuser-Busch holds options to increase its equity interest in ANEP to approximately 30%. These options essentially expire in April 2002. As a result of holding certain minority rights and having gained representation on the ANEP Board of Directors in late 1996, the company changed its accounting method for the investment in ANEP from the cost to the equity method effective January 1, 1997. The difference between income recognized on the cost basis in 1996 and what would have been recognized had the company applied equity accounting is not material. Anheuser-Busch also owns a 51% interest in a joint venture it operates with Antarctica for the marketing, sales and distribution of Budweiser in Brazil. The joint venture, Budweiser Brasil Ltda., is consolidated. In 1996, Anheuser-Busch purchased a 4.4% interest in the Argentine subsidiary of Compania Cervecerias Unidas S.A. (CCU), CCU-Argentina. The purchase agreement provided the company with options to increase its investment to 20% of CCU-Argentina. In December 1998, the company exercised a portion of its options and purchased an additional 3.8% in CCU-Argentina for $10 million, bringing the company's ownership in CCU-Argentina to 8.2%. The company's remaining options expire in December 2002. The investment is accounted for on the cost basis. CCU-Argentina brews and sells Budweiser in Buenos Aires and other major Argentine markets. In the fourth quarter 1998, the company restructured the sales force and made other organizational changes at its Japanese subsidiary. Total pretax cost of the restructuring was $8.6 million, primarily for wage and severance benefits due to workforce reductions. The company owns an 86.6% interest in a joint venture which owns the Wuhan brewery located in the People's Republic of China. The joint venture brews and distributes Budweiser primarily in the northern, eastern and central regions of China. The joint venture is consolidated. In 1997, the company purchased the remaining 50% of the Stag Brewing Company Ltd. from its partner, Scottish Courage. Budweiser is brewed and packaged at the Stag Brewery primarily for distribution in the United Kingdom. Scottish Courage owns and leases the brewery site to the company. The Stag Brewery operations are consolidated. 3. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS The company currently uses the following derivative financial instruments: purchased options and forward contracts for foreign currency risk; swaps for interest rate risk; and futures, swaps and purchased options for commodity price risk. All derivatives are off-balance-sheet and therefore have no recorded carrying value. Because the company hedges only with instruments that have high correlation with the underlying transaction pricing, changes in derivatives fair values are expected to be offset by changes in pricing. ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 57 26 > Notes to Consolidated Financial Statements The following table summarizes the notional transaction amounts and fair values for outstanding derivatives, by risk category and instrument type, at December 31, (in millions):
- ---------------------------------------------------------------------------------------- 1998 1997 ---------------------------------------------------- NOTIONAL FAIR NOTIONAL FAIR AMOUNT VALUE AMOUNT VALUE ---------------------------------------------------- Foreign Currency: Forwards $ 76.8 $ 1.5 $ 75.7 $ (1.1) Options 323.1 6.5 265.5 15.3 ---------------------------------------------------- 399.9 8.0 341.2 14.2 ---------------------------------------------------- Interest Rate: Swaps 425.2 (53.4) 425.2 (49.8) ---------------------------------------------------- Commodity Price: Swaps 14.1 (.3) 140.5 (2.9) Futures 46.1 (3.6) 22.9 (.4) Options 94.4 (2.8) 5.6 -- ---------------------------------------------------- 154.6 (6.7) 169.0 (3.3) ---------------------------------------------------- Total of outstanding derivatives $979.7 $(52.1) $935.4 $(38.9) ==================================================== - ----------------------------------------------------------------------------------------
The interest rate swap and currency exchange agreements related to the dual-currency notes discussed in Note 4 are included as interest rate swaps in the preceding table. These agreements are integral parts of dual-currency note structures which provide the company with floating-rate financing at below-market rates. The company has "long" exposure to the British pound sterling, Irish punt, Japanese yen, Mexican peso and Canadian dollar. The company's exposures to other currencies are essentially "short," primarily for German mark-denominated purchases of hops. Long exposure indicates the company has foreign currency in excess of its needs while a short exposure indicates the company requires additional foreign currency to meet its needs. For commodity derivatives, as a net user of raw materials, the company's underlying exposure is short, indicating additional quantities must be obtained to meet anticipated production requirements. CONCENTRATION OF CREDIT RISK The company does not have a material concentration of accounts receivable or other credit risk. NONDERIVATIVE FINANCIAL INSTRUMENTS Nonderivative financial instruments included in the balance sheet are cash, commercial paper and long-term debt. The fair value of long-term debt, based on future cash flows discounted at interest rates currently available to the company for debt with similar maturities and characteristics, was $5.0 billion and $4.5 billion at December 31, 1998 and 1997, respectively. NEW DERIVATIVES AND HEDGING ACCOUNTING STANDARD In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). The Standard requires all derivative financial instruments to be reflected on an entity's balance sheet at fair value, with changes in fair value recognized quarterly in either earnings or equity, depending on the nature of the underlying exposure being hedged. FAS 133 is required to be adopted no later than January 1, 2000. Adoption of FAS 133 requires a one-time recognition on the balance sheet of the fair value of the company's derivatives portfolio plus a cumulative effect adjustment to earnings and/or equity. The company uses only derivative instruments that are highly correlated to the underlying exposure and therefore does not anticipate a material earnings impact from the initial adoption of FAS 133. The company plans no substantive changes to its risk management policies or approach as a result of adopting the new Standard. The company has not yet determined when it will adopt FAS 133. 58 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 27 4. LONG-TERM DEBT Long-term debt at December 31, consisted of the following (in millions):
- ----------------------------------------------------------------------------------------------------- 1998 1997 ------------------------------------ Commercial Paper (weighted average interest rate of 5.5% in 1998 and 1997) $ 615.2 $ 591.9 Medium-term Notes Due 1999 to 2001 (interest rates from 5.1% to 8.0%) 47.5 62.5 8.625% Sinking Fund Debentures Maturing 1999 to 2016 -- 22.5 8.5% Sinking Fund Debentures Maturing 1999 to 2017 23.0 45.5 8.75% Notes Due 1999 250.0 250.0 5.1% Japanese yen/Australian dollar Notes Due 1999 262.4 262.4 4.1% Japanese yen/U.S. dollar Notes Due 2001 162.8 162.8 6.9% Notes Due 2002 200.0 200.0 6.75% Notes Due 2003 200.0 200.0 6.75% Notes Due 2005 200.0 200.0 7% Notes Due 2005 100.0 100.0 6.75% Notes Due 2006 250.0 250.0 7.1% Notes Due 2007 250.0 250.0 5.125% Notes Due 2008 100.0 -- 5.375% Notes Due 2008 100.0 -- 5.65% Notes Due 2008 100.0 -- 9% Debentures Due 2009 350.0 350.0 7.25% Debentures Due 2015 150.0 150.0 7.125% Notes Due 2017 250.0 250.0 7.375% Debentures Due 2023 200.0 200.0 7% Debentures Due 2025 200.0 200.0 6.75% Debentures Due 2027 100.0 100.0 6.5% Debentures Due 2028 100.0 -- Industrial Revenue Bonds (interest rates from 5.625% to 7.4%) 212.2 198.4 8.25% ESOP Debt 247.2 282.1 Other Long-term Debt 48.3 37.5 ------------------------------------ $4,718.6 $4,365.6 ==================================== - -----------------------------------------------------------------------------------------------------
In early 1999, the company registered $750 million in long-term debt with the Securities and Exchange Commission and also issued $150 million in long-term debt, bringing its total amount of registered debt available for issuance to $840 million. Gains/losses on debt redemptions (either individually or in the aggregate) are not material for any year presented. In December 1998, the company redeemed all outstanding 8.625% sinking fund debentures due December 1, 2016. The redemption price was 100% of the principal amount plus accrued interest. In December 1996, simultaneous with the issuance of the 5.1% Japanese yen/Australian dollar notes, the company entered into a $262.4 million notional amount interest rate swap and currency exchange agreement. In October 1997, the company entered into a similar swap and exchange agreement for the $162.8 million notional amount of the 4.1% Japanese yen/U.S. dollar notes. Under the agreements, the counterparties fund the semi-annual yen-denominated fixed-rate coupon payments and Anheuser-Busch makes quarterly U.S. dollar-denominated LIBOR-based floating-rate payments to the counterparties. The Australian dollar agreement also requires Anheuser-Busch to pay the counterparty $262.4 million at maturity in exchange for the counterparty funding the Australian dollar redemption liability. The 4.1% dual-currency notes mature in U.S. dollars. ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 59 28 > Notes to Consolidated Financial Statements The impact of the Australian dollar exchange agreement on the company's 5.1% dual-currency notes at December 31, is as follows:
- ----------------------------------------------------------------------------------------------- 1998 1997 ---------------------------- 5.1% Japanese yen/Australian dollar Notes Due 1999 $196.2 $209.1 Effect of U.S. dollar/Australian dollar exchange agreement 66.2 53.3 ---------------------------- $262.4 $262.4 ============================ - -----------------------------------------------------------------------------------------------
Under the terms of the agreements, the U.S. dollar floating-rate interest payments and the dollar-denominated redemptions are the only obligations the company has relating to the dual-currency notes. All currency exchange risk between the U.S. dollar, the Australian dollar and the Japanese yen is borne by the applicable counterparty. Only in the event of counterparty default, the risk of which the company considers remote, would Anheuser-Busch be exposed to currency exchange risk. The company has in place a single committed revolving credit agreement totaling $1 billion, which expires in August 2001. The agreement provides that under certain circumstances the company may select among various loan arrangements with differing maturities and among a variety of interest rates, including a negotiated rate. At December 31, 1998 and 1997, the company had no outstanding borrowings under the agreement. Fees under the agreement were $.6 million, $.6 million and $.7 million in 1998, 1997 and 1996, respectively. At December 31, 1998 and 1997, outstanding commercial paper borrowings are classified as long-term debt because commercial paper is maintained on a long-term basis with ongoing credit support provided by the revolving credit agreement. The company may also choose to refinance some or all of its commercial paper debt with long-term notes or debentures. In 1989, the company issued $241.7 million of 8% debentures maturing in 1996 and convertible into preferred stock at a price of $23.39 each (adjusted for the September 1996 stock split and the Earthgrains spin-off). Each share of preferred stock was convertible into one share of common stock. In September 1996, the company completed the conversion of all outstanding convertible debentures. In 1996, the company issued 7.5 million common shares in conjunction with conversions. No preferred shares are outstanding as a result of any conversions. The aggregate maturities on long-term debt are $586 million, $15 million, $180 million, $200 million and $200 million, respectively, for each of the years ending December 31, 1999 through 2003. These aggregate maturities do not include the future maturities of the ESOP debt or commercial paper. 5. BUSINESS SEGMENTS In 1998, the company adopted FAS 131, "Disclosures about Segments of an Enterprise and Related Information," which expanded the company's previously reported operating segments from Beer/beer-related and Entertainment, to Domestic Beer, International Beer, Packaging, Entertainment and Other. The Domestic Beer segment consists of the company's U.S. beer production, marketing, distribution, raw materials acquisition and malting operations. The International Beer segment consists of the company's export sales and overseas beer production and marketing operations, which include company-owned operations, administration of contract and license brewing arrangements and equity investment oversight. The company sells beer in more than 80 countries, with principal markets in Canada, the United Kingdom, Ireland, Japan, and China. The Packaging segment is comprised of the company's aluminum beverage can manufacturing, aluminum can recycling and label printing operations. Cans are produced for both the company's domestic beer operations and U.S. soft drink industry customers. The Entertainment segment consists of the company's SeaWorld, Busch Gardens and other theme park operations. The Other segment is comprised of the company's real estate development, transportation and communications businesses. 60 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 29 Summarized below is the company's business segment information for 1998, 1997 and 1996 (in millions). Intersegment sales are fully eliminated in consolidation. No single customer accounted for more than 10% of sales. Corporate expenses, including net interest expense, are not allocated to operating segments. Prior years' information has been restated for the adoption of FAS 131. --------- REPORTABLE SEGMENTS ---------
- ------------------------------------------------------------------------------------------------------------------------------ DOMESTIC INT'L CORP. & 1998 BEER BEER PKG. ENTER. OTHER ELIMS CONSOL. - ------------------------------------------------------------------------------------------------------------------------------ INCOME STATEMENT INFORMATION: Gross Sales $10,391.6 809.1 1,842.0 760.8 147.0 (742.6) $13,207.9 Net Sales - External $ 8,569.9 668.7 1,127.4 760.8 119.0 -- $11,245.8 Net Sales - Intersegment $ -- -- 714.6 -- 28.0 (742.6) $ -- Depreciation & Amortization $ 498.9 14.6 102.6 90.3 6.1 25.9 $ 738.4 Income Before Income Taxes $ 2,018.0 10.1 148.2 116.6 9.9 (450.2) $ 1,852.6 Equity Income, Net of Tax $ -- 85.0 -- -- -- -- $ 85.0 Income from Continuing Operations $ 1,251.2 91.3 91.9 72.3 6.1 (279.5) $ 1,233.3 BALANCE SHEET INFORMATION: Total Assets $ 7,078.5 2,340.9 874.1 1,283.1 211.0 696.7 $12,484.3 Equity Method Investments $ -- 1,662.6 -- -- -- -- $ 1,662.6 Foreign-Located Fixed Assets $ -- 202.1 -- -- -- -- $ 202.1 Capital Expenditures $ 514.1 82.9 81.4 97.2 9.9 32.0 $ 817.5 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ DOMESTIC INT'L CORP. & 1997 BEER BEER PKG. ENTER. OTHER ELIMS CONSOL. - ------------------------------------------------------------------------------------------------------------------------------ INCOME STATEMENT INFORMATION: Gross Sales $10,023.9 784.8 1,867.2 756.2 151.7 (751.4) $12,832.4 Net Sales - External $ 8,257.7 784.8 1,150.8 756.2 116.7 -- $11,066.2 Net Sales - Intersegment $ -- -- 716.4 -- 35.0 (751.4) $ -- Depreciation & Amortization $ 459.8 7.7 100.5 83.5 6.3 25.9 $ 683.7 Income Before Income Taxes $ 1,984.8 18.2 115.0 115.3 8.8 (409.6) $ 1,832.5 Equity Income, Net of Tax $ -- 50.3 -- -- -- -- $ 50.3 Income from Continuing Operations $ 1,230.6 61.6 71.3 71.5 5.5 (261.3) $ 1,179.2 BALANCE SHEET INFORMATION: Total Assets $ 7,121.1 1,636.9 863.9 1,291.7 220.1 593.4 $11,727.1 Equity Method Investments $ -- 1,045.6 -- -- -- -- $ 1,045.6 Foreign-Located Fixed Assets $ -- 128.7 -- -- -- -- $ 128.7 Capital Expenditures $ 888.5 36.8 98.1 140.1 15.0 20.8 $ 1,199.3 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ DOMESTIC INT'L CORP. & 1996 BEER BEER PKG. ENTER. OTHER ELIMS CONSOL. - ------------------------------------------------------------------------------------------------------------------------------ INCOME STATEMENT INFORMATION: Gross Sales $ 9,971.3 724.4 1,828.4 681.4 167.9 (751.9) $12,621.5 Net Sales - External $ 8,233.5 724.4 1,122.8 681.4 121.6 -- $10,883.7 Net Sales - Intersegment $ -- -- 705.6 -- 46.3 (751.9) $ -- Depreciation & Amortization $ 407.9 5.5 91.9 75.9 6.1 24.2 $ 611.5 Income Before Income Taxes $ 1,948.8 50.0 118.2 147.4 3.9 (375.4) $ 1,892.9 Income from Continuing Operations $ 1,190.7 30.6 72.2 90.1 2.4 (229.9) $ 1,156.1 BALANCE SHEET INFORMATION: Total Assets $ 6,488.9 1,061.8 871.1 1,283.9 229.9 528.0 $10,463.6 Foreign-Located Fixed Assets $ -- 75.0 -- -- -- -- $ 75.0 Capital Expenditures $ 775.2 35.1 90.3 136.9 16.6 30.5 $ 1,084.6 - ------------------------------------------------------------------------------------------------------------------------------ Corporate assets principally include cash, marketable securities, deferred charges and certain fixed assets. Eliminations impact only gross and intersegment sales. Entertainment segment results for 1996 include the gain on the sale of the St. Louis Cardinals ($54.7 million pretax, $33.4 million after-tax).
ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 61 30 > Notes to Consolidated Financial Statements 6. STOCK OPTION PLANS Under terms of the company's incentive stock option plans, officers and certain other employees may be granted options to purchase the company's common stock at no less than 100% of the market price on the date the option is granted. Options generally vest over three years and have a maximum term of 10 years. At December 31, 1998, 1997 and 1996, a total of 44 million, 27 million and 31 million shares, respectively, were reserved for future issuance under the plans. Certain of the plans also provide for the granting of stock appreciation rights (SARs) in tandem with stock options. The exercise of an SAR cancels the related option and the exercise of an option cancels the related SAR. There were no SARs outstanding under the plans at December 31, 1998 and 1997. Presented below is a summary of stock option plans activity for the years shown:
- ------------------------------------------------------------------------------------------------------------ WTD. AVG. WTD. AVG. OPTIONS EXERCISE PRICE OPTIONS EXERCISABLE EXERCISE PRICE ------- -------------- ------------------- -------------- BALANCE, DECEMBER 31, 1995 25,292,878 $25.36 Granted 4,149,588 40.59 Exercised (4,945,152) 22.37 Cancelled (176,650) 28.22 ----------------- BALANCE, DECEMBER 31, 1996 24,320,664 $28.55 15,230,871 $24.67 Granted 5,558,073 43.37 Exercised (3,971,384) 22.48 Cancelled (185,377) 35.11 ----------------- BALANCE, DECEMBER 31, 1997 25,721,976 $32.64 15,908,186 $27.69 Granted 5,043,905 59.82 Exercised (4,084,369) 24.70 Cancelled (139,691) 40.81 ----------------- BALANCE, DECEMBER 31, 1998 26,541,821 $38.98 16,712,205 $31.79 ========================================================================== - ----------------------------------------------------------------------------------------------------------------
The following table summarizes information for options outstanding and exercisable at December 31, 1998:
- ---------------------------------------------------------------------------------------------------- OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------- ---------------------------- RANGE OF WTD. AVG. WTD. AVG. WTD. AVG. PRICES NUMBER REMAINING LIFE EXERCISE PRICE NUMBER EXERCISE PRICE -------- ------ -------------- -------------- ------ -------------- $15-26 5,246,849 4 yrs $23.36 5,246,849 $23.36 27-37 6,962,821 6 yrs 31.29 6,944,575 31.29 38-48 9,297,246 8 yrs 42.26 4,388,004 41.80 49-60 5,034,905 10 yrs 59.85 132,777 59.93 --------- --------- $15-60 26,541,821 7 yrs $38.98 16,712,205 $31.79 ============================================================================================== - ----------------------------------------------------------------------------------------------------
Option quantities and prices have been adjusted for the impact of the Earthgrains spin-off and the two-for-one stock split in September 1996. The company's stock option plans provide for acceleration of exercisability of the options upon the occurrence of certain events relating to a change of control, merger, sale of assets or liquidation of the company (Acceleration Events). Certain of the plans also provide that optionees may be granted Limited Stock Appreciation Rights (LSARs). LSARs become exercisable, in lieu of an option, upon the occurrence, at least six months following the date of grant, of an Acceleration Event. The LSARs entitle the holder to a cash payment per share equivalent to the excess of the share value (under terms of the LSAR) over the grant price. As of December 31, 1998 and 1997, there were .1 million and .4 million, respectively, of LSARs outstanding. 62 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 31 PRO FORMA FAIR VALUE DISCLOSURES Had compensation expense for the company's stock options been recognized based on the fair value on the grant date under the methodology prescribed by FAS 123, the company's income from continuing operations and earnings per share for the three years ended December 31, would have been impacted as shown in the following table (in millions, except per share).
- ----------------------------------------------------------------------------------------------------- 1998 1997 1996 ---------------------------------------------- Reported income from continuing operations $1,233.3 $1,179.2 $1,156.1 Pro forma income from continuing operations 1,209.3 1,165.0 1,149.0 Reported diluted earnings per share from continuing operations 2.53 2.36 2.27 Pro forma diluted earnings per share from continuing operations 2.48 2.33 2.26 - -----------------------------------------------------------------------------------------------------
The fair value of options granted, which is amortized to expense over the option vesting period in determining the pro forma impact, is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
- ----------------------------------------------------------------------------------------------------- 1998 1997 1996 ---------------------------------------------- Expected life of option 5 yrs. 5 yrs. 5 yrs. Risk-free interest rate 4.7% 5.7% 6.2% Expected volatility of Anheuser-Busch stock 16% 15% 15% Expected dividend yield on Anheuser-Busch stock 1.7% 2.3% 2.3% - -----------------------------------------------------------------------------------------------------
The weighted average fair value of options granted during 1998, 1997 and 1996 is as follows:
- ----------------------------------------------------------------------------------------------------- 1998 1997 1996 ---------------------------------------------- Fair value of each option granted $11.72 $8.37 $8.30 Total number of options granted (in millions) 5.0 5.6 4.1 ---------------------------------------------- Total fair value of all options granted (in millions) $ 58.6 $46.9 $34.0 ============================================== - -----------------------------------------------------------------------------------------------------
In accordance with FAS 123, the weighted average fair value of stock options granted is required to be based on a theoretical statistical model using the preceding Black-Scholes assumptions. In actuality, because the company's incentive stock options are not traded on any 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 would benefit all stockholders commensurately. 7. EMPLOYEE STOCK OWNERSHIP PLANS In 1989, the company added Employee Stock Ownership Plans (ESOPs) to its existing Deferred Income Stock Purchase and Savings Plans. Most regular employees are eligible for participation in the ESOPs. The ESOPs initially borrowed $500 million for a term of 15 years at an interest rate of 8.25% and used the proceeds to buy approximately 22.7 million shares of common stock from the company at market price. The debt is guaranteed by the company and the shares are being allocated to participants over the 15 year period as contributions are made to the plans. The ESOP purchased an additional .2 million shares from the company using proceeds from the sale of spin-off-related Earthgrains shares in 1996. Of the 22.9 million total shares purchased, 15.5 million shares have been allocated to plan participants. ESOP cash contributions and expense accrued during the calendar year are determined by several factors, including the market price and number of shares allocated to participants, debt service, dividends on unallocated shares and the company's matching contribution. Over the 15-year life of the ESOPs, total expense recognized will equal total cash contributions made by the company for ESOP debt service. ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 63 32 > Notes to Consolidated Financial Statements ESOP cash contributions are made in March and September in accordance with debt service requirements. A summary of cash contributions and dividends on unallocated ESOP shares for the three years ended December 31, is presented below (in millions):
- --------------------------------------------------------------------------------------------------- 1998 1997 1996 ----------------------------------------- Cash contributions $14.2 $15.2 $21.8 ========================================= Dividends $ 8.9 $ 9.9 $10.4 ========================================= - ---------------------------------------------------------------------------------------------------
ESOP expense is allocated to operating expense and interest expense based on the ratio of principal and interest payments on the debt. Total ESOP expense for the three years ended December 31, is presented below (in millions):
- --------------------------------------------------------------------------------------------------- 1998 1997 1996 ----------------------------------------- Operating expense $ 7.4 $ 8.6 $14.3 Interest expense 4.5 6.7 11.6 ----------------------------------------- Total ESOP expense $11.9 $15.3 $25.9 ========================================= - ---------------------------------------------------------------------------------------------------
8. PREFERRED AND COMMON STOCK COMMON STOCK ACTIVITY Activity for the company's common stock for the three years ended December 31, is summarized below (in millions of shares):
- --------------------------------------------------------------------------------------------------- 1998 1997 1996 ----------------------------------------- COMMON STOCK ISSUED Beginning common stock issued 709.3 705.8 694.5 Shares issued under stock plans 3.4 3.5 3.7 Conversion of convertible debentures -- -- 7.6 ----------------------------------------- Total common stock issued 712.7 709.3 705.8 ----------------------------------------- TREASURY STOCK HELD Beginning treasury stock held (222.2) (208.4) (186.5) Treasury stock acquired, net of issuances of .4 in 1996 (13.9) (13.8) (21.9) ----------------------------------------- Cumulative treasury stock held (236.1) (222.2) (208.4) ----------------------------------------- COMMON STOCK OUTSTANDING 476.6 487.1 497.4 ========================================= - ---------------------------------------------------------------------------------------------------
PREFERRED STOCK At December 31, 1998 and 1997, 40,000,000 shares of $1.00 par value preferred stock were authorized and unissued. COMMON STOCK SPLIT In July 1996, the Board of Directors authorized a two-for-one stock split, effective for shareholders of record August 15, 1996. Certificates for one additional share of Anheuser-Busch common stock for each share held at the record date were distributed to shareholders on September 12, 1996. All share and per share information has been adjusted to reflect the impact of the split. STOCK REPURCHASE PROGRAMS The Board of Directors has approved various resolutions authorizing the company to purchase shares of its common stock to return cash to shareholders and to meet the requirements of the company's various stock purchase and incentive plans. The most recent resolution was approved by the Board in July 1996 and authorized the repurchase of 50 million shares. The company acquired 13.9 million, 13.8 million and 22.3 million shares of common stock in 1998, 1997 and 1996 for 64 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 33 $688.8 million, $587.1 million and $770.2 million, respectively. At December 31, 1998, approximately 25 million shares were available for repurchase under the 1996 authorization. STOCKHOLDER RIGHTS PLAN The Board of Directors adopted a Stockholder Rights Plan in 1985 (extended in 1994) which would permit shareholders to purchase common stock at prices substantially below market value under certain change in control scenarios. 9. RETIREMENT BENEFITS PENSION PLANS The company has pension plans covering substantially all of its regular employees. Total pension expense for the three years ended December 31, is presented below (in millions):
- --------------------------------------------------------------------------------------------------- 1998 1997 1996 ----------------------------------------- Single-employer defined benefit plans $ 3.3 $12.0 $18.6 Multi-employer plans 14.4 13.2 20.2 Defined contribution plans 18.2 15.9 18.3 ----------------------------------------- Total pension expense $35.9 $41.1 $57.1 ========================================= - ---------------------------------------------------------------------------------------------------
Contributions to multi-employer plans in which the company and its subsidiaries participate are determined in accordance with the provisions of negotiated labor contracts and are based on employee hours or weeks worked. Expense recognized for multi-employer and defined contribution plans equals cash contributions for all years shown. Net annual pension expense for single-employer defined benefit plans was comprised of the following for the three years ended December 31, (in millions):
- --------------------------------------------------------------------------------------------------------- 1998 1997 1996 -------------------------------------------- Service cost (benefits earned during the year) $ 53.4 $ 51.5 $ 49.3 Interest cost on projected benefit obligation 106.4 100.7 76.3 Assumed return on assets (156.8) (141.0) (107.9) Amortization of prior service cost, actuarial gains/losses and the excess of market value of plan assets over projected benefit obligation at January 1, 1986 .3 .8 .9 -------------------------------------------- Net annual pension expense $ 3.3 $ 12.0 $ 18.6 =========================================== - ---------------------------------------------------------------------------------------------------------
The key actuarial assumptions used in determining annual pension expense for single-employer defined benefit plans were as follows for the three years ended December 31,:
- --------------------------------------------------------------------------------------------------- 1998 1997 1996 ----------------------------------------- Discount rate 7.5% 7.75% 7.5% Long-term rate of return on plan assets 10.0% 10.0% 10.0% Weighted average rate of compensation increase 4.75% 5.5% 5.5% - ---------------------------------------------------------------------------------------------------
The following table provides a reconciliation of funded status to prepaid pension cost for the two years ended December 31, (in millions):
- --------------------------------------------------------------------------------------------------- 1998 1997 ---------------------------- Funded status -- plan assets in excess of projected benefit obligation (PBO) $120.2 $ 393.0 Unamortized excess of market value of plan assets over PBO at January 1, 1986, being amortized over 15 years (23.0) (33.3) Unrecognized net actuarial (gain) (61.8) (240.8) Unamortized prior service cost 167.9 66.2 ---------------------------- Prepaid pension cost $203.3 $ 185.1 ============================ - ---------------------------------------------------------------------------------------------------
ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 65 34 > Notes to Consolidated Financial Statements The assumptions used in determining the funded status of the plans as of December 31, were as follows:
- ------------------------------------------------------------------------------------ 1998 1997 -------------------------- Discount rate 7.0% 7.5% Weighted average rate of compensation increase 4.75% 4.75% - ------------------------------------------------------------------------------------
The following tables summarize the changes in the projected benefit obligation and the change in fair market value of plan assets for all company single-employer defined benefit pension plans for the two years ended December 31, (in millions). CHANGE IN PROJECTED BENEFIT OBLIGATION (PBO):
- ----------------------------------------------------------------------------------- 1998 1997 ----------------------------- PBO, beginning of year $1,428.4 $1,327.3 Service cost 53.4 51.5 Interest cost 106.4 100.7 Plan amendments 111.9 2.9 Actuarial loss 92.0 9.5 Benefits paid (88.1) (63.5) ----------------------------- PBO, end of year $1,704.0 $1,428.4 ============================= - -----------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS (CONSISTING PRIMARILY OF CORPORATE EQUITY SECURITIES AND PUBLICLY TRADED BONDS):
- ----------------------------------------------------------------------------------- 1998 1997 ----------------------------- Fair market value, beginning of year $1,821.4 $1,458.9 Actual return on plan assets 68.7 396.1 Employer contributions 22.2 29.9 Benefits paid (88.1) (63.5) ----------------------------- Fair market value, end of year $1,824.2 $1,821.4 ============================= - -----------------------------------------------------------------------------------
POSTRETIREMENT HEALTH CARE AND INSURANCE BENEFITS The company provides certain health care and life insurance benefits to eligible retired employees. Most current participants become eligible for retiree health care benefits if they accrue 10 years of continuous service after age 45. The following table sets forth the accumulated postretirement benefit obligation (APBO) and the total postretirement benefit liability for all company single-employer defined benefit health care and life insurance plans at December 31 (in millions). Postretirement benefit obligations are not prefunded and there are no assets associated with the plans.
- ----------------------------------------------------------------------------------- 1998 1997 -------------------------- Accumulated postretirement benefit obligation (APBO) $348.1 $318.4 Unrecognized prior service benefits 87.9 99.6 Unrecognized net actuarial gains 98.7 119.4 -------------------------- Total postretirement benefit liability $534.7 $537.4 ========================== - -----------------------------------------------------------------------------------
As of December 31, 1998 and 1997, $18.9 million and $12.0 million of these obligations were classified as current liabilities and $515.8 million and $525.4 million were classified as long-term liabilities, respectively. 66 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 35 Net periodic postretirement benefits expense for company single-employer defined benefit health care and life insurance plans was comprised of the following for the three years ended December 31, (in millions):
- ------------------------------------------------------------------------------------------------------------ 1998 1997 1996 ------------------------------------------- Service cost (benefits attributed to service during the year) $ 13.6 $ 12.0 $ 17.1 Interest cost on APBO 23.3 23.2 22.9 Amortization of prior service benefit (11.7) (11.7) (11.7) Amortization of actuarial gains (8.9) (10.1) (7.4) ------------------------------------------- Net periodic postretirement benefits expense $ 16.3 $ 13.4 $ 20.9 =========================================== - ------------------------------------------------------------------------------------------------------------
The following table summarizes the change in the APBO for the two years ended December 31, (in millions):
- ------------------------------------------------------------------------------------ 1998 1997 ---------------------------- APBO, beginning of year $318.4 $296.6 Service cost 13.6 12.0 Interest cost 23.3 23.2 Actuarial loss/(gain) 11.8 (.8) Benefits paid (19.0) (12.6) ---------------------------- APBO, end of year $348.1 $318.4 ============================ - ------------------------------------------------------------------------------------
In measuring the APBO, annual trend rates for health care costs of 8.7%, 8.3% and 9.0% were assumed for 1998, 1997 and 1996, respectively. These rates were assumed to decline ratably over the subsequent 9-12 years to 5.95% for 1998, 5.3% for 1997 and 6.5% for 1996, and remain at that level thereafter. The weighted average discount rate used in determining the APBO was 7.5% and 8.0% at December 31, 1998 and 1997, respectively. If the assumed health care cost trend rate changed by 1%, the APBO as of December 31, 1998 would change by 14%. A 1% change in the health care cost trend rate would result in a corresponding change of 15% in net periodic postretirement benefits expense. ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 67 36 > Notes to Consolidated Financial Statements 10. EARNINGS PER SHARE OF COMMON STOCK Basic earnings per share are based on the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during the year. Reconciliations of income available to common shareholders and weighted average shares outstanding between basic and diluted earnings per share for the three years ended December 31, follow (in millions): WEIGHTED AVERAGE SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------- 1998 1997 1996 -------------------------------------------- Basic weighted average shares outstanding 482.1 492.6 499.1 Stock option shares 5.4 7.1 6.7 Shares related to convertible debentures -- -- 4.8 -------------------------------------------- Diluted weighted average shares outstanding 487.5 499.7 510.6 ============================================ - ---------------------------------------------------------------------------------------------------
INCOME AVAILABLE TO COMMON SHAREHOLDERS
- --------------------------------------------------------------------------------------------------- 1998 1997 1996 -------------------------------------------- Basic income from continuing operations $1,233.3 $1,179.2 $1,156.1 After-tax interest on convertible debentures -- -- 5.3 -------------------------------------------- Diluted income from continuing operations $1,233.3 $1,179.2 $1,161.4 ============================================ - ---------------------------------------------------------------------------------------------------
68 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 37 11. INCOME TAXES The provision for income taxes consists of the following for the three years ended December 31, (in millions):
- --------------------------------------------------------------------------------------------------- 1998 1997 1996 ------------------------------------------ Current tax provision: Federal $564.3 $510.9 $490.9 State and foreign 105.5 101.3 106.8 ------------------------------------------ 669.8 612.2 597.7 ------------------------------------------ Deferred tax provision: Federal 31.6 78.2 139.2 State and foreign 2.9 13.2 19.9 ------------------------------------------ 34.5 91.4 159.1 ------------------------------------------ Total tax provision $704.3 $703.6 $756.8 ========================================== - ---------------------------------------------------------------------------------------------------
The provision for income taxes for 1996 includes $20.0 million for discontinued operations. The deferred tax provision results from differences in the recognition of income and expense for tax and financial reporting purposes. The primary differences for continuing operations are related to fixed assets (tax effect of $51.5 million in 1998, $67.8 million in 1997 and $56.9 million in 1996). At December 31, 1998 and 1997, the company had deferred tax liabilities of $1,841.3 million and $1,784.1 million, and deferred tax assets of $537.7 million and $490.5 million, respectively. The deferred tax liabilities are primarily related to fixed assets of $1,601.1 million and $1,549.6 million, respectively. The deferred tax assets are related to accrued postretirement benefits ($202.1 million and $203.7 million, respectively) and other accruals and temporary differences ($335.6 million and $286.8 million, respectively) which are not deductible for tax purposes until paid or utilized. Foreign deferred tax assets and liabilities were not material at December 31, 1998. A reconciliation between the statutory tax rate and the effective tax rate for continuing operations for the three years ended December 31, is presented below:
- --------------------------------------------------------------------------------------------------- 1998 1997 1996 ----------------------------------------- Federal statutory tax rate 35.0% 35.0% 35.0% State taxes, net of federal benefit 3.4 3.5 3.6 Other taxes (.4) (.1) .3 ----------------------------------------- Effective tax rate 38.0% 38.4% 38.9% ========================================= - ---------------------------------------------------------------------------------------------------
ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 69 38 > Notes to Consolidated Financial Statements 12. SUPPLEMENTAL INFORMATION Accounts payable include $135.0 million and $123.9 million, respectively, of outstanding checks at December 31, 1998 and 1997. Supplemental information with respect to cash flows for the three years ended December 31, is presented below (in millions):
- -------------------------------------------------------------------------------------------------- CASH PAID DURING THE YEAR: 1998 1997 1996 -------------------------------------------- Interest, net of interest capitalized $ 263.3 $ 205.1 $ 208.0 Income taxes 644.3 609.5 533.6 Excise taxes 1,966.6 1,760.6 1,720.1 NONCASH FINANCING ACTIVITIES: Conversions of 8% convertible debentures $ -- $ -- $ 166.0 CHANGES IN NONCASH WORKING CAPITAL: Decrease/(increase) in noncash current assets: Accounts receivable $ 103.3 $ (80.7) $ (88.4) Inventories (73.2) (19.1) 51.6 Other current assets (9.1) 35.4 81.6 Increase/(decrease) in current liabilities: Accounts payable 113.9 65.0 44.0 Accrued salaries, wages and benefits 32.0 (3.3) (19.4) Accrued taxes 9.7 (49.1) 146.7 Other current liabilities 74.0 57.2 17.6 -------------------------------------------- Decrease in noncash working capital $ 250.6 $ 5.4 $ 233.7 ============================================ - --------------------------------------------------------------------------------------------------
The components of plant and equipment, net, at December 31, are summarized below (in millions):
- ----------------------------------------------------------------------------------- 1998 1997 ------------------------------ Land $ 250.9 $ 243.9 Buildings 3,569.9 3,355.5 Machinery and equipment 9,570.4 8,806.8 Construction in progress 446.5 821.4 ------------------------------ 13,837.7 13,227.6 Accumulated depreciation (5,988.7) (5,477.0) ------------------------------ Total plant and equipment, net $ 7,849.0 $ 7,750.6 ============================== - -----------------------------------------------------------------------------------
The components of other assets at December 31, are summarized below (in millions):
- ----------------------------------------------------------------------------------- 1998 1997 ---------------------------- Investment properties $ 116.4 $ 128.1 Deferred charges 555.7 515.8 Goodwill 442.2 451.9 ---------------------------- Total other assets $1,114.3 $1,095.8 ============================ - -----------------------------------------------------------------------------------
ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 70 39 Summarized below is selected legal entity financial information for Anheuser-Busch, Inc., a wholly-owned subsidiary of Anheuser-Busch Companies, as of and for the years ended December 31, (in millions). This information is provided to satisfy certain reporting requirements necessitated by Anheuser-Busch, Inc. being co-obligor on substantially all Anheuser-Busch Companies debt.
- --------------------------------------------------------------------------------------------------- 1998 1997 1996 --------------------------------------------- Income Statement Information: Net sales $ 8,408.0 $ 8,116.3 $8,100.3 Gross profit 3,197.1 3,141.2 3,172.4 Income from continuing operations 969.7 906.8 907.1 Balance Sheet Information: Current assets $ 581.4 $ 623.9 Noncurrent assets 17,086.7 15,619.0 Current liabilities 733.9 677.7 Noncurrent liabilities 4,998.6 4,599.4 - --------------------------------------------------------------------------------------------------- All guaranteed debt for which Anheuser-Busch, Inc. is co-obligor is included as an element of noncurrent liabilities, with related interest included in the determination of income from continuing operations.
13. CHANGE IN ACCOUNTING PRINCIPLE In November 1997, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board released consensus No. 97-13, "Accounting for Costs Incurred in Connection with a Consulting Project or an Internal Project That Combines Business Process Reengineering and Information Technology Transformation." The EITF consensus specifically defined systems reengineering costs and mandated such costs be expensed as incurred. Additionally, any systems reengineering costs previously capitalized and unamortized were to be immediately charged against earnings. In accordance with the EITF consensus, the company recorded a $10 million after-tax charge ($.02 per share) to expense capitalized systems reengineering costs in the fourth quarter 1997. The charge is shown as a separate cumulative effect of accounting change line item in the income statement. Prospectively, the company will expense all such costs as incurred. ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 71 40 > Notes to Consolidated Financial Statements 14. DIVESTITURE OF FOOD PRODUCTS SEGMENT In the fourth quarter 1995, the company announced its intention to divest its food products segment through a tax-free spin off of its Earthgrains baking subsidiary and the sale of the assets of Eagle Snacks, Inc. The Earthgrains spin-off was completed March 26, 1996, and in June 1996 the company sold most of its Eagle Snacks production facilities, which effectively completed the divestiture. Accordingly, the company revised its estimated loss provision for the disposition of the food products segment and recorded a $33.8 million after-tax gain ($.07 per share) in the second quarter 1996, which is reported as income from discontinued operations. The pretax gain on the sale of the Eagle Snacks assets was $53.8 million, with a related income tax provision of $20.0 million. 15. SALE OF THE ST. LOUIS CARDINALS During the first quarter 1996, the company completed the sale of its Major League Baseball team, the St. Louis Cardinals. The sale included Busch Memorial Stadium, nearby parking garages and other properties in downtown St. Louis. The sale price was $150 million and resulted in a pretax gain of $54.7 million ($.06 per share after-tax) which is presented as a separate line item in the income statement. 16. COMMITMENTS AND CONTINGENCIES In connection with plant expansion and improvement programs, the company had commitments for capital expenditures of approximately $118 million at December 31, 1998. Obligations under capital and operating leases are not material. The company and certain of its subsidiaries are involved in certain claims and legal proceedings in which monetary damages and other relief are sought. The company is vigorously contesting these claims. However, resolution of these claims is not expected to occur quickly, and their ultimate outcome cannot presently be predicted. It is the opinion of management that the ultimate resolution of all existing claims, legal proceedings and other contingencies, either individually or in the aggregate, will not materially affect either the company's financial position, liquidity or results of operations. 72 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 41 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
YEAR ENDED DECEMBER 31, 1998 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ANNUAL - ------------------------------------------------------------------------------------------------------------------------- Net Sales $2,507.5 $3,006.3 $3,122.0 $2,610.0 $11,245.8 Gross Profit 868.7 1,142.9 1,226.4 845.3 4,083.3 Income from Continuing Operations 265.2 391.2 408.3 168.6 1,233.3 Diluted Earnings per Share .54 .80 .84 .35 2.53 - ------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1997 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ANNUAL - ------------------------------------------------------------------------------------------------------------------------- Net Sales $2,462.9 $2,994.3 $3,101.6 $2,507.4 $11,066.2 Gross Profit 865.9 1,124.7 1,178.0 800.7 3,969.3 Income from Continuing Operations $ 257.7 $ 381.2 $ 393.5 $ 146.8 $ 1,179.2 Cumulative Effect of Accounting Change -- -- -- (10.0) (10.0) ------------------------------------------------------------------------------------ Net Income $ 257.7 $ 381.2 $ 393.5 $ 136.8 $ 1,169.2 - ------------------------------------------------------------------------------------------------------------------------- Diluted Earnings per Share: Income from Continuing Operations $ .51 $ .76 $ .79 $ .30 $ 2.36 Cumulative Effect of Accounting Change -- -- -- (.02) (.02) ------------------------------------------------------------------------------------ Net Income $ .51 $ .76 $ .79 $ .28 $ 2.34 - -------------------------------------------------------------------------------------------------------------------------
ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 73 42 FINANCIAL SUMMARY -- OPERATIONS Anheuser-Busch Companies and Subsidiaries (In millions, except per share data)
- -------------------------------------------------------------------------------------------------------- 1998 1997 1996 --------------------------------------------- Consolidated Summary of Operations: Barrels of A-B beer brands sold worldwide 99.8 96.6 95.1 ============================================= Sales $13,207.9 $12,832.4 $12,621.5 Beer excise taxes 1,962.1 1,766.2 1,737.8 --------------------------------------------- Net sales 11,245.8 11,066.2 10,883.7 Cost of products and services 7,162.5 7,096.9 6,964.6 --------------------------------------------- Gross profit 4,083.3 3,969.3 3,919.1 Marketing, distribution and administrative expenses 1,958.0 1,916.3 1,890.0 Gain on sale of St. Louis Cardinals -- -- 54.7 Shutdown of Tampa brewery -- -- -- Restructuring charge -- -- -- --------------------------------------------- Operating income 2,125.3 2,053.0 2,083.8 Interest expense (291.5) (261.2) (232.8) Interest capitalized 26.0 42.1 35.5 Interest income 5.8 7.9 9.4 Other income/(expense), net (13.0) (9.3) (3.0) --------------------------------------------- Income before income taxes 1,852.6 1,832.5 1,892.9 Provision for income taxes (current and deferred) 704.3 703.6 736.8 Revaluation of deferred tax liability under FAS 109 -- -- -- Equity income, net of tax 85.0 50.3 -- --------------------------------------------- Income from continuing operations 1,233.3 1,179.2 1,156.1 Income/(loss) from discontinued operations -- -- 33.8 --------------------------------------------- Income before accounting changes 1,233.3 1,179.2 1,189.9 Cumulative effect of accounting changes -- (10.0) -- --------------------------------------------- Net Income $ 1,233.3 $ 1,169.2 $ 1,189.9 ============================================= Basic Earnings Per Share: Continuing operations $ 2.56 $ 2.39 $ 2.31 Discontinued operations -- -- .07 --------------------------------------------- Income before accounting changes 2.56 2.39 2.38 Cumulative effect of accounting changes -- (.02) -- --------------------------------------------- Net income $ 2.56 $ 2.37 $ 2.38 ============================================= Diluted Earnings Per Share: Continuing operations $ 2.53 $ 2.36 $ 2.27 Discontinued operations -- -- .07 --------------------------------------------- Income before accounting changes 2.53 2.36 2.34 Cumulative effect of accounting changes -- (.02) -- --------------------------------------------- Net income $ 2.53 $ 2.34 $ 2.34 ============================================= Cash dividends paid on common stock $ 521.0 $ 492.6 $ 458.9 Per share 1.08 1.00 .92 Weighted average number of common shares: Basic 482.1 492.6 499.1 Diluted 487.5 499.7 510.6 - -------------------------------------------------------------------------------------------------------- Note: All per share information and average number of common shares data reflect the September 12, 1996 two-for-one stock split and the 1997 adoption of FAS 128, "Earnings per Share," as applicable. All financial information has been restated to recognize the 1995 divestiture of the food products segment. All amounts include the acquisition of SeaWorld as of December 1, 1989. 1997 change in accounting for deferred systems reengineering costs, net of tax of $6.2 million. 1992 change in accounting for income taxes and postretirement benefits, net of tax benefit of $186.4 million. 1996 results include the impact of the gain on the sale of the St. Louis Cardinals. Excluding the Cardinal gain, operating income, pretax income, income from continuing operations and diluted earnings per share would have been $2,029.1 million, $1,838.2 million, $1,122.7 million and $2.21, respectively. 74 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 43 - ---------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 ----------------------------------------------------------- Consolidated Summary of Operations: Barrels of A-B beer brands sold worldwide 90.9 91.3 89.7 88.9 =========================================================== Sales $12,004.5 $11,705.0 $11,147.3 $11,008.6 Beer excise taxes 1,664.0 1,679.7 1,679.8 1,668.6 ----------------------------------------------------------- Net Sales 10,340.5 10,025.3 9,467.5 9,340.0 Cost of products and services 6,791.0 6,492.1 6,167.6 6,051.8 ----------------------------------------------------------- Gross profit 3,549.5 3,533.2 3,299.9 3,288.2 Marketing, distribution and administrative expenses 1,756.6 1,679.9 1,612.1 1,583.7 Gain on sale of St. Louis Cardinals -- -- -- -- Shutdown of Tampa brewery 160.0 -- -- -- Restructuring -- -- 401.3 -- ----------------------------------------------------------- Operating income 1,632.9 1,853.3 1,286.5 1,704.5 Interest expense (225.9) (219.3) (205.1) (194.6) Interest capitalized 24.3 21.8 35.2 46.9 Interest income 9.9 2.6 3.4 4.4 Other income/(expense), net 20.5 17.6 21.0 (2.5) ----------------------------------------------------------- Income before income taxes 1,461.7 1,676.0 1,141.0 1,558.7 Provision for income taxes (current and deferred) 575.1 661.5 452.6 594.6 Revaluation of deferred tax liability under FAS 109 -- -- 31.2 -- Equity income, net of tax -- -- -- -- ----------------------------------------------------------- Income from continuing operations 886.6 1,014.5 657.2 964.1 Income/loss from discontinued operations (244.3) 17.6 (62.7) 30.1 ----------------------------------------------------------- Income before accounting changes 642.3 1,032.1 594.5 994.2 Cumulative effect of accounting changes -- -- -- (76.7) ----------------------------------------------------------- Net income $ 642.3 $ 1,032.1 $ 594.5 $ 917.5 =========================================================== Basic Earnings Per Share: Continuing operations $ 1.73 $ 1.93 $ 1.20 $ 1.71 Discontinued operations (.47) .04 (.11) .05 ----------------------------------------------------------- Income before accounting changes 1.26 1.97 1.09 1.76 Cumulative effect of accounting changes -- -- -- (.13) ----------------------------------------------------------- Net income $ 1.26 $ 1.97 $ 1.09 $ 1.63 =========================================================== Diluted Earnings Per Share: Continuing operations $ 1.71 $ 1.90 $ 1.20 $ 1.68 Discontinued operations (.47) .04 (.11) .05 ----------------------------------------------------------- Income before accounting changes 1.24 1.94 1.09 1.73 Cumulative effect of accounting changes -- -- -- (.13) ----------------------------------------------------------- Net income $ 1.24 $ 1.94 $ 1.09 $ 1.60 =========================================================== Cash dividends paid on common stock $ 429.5 $ 398.8 $ 370.0 $ 338.3 Per share .84 .76 .68 .60 Weighted average number of common shares: Basic 510.9 524.6 544.3 563.7 Diluted 524.4 538.0 558.6 581.6 ----------------------------------------------------------- 1991 1990 1989 1988 ----------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Consolidated Summary of Operations: Barrels of A-B beer brands sold worldwide 87.9 88.1 82.2 79.9 =========================================================== Sales $10,631.9 $9,716.1 $8,553.7 $8,120.5 Beer excise taxes 1,637.9 868.1 802.3 781.0 ----------------------------------------------------------- Net sales 8,994.0 8,848.0 7,751.4 7,339.5 Cost of products and services 5,953.5 5,963.4 5,226.5 4,878.1 ----------------------------------------------------------- Gross profit 3,040.5 2,884.6 2,524.9 2,461.4 Marketing, distribution and administrative expenses 1,409.5 1,364.9 1,244.3 1,245.2 Gain on sale of St. Louis Cardinals -- -- -- -- Shutdown of Tampa brewery -- -- -- -- Restructuring charge -- -- -- -- ----------------------------------------------------------- Operating income 1,631.0 1,519.7 1,280.6 1,216.2 Interest expense (234.0) (277.2) (172.9) (134.6) Interest capitalized 45.6 52.5 49.8 42.9 Interest income 6.6 4.3 7.9 9.8 Other income/(expense), net 1.3 (16.5) 17.7 (15.5) ----------------------------------------------------------- Income before income taxes 1,450.5 1,282.8 1,183.1 1,118.8 Provision for income taxes (current and deferred) 549.6 481.4 438.2 422.0 Revaluation of deferred tax liability under FAS 109 -- -- -- -- Equity income, net of tax -- -- -- -- ----------------------------------------------------------- Income from continuing operations 900.9 801.4 744.9 696.8 Income/(loss) from discontinued operations 38.9 41.0 22.3 19.1 ----------------------------------------------------------- Income before accounting changes 939.8 842.4 767.2 715.9 Cumulative effect of accounting changes -- -- -- -- ----------------------------------------------------------- Net income $ 939.8 $ 842.4 $ 767.2 $ 715.9 =========================================================== Basic Earnings Per Share: Continuing operations $ 1.59 $ 1.42 $ 1.32 $ 1.20 Discontinued operations .06 .07 .04 .04 ----------------------------------------------------------- Income before accounting changes 1.65 1.49 1.36 1.24 Cumulative effect of accounting changes -- -- -- -- ----------------------------------------------------------- Net income $ 1.65 $ 1.49 $ 1.36 $ 1.24 =========================================================== Diluted Earnings Per Share: Continuing operations $ 1.56 $ 1.40 $ 1.30 $ 1.19 Discontinued operations .06 .07 .04 .04 ----------------------------------------------------------- Income before accounting changes 1.62 1.47 1.34 1.23 Cumulative effect of accounting changes -- -- -- -- ----------------------------------------------------------- Net income $ 1.62 $ 1.47 $ 1.34 $ 1.23 =========================================================== Cash dividends paid on common stock $ 301.1 $ 265.0 $ 226.2 $ 188.6 Per share .53 .47 .40 .33 Weighted average number of common shares: Basic 568.0 563.7 565.5 577.1 Diluted 585.8 579.4 572.4 584.4 - ---------------------------------------------------------------------------------------------------------------------- 1995 results include the impact of the one-time pretax charge of $160 million for the closure of the Tampa brewery, and the $74.5 million pretax impact of the beer wholesaler inventory reduction. Excluding these nonrecurring special items, operating income, pretax income, income from continuing operations and diluted earnings per share would have been $1,867.4 million, $1,696.2 million, $1,032.3 million and $1.99, respectively. 1993 results include the impact of two nonrecurring special charges. These charges are (1) a restructuring charge ($401.3 million, pretax) and (2) a revaluation of the deferred tax liability due to the 1% increase in federal tax rates ($31.2 million, after-tax). Excluding these nonrecurring special charges, operating income, pretax income, income from continuing operations and diluted earnings per share would have been $1,687.8 million, $1,542.3 million, $935.2 million and $1.69, respectively.
ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 75 44 FINANCIAL SUMMARY -- BALANCE SHEET AND OTHER INFORMATION Anheuser-Busch Companies and Subsidiaries (In millions, except per share and statistical data)
- ---------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- Balance Sheet Information: Working capital (deficit) $ (89.9) $ 83.2 $ 34.9 Current ratio 0.9 1.1 1.0 Plant and equipment, net 7,849.0 7,750.6 7,208.2 Long-term debt 4,718.6 4,365.6 3,270.9 Total debt to total capitalization ratio 52.8% 51.9% 44.8% Deferred income taxes 1,303.6 1,293.6 1,208.1 Shareholders equity 4,216.0 4,041.8 4,029.1 Return on shareholders equity 29.9% 29.2% 30.0% Book value per share 8.84 8.30 8.10 Total assets 12,484.3 11,727.1 10,463.6 Other Information: Capital expenditures $ 817.5 $ 1,199.3 $ 1,084.6 Depreciation and amortization 738.4 683.7 611.5 Effective tax rate 38.0% 38.4% 38.9% Price/earnings ratio 25.9 18.6 17.6 Percent of pretax profit on net sales 16.5% 16.6% 17.4% Market price range of common stock (high and low closing) 68 1/4-43 7/16 47 7/8-39 1/2 42 7/8-32 1/2 - ---------------------------------------------------------------------------------------------------------------------------- Note: All share and per share information reflects the September 12, 1996 two-for-one stock split. All financial information has been restated to recognize the 1995 divestiture of the food products segment. All amounts include the acquisition of SeaWorld as of December 1, 1989. These ratios have been calculated based on income from continuing operations before the cumulative effect of accounting changes. These ratios have been calculated based on reported income from continuing operations, which includes the $54.7 million pretax gain on the sale of the St. Louis Cardinals. Excluding the Cardinal gain, return on shareholders equity would have been 29.2% and the price/earnings ratio would have been 18.1. These ratios have been calculated based on reported income from continuing operations. Excluding the two nonrecurring 1995 items ($160 million pretax charge for closure of the Tampa brewery and $74.5 million impact of the beer wholesaler inventory reduction), return on shareholders equity would have been 29.1% and the price/earnings ratio would have been 16.8. These ratios have been calculated based on reported income from continuing operations. Excluding the two nonrecurring 1993 charges ($401.3 million pretax restructuring charge and $31.2 million after-tax FAS 109 charge), return on shareholders equity would have been 26.7% and the price/earnings ratio would have been 13.8. 76 ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 45 - ---------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Information: Working capital (deficit) $ 268.6 $ 57.0 $ (41.3) $ 247.8 Current ratio 1.2 1.0 1.0 1.2 Plant and equipment, net 6,763.0 6,494.6 6,454.7 6,424.7 Long-term debt 3,270.1 3,066.4 3,019.7 2,630.3 Total debt to total capitalization ratio 47.1% 47.3% 47.3% 42.0% Deferred income taxes 1,132.8 1,081.5 1,013.1 1,065.5 Shareholders equity 4,433.9 4,415.5 4,255.5 4,620.4 Return on shareholders equity 25.0% 29.9% 18.8% 27.6% Book value per share 7.22 6.64 6.31 6.51 Total assets 10,590.9 10,547.4 10,267.7 9,954.9 Other Information: Capital expenditures $ 952.5 $ 662.8 $ 656.3 $ 628.8 Depreciation and amortization 573.9 517.0 492.7 453.3 Effective tax rate 39.3% 39.5% 42.4% 38.1% Price/earnings ratio 19.6 13.1 22.6 16.9 Percent of pretax profit on net sales 14.1% 16.7% 12.1% 16.7% Market price range of common stock (high and low closing) 34-25 3/8 27 5/8-23 1/2 30-22 30 1/4-26 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 1991 1990 1989 1988 - ---------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Information: Working capital (deficit) $ 107.9 $ (62.8) $ (82.8) $ (23.7) Current ratio 1.1 0.9 0.9 1.0 Plant and equipment, net 6,260.6 6,102.2 5,768.0 4,624.2 Long-term debt 2,627.9 3,115.8 3,268.9 1,570.0 Total debt to total capitalization ratio 43.9% 54.5% 60.7% 41.7% Deferred income taxes 1,401.0 1,309.3 1,241.9 1,155.8 Shareholders equity 4,438.1 3,679.1 3,099.9 3,102.9 Return on shareholders equity 30.2% 34.0% 34.6% 33.3% Book value per share 5.90 4.60 3.74 3.87 Total assets 9,642.5 9,274.2 8,690.1 6,788.9 Other Information: Capital expenditures $ 625.5 $ 805.3 $ 979.0 $ 858.1 Depreciation and amortization 437.0 404.3 333.1 306.5 Effective tax rate 37.9% 37.5% 37.0% 37.7% Price/earnings ratio 18.9 14.6 14.4 12.9 Percent of pretax profit on net sales 16.1% 14.5% 15.3% 15.2% Market price range of common stock (high and low closing) 30 3/4-19 3/4 22 1/2-17 1/8 22 7/8-15 1/4 17-14 1/2 - ----------------------------------------------------------------------------------------------------------------------------------
ANHEUSER-BUSCH COMPANIES 1998 ANNUAL REPORT 77 APPENDIX In Exhibit 13 to the printed Form 10-K, certain data is depicted by the following graphs: On page 33, graph "A-B Stock Cumulative Total Return" depicting compounded annual growth rate of 25.2%, 1993 to 1998 at $308.20 (assumes $100 invested in A-B stock on December 31, 1993; all dividends reinvested quarterly) On page 36, bar graph "Sales" depicting gross sales in billions (1994-$11.7; 1995-$12.1(normalized results); 1996-$12.6; 1997- $12.8; 1998-$13.2) and net sales in billions (1994-$10.0; 1995- $10.4(normalized results); 1996-$10.9; 1997-$11.1; 1998-$11.2) On page 39, bar graph "Operating Income" depicting operating income in millions (1994-$1,853.3; 1995-$1,867.4(normalized results); 1996-$2,029.1(normalized results); 1997-$2,053.0; 1998- $2,125.3) On page 41, bar graph "Diluted Earnings Per Share From Continuing Operations" with 1994 at $1.90; 1995 at $1.99(normalized results); 1996 at $2.21(normalized results); 1997 at $2.36(before cumulative effect of accounting change); 1998 at $2.53 On page 41, bar graph "Total Employee-Related Costs" depicting such costs in millions (1994-$1,714.1; 1995-$1,735.9; 1996- $1,781.6; 1997-$1,791.1; 1998-$1,836.8) On page 42, bar graph "Cash Flow From Continuing Operations" depicting cash flow from continuing operations in millions (1994- $1,663.0; 1995-$1,425.9; 1996-$1,968.9; 1997-$1,816.6; 1998- $2,176.0) On page 42, bar graph "Capital Expenditures/Depreciation & Amortization" depicting capital expenditures in millions (1994- $662.8; 1995-$952.5; 1996-$1,084.6; 1997-$1,199.3; 1998-$817.5) and Depreciation & Amortization in millions (1994-$517.0; 1995- $573.9; 1996-$611.5; 1997-$683.7; 1998-$738.4) On page 43, bar graph "Income From Continuing Operations/Dividends on Common Stock" depicting income from continuing operations in millions (1994-$1,014.5; 1995- $1,032.3(normalized results); 1996-$1,122.7(normalized results); 1997-$1,179.2(before cumulative effect of accounting change); 1998-$1,233.3) and Dividends in millions (1994-$398.8; 1995- $429.5; 1996-$458.9; 1997-$492.6; 1998-$521.0) On page 44, bar graph "Shareholders Equity/Long-Term Debt" depicting shareholders equity in millions (1994-$4,415.5; 1995- $4,433.9; 1996-$4,029.1; 1997-$4,041.8; 1998-$4,216.0) and long- term debt in millions (1994-$3,066.4; 1995-$3,270.1; 1996- $3,270.9; 1997-$4,365.6; 1998-$4,718.6). EX-21 6 SUBSIDIARIES OF ANHEUSER-BUSCH COMPANIES, INC. EX-21 SUBSIDIARIES OF ANHEUSER-BUSCH COMPANIES,INC. --------------------------------------------- STATE OF DOING BUSINESS NAME OF COMPANY INCORPORATION UNDER NAME OF - --------------- -------------- ------------- Anheuser-Busch, Incorporated Missouri Anheuser-Busch,Incorporated Anheuser-Busch International, Delaware Anheuser-Busch International, Incorporated Incorporated Busch Entertainment Corporation Delaware Busch Entertainment Corporation Metal Container Corporation Delaware Metal Container Corporation Busch Agricultural Resources, Inc. Delaware Busch Agricultural Resources, Inc
All other subsidiaries of the Company, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of December 31, 1998. EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 224,800 0 610,100 0 623,400 1,640,400 13,837,700 5,988,700 12,484,300 1,730,300 4,718,600 0 0 712,700 3,503,300 12,484,300 11,245,800 11,245,800 7,162,500 9,120,500 0 0 291,500 1,852,600 704,300 1,233,300 0 0 0 1,233,300 2.56 2.53
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