Total
brands combines worldwide Anheuser-Busch brands volume with international
equity
partners volume.
SALES
- 2005 VS. 2004
Gross
and net sales increased slightly in 2005, to $17.3 billion and $15.0 billion,
respectively. The difference between gross and net sales represents beer
excise
taxes of $2.2 billion. For the year, gross sales increased $94 million, or
0.5%,
and net sales improved $102 million, or 0.7%, on sales improvement in
international beer, packaging and entertainment operations, partially offset
by
lower domestic beer sales. The company has led the U.S. brewing industry
in
sales volume and market share since 1957.
International
beer sales were up $123 million, or 15.2% due primarily to higher beer volume
in
China (including Harbin), Canada and Mexico. Commodity-based packaging
operations sales were up $116 million, or 8.3% on higher aluminum prices
and
increased volume. Entertainment segment sales increased $96 million, or 9.7%
from higher attendance, increased pricing and increased in-park spending.
Domestic beer segment net sales decreased 2.5%, or $285 million. $206 million
of
the decrease is due to a 1.8% decline in beer sales volume, while $79 million
stems from slightly lower revenue per barrel, which decreased 0.5% for the
year.
The domestic beer business is currently implementing previously announced
revenue enhancement initiatives. The combination of moderate price increases
and
discount reductions will cover the majority of the company’s domestic volume. As
in the past, pricing initiatives are tailored to specific markets, brands
and
packages.
Domestic
beer sales-to-wholesalers declined 1.8% while wholesaler sales-to-retailers
increased 0.2% (selling day adjusted). Sales-to-retailers results have been
led
by the Budweiser Family, particularly from the February introduction of
Budweiser Select. Wholesaler inventories were reduced significantly during
2005,
ending the year over two days lower than the end of 2004.
The
company’s estimated domestic market share (excluding exports) for 2005 was
48.8%, compared with 2004 market share of 49.6%. Domestic market share is
based
on estimated U.S. beer industry shipment volume using information provided
by
the Beer Institute and import data from the U.S. Department of Commerce.
Anheuser-Busch’s shipment-based market share performance was adversely impacted
by the company’s wholesaler inventory reduction. As noted, the company gained
market share at the consumer level in supermarkets in the second half of
2005,
according to IRI data.
International
beer volume increased 50.8%, or 7.0 million barrels for 2005 due primarily
to
increased volume for China Budweiser operations, Canada and Mexico, and the
impact of the Harbin Brewery acquisition in mid-2004. International volume
excluding the impact of Harbin increased 324,000 barrels, or 3.8% for the
year.
The increase in international beer volume drove a worldwide Anheuser-Busch
brands volume increase of 4.4% for 2005, to 121.9 million barrels. Equity
partners’ brands volume grew 7.1 million barrels, or 36.6% in 2005 due to Modelo
volume growth and the addition of Tsingtao equity volume beginning in May
2005,
partially offset by the loss of volume from the sale of CCU in the fourth
quarter 2004. Total brands volume was up 9.0%, to 148.3 million barrels for
the
full year 2005.
SALES
- 2004 VS. 2003
Anheuser-Busch
generated gross and net sales of $17.2 billion and $14.9 billion, respectively,
in 2004. Beer excise taxes totaled $2.2 billion. Gross sales for the year
increased $840 million, or 5.1%, and net sales improved $787 million, or
5.6%.
These increases were driven primarily by a 3% increase in domestic beer segment
sales, due to 2.5% higher revenue per barrel and higher volume. The increase
in
revenue per barrel generated $323 million in net sales improvement and beer
volume gains contributed $42 million of the increase. The gross margin impact
of
the increase in domestic beer revenue per barrel was offset by the impact
of
higher sales and costs from the company’s commodity-based can manufacturing and
aluminum recycling operations.
International
beer segment sales increased $173 million due to volume gains in Canada,
China,
and the United Kingdom and the impact of Harbin in the second half of the
year.
Packaging segment sales increased $172 million primarily due to higher soft
drink can volume and pricing, and increased recycling operations sales.
Entertainment segment sales were up $65 million due to higher admissions
pricing
and increased in-park spending. Entertainment sales were adversely impacted
by
hurricanes in Florida in the second half of the year.
Domestic
beer sales-to-wholesalers increased 0.4% in 2004, to 103.0 million barrels.
This
increase was led by the growth of Michelob ULTRA and Bud Light. Wholesaler
sales-to-retailers declined 0.3% versus 2003. Both sales-to-retailers and
sales-to-wholesalers were adversely impacted during 2004 by abnormally wet
weather in many markets, especially during the key summer selling season.
This
was coupled with a general slowdown in consumer spending during the year,
particularly among lower-income consumers. The company’s domestic market share
(excluding exports) for the full year 2004 was 49.6%, compared to 2003 market
share of 49.7%.
International
beer volume increased 5.4 million barrels, or 65%, to 13.8 million barrels
in
2004 due to volume growth in Canada, China and the United Kingdom, and the
addition of Harbin volume. Excluding 5.2 million barrels of Harbin volume,
international volume grew 3.2% for the year. The growth in international
volume
drove the 5.3% increase in worldwide volume, to 116.8 million barrels.
International equity partner volume grew to 19.3 million barrels, 2.7% versus
2003, as a result of Grupo Modelo volume improve-
ANHEUSER-BUSCH
COMPANIES
AND
SUBSIDIARIES
ment
partially offset by the impact of the CCU sale in November. Total brands
volume
increased 4.9% for the year versus 2003.
SALES
— 2003 VS. 2002
The
company reported gross sales of $16.3 billion and net sales of $14.1 billion
in
2003, representing increases of 4%, or $633 million, and 4.3%, or $581 million,
respectively, compared with 2002. Beer excise taxes were $2.2 billion. Both
increases were principally due to a $410 million, or 3.9% increase in domestic
beer segment net sales, resulting from 3.1% higher domestic revenue per barrel
and a 0.8% increase in beer volume. The increase in revenue per barrel generated
$324 million in net sales improvement; beer volume gains contributed $86
million
of the increase. The growth in domestic revenue per barrel enhanced both
gross
and operating profit margins. Consumers trading up to the super-premium Michelob
family enhanced the company’s revenue per barrel results.
In
addition to domestic beer sales increases, international beer net sales
increased $55 million, primarily due to volume growth in China and Canada.
Packaging segment sales increased $30 million due to higher can pricing.
Entertainment sales increased $65 million on increased ticket prices, higher
in-park spending, and slightly higher attendance in 2003.
Domestic
beer sales-to-wholesalers volume increased 0.8%, to 102.6 million barrels
for
2003. These results are due to Michelob ULTRA and increased Bud Light sales.
Wholesaler sales-to-retailers volume was up 0.9% for the year. The company’s
domestic market share (excluding exports) for the full year 2003 was
approximately 49.7%, compared with 49.0% for 2002. Worldwide Anheuser-Busch
beer
sales volume increased 1.1% for the year to 111.0 million barrels and total
volume increased 1.5%, to 129.8 million barrels. International Anheuser-Busch
brand beer volume for the year was up 5% versus 2002, to 8.4 million barrels,
principally due to increased volume in China.
COST
OF SALES
The
company continuously strives to reduce costs throughout its manufacturing
and
distribution systems. Brewery modernizations have yielded long-term savings
through reduced beer packaging and shipping costs and reduced maintenance
costs.
The company’s focused production methods and wholesaler support distribution
centers concentrate small-volume brand and package production at three breweries
to create production efficiencies, reduce costs, and enhance responsiveness
to
changing consumer brand and package preferences. The company also works to
reduce distribution costs for its products through better systemwide
coordination with its network of independent wholesalers.
The
cost of sales was $9.6 billion for 2005, an increase of $597 million, or
6.6%
compared to 2004. This increase is attributable to higher costs for all of
the
company’s major business segments, including higher aluminum and other packaging
materials expense and increased energy costs for domestic beer; incremental
production costs for international beer associated with higher beer volume
and
the timing of the Harbin acquisition; increased aluminum, energy and other
manufacturing costs for the commodity-based packaging segment; and higher
park
operating expenses in entertainment operations. Gross profit as a percentage
of
net sales decreased 360 basis points versus 2004, to 36.3%. This decline
is
primarily due to the decrease in domestic beer sales volume combined with
increases in domestic beer production costs per barrel significantly exceeding
revenue per barrel.
Cost
of sales was $9.0 billion for 2004, an increase of $533 million, or 6.3%,
compared with 2003. The increase was due to higher costs for all of the
company’s major business segments. Domestic beer costs were higher due to
increased costs for brewing and packaging materials, costs associated with
increased beer volume, and higher utility costs. International beer experienced
higher costs associated with increased beer volume plus the impact of
incremental cost of sales associated with the Harbin acquisition. Packaging
operations experienced higher aluminum costs and entertainment operations
incurred higher park operating expenses, including hurricane cleanup costs
in
the second half of the year. Consolidated gross profit margin decreased 40
basis
points, to 39.9%, due primarily to a 20 basis point gross margin increase
from
domestic beer operations being more than offset by higher sales and costs
from
the company’s commodity-based can manufacturing and aluminum recycling
operations.
Cost
of sales was $8.4 billion in 2003, an increase of $318 million, or 3.9%,
compared with 2002. The increase was due to higher costs in the domestic
beer
segment, attributable to costs associated with higher beer sales volume,
higher
production costs primarily resulting from increased brewing and packaging
materials, and higher utilities costs. Cost of sales for international beer
operations increased due to costs associated with increased beer volume,
while
theme park and packaging operations and the company’s commodity recycling
business all experienced increased cost of sales. Gross profit as a percentage
of net sales was 40.3% for the year, an increase of 20 basis points versus
2002.
MARKETING,
DISTRIBUTION AND ADMINISTRATIVE
EXPENSES
Advertising
and promotional activities for its beer brands and theme park operations
are
important elements of Anheuser-Busch’s strategy and represent significant annual
expenditures. The company employs a variety of national, regional and local
media outlets in its promotional efforts, including television, radio, the
Internet, print and outdoor advertising and event sponsorships.
ANHEUSER-BUSCH
COMPANIES
AND
SUBSIDIARIES
Marketing,
distribution and administrative expenses for 2005 were $2.7 billion, an increase
of $140 million, or 5.4% compared with 2004. The increase is the result of
higher marketing and selling costs for both domestic and international beer
operations and increased entertainment marketing costs, partially offset
by
reduced general and administrative expenses. Domestic beer marketing costs
were
up primarily for the Budweiser Family, including the national introduction
of
Budweiser Select, and in support of the company’s beer volume and market share
growth initiatives. International beer marketing increased primarily due
to the
Harbin acquisition. Higher domestic beer distribution costs were largely
the
result of increased fuel costs while international distribution costs increased
due to Harbin and higher costs in the United Kingdom.
Marketing,
distribution and administrative expenses were $2.6 billion in 2004, an increase
of $92 million, or 3.7%, compared with 2003. The increase was principally
due to
increased international beer marketing and distribution costs, higher
entertainment advertising costs, increased marketing costs associated with
the
Olympics, higher domestic beer distribution costs from owning an additional
wholesale operation, and higher corporate expenses due primarily to higher
employee benefits costs.
Marketing,
distribution and administrative expenses for 2003 were $2.5 billion, an increase
of $43 million, or 1.7%, compared with 2002. This increase was principally
due
to marketing costs for Michelob ULTRA, increased company-owned wholesale
beer
distribution costs, higher international beer marketing costs in Europe and
China, and increased theme park advertising costs. Partially offsetting these
increases were lower domestic beer segment legal costs and reduced
administrative expenses for the entertainment segment.
Operating
results for 2005 also include a one-time $105 million pretax litigation
settlement ($.12 per share), which occurred in the third quarter and is reported
as a separate line item in the consolidated income statement. See Notes 7
and 13
and page 32 of this Discussion for additional information. The settlement
expense is classified as a corporate item for business segment reporting.
OPERATING
INCOME
Operating
income represents the measure of the company’s financial performance before net
interest cost, other non-operating items and equity income. Operating income
of
$2.6 billion income decreased $740 million, or 22% in 2005 versus 2004.
Operating margin for 2005 was 17.4%, a decline of 510 basis points due primarily
to reduced domestic beer sales volume, lower revenue per barrel and higher
operating costs, including the one-time litigation settlement.
Operating
income was $3.4 billion in 2004 and $3.2 billion in 2003, representing increases
versus the prior years of $162 million, or 5.1% in 2004, and $219 million,
or
7.4% in 2003. Operating margins were 22.5% and 22.6% for 2004 and 2003,
respectively. The decline in operating margin in 2004 was primarily due to
higher sales and offsetting costs in commodity-based aluminum can manufacturing
and recycling operations. Operating margin was up 60 basis points in 2003
versus
prior year due to higher domestic beer margins and improved operating results
from all other business segments.
INTEREST
EXPENSE LESS INTEREST INCOME
Interest
expense less interest income was $452.1 million for 2005, $422.2 million
for
2004, and $399.8 million for 2003, representing increases of 7.1%, 5.6% and
8.8%, respectively, compared with prior years. These increases primarily
result
from higher average outstanding debt balances compared with prior years.
In
addition, 2005 includes the impact of slightly higher average interest rates
which increased in the latter half of the year. See the Liquidity and Financial
Condition section of this Discussion for additional information regarding
the
company’s leverage philosophy and specific changes in the company’s debt
portfolio.
INTEREST
CAPITALIZED
Interest
capitalized as part of the cost basis of capital projects was $19.9 million
in
2005, $21.9 million in 2004, and $24.4 million in 2003. The amount of interest
capitalized fluctuates depending on construction-in-progress balances, which
are
impacted by the amount and timing of capital spending, the timing of project
completion dates, and by market interest rates.
OTHER
INCOME, NET
Other
income, net includes earnings from the company’s limited partnership equity
investments in beer wholesalers, in addition to other items of a non-operating
nature that do not have a material impact on the company’s consolidated results
of operations, either individually or in total. The company had consolidated
net
other income of $2.7 million in 2005, $38.7 million in 2004, and $0.4 million
in
2003.
Other
income for 2005 includes a $15.4 million pretax gain from the sale of the
company’s 13% stake in the Port Aventura theme park in Spain. The theme park
sale gain is partially offset by expenses incurred to call the company’s 7.25%
and 7.00% U.S. dollar debentures due 2015 and 2025, respectively. These
transactions are all classified as corporate items for business segments
reporting.
Other
income for 2004 includes a one-time pretax gain of $19.5 million from the
sale
of commodity derivatives that were originally placed for future years using
estimates of conversion costs to be included in the renewal of supply contracts.
These costs were reduced during negotiations, resulting in significant hedge
ineffectiveness in compliance
ANHEUSER-BUSCH
COMPANIES
AND
SUBSIDIARIES
with
FAS 133. The company sold the hedges per company policy and realized the
ineffective portion of the gain, which is reported in the corporate segment.
Also in 2004, the company recorded a $13.4 million pretax gain on the sale
of
its investment in CCU, which is recognized in the international beer segment.
In
addition, the company sold interests in two domestic beer wholesaler
partnerships in 2004 and recorded a $19.1 million pretax gain, which is included
in domestic beer results.
In
2003, the company recognized a $6 million gain from the sale of a company-owned
beer wholesalership, and also incurred offsetting amounts related to expenses
associated with a call of higher interest debt and a gain from the receipt
of
proceeds from an insurance company.
INCOME
BEFORE INCOME TAXES
2005
VS. 2004
Reported
income before income taxes decreased 27% versus 2004, primarily reflecting
lower
profits in domestic beer, international beer and packaging operations,
partially
offset by improved results from entertainment operations. Income before
income
taxes includes the impact of the one-time gains in both 2004 and 2005 plus
the
2005 litigation settlement. Excluding these items from both years to enhance
comparability, income before income taxes decreased 23% (see page 32).
Domestic
beer pretax income decreased $603 million, or 18% due to lower beer sales
volume, reduced revenue per barrel and higher costs. Higher costs resulted
from
commodity cost pressures for aluminum, glass and energy, plus costs for
new
packaging initiatives such as applied plastic labels and aluminum bottles.
Pretax income for international beer decreased $44 million, or 34% for
the full
year primarily due to lower profits in China and the United Kingdom and
the
impact of the CCU sale gain in 2004, partially offset by improved results
in
Canada. Excluding the CCU sale gain, pretax income for international beer
decreased 26%, as shown in the following table.
Packaging
segment pretax profits were down $22 million, or 14% during 2005 due to higher
energy and materials costs for can and glass manufacturing operations and
lower
profits for the company’s aluminum recycling and label manufacturing operations.
Entertainment segment pretax results improved $33 million, or 19% due to
increased attendance, admissions pricing and in-park spending, partially
offset
by higher park operating expenses. Results in 2004 were adversely impacted
by a
series of hurricanes in Florida.
2004
VS. 2003
Reported
income before income taxes for 2004 was $3.0 billion, an increase of $175
million, or 6.2%, versus 2003. This increase reflects improved results for
all
of the company’s operating segments. Excluding one-time items in 2004, income
before income taxes increased 5% versus 2003 (see page 32).
Pretax
income for the domestic beer segment was up $159 million for the full year,
reflecting increased beer volume and higher revenue per barrel, partially
offset
by higher costs. International beer segment pretax income improved $40 million
for 2004, primarily due to volume and profit growth in China, Canada, and
the
United Kingdom; the impact of Harbin in the second half of the year; and
the
gain on the sale of CCU. Packaging segment pretax profits were up $8 million
for
the year primarily due to higher soft drink can volume and pricing and improved
results from the company’s aluminum recycling operations. Entertainment segment
pretax income increased $10 million compared with the full year 2003, primarily
due to higher admissions pricing and increased in-park spending, partially
offset by hurricane impacts.
2003
VS. 2002
Income
before income taxes of $2.8 billion in 2003 represented an increase of $200
million, or 7.7%, versus 2002. The increase for 2003 is primarily due to
increased domestic beer segment pretax results, along with improved profit
contribution from all of the company’s remaining business segments. Domestic
beer segment pretax income was up $199 million, reflecting higher revenue
per
barrel and increased beer volume. International beer segment pretax income
increased $15 million, primarily due to volume and profit growth in China.
Packaging segment pretax profits were up $2 million in 2003, while entertainment
segment income before income taxes increased $10 million compared with 2002,
primarily due to higher admissions pricing and increased in-park spending.
ANHEUSER-BUSCH
COMPANIES
AND
SUBSIDIARIES
EQUITY
INCOME, NET OF TAX
Equity
income was $498.1 million in 2005, an increase of $94 million, or 23% for
year,
reflecting the benefit of Grupo Modelo volume growth, lower Mexican income
taxes
and the impact of including Tsingtao equity income, partially offset by the
reduction in equity income due to the sale of the company’s investment in CCU
and the one-time $18 million deferred income tax benefit in 2004 from a
reduction in Mexican corporate income tax rates. The tax benefit in 2004
was
partially offset by $8 million of incremental U.S. deferred income taxes
in the
consolidated income tax provision. Excluding the Mexican tax benefit from
2004
results, equity income for full year 2005 increased 29% (see adjacent table).
Equity
income was $404.1 million for 2004, up $59 million, or 17.2%, versus 2003
due to
the benefit of price increases and volume growth from Grupo Modelo and the
$18
million Mexican income tax benefit, net of U.S. deferred taxes. Equity income
results for 2003 included a $5.5 million one-time after-tax benefit representing
Anheuser-Busch’s equity share of a gain on the sale of a brewery by CCU.
Excluding the Mexican tax rate benefit from 2004, equity income would have
increased 11.9% (see adjacent table).
Equity
income of $344.9 million in 2003 decreased $7 million versus 2002, primarily
due
to a combination of lower export volume growth, Modelo not raising prices,
and a
weaker peso in 2003 compared with higher than normal 2002 equity income results
which included a $17 million one-time deferred income tax benefit partially
offset by a $6.5 million charge related to a brewery restructuring. The 2002
Modelo deferred tax benefit was largely offset by higher U.S. deferred income
taxes included in the consolidated U.S. income tax provision. As noted, equity
earnings for 2003 benefited from the after-tax gain on the sale of a brewery
by
CCU.
NET
INCOME AND DILUTED EARNINGS PER SHARE
Anheuser-Busch
generated net income of $1.8 billion in 2005, a decrease of $401 million,
or
17.9% compared with the full year 2004, while reported diluted earnings per
share of $2.35 decreased 15.2%, or $.42. Excluding the one-time items previously
discussed, net income and diluted earnings per share decreased by 13.8% and
11%,
respectively, versus 2004 as shown in the adjacent table. Net income of $2.2
billion for 2004 was an increase versus 2003 of $164 million, or 7.9%. Diluted
earnings per share were $2.77, an increase of 11.7%, or $.29 compared with
2003
results. Excluding the 2004 one-time items from the comparison with 2003,
net
income increased 6.1% and diluted earnings per share decreased by 13.8% and
11%,
respectively, versus 2004 as shown in the adjacent table. Net income of $2.2
billion for 2004 was an increase versus 2003 of $164 million, or 7.9%. Diluted
earnings per share were $2.77, an increase of 11.7%, or $.29 compared with
2003
results. Excluding the 2004 one-time items from the comparison with 2003,
net
income increased 6.1% and diluted earnings per share increased 10.1% (see
adjacent table). The company earned net income of $2.1 billion in 2003, an
increase of $142 million, or 7.4%, over 2002. Earnings per share were $2.48
in
2003, an increase of $.28, or 12.7% compared with 2002. Diluted earnings
per
share for all years benefit from the company’s ongoing share repurchase program.
The
following table is provided to make direct comparisons easier between 2005
and
2004, and between 2004 and 2003 by excluding one-time items. The company
believes excluding one-time items better illustrates underlying results (in
millions, except per share).
