<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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 1-5231
MCDONALD'S CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2361282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
MCDONALD'S PLAZA
OAK BROOK, ILLINOIS 60523
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 623-3000
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.)
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 ___
-
1,357,947,229
----------------------------
(Number of shares of common stock
outstanding as of March 31, 1999)
<PAGE>
McDONALD'S CORPORATION
----------------------
INDEX
-----
<TABLE>
<CAPTION>
Page Reference
<S> <C>
Part I. Financial Information
Item 1 - Financial Statements
Condensed consolidated balance sheet,
March 31, 1999 (unaudited) and 3
December 31, 1998
Condensed consolidated statement of
income (unaudited), first quarters ended
March 31, 1999 and 1998 4
Condensed consolidated statement of
cash flows (unaudited), first quarters
ended March 31, 1999 and 1998 5
Financial comments (unaudited) 6
Item 2 - Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K 16
(a) Exhibits
The exhibits listed in the
accompanying Exhibit Index are
filed as part of this report 16
(b) Reports on Form 8-K 18
Signature 19
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------------------------------------
(UNAUDITED)
IN MILLIONS MARCH 31, 1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 560.2 $ 299.2
Accounts and notes receivable 629.0 609.4
Inventories, at cost, not in excess of market 69.6 77.3
Prepaid expenses and other current assets 302.1 323.5
- --------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,560.9 1,309.4
- --------------------------------------------------------------------------------------------------------------
OTHER ASSETS 2,676.7 2,433.4
PROPERTY AND EQUIPMENT
Property and equipment, at cost 21,462.0 21,758.0
Accumulated depreciation and amortization (5,775.9) (5,716.4)
- --------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 15,686.1 16,041.6
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $19,923.7 $19,784.4
==============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 989.3 $ 686.8
Accounts payable 496.4 621.3
Income taxes 100.0 94.2
Other taxes 140.1 143.5
Accrued interest 125.6 132.3
Other accrued liabilities 618.0 651.0
Current maturities of long-term debt 141.2 168.0
- --------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,610.6 2,497.1
- --------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 6,128.4 6,188.6
OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 510.7 492.6
DEFERRED INCOME TAXES 1,093.1 1,081.9
COMMON EQUITY PUT OPTIONS 487.5 59.5
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized - 165.0 million shares;
issued - none
Common stock, $.01 par value; authorized - 3.5 billion shares;
issued - 1,660.6 million 16.6 16.6
Additional paid-in capital 1,072.8 989.2
Guarantee of ESOP notes (148.9) (148.7)
Retained earnings 14,215.6 13,879.6
Accumulated other comprehensive income (783.1) (522.5)
Common stock in treasury, at cost; 302.7 and 304.4 million shares (5,279.6) (4,749.5)
- --------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 9,093.4 9,464.7
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,923.7 $19,784.4
==============================================================================================================
</TABLE>
See accompanying Financial comments.
3
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
QUARTERS ENDED
IN MILLIONS, EXCEPT MARCH 31
PER COMMON SHARE DATA 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Sales by Company-operated restaurants $2,179.1 $2,014.3
Revenues from franchised and affiliated restaurants 856.0 790.6
- ----------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,035.1 2,804.9
- ----------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 1,818.0 1,663.4
Franchised restaurants - occupancy expenses 178.8 158.1
Selling, general, and administrative expenses 339.9 343.0
Other operating (income) expense (13.2) (2.3)
- ----------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 2,323.5 2,162.2
- ----------------------------------------------------------------------------------------------------
OPERATING INCOME 711.6 642.7
- ----------------------------------------------------------------------------------------------------
Interest expense 105.2 102.8
Nonoperating (income) expense 5.7 (0.3)
- ----------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 600.7 540.2
- ----------------------------------------------------------------------------------------------------
Provision for income taxes 198.0 178.0
- ----------------------------------------------------------------------------------------------------
NET INCOME $ 402.7 $ 362.2
====================================================================================================
NET INCOME PER COMMON SHARE $ .30 $ .26
NET INCOME PER COMMON SHARE - DILUTED .29 .26
- ----------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $ .04875 $ .04125
- ----------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES 1,357.3 1,372.8
WEIGHTED AVERAGE SHARES - DILUTED 1,409.2 1,403.9
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Financial comments.
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------
QUARTERS ENDED
MARCH 31
IN MILLIONS 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 402.7 $ 362.2
Adjustments to reconcile to cash provided by operations
Depreciation and amortization 234.1 203.9
Changes in operating working capital items 72.9 (54.9)
Other 7.2 10.2
- ----------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS 716.9 521.4
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment expenditures (336.2) (401.9)
Purchases and sales of restaurant businesses and
sales of property (27.3) 7.2
Other (280.5) (36.7)
- ----------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (644.0) (431.4)
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Notes payable and long-term financing issuances and repayments 317.0 22.0
Treasury stock purchases (157.8) (100.7)
Common stock dividends (66.3) (56.6)
Other 95.2 57.7
- ----------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 188.1 (77.6)
- ----------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS INCREASE 261.0 12.4
- ----------------------------------------------------------------------------------------------------------
Cash and equivalents at beginning of period 299.2 341.4
- ----------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 560.2 $ 353.8
==========================================================================================================
</TABLE>
See accompanying Financial comments.
5
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL COMMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements in the Company's 1998
Annual Report to Shareholders. In the opinion of the Company, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation have
been included. The results for the quarter ended March 31, 1999 do not
necessarily indicate the results that may be expected for the full year.
The results of operations of restaurant businesses purchased and sold were not
material to the condensed consolidated financial statements for periods prior to
purchase and sale.
COMPREHENSIVE INCOME
Comprehensive income consists of net income and foreign currency translation
adjustments and totaled $142.1 million and $322.5 million for the first quarter
of 1999 and 1998, respectively.
PER COMMON SHARE INFORMATION
Common share amounts included in the accompanying financial statements have
been restated for the 2-for-1 common stock split in March, 1999. Diluted net
income per common share is calculated using net income divided by weighted
average shares on a diluted basis. Weighted average shares on a diluted basis
include weighted average shares outstanding plus the dilutive effect of stock
options, calculated using the treasury stock method, of 51.9 million shares and
31.1 million shares for first quarter 1999 and 1998, respectively.
COMMON EQUITY PUT OPTIONS
At March 31, 1999, 11.6 million of common equity put options were outstanding,
which expire at various dates through February 2000. The $487.5 million
exercise price of the options outstanding was classified in common equity put
options at March 31, 1999, and the related offset was recorded in common stock
in treasury, net of premiums received.
NEW ACCOUNTING STANDARD - FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. The Statement
will require the Company to recognize all derivatives on the balance sheet at
fair value. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged item through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
Company expects to adopt the new Statement effective January 1, 2000.
Management does not anticipate that the adoption will have a significant effect
on the Company's results of operations or financial position.
6
<PAGE>
SEGMENT INFORMATION
The following table presents the Company's revenues and operating income by
geographic segment:
<TABLE>
<CAPTION>
QUARTERS ENDED
MARCH 31
1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
REVENUES
U.S. $1,151.3 $1,102.0
Europe 1,156.2 990.3
Asia/Pacific 421.6 376.3
Latin America 163.6 192.9
Other 142.4 143.4
- ---------------------------------------------------------------------------
TOTAL REVENUES $3,035.1 $2,804.9
- ---------------------------------------------------------------------------
OPERATING INCOME
U.S. $ 314.1 $ 276.7
Europe 252.8 223.8
Asia/Pacific 91.3 79.8
Latin America 31.9 39.0
Other 21.5 23.4
- ---------------------------------------------------------------------------
TOTAL OPERATING INCOME* $ 711.6 $ 642.7
- ---------------------------------------------------------------------------
</TABLE>
* Corporate selling, general & administrative expenses (costs related to home
office support of the Company's global business) were allocated to the various
geographic segments, beginning in 1999. Prior year amounts have been restated
to conform to this presentation.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
- ------------------------------------------------------------------------------------------------------------------------
DOLLARS IN MILLIONS, EXCEPT
PER COMMON SHARE DATA QUARTER ENDED MARCH 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
% Increase/
Amount (decrease)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SYSTEMWIDE SALES $8,822.8 8%
- ------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales by Company-operated restaurants 2,179.1 8
Revenues from franchised and affiliated restaurants 856.0 8
- ------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,035.1 8
- ------------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 1,818.0 9
Franchised restaurants - occupancy costs 178.8 13
Selling, general, and administrative expenses 339.9 (1)
Other operating (income) expense (13.2) (N/M)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 2,323.5 7
- ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 711.6 11
- ------------------------------------------------------------------------------------------------------------------------
Interest expense 105.2 2
Nonoperating (income) expense 5.7 (N/M)
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 600.7 11
- ------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 198.0 11
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 402.7 11%
========================================================================================================================
NET INCOME PER COMMON SHARE $ 0.30 15%
NET INCOME PER COMMON SHARE-DILUTED 0.29 12
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(N/M) Not meaningful
8
<PAGE>
CONSOLIDATED OPERATING RESULTS
NET INCOME AND NET INCOME PER COMMON SHARE
For the quarter, net income and diluted net income per common share
increased 11 percent and 12 percent, respectively, both as reported and in
constant currencies. (Information in constant currencies excludes the effect of
foreign currency translation.)
Weighted average shares outstanding for the first quarter were lower
compared with the prior year due to the Company's share repurchase program.
However, diluted weighted average shares outstanding increased over the prior
year as the 63 percent increase in the stock price caused outstanding stock
options to be more dilutive.
During the first quarter, the Company repurchased five million shares of
its common stock for approximately $170 million, under the Company's three-year,
$3.5 billion program.
SYSTEMWIDE SALES AND REVENUES
Systemwide sales represent sales by Company-operated, franchised and
affiliated restaurants. Total revenues include sales by Company-operated
restaurants and fees from restaurants operated by franchisees and affiliates.
These fees include rent, service fees and royalties that are based on a percent
of sales with specified minimum payments along with initial fees.
On a global basis, the increases in sales and revenues for the quarter were
due to expansion and positive comparable sales. Foreign currency translation
had a slightly positive impact on Systemwide sales and a slightly negative
impact on total revenues, primarily because the stronger Japanese Yen had a
greater positive currency translation impact on sales compared to revenues. This
is due to our affiliate structure in Japan. Under this structure, we record a
small percentage of Japan's sales as revenues, whereas 100 percent of their
sales are included in Systemwide sales. On a constant currency basis, revenues
increased at a higher rate than sales, due to the higher unit growth rate of
Company-operated restaurants outside the U.S. relative to Systemwide
restaurants.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SYSTEMWIDE SALES
Dollars in millions 1999 1998 Increase/(Decrease)
- ------------------------------------------------------------------------------------------------------------------------
As In Constant
Reported Currencies*
- ------------------------------------------------------------------------------------------------------------------------
QUARTERS ENDED MARCH 31
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. $4,287.4 $4,119.2 4% n/a
- -------------------------------------------------------------------------------------------------------------------------
Europe 2,261.8 1,949.9 16 13%
- ------------------------------------------------------------------------------------------------------------------------
Asia/Pacific 1,511.3 1,334.0 13 8
- ------------------------------------------------------------------------------------------------------------------------
Latin America 393.6 410.6 (4) 16
- ------------------------------------------------------------------------------------------------------------------------
Other 368.7 356.0 4 9
- ------------------------------------------------------------------------------------------------------------------------
Total systemwide sales $8,822.8 $8,169.7 8% 8%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Excluding the effect of foreign currency translation on reported results
n/a Not applicable
U.S. sales increased due to positive comparable sales and restaurant
expansion. Promotions, particularly Big Mac and Winnie the Pooh, and local
market initiatives contributed to the sales increase.
In Europe, positive comparable sales and expansion drove the constant
currency sales increase. Strong performances in Germany, Italy, Spain and the
U.K. drove this increase. Sales growth in France also contributed to the
increase. Continuing difficult economic conditions in Russia negatively affected
Europe's sales growth.
In Asia/Pacific, the constant currency sales increase was driven by
expansion, partly offset by negative comparable sales. Australia and Japan were
the principal contributors to the segment's total constant currency sales
increase.
In Latin America, the constant currency sales increase was driven by
expansion, partly offset by negative comparable sales. Sales in this segment
were negatively affected by the economic turmoil in Brazil, including the
9
<PAGE>
significant devaluation of the Real. Double-digit comparable sales increases in
Mexico and Venezuela contributed to the increase.
COMBINED OPERATING MARGINS
Combined operating margin dollars increased $54.9 million, or six percent
in the first quarter, primarily driven by expansion and positive comparable
sales.
Company-operated margins as a percent of sales decreased for the quarter.
Payroll costs and occupancy & other expenses increased as a percent of sales,
while food & paper costs decreased.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
COMBINED OPERATING MARGINS Quarters ended
March 31
----------------------------------
1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Dollars in millions
- --------------------------------------------------------------------------------------------
Company-operated $ 361.1 $350.9
- --------------------------------------------------------------------------------------------
Franchised 677.2 632.5
- --------------------------------------------------------------------------------------------
Combined operating margins $1,038.3 $983.4
- --------------------------------------------------------------------------------------------
Percent of sales/revenues
- --------------------------------------------------------------------------------------------
Company-operated 16.6% 17.4%
- --------------------------------------------------------------------------------------------
Franchised 79.1 80.0
- --------------------------------------------------------------------------------------------
</TABLE>
As a percent of sales, U.S. Company-operated margins increased slightly.
Lower food & paper costs were partly offset by higher payroll costs and higher
occupancy & other operating expenses as a percent of sales.
Outside the U.S., Company-operated margins decreased as a percent of sales.
Lower food & paper costs were offset by increases in payroll costs and occupancy
& other operating expenses as a percent of sales. Economic difficulties in
Russia and Brazil negatively impacted Company-operated margins, accounting for
nearly 70 percent of the decline from the prior year in the margin percent
outside the U.S.
Franchised margin dollars comprised more than 60 percent of the combined
operating margins, the same as in the prior year. Franchised margin dollars
increased seven percent for the quarter, despite a decline in franchised margins
as a percent of applicable revenues.
As a percent of revenues, U.S. franchised margins decreased slightly for
the quarter, reflecting higher occupancy costs, including rent expense, driven
by an increase in the number of leased sites. Higher occupancy costs and the
consolidation, for financial reporting purposes, of Sweden in 1999 and South
Korea and Thailand in second quarter 1998 negatively affected franchised margins
outside the U.S. in the first quarter.
SELLING, GENERAL & ADMINISTRATION EXPENSES
Selling, general & administrative expenses decreased slightly for the
quarter. In the U.S., selling, general & administrative expenses decreased due
to savings as a result of the home office productivity initiative. Outside the
U.S., selling, general & administrative expenses increased at a rate
substantially less than the sales growth rate. The consolidation, for financial
reporting purposes, of three affiliate markets in 1999 and second quarter 1998
and spending to support restaurant development primarily drove the increase. As
a result of the home office productivity initiative, the Company expects to save
about $100 million of selling, general & administrative expenses per year,
beginning in 2000, with about two-thirds of the annual savings expected to be
realized in 1999. About $15 million of these savings were realized in 1998.
OTHER OPERATING (INCOME) EXPENSE
Other operating (income) expense consists of transactions related to
franchising and the food service business. The increase in equity in earnings
of unconsolidated affiliates was primarily due to Japan, which benefited from a
10
<PAGE>
lower effective tax rate and the stronger Japanese Yen. Made for You costs
related primarily to accelerated depreciation on equipment being replaced in
U.S. Company-operated restaurants.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
OTHER OPERATING (INCOME) EXPENSE Quarters ended
March 31
----------------------------------------
Dollars in millions 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gains on sales of restaurant businesses $(11.3) $ (8.0)
- ---------------------------------------------------------------------------------------------------------
Equity in earnings of unconsolidated affiliates (21.7) (12.4)
- ---------------------------------------------------------------------------------------------------------
Made for You costs 4.2 -
- ---------------------------------------------------------------------------------------------------------
Other (income) expense 15.6 18.1
- ---------------------------------------------------------------------------------------------------------
Other operating (income) expense $(13.2) $ (2.3)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
OPERATING INCOME
Consolidated operating income increased $68.9 million, or 11 percent, and
U.S. operating income increased $37.4 million or 14 percent for the quarter.
These increases were driven by higher combined operating margin dollars, higher
other operating income and lower selling, general & administrative expenses.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME
Dollars in millions 1999 1998 Increase/(Decrease)
- ------------------------------------------------------------------------------------------------------------------------
As In Constant
Reported Currencies*
- ------------------------------------------------------------------------------------------------------------------------
QUARTERS ENDED MARCH 31
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. $314.1 $276.7 14% n/a
- ------------------------------------------------------------------------------------------------------------------------
Europe 252.8 223.8 13 10%
- ------------------------------------------------------------------------------------------------------------------------
Asia/Pacific 91.3 79.8 14 11
- ------------------------------------------------------------------------------------------------------------------------
Latin America 31.9 39.0 (18) 2
- ------------------------------------------------------------------------------------------------------------------------
Other 21.5 23.4 (8) (3)
- ------------------------------------------------------------------------------------------------------------------------
Total operating income** $711.6 $642.7 11% 11%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Excluding the effect of foreign currency translation on reported results
** For financial reporting purposes, Corporate selling, general &
administrative expenses (costs related to home office support of the
Company's global business) were allocated to the various geographic
segments, beginning in 1999. Prior year amounts have been restated to
conform to this presentation.
n/a Not applicable
Europe's operating income increased 10 percent for the quarter in constant
currencies. The strong results of Germany, Italy and Spain drove this segment's
performance. France and the U.K. also contributed to the increase. In
addition, Europe's operating income benefited from the consolidation of Sweden,
due to an increase in ownership. Europe's growth was dampened by the difficult
economic conditions in Russia. Excluding Russia, Europe's operating income
increased 15 percent for the quarter in constant currencies.
Operating income in Asia/Pacific increased 11 percent for the quarter in
constant currencies. The increase was driven primarily by Japan, which
benefited from a lower effective tax rate. In addition, the consolidation of
South Korea and Thailand in second quarter 1998 contributed to the increase.
Latin America's operating income increased two percent for the quarter in
constant currencies. Mexico and Puerto Rico were the primary contributors to
this increase. Brazil's difficult economic conditions and currency devaluation
had a significant adverse effect on this segment's operating results. The
Company is cautiously optimistic that improvements in the Brazilian economy will
lessen the effect as we move through the year. On an as reported basis, Brazil
accounted for about 50 percent of Latin America's operating income for the
quarter compared with 75 percent in the prior year.
INTEREST AND INCOME TAXES
Slightly higher interest expense reflected higher debt levels and stronger
foreign currencies, partly offset by lower average interest rates.
11
<PAGE>
The effective income tax rate was 33.0 percent for the first quarter of
1999 and 1998. For the year 1999, the Company expects the effective tax rate to
be in the range of 32.5 percent to 33.5 percent.
IMPACT OF FOREIGN CURRENCIES ON REPORTED RESULTS
While changing foreign currencies affect reported results, McDonald's
lessens exposures, where practical, by financing in local currencies, hedging
certain foreign-denominated cash flows and by purchasing goods and services in
local currencies.
The Deutsche Mark, French Franc and Japanese Yen were the primary
currencies positively affecting reported results, while the weakened Australian
Dollar, Brazilian Real and the Canadian Dollar had a negative effect on reported
results.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
EFFECT OF FOREIGN CURRENCY TRANSLATION ON WORLDWIDE REPORTED RESULTS Increase
Over Prior Period
-------------------------------------------------------------------------------------
Dollars in millions, except per As In Constant Currency As In Constant
common share data Reported Currencies* (Benefit)/Loss Reported Currencies*
- ------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED MARCH 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Systemwide sales $8,822.8 $8,802.0 $(20.8) 8% 8%
- ------------------------------------------------------------------------------------------------------------------------
Total revenues 3,035.1 3,069.8 34.7 8 9
- ------------------------------------------------------------------------------------------------------------------------
Operating income 711.6 711.5 (0.1) 11 11
- ------------------------------------------------------------------------------------------------------------------------
Net income 402.7 402.0 (0.7) 11 11
- ------------------------------------------------------------------------------------------------------------------------
Net income per common share -
diluted .29 .29 - 12 12
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Excluding the effect of foreign currency translation on reported results
MADE FOR YOU SYSTEM
In 1998, the Company announced the introduction of Made for You, a new food
preparation system that is expected to be installed in virtually all restaurants
in the U.S. and Canada by the end of 1999. More than 6,500 or nearly 50 percent
of restaurants in the U.S. and Canada are currently using the new system.
Through advances in equipment and technology, the new system allows us to serve
fresher, better-tasting food at the speed of McDonald's. The system also
supports future growth through product development because it can more easily
accommodate an expanded menu. The Company is providing financial incentives of
up to $12,500 per restaurant to owner/operators to defray the cost of equipment
made obsolete as a result of converting to the new system. The Company is also
making additional payments in special cases where the conversion to Made for You
is more extensive.
In 1999, the Company expects to incur about $30 million related to the
implementation of Made for You, consisting of about $15 million of incentive
payments and $15 million of accelerated depreciation on equipment being replaced
in Company-operated restaurants. The Company incurred $4.2 million in the first
quarter, primarily related to accelerated depreciation.
FINANCIAL POSITION
Free cash flow - cash provided by operations less capital expenditures -for
the three months ended March 31, 1999 increased $261.2 million to $380.7
million. Together with other sources of cash such as borrowings, free cash flow
was used primarily for share repurchases, debt repayments, and dividends. The
consolidated capital expenditure decrease of 16% for the three months ended
March 31, 1999 was primarily due to fewer restaurant additions, weaker foreign
currencies and the continued focus on more efficient capital deployment. The
Company expects to add about 1,750 restaurants this year, with a continued
emphasis on traditional restaurants in locations outside the U.S. The Company
expects to use cash provided by operations to fund the cash costs related to the
productivity initiative announced in 1998 and the financial incentive payments
the Company is providing to owner/operators in connection with the
implementation of the Made for You system.
12
<PAGE>
NEW ACCOUNTING STANDARD - FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. The Statement
will require the Company to recognize all derivatives on the balance sheet at
fair value. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged item, through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
Company expects to adopt the new Statement effective January 1, 2000. Management
does not anticipate that the adoption will have a significant effect on the
Company's results of operations or financial position.
YEAR 2000
The Company has assessed its computerized systems to determine their
ability to correctly identify the Year 2000 and is devoting the necessary
internal and external resources to replace, upgrade or modify all significant
systems which do not correctly identify the Year 2000. All necessary
modifications, testing and replacements of significant systems have been
completed except for one remaining significant system. The Company is in the
process of modifying and testing this system which is expected to be completed
in the fourth quarter.
In addition, the Company has determined the extent to which its operations
may be affected by the compliance efforts of its significant suppliers and is
taking the necessary steps to minimize potential problems. The Company has
implemented a Systemwide supply chain compliance monitoring program, which
encompasses supplier risk assessment and compliance validation for significant
suppliers.
Management does not expect Year 2000 issues relating to internal systems
and suppliers to pose significant operational or financial difficulties for the
Company; however, in the unlikely event McDonald's or a significant number of
its key suppliers are unable to resolve these issues in a timely manner, such
matters could have a material impact on the Company's results of operations. In
addition, failures related to Year 2000 issues by providers of infrastructure
services could have a material adverse effect on results of operations.
Contingency plans are being developed, to the extent feasible, to address Year
2000 issues that might arise internally, within the supply chain or by
infrastructure service providers. These plans, which are expected to be
completed in third quarter 1999, may include certain suppliers stockpiling
products and equipment to ensure there is an adequate supply, developing
alternative methods of transportation to deliver products to the restaurants and
increasing restaurant support.
Modification and testing costs are expensed as incurred, while the costs of
new systems are capitalized. As a result of the decision to modify the last
remaining non-Year 2000 compliant system rather than replace it, the Company has
revised its estimate of Year 2000 costs. The Company expects its total costs
related to modification and testing as well as costs associated with supply
chain risk assessment and contingency planning to be about $40 million, of which
about $25 million was incurred through March 31, 1999. The total costs for the
development of new systems is about $40 million, all of which has been
capitalized as of March 31, 1999. The total Year 2000 costs have not and are not
expected to have a material adverse impact on the Company's financial position,
results of operations or cash flows.
All Year 2000 statements contained herein are designated as "Year 2000
Readiness Disclosures" pursuant to the Year 2000 Information and Readiness
Disclosure Act of 1998.
EURO CONVERSION
On Janauary 1, 1999, 11 member countries of the European Union established
fixed conversion rates between their existing currencies ("legacy currencies")
and one common currency, the Euro. The Euro is now trading on currency
exchanges and may be used in certain transactions such as electronic payments.
Beginning in January 2002, new Euro-denominated notes and coins will be issued,
and legacy currencies will be withdrawn from circulation. The conversion to the
Euro has eliminated currency exchange rate risk for transactions between the
member countries, which for the Company, primarily consist of payments to
suppliers. In addition, as the Company uses foreign-denominated debt and
derivatives to meet its financing requirements and to minimize its foreign
currency risks, certain of these financial instruments will be redenominated
into Euros.
13
<PAGE>
The Company has restaurants located in all member countries and has been
preparing for the introduction of the Euro for the past several years. The
Company is currently addressing the issues involved with the new currency, which
include converting information technology systems, recalculating currency risk,
recalibrating derivatives and other financial instruments and revising processes
for preparing accounting and taxation records. Based on the work to date, the
Company does not believe the Euro conversion will have a significant impact on
the Company's financial position, results of operations or cash flows.
FORWARD-LOOKING STATEMENTS
Certain forward-looking statements are included in this report. They use
such words as "may," "will," "expect," "believe," "plan" and other similar
terminology. These statements reflect management's current expectations and
involve a number of risks and uncertainties. Actual results could differ
materially due to the success of operating initiatives, advertising and
promotional efforts, Year 2000 compliance efforts and Euro conversion efforts,
as well as changes in: global and local business and economic conditions;
currency exchange and interest rates; food, labor and other operating costs;
political or economic instability in local markets; competition; consumer
preferences, spending patterns and demographic trends; availability and cost of
land and construction; legislation and government regulation; and accounting
policies and practices.
14
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL INFORMATION
QUARTERS ENDED
MARCH 31
DOLLARS IN MILLIONS 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Systemwide sales by type
Operated by franchisees $ 5,439.9 $ 5,030.2
Operated by the Company 2,179.1 2,014.3
Operated by affiliates 1,203.8 1,125.2
- ---------------------------------------------------------------------------------------------------------------------------------
Systemwide sales 8,822.8 8,169.7
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues
U.S. 1,151.3 1,102.0
Europe 1,156.2 990.3
Asia/Pacific 421.6 376.3
Latin America 163.6 192.9
Other 142.4 143.4
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenues 3,035.1 2,804.9
- ---------------------------------------------------------------------------------------------------------------------------------
Restaurant margins
Company-operated
----------------
U.S. 16.6% 16.4%
Outside the U.S. 16.6% 17.9%
Franchised
----------
U.S. 79.9% 80.1%
Outside the U.S. 78.1% 79.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income $ 711.6 $ 642.7
Income before provision for income taxes 600.7 540.2
Net income 402.7 362.2
Net income per common share 0.30 0.26*
Net income per common share - diluted 0.29 0.26*
- ---------------------------------------------------------------------------------------------------------------------------------
Cash provided by operations 716.9 521.4
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets 19,923.7 18,416.2
Total shareholders' equity 9,093.4 9,122.0
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Restated for 2-for-1 common stock split in March 1999.
<TABLE>
<CAPTION>
RESTAURANTS
- ---------------------------------------------------------------------------------------------------------------------------------
AT MARCH 31, 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
By type
Operated by franchisees 15,316 14,366
Operated by the Company 5,693 5,065
Operated by affiliates 3,946 3,915
- ---------------------------------------------------------------------------------------------------------------------------------
Systemwide restaurants 24,955 23,346
- ---------------------------------------------------------------------------------------------------------------------------------
QUARTERS ENDED
MARCH 31
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Additions
U.S. (10)* 33
Europe 49 57
Asia/Pacific 74 91
Latin America 28 18
Other 14 15
- ---------------------------------------------------------------------------------------------------------------------------------
Systemwide additions 155 214
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes the closing of about 30 low-volume satellite locations in 1999.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NUMBER Description
- -------------- -----------
(3) Restated Certificate of Incorporation, effective as of March 24, 1998,
incorporated herein by reference from Form 8-K dated April 17, 1998.
By-Laws, effective as of July 8, 1998, incorporated herein by
reference from Form 10-Q for the quarter ended June 30, 1998.
(4) Instruments defining the rights of security holders, including
Indentures (A):
(a) Senior Debt Securities Indenture dated as of October 19,
1996 incorporated herein by reference from
Exhibit 4(a) of Form S-3 Registration Statement (File No. 333-
14141).
(i) 6 3/8% Debentures due January 8, 2028. Supplemental
Indenture No. 1 dated as of January 8, 1998, incorporated
herein by reference from Exhibit (4)(a) of Form 8-K dated
January 5, 1998.
(ii) 5.90% REset Put Securities due 2011. Supplemental
Indenture No. 2 dated as of May 11, 1998, incorporated
herein by reference from Exhibit 4(a) of Form 8-K dated
May 6, 1998.
(iii) 6% REset Put Securities due 2012. Supplemental Indenture
No. 3 dated as of June 23, 1998, incorporated herein by
reference from Exhibit 4(a) of Form 8-K dated June 18,
1998.
(iv) Medium-Term Notes, Series F, due from 1 year to 60 years
from the Date of Issue. Supplemental Indenture No. 4
incorporated herein by reference from Exhibit (4) (c) of
Form S-3 Registration Statement (File No. 333-59145),
dated July 15, 1998.
(b) Subordinated Debt Securities Indenture dated as of October 18,
1996, incorporated herein by reference from Form 8-K dated
October 18, 1996.
(i) 7 1/2% Subordinated Deferrable Interest Debentures due
2036. Supplemental Indenture No. 1 dated as of November 5,
1996, incorporated herein by reference from Exhibit (4)(b)
of Form 8-K dated October 18, 1996.
(ii) 7 1/2% Subordinated Deferrable Interest Debentures due
2037. Supplemental Indenture No. 2 dated as of January 14,
1997, incorporated herein by reference from Exhibit (4)(b)
of Form 8-K dated January 9, 1997.
(iii) 7.31% Subordinated Deferrable Interest Debentures due
2027. Supplemental Indenture No. 3 dated September 24,
1997, incorporated herein by reference from Exhibit (4)(b)
of Form 8-K dated September 19, 1997.
(c) Debt Securities. Indenture dated as of March 1, 1987
incorporated herein by reference from Exhibit 4(a) of Form S-3
Registration Statement (File No. 33-12364).
(i) Medium-Term Notes, Series B, due from nine months to 30
years from Date of Issue. Supplemental Indenture No. 12
incorporated herein by reference from Exhibit (4) of Form
8-K dated August 18, 1989 and Forms of Medium-Term Notes,
Series B, incorporated herein by reference from Exhibit
(4)(b) of Form 8-K dated September 14, 1989.
(ii) Medium-Term Notes, Series C, due from nine months to 30
years from Date of Issue. Form of Supplemental Indenture
No. 15 incorporated herein by reference from Exhibit 4(b)
of Form S-3 Registration Statement (File No. 33-34762),
dated May 14, 1990.
16
<PAGE>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
(iii) Medium-Term Notes, Series C, due from nine months (U.S.
Issue)/184 days (Euro Issue) to 30 years from Date of
Issue. Amended and restated Supplemental Indenture No. 16
incorporated herein by reference from Exhibit (4) of Form
10-Q for the period ended March 31, 1991.
(iv) 8-7/8% Debentures due 2011. Supplemental Indenture No. 17
incorporated herein by reference from Exhibit (4) of Form
8-K dated April 22, 1991.
(v) Medium-Term Notes, Series D, due from nine months (U.S.
Issue)/184 days (Euro Issue) to 60 years from Date of
Issue. Supplemental Indenture No. 18 incorporated herein
by reference from Exhibit 4(b) of Form S-3 Registration
Statement (File No. 33-42642), dated September 10, 1991.
(vi) 7-3/8% Notes due July 15, 2002. Form of Supplemental
Indenture No. 19 incorporated herein by reference from
Exhibit (4) of Form 8-K dated July 10, 1992.
(vii) 6-3/4% Notes due February 15, 2003. Form of Supplemental
Indenture No. 20 incorporated herein by reference from
Exhibit (4) of Form 8-K dated March 1, 1993.
(viii) 7-3/8% Debentures due July 15, 2033. Form of Supplemental
Indenture No. 21 incorporated herein by reference from
Exhibit (4)(a) of Form 8-K dated July 15, 1993.
(ix) Medium-Term Notes, Series E, due from nine months (U.S.
Issue)/ 184 days (Euro Issue) to 60 years from the Date of
Issue. Supplemental Indenture No. 22 incorporated herein
by reference from Exhibit 4(b) of Form S-3 Registration
Statement (File No. 33-60939), dated July 13, 1995.
(x) 6-5/8% Notes due September 1, 2005. Form of Supplemental
Indenture No. 23 incorporated herein by reference from
Exhibit (4)(a) of Form 8-K dated September 5, 1995.
(xi) 7.05% Debentures due 2025. Form of Supplemental Indenture
No. 24 incorporated herein by reference from Exhibit
(4)(a) of Form 8-K dated November 13, 1995.
(d) Indenture and Supplemental Indenture No. 1 dated as of September
8, 1989, between McDonald's Matching and Deferred Stock Ownership
Trust, McDonald's Corporation and Pittsburgh National Bank in
connection with SEC Registration Statement Nos. 33-28684 and 33-
28684-01, incorporated herein by reference from Exhibit (4)(a) of
Form 8-K dated September 14, 1989.
(e) Form of Supplemental Indenture No. 2 dated as of April 1, 1991,
supplemental to the Indenture between McDonald's Matching and
Deferred Stock Ownership Trust, McDonald's Corporation and
Pittsburgh National Bank in connection with SEC Registration
Statement Nos. 33-28684 and 33-28684-01, incorporated herein by
reference from Exhibit (4)(c) of Form 8-K dated March 22, 1991.
(10) Material Contracts
(a) Directors' Stock Plan, as amended and restated, incorporated
herein by reference from Exhibit 10(a) of Form 10-Q
for the quarter ended September 30, 1997.*
(b) Profit Sharing Program, as amended and restated, incorporated by
reference from Form 10-K for the year ended December 31, 1998.*
(c) McDonald's Supplemental Employee Benefit Equalization Plan,
McDonald's Profit Sharing Program Equalization Plan and
McDonald's 1989 Equalization Plan, as amended and restated,
incorporated herein by reference from Form 10-K for the year
ended December 31, 1995.*
(d) 1975 Stock Ownership Option Plan, as amended and restated,
incorporated herein by reference from Form 10-Q for the quarter
ended March 31, 1998.*
(e) 1992 Stock Ownership Incentive Plan, as amended and restated,
incorporated herein by reference from Form 10-Q for the quarter
ended March 31, 1998.*
17
<PAGE>
(f) McDonald's Corporation Deferred Income Plan, as amended and
restated, incorporated by reference from Form 10-K for the year
ended December 31, 1998.*
(g) Non-Employee Director Stock Option Plan, incorporated herein by
reference from Exhibit A on pages 25-28 of McDonald's 1995 Proxy
Statement and Notice of 1995 Annual Meeting of Shareholders dated
April 12, 1995.*
(h) Executive Retention Plan, incorporated by reference from Form 10-
K for the year ended December 31, 1998.*
(12) Statement re: Computation of Ratios
(27) Financial Data Schedule
_____________________________________
* Denotes compensatory plan.
Other instruments defining the rights of holders of long-term debt of the
registrant and all of its subsidiaries for which consolidated financial
statements are required to be filed and which are not required to be registered
with the Securities and Exchange Commission, are not included herein as the
securities authorized under these instruments, individually, do not exceed 10%
of the total assets of the registrant and its subsidiaries on a consolidated
basis. An agreement to furnish a copy of any such instruments to the Securities
and Exchange Commission upon request has been filed with the Commission.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed for the last quarter covered by
this report, and subsequently through May 13, 1999.
<TABLE>
<CAPTION>
Financial Statements
Date of Report Item Number Required to be Filed
-------------- ------------ --------------------
<S> <C> <C>
4/23/99 Item 7 No
</TABLE>
18
<PAGE>
SIGNATURE
---------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
McDONALD'S CORPORATION
(Registrant)
By Michael L. Conley
------------------
(Signature)
Michael L. Conley
Executive Vice President,
Chief Financial Officer
May 13, 1999
-------------------------
19
<PAGE>
EXHIBIT 12
McDONALD'S CORPORATION
STATEMENT RE: COMPUTATION OF RATIOS
Dollars In Millions
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
1999 1998 1998 1997 1996 1995 1994
---------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR FIXED CHARGES
- - Income before provision for income taxes $600.7 $540.2 $2,307.4(1) $2,407.3 $2,251.0 $2,169.1 $1,886.6
- - Minority interest in operating results of
majority-owned subsidiaries, including
fixed charges related to redeemable
preferred stock, less equity in
undistributed operating results of
less-than-50% owned affiliates 5.1 4.8 23.7 28.3 39.6 19.6 6.6
- - Provision for income taxes of 50% owned
affiliates included in consolidated income
before provision for income taxes 16.1 17.8 99.9 69.0 73.2 73.3 34.9
- - Portion of rent charges (after reduction
for rental income from subleased
properties) considered to be representative
of interest factors* 42.8 40.0 161.3 145.9 130.9 103.8 83.4
- - Interest expense, amortization of debt
discount and issuance costs, and
depreciation of capitalized interest* 118.5 116.1 461.9 424.8 392.2 388.8 346.0
---------------- ----------------------------------------------------
$783.2 $718.9 $3,054.2 $3,075.3 $2,886.9 $2,754.6 $2,357.5
================ ====================================================
FIXED CHARGES
- - Portion of rent charges (after reduction
for rental income from subleased
properties) considered to be representative
of interest factors* $ 42.8 $ 40.0 $ 161.3 $ 145.9 $ 130.9 $ 103.8 $ 83.4
- - Interest expense, amortization of debt
discount and issuance costs, and fixed
charges related to redeemable preferred
stock* 115.6 113.3 453.4 426.1 410.4 403.4 343.9
- - Capitalized interest* 2.7 4.0 18.3 23.7 23.5 22.8 21.0
---------------- ----------------------------------------------------
$161.1 $157.3 $ 633.0 $ 595.7 $ 564.8 $ 530.0 $ 448.3
================ ====================================================
RATIO OF EARNINGS TO FIXED CHARGES 4.86 4.57 4.82(2) 5.16 5.11 5.20 5.26
================ ====================================================
</TABLE>
*Includes amounts of the Registrant and its majority-owned subsidiaries, and
one-half of the amounts of 50%-owned affiliates.
(1) Includes $161.6 million of Made for You costs and the $160.0 million pre-tax
special charge related to the home office productivity initiative for a 1998
pre-tax total of $321.6 million.
(2) Excluding Made for You costs and the special charge, the ratio of earnings
to fixed charges for the year ended December 31, 1998 would have been
5.33.
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
NOTE: THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 560
<SECURITIES> 0
<RECEIVABLES> 629
<ALLOWANCES> 0
<INVENTORY> 70
<CURRENT-ASSETS> 1,561
<PP&E> 21,462
<DEPRECIATION> 5,776
<TOTAL-ASSETS> 19,924
<CURRENT-LIABILITIES> 2,611
<BONDS> 6,128
0
0
<COMMON> 17
<OTHER-SE> 14,356
<TOTAL-LIABILITY-AND-EQUITY> 19,924
<SALES> 2,179
<TOTAL-REVENUES> 3,035
<CGS> 1,818
<TOTAL-COSTS> 1,997
<OTHER-EXPENSES> (13)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 601
<INCOME-TAX> 198
<INCOME-CONTINUING> 403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
</TABLE>
