Mary Kay Shaw - Vice President, Investor Relations Ralph Alvarez - President and Chief Operating Officer Matthew Paull - Chief Financial Officer and Corporate Senior Executive Vice President

Glen Petraglia - Citigroup Larry Miller - RBC Capital Markets David Palmer - UBS Jim Baker - Neuburger John Glass - CIBC Scott Carroll - Goldman Sachs Jeff Bernstein - Lehman Brothers Steven Kron - Goldman Sachs Andy Barish - Banc of America Securities Rachael Rothman - Merrill Lynch Matt DiFrisco - Thomas Weisel Partners John Ivankoe - JP Morgan Joe Buckley - Bear Stearns Howard Penny - Prudential Paul Westra - Cowen & Co.

Hello and welcome to McDonald's April 20, 2007 investor conference call. At the request of McDonald's Corporation, this conference is being recorded. (Operator Instructions) I would now like to turn the conference over to Ms. Mary Kay Shaw, Vice President of Investor Relations for McDonald's Corporation. Ms. Shaw, you may begin.

Hello, everyone, and thank you for joining us today. With me on our call: our Chief Operating Officer, Ralph Alvarez; and Chief Financial Officer, Matthew Paull. This conference call is being webcast live and recorded for replay via phone, webcast and podcast. As always, the forward-looking statements which appear in our earnings release and 8-K filings also apply to our comments. Both the earnings release and our 8-K with supplemental financial information are available on investor.mcdonalds.com, as are reconciliations of any non-GAAP financial measures mentioned on today’s call with their corresponding GAAP measures. At 11:00 a.m., we will pause for a moment of silence in remembrance of all those affected by the tragedy at Virginia Tech. Virginia Governor Tim Kaine has declared today a day of mourning and calls for a moment of silence at noon Eastern Time. Our thoughts and prayers go out to the family and friends of the victims and we plan to join in that remembrance at 11:00 a.m. our time. Now, I would like to turn it over to Ralph Alvarez.

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Thank you, and thanks for joining us. I will begin with comments on the quarter’s results and then discuss this morning’s announcement regarding our developmental license strategy. Our first quarter results were very strong and I am pleased with the momentum the execution of our Plan to Win is driving across all geographies. Our system is aligned and focused on one plan to create an even more successful future, and we are confident that being better, not just bigger, is the right strategy. Although we are proud of our recent business performance, make no mistake that our management team knows there is much more we can and will do to sustain and grow the business in ’07 and beyond. Now for the quarter. We delivered earnings per share of $0.62, up 27% over prior year earnings of $0.49 per share. Separately, if you compared our earnings from continuing operations, they were up 38% over last year’s $0.45 per share. Revenues increased 7% in constant currencies, driven by our strong comparable sales growth. Operating income for the quarter reached almost $1.2 billion, up 25% in constant currencies. Reflected in these results is a benefit of 11 points from impairment charges we took in the first quarter of last year. We continue to drive margin expansion. As a result of healthy sales growth and a good balance between traffic and average check increases, company-operated margins increased 120 basis points and our franchise margins increased by 30 basis points. I will now provide the details by area of the world, and we will start with Europe. Europe had an excellent quarter with comparable sales up 8%. We are pleased by the sustained momentum we have achieved. Company-operated margins also improved 180 basis points to 15.4%, driven primarily by the very strong comparable sales. The U.K. contributes 75 of those basis points of the margin improvement due to positive comp sales and last year’s strategic closing of restaurants and ownership changes. During the quarter, beef costs in Europe increased by 2% while chicken decreased about 2%. We expect beef and chicken costs to be relatively flat for the year. Results in Europe are being achieved with a focus on three core strategies: upgrading the customer experience, building brand transparency, and enhancing our local relevance. Related to upgrading the customer experience, McDonald's Europe continues to attract customers by featuring a variety of premium products along with compelling value options. These, mixed with exciting marketing promotions, are driving the results. Talking about menu offerings, the U.K. launched Chicken Selects and Snack Wraps, and their early results are reflected in the March sales. Germany will be next to launch these menu items. Beyond the big three countries of France, Germany and the U.K., we are also seeing strong consistent performance elsewhere, including Russia and Italy, markets with significant upside for growth and they will contribute much more in the next three years. Now, turning to the U.S., our momentum continues with first quarter comp sales up 4.4%. We are seeing success from breakfast, extended hours, and the menu line extension of the popular snack wraps with February’s launch of the grilled and honey-mustard versions. We will continue to keep the menu fresh for our customers with this week’s rollout of our premium Southwest Salad. Company-operated margins for the first quarter remained high at 18% but declined 30 basis points versus last year. This is primarily due to state minimum wage increases and group health costs. Regarding commodity costs, beef was down 5% for the quarter while chicken was up 6%. For the year, we expect beef costs to be down slightly and chicken to be up in that 5% to 7% range. In total, we believe 2007 cost pressures can be managed by our continued business momentum, along with reasonable menu prices, increases which will be spread out throughout the year. Our U.S. breakfast business continues to grow and has never been stronger. In 2007, you will continue to see an emphasis on breakfast with new product introductions like Cinna-melts, now available in most of our restaurants, and our coffee customization. In addition, we have tests of a bigger breakfast burrito and a southern style chicken biscuit. We have also built a strong foundation in our brewed coffee business with last year’s introduction of the premium roast coffee. The success of our efforts now enables us to further expand in the coffee space by adding ice coffee in many markets and then later down the road, specialty coffees like cappuccinos, lattes, and mochas. Our U.S. business has a strong plan in place and the best owner-operators in the industry executing against that plan. In fact, during our recent U.S. owner-operator annual business meetings, Jim Skinner and I were very impressed by the energy and alignment and the commitment to continue to grow the brand. Now, turning to our Asia-Pacific, Middle East and Africa area of the world, in Asia-Pacific, the comps for the quarter were up 8.5%, led by Japan, China, and the Middle East. Asia-Pacific’s focus on branded affordability, breakfast, combined with convenience extensions like 24-hour drive-thru and delivery are producing results. This segment generated a 260 basis point improvement in company-operated margins to 14.9%, primarily driven by the strong sales. We have compelling, locally relevant plans in each of the countries and we are doing a good job executing against those plans. For example, in China our management team is having success delivering on what we said we would do -- focusing on branded affordability, more choice on the menu, and expanded convenience. We are beginning to see traction. In fact, in the first quarter, China revenues increased 15.9% in constant currencies, company-operated margins were up 380 basis points, and our operating income grew by 73.5%. McDonald's China is actively promoting the variety of proteins we offer -- chicken, beef, and fish. This unique-to-McDonald's consumer proposition, when coupled with creative advertising, distinguishes us from the other quick service restaurants there. With increased spending power and a 15% growth in automobiles comes a greater mobility and demand for convenience. The McDonald's drive-thru becomes an ideal choice. Our development plans for 2007 include opening 100 new restaurants, half of which will be drive-thrus. New restaurant drive-thru restaurant sales are higher than those restaurants that open without drive-thrus. In addition, we opened the first drive-thru as part of our Sinopec alliance this year and we expect to open 10 more by the end of the year. Sinopec is China’s largest petroleum retailer with 30,000 locations, providing us with an important pipeline of sites for the future. We are very optimistic about our prospects in China. Our business is strong around the world. We remain committed to continuing to increase customer relevance and are confident in our ability to continue to deliver results. Now, let me shift focus and discuss strategic activities around maximizing our asset base and our ownership structures. Franchising remains a backbone of our business, a recognized business model that helps build and make our brand what it is today. In fact, more than 70% of our restaurants worldwide are owned and operated by entrepreneurs. We remain committed to our long-term strategy to have McDonald's restaurants mostly run by strong independent business women and men who are dedicated to grow in the markets they operate. While it is important to maintain a certain number of company-operated restaurants to test new concepts, develop talent, and to remain a credible franchisor, our goal has been to reduce the overall percentage over time. As part of this process, we announced today a significant transaction under our development licensee strategy, or DL. We have committed to franchise nearly 1600 restaurants in Latin America to a single developmental license organization led by Woods Staton. Woods is a highly respected businessman and leader and a valued member of the McDonald's system for more than 20 years. He most recently served as south Latin America Division President. In that role, he worked closely with McDonald's Latin America President, Jose Armario, and the leadership team to help revitalize our business. In fact, many key leaders there were recruited and developed by Woods and are expected to remain a part of his team. Woods possesses strong operations and marketing skills to continue the growth of the brand, make effective reinvestment choices, and maximize the potential for this geography. Woods is committed to a long-term relationship and will be the CEO. His other partners include Capital International Private Equity Fund, [Galvaia Investimentos], and DLJ South American Partners. All are prominent groups in Latin America with many years of business experience. Ultimately, this selection was based on the best overall package of price and terms acceptable to McDonald's as well as Woods and his team’s expertise and experience in the marketplace. Their strength provides additional assurance that our Latin American business will continue to exemplify the highest qualities of our brand. We want to express our appreciation and the enormous respect we have for our Latin American franchisees, partners, and employees who have worked hard to achieve a great business turnaround. Despite external economic challenges, the recovery is well underway. Our brand is extremely popular and we remain confident in its long-term potential. In fact, for the past three years, McDonald's Latin America has achieved double-digit comp sales gains, driving improvement in both company-operated and franchise margins. First quarter 2007 marks the 13th consecutive quarter of company-operated margin improvements. We hope this perspective gives you additional insight into the current health of the business and our confidence that the momentum will continue under Woods’ leadership and result in success for all three legs of the McDonald's stool. It is important to emphasize that this ownership approach is one we have used for many years as we have over 1,000 restaurants currently operating as DLs around the world. It is a structure similar to a traditional franchise arrangement. A local entrepreneur uses their capital, real estate and business knowledge to build the brand and optimize results. Now, in terms of McDonald's commitment to building long-term value for our investors, we believe our actions speak louder than words. You can count on this leadership team to continue to act in the best interests of both the shareholders and the system. I would now like to turn it over to Matthew Paull who will provide more details on the transaction, our quarterly results, and our impact that we have had.

Thank you, Ralph, and good morning, everyone. Our intense focus on providing solutions for today’s busy consumer is driving sustained business momentum. We are leveraging this momentum with disciplined practices to enhance long-term shareholder value. Today, I would like to highlight some of these activities, in particular, the progress we have made on our development license strategy. In 2006, we outlined our intent to franchise about 2300 restaurants with developmental licensees over a three-year period. This morning’s announcement of the franchising of virtually all of McDonald's Latin America under a developmental license marks a milestone in pursuit of our goal. When we close the Latin American transaction and complete the conversion of these restaurants, the McDonald's brand will be better positioned from both a customer and a shareholder perspective. The customer will see us growing faster and becoming even more locally relevant. Our shareholders will see a less capital intensive business with reduced volatility, a steadily growing stream of royalties, and improved returns. On our last call, we made reference to getting even better at being better and not just bigger. One of you on the call asked us to describe just what we meant by that. Well, this transaction is an example of just this. We expect to franchise almost 1600 mostly McOpCo restaurants to Woods Staton and his organization when the transaction closes some time in the next few months. The benefits of licensing substantially all of our Latin American markets to this one group is the increased opportunity for the long-term success of the licensee. Owning an portfolio of markets balances the risk, so that if one market experiences volatility it is likely to be mitigated by the success of other markets. Now let’s get into some of the details. With the approval of this transaction earlier this week by our Board of Directors, we crossed the threshold to account for these restaurants as held for sale for impairment testing purposes. As such, in the second quarter, we can now write down the assets to their estimated realizable value. Cash proceeds from the transaction are expected to be about $700 million. In line with previous guidance, the expected proceeds represent slightly less than half of the $1.5 billion net book value of the assets in these markets. This results in a substantially all non-cash second quarter impairment charge of approximately $800 million. Our non-cash second quarter impairment charge will also include about $825 million to recognize accumulated currency translation losses, losses currently carried in the shareholders equity section of our balance sheet. Moving forward under this arrangement, we will collect the royalties starting at 5% of sales and escalating after 10 years. Woods Staton and his partners have committed to invest about $100 million annually to reimage existing restaurants and to open new restaurants, and McDonald's overall G&A will decline in excess of $125 million as our licensee assumes responsibility for most of the activities we previously funded in Latin America. Based on 2006 results for these restaurants, the anticipated annualized impact of this transaction is a decrease in revenues of about $1.5 billion; increased franchise and company-operated margin percentages; no significant initial impact on operating income as the incremental net royalty income will approximately the operating income earned in the segment in 2006; in addition, CapEx requirements will be reduced by about $90 million; and finally, we anticipate the benefits of this structure in Latin America will improve our consolidated return on assets by about 90 basis points. You may have noticed that we did not include guidance this morning for our full year tax rate in the filing we made this morning. We expect a minimal tax benefit from the Latin America transaction and we are nearing the end of an IRS tax audit which could impact the tax rate. Once we have resolution of these items, we will update our guidance. This Latin American transaction, combined with other markets franchise to developmental licensees in 2006 results in about 600 restaurants remaining in the DL pipeline. These mostly McOpCo restaurants represent less than $500 million in net book value. We continue to expect completion of these conversions by the end of 2008. We believe today’s development licensing announcement is a positive for our customers, our shareholders, and our system and is another step in the direction of moving to a more franchise business model. Woods and his team will optimize the McDonald's brand and experience better than we could and faster. This relationship gives us an opportunity to participate in Latin America’s considerable growth potential via a more stable, more investor friendly royalty stream. The growth and stability of our licensing strategy also supports our commitment to return more cash to shareholders. We will use the $700 million in proceeds from this transaction to increase cash returned to shareholders. We now expect to return at least $5.7 billion to shareholders through dividends and share repurchase in ’07 and ’08 combined. In the first quarter, we repurchased about $1 billion, or 22.4 million shares of our stock, so we are off to a good start on this commitment. Going forward, we remain committed to further reducing shares outstanding through buy-backs and disciplined compensation mix practices. This disciplined approach also extends to our G&A. In the first quarter, G&A increased 4%, about one-third of the quarter’s revenue growth rate. For the year, we expect G&A as a percent of revenues to decline, continuing a four-year trend. In closing, I am pleased with our strong first quarter results and with the significant progress we have made in franchising more of our restaurants. The Latin America transaction is one more step in the process and will reduce our worldwide McOpCo percentage from 26% to 23%. I echo Ralph’s confidence in Woods’ team and believe that these strategic actions further solidify our commitment to continue to enhance shareholder value. Thank you and now I would like to turn things back over to Mary Kay.

Thanks, Matt. I will now open the call up for questions. (Operator Instructions) The first question is from Glen Petraglia. Glen Petraglia - Citigroup: Good morning. Ralph, I was hoping you could just repeat your comment about the U.S. margins being down in the first quarter and what your expectations are going forward regarding pricing. My understanding was that wage pressures would have -- the plan was to be able to price the wage increases throughout the states. I am curious to know why that was not the case in the first quarter.

Margins were down 30 basis points, yes. They were at 18%, which is close to our all-time high. Remember, this is the winter quarter. It is not when we normally take many of our price increases. We spread them out throughout the year but not at the time when customers are tighter in the wallets. So we are comfortable that throughout the year, that both the minimum wage increases, some of the group health costs, and the commodity costs are reasonable and that our business momentum will, along with the fact that we have brand strength and we have price elasticity, that we will cover that throughout the year, but this was not unexpected for us.

Thank you. The next question comes from Larry Miller at RBC. Larry Miller - RBC Capital Markets: I wanted to ask a question on the U.S. breakfast. A lot of competitors coming in over the next 12 months, and clearly McDonald's has the biggest share. Could you guys talk about how you think about defending market share and defending margins, the balance between those two things? Thank you.

Larry, first on the margins side, breakfast has very strong margins. Our growth in coffee has only made those stronger, and it is not an area that we do much discounting. The growth is exceeding demand. Demand is exceeding supply here and so we continue to grow breakfast comps higher than our regular menu. We have a strong pipeline of new products, and so what we have done is we have accelerated the amount of media that we spend against this segment in order to be able to communicate the new products and the pipelines that we have and make sure that we stay top of mind. We believe breakfast will continue. Breakfast away from home grew 10% last year, and so -- not for us, that is for the category, so we are very bullish on it and not concerned about the competition coming in.

Larry, just some perspective, I think meals eaten outside the home for breakfast is at about 11% in the United States. For lunch, it is probably in the mid- to high-20s. For dinner, it is also much, much higher. As Ralph mentioned, it is growing very quickly. If we only hold on to our share of that growth, we are going to do very well. We think we will do better than that. Remember that this is a habit developed over a long period of time. People have been jumping in and out of breakfast for some time. We would agree these days because they see what we see. There happen to be more people jumping in but that has been going on for many months now and we have been doing just fine, but we will take nothing for granted.

One last item there is that I always say, we have been making real estate decisions for the last 30 years with breakfast side of the road being a key component of that. I would not underestimate the value of convenience. As you know, when people are going to work, they will not make a left-hand turn and get out of the traffic pattern.

The next question comes from David Palmer at UBS. David Palmer - UBS: Good morning. Congratulations on that quarter. A question for you on Europe and the operations changes that you are making there. The kitchen changes, the bridge operating platform, you put that out in the U.K. recently. Could you talk about how you might be phasing that in throughout Europe and what sort of schedule we can think about that? Was that an expense lately -- as you deploy that, is that something that we should consider on the margin line? Lastly, if there are other things like credit cards and other point of sale systems that we should be thinking about, particularly in Europe? Thanks very much.

The bridge operating platform -- we will be mostly complete with rolling out bridge operating platform by 2008 throughout the major countries of Europe. So it is not just the U.K. We are very far along in France and in Germany and this is a critical component to allow us to extend our chicken strategy and continue some of the menu momentum. That is why you are now seeing the Chicken Selects and those types of products, because we are able to handle them at a much higher level of quality and a more varied menu. As far as margins, they are not significant investments and so not an impact on margins. You saw the level of margins we had first quarter. It is more the reason we have not done it faster is the operational take and the retraining that needs to occur on how we call production and how we schedule labor, and so we have been very careful on doing that. Relative to credit cards, in general in Europe, the majority of our business is debit card, not credit card. That is what is a big part of it. In most markets other than the U.K., we already have been taking cash less for a long, long time. The U.K. is something that because of the equivalent of POS systems and where we were, we were not able to do that and that is going to happen here over the next year.

The next question is from Jim Baker at Neuburger. Jim Baker - Neuburger: I had a couple of quick ones. One on China. Can you give us some sense as to what percentage of the Asia profit growth might have been just attributable to the turnaround you are seeing in China? That was my first question. Secondly, I noticed in Canada you had no revenue growth to speak of but a lot of profit growth, a lot of margin improvement, so if you could talk about that. Finally, to which geography was the impairment charge of $2.6 million in ’07 attributed to?

First on China, I can tell you relative to the margins, the company operated margins, of the 270 basis points, China was 100 of those basis points improvement. They improved 380 on their base but that represented 100 basis points to the Asia Pacific area of the world improvement. Relative to Canada, Canada sales were just slightly up on a comp sales basis. We were not satisfied with that. We could say weather and everything else but the reality is we were not, but we have stabilized our Canadian business, our branded affordability, and our margins have been growing there so that is why you saw decent margins. We also had a few gains from some of the refranchising that we are doing there of company restaurants that are part of our operating results but are not necessarily going to be a recurring gain that continues going forward to the long term. We just rolled out Snack Wraps in Canada and we have a strong plan so we believe their plan is solid for the rest of the year.

Jim, that impairment of $2.6 million, that is Maldova. And then, just one other thing, to give you a perspective on Asia, the most profitable two markets are Australia and Japan, in that order. Gaining quickly on them is China, so China would be number three in Asia.

As we said earlier, we would like to pause for a moment of silence for the victims of Virginia Tech at this time. Okay, we can go ahead with the next question now. Thank you for that. The next question is from John Glass at CIBC. John Glass - CIBC: One clarification, and then a question. The clarification is on the remaining 600 DL units, if you could just talk about their sales and profit contribution. My question, Matthew, is for you I guess on leverage. Can you remind us on the rationale of why 35% to 40% debt-to-capital is the right level? I guess in particular I am interested if your thinking has changed on that as others in the restaurant space, particularly the quick service space, have used leverage more recently and more aggressively to increase returns. Has that changed the way you look at leverage? Thanks.

Thanks, John. Mary Kay will, when I am done answering the leverage question, she will update you on the remaining 600 restaurants in our DL pipeline. We get a lot of questions about our capital structure. I want to give you some background. We review our capital structure with our board at least once a year. I think you are all aware that we have about another, depending on how you would measure it, $7 billion to $10 billion of debt that the rating agencies add back to our balance sheet due to leases. You have seen us be very serious and committed to reducing share count and returning large amounts of cash to shareholders. With that in mind, each year in our outlook we try to give you an idea of what will happen with debt levels. I think we have targeted 35% to 40%, a simple debt-to-cap ratio. We are probably running much closer to the 35% than the 40%, so even within the guidance we gave you, which is not written in stone, we have given ourselves five points of flexibility. That is probably a little over $1 billion. We look at how we want to run our system. We do consider the effect it would have on our suppliers and franchisees, and then we give you some guidance as to how much we expect to return to shareholders at a minimum over a period of time. I think you have seen that every time we have put out a minimum, we have exceeded it. And that is we are fully aware that we are evolving our business model in a direction where we are going to be less capital intense and more money will be finding its way into the pockets of our shareholders. What we would like to reserve is the flexibility to say exactly what form it will take, dividend or share repurchase, and exactly which year. Anybody who has invested in the stock, and we welcome everybody, but anybody who has invested in the stock thinking that in a month there is going to be some big leverage events, it is just not likely to happen but it is something we look at regularly. We certainly understand we could run our system with something less than a stable A credit rating, but for now that is what we are targeting. Thank you.

To update you on the 600 restaurants, they are primarily located in Asia-Pacific, Middle East Africa, and some small markets in Europe. They have a net book value of less than $500 million. These 600 restaurants in 2006 had sales of about $800 million, had an operating loss of about $10 million, but that was before impairment charges of about $30 million; G&A of about $45 million; and CapEx of about $25 million.

John, I want to come back to one last item relating to the leverage issue. We are not people who think like we have all the answers. We monitor trends very carefully. We have certainly watched what has happened at Domino’s. It seems to have worked nicely for them but it is a different company, different brand, a different set of franchisees than we have. Just because it worked for one company in our industry does not necessarily mean that we would do it. Thanks.

Thank you. The next question is from Scott Carroll at Goldman Sachs. Scott Carroll - Goldman Sachs: Thanks. Just along those lines, maybe you could talk about the dividend. It looks like the payout ratio is about 37.5% or so on consensus ’07 earnings. I am just wondering if maybe you could frame where you might like that payout ratio to go over time.

Thanks, Scott. We do not target a particular payout ratio. However, I want to make it clear that we love dividends. Before it became popular, we made a significant move with our dividend, and for those of you who were not following us back then, we said it reinforces -- paying a larger dividend reinforces our overall strategy of better, not just bigger. We had this history of opening a lot of units as the only way of growing. When we decided to transition to better, not bigger, we wanted the way we use our capital to reinforce our strategy. So we went to a bigger dividend. Our Board meets once a year, usually in the fall, to consider the dividends and I would expect that would happen again this year. But other than signaling how much total cash at a minimum we expect to return to shareholders over the next two years, we are not in a position to talk about a specific dividend recommendation today. Thank you.

The next question is from Jeff Bernstein at Lehman Brothers. Jeff Bernstein - Lehman Brothers: Thank you. Actually, a question on your long-term growth targets you established a few years ago, specifically related to system sales and revenues, profits, returns. Obviously the past few years have been very strong on all measures. I am just wondering if that out-performance you can sustain over the next few years. I guess this is directed more towards Matt then. The serving of an increase perhaps in those long-term targets, or whether you see those as appropriate in the near term. Separately, what you see as more your normalized, long-term EPS growth. I am just wondering whether high-single digits you would view as appropriate as you look out over the next few years or whether you think the momentum can continue above that. Thanks.

Jeff, thanks for your question. We learned three or four years ago that we are better at running a business than at predicting what the business will do. So we picked targets that we though were healthy for our system. We have been fortunate enough to exceed them every year. I expect that we can continue to exceed them but by exactly how much, we don’t want to say. We know that focusing on the 32,000 locations we have today has been very, very healthy for us. We fully understand that in places like Russia and China it is bigger and better, but for a lot of the rest of the world, it is better, not just bigger. So we are going to stick to the strategy we have. We are not going to predict what our long-term growth rate would be other than to say we are going to stick with these targets and we expect to continue to exceed them. Thanks.

Thank you. The next question is from Steven Kron at Goldman Sachs. Steven Kron - Goldman Sachs: Great, thanks. I just wanted to go back to Europe, if I could, a couple of questions there. First on the sales line, can you just talk to us about the make-up of price mix and traffic in the 8% comp and how that might compare to the trends you were seeing a year ago, if there are any changes? Secondly and related, if I think about the source of the margin gains there, if you bucketed them into kind of the mix of product versus the absence of discounting or just leveraging the fixed costs, can you give us some color as to how you think that margin expansion, that 180 basis points shook out?

First in Europe, Europe is an area -- you know, stable inflation, so our price increases which we normally try to keep right at or slightly below inflation, is something that as far as in the sales, you can pretty much count on those being in that 2% to 3% range. Now, what we have had when you look at that 8% comp, is we have had some very successful new products that are priced at higher than our average products. If you look at our results, it is a healthy blend of traffic, price increases, some were below 3% but we have had a little bit of an average check growth also from the new products. As far as the margin growth, the biggest factor was sales but a stable, branded affordability, especially in the U.K. where we were doing a lot more discounting before and had not established a solid consumer strong everyday value, is helping margins. We already had that in Germany. We have had it for the last almost two years and we have a pretty good base also in France. So in our big markets, that is where we are at so I would tell you it is mostly sales, some definitely with the branded affordability, and we had a slight benefit in the U.K. as we mentioned earlier from the store closings and the refranchisings.

Thank you. The next question is from Andy Barish at Banc of America. Andy Barish - Banc of America Securities: Just quickly following up that and the U.K. assets, can you give us an update, any significant actions early this year or what you are expecting for the remainder of ’07?

Not anything of significance in the first quarter. We did have -- I think we had 12 refranchisings and we closed a few, like five or six restaurants. We do have leases that come up and if it is not in our best situation to go ahead and renew those, we get out of some of those. We continue to be committed to get below that 30%. We have said that that will be at a pace, and I will tell you that pace is more in that 50 store range, because we need our franchisees to be healthy both from a capital and a management and training point of view to be able to absorb the restaurants as we transfer those over. We have a franchising plan. We have worked with them. Our best franchisees are the ones that are going to grow. They are developing that talent and they are putting themselves in an economic situation to be able to do it and we are executing against that plan.

Thank you. The next question is from Rachael Rothman at Merrill Lynch. Rachael Rothman - Merrill Lynch: Good morning. Could we talk a little bit about your CapEx? I know you guys have been doing a great job with the refranchising and I think the remodels, at least interior remodels are complete in the U.S. Could you talk a little bit about the remodel program within the context of -- I guess your forecast is for CapEx to be up again in ’07 versus ’06 and versus ’05? At what point should we expect you guys to begin to trail off in your capital expenditures?

They have been trending up a little bit but I have to mention that the Euro itself has been going up so fast that if you did this on a constant currency basis, it would not look like much of an increase. I think that when you look at the opportunities we have around the world, the only thing that I could see changing significantly for us is that you heard Ralph describe how excited we are about our progress in China. Well, if we decided to open 200 restaurants a year instead of 100 in China, it would only take maybe another $50 million of capital, so it is not going to be a significant factor or a significant change. We signaled this morning that as a result of this licensing transaction, the CapEx requirements which used to be ours will transition to the licensee over the course of this year. It depends when we close the transaction. So some piece of it, $90 million, won’t be our responsibility this year and none of it will be next year. I might point out that the licensee is going to grow units probably at a rate that is twice as fast as we have grown them in the last three or four years, but that will not be our capital. I would say you ought to expect our CapEx to run in about the same range, and please remember when the Euro is up, it not only raises our operating income but some of our CapEx requirements go up because we are also investing in Euros in some of these markets. Thanks.

Thank you. The next question is from Matt DiFrisco at Thomas Weisel Partners. Matt DiFrisco - Thomas Weisel Partners: Matthew, could you just update us as far as is there a franchise mix goal that you are looking for in the more mature Western European countries right now, where you stand and where you look to go to on a desired basis?

We have signaled pretty clearly that we believe in franchising. We kind of invented the category as applied to the restaurant industry. We have to admit we got distracted over a period of years and in some of the major western markets, we ended up with a company-owned percentage that was higher than we thought made sense. So we have signaled, for instance, in Canada and the U.K., that our long-term goal is to have no more than 30% McOpCo in each of those countries. We have looked at all of the other countries. France is way below that. The U.S. is way below that. Australia might be very slightly above that, and then there are several other large markets where franchising is not available to us because local law does not allow it or our rights as a franchisor and landlord are not enforceable. So we believe in franchising. We are going to continue to reduce the company-owned percentage, but other than the U.K. and Canada we have not set a firm target.

Thank you. The next question is from John Ivankoe at JP Morgan. John Ivankoe - JP Morgan: Thanks. Obviously in the U.S. you have a few major market tests going on of what I think are some pretty exciting premium products, the Southern Chicken Sandwich in Dallas that we have seen and of course the one-third pound Angus burger on the West Coast. Could you help us understand how those products are doing in individual markets? And assuming that it is going well, when they might be ready for national rollout?

We do not signal how well they are doing but if we are mentioning them to you on this call, in general obviously we believe they have the ability to be scaled. We have not talked about the Angus burger test. In southern Cal it’s got a lot of press. It is early. We started that in the first quarter but we know that there is a market out there. What we have said is our greatest success is when we give our customers what they are already getting in the marketplace that we have not offered them, and if we can deliver those at McDonald's price and McDonald's speed. So if you look at in general the type of products that we are testing, they are products that are already in the marketplace, already have consumer appeal. What we have to figure out is can we deliver them within our operating system? Also, does the customer believe that brand McDonald's has credibility in order to sell those? That is where we are at but we believe we have a strong pipeline here for the next three years.

John, I want to reinforce what Ralph just said. We used to have two issues. One was can we do it operationally and will the customer accept it from McDonald's? On that latter issue, we have discovered that we have a lot more freedom of movement from a customer’s point of view because of the way the brand has evolved, and we are very, very positive about that. You look at what is in the test that Ralph named, we have the Southern Style Chicken, Angus Burger, specialty coffees, iced coffees, all premium priced products and customers -- it is still early -- customers have told us this make sense at McDonald's. That does not mean every one of these test will become national but the reception on the part of the customer and what our brand stands for has never been stronger and so we are very excited about all the things that are in test and all of the possibilities.

Thank you. The next question is from Joe Buckley at Bear Stearns. Joe Buckley - Bear Stearns: Thank you. I just want to go back to U.S. margins for a moment. The labor pressure, you mentioned minimum wage increases and a couple of other things, but is it also related to raises that you may have given independently, changes in schedules, or even some of the extended hours and the labor percentages you might run in those extended hours?

We give out increases on a regular basis. They are based on both seniority and levels of training achieved in the restaurants and so those do not necessarily happen in one month, and we do that on purpose so that they are spread out. We had 22 states raise minimum wage, have minimum wage increases here in the last few months, so this piled on a little bit more one-time. Normally it is something that is spread out and then they match how we also move our prices and thus it is more predictable on a month-to-month basis. We made the decision not to mess with our price value equation just because we had a slightly higher bump. Our productivity on a per transaction basis, which is how we measure it, including our extended hours is strong and has not declined, so it is not because of that.

Thank you. The next question is from Howard Penny at Prudential. Howard Penny - Prudential: Thanks very much. I guess technically my question was asked, but I want to try to frame it a different way. The pendulum has swung dramatically from the low points in ’02, ’03 to where the rating agencies were breathing down your necks to improve profitability, and now the pendulum has swung so far in the other direction that yes, you have sort of mentioned before what your target is for debt-to-cap and you are giving $5.7 billion to shareholders in the next few years, you gave $5 billion in ’06. It almost seems like you are significantly under-levered today and the $5.7 billion, while it is a huge number, it is grossly low to what you could really give, especially given what you did last year, what your cash flow looks like, what your CapEx is. If you could maybe just go through how you come up with the $5.7 billion. I understand you have the $700 million additional increase to that with the assets, but given the development, the license strategy and you are moving towards a more franchise system with more stable royalties and all that, can you maybe go into why 5.7 is the right number and why it should not be 10 or $15 billion even?

I want to reemphasize -- we keep saying at least and we have a pretty good history of exceeding our minimums. So I do not want you to fixate on 5.7. That is the minimum. What we do -- and I agree that the landscape is changing in the capital markets generally but also, we have a more stable business model that I agree would support more debt if we decide that is where we want to go. What we do is we go through an internal analysis that we certainly are not going to share on the call. We have our own view of what that borrowing would do for the stock price and we look at that and we look at okay, what does it mean to our system that we are financially strong. And we weigh those things every year once a year, and again, this is not in cement, but for now it is where we are and for now that outlook is what it is until we decide to change it. I am not guaranteeing you that next year we will say 35 to 40 is right. It could be something different but for now that is where we are. I think by the time we end the year, you will be happy with what we have returned to shareholders. I certainly agree that we could run this system and run it well at something less than a stable A rating. But for now, that is where we are.

Thank you. The next question is from Paul Westra at SG Cowen. Paul Westra - Cowen & Co.: Thank you and good afternoon. I have a question going back to the transaction with Woods. I think I’ve got it but I want a little clarity. You mentioned the 1600 units. I just want to be clear -- those are 1,100 plus company and inclusive of 500 or so franchise units. Is that the case and if so, walk us through the -- I guess the new development licensee would be the master franchise -- you know, development licensee with franchisees underneath them. How would those contracts change or anything change from the local franchisee perspective?

You are right. We have over 1,100 McOpCos there so those transfer and are company-owned restaurants of Woods and his company. The franchisees become franchisees of that new company, and so the contracts that are in place transfer to Woods. The responsibility for servicing those restaurants transfer along. In fact, we have had conversations with our franchisees in Latin America. Over the last few months, I personally -- Jose Amario and I have been out in the marketplace as the word of potentially doing a deal has been out there. We had a conference call before this but we had a webcast where Woods and Jose addressed the different issues. We are confident on the serviceability, the capital strength of Woods and his investment group and their commitment to growth. From our point of view, it is a master franchisee is what -- he is a master franchisee for those other franchises. We will provide the brand, guidance, support and sharing of best practices from around the world is what our responsibility will be to that area of the world.

Thank you. The next question is from Rachael Rothman at Merrill Lynch. Rachael Rothman - Merrill Lynch: I’m sorry, I may have missed it, but can you give us the breakdown of the consolidated company-operated margins with labor and occupancy for the quarter? It is usually in the 8-K.

I did not hear the question.

The breakdown of food and labor.

Okay, food was 33.3%, labor was 26.2%, and occupancy and other was 24.6%. Was that your question? I guess we were anticipating that question. Thank you. The next one is from Joe Buckley at Bear Stearns. Joe Buckley - Bear Stearns: Just a follow-up to that, Mary Kay, those are worldwide numbers, I assume? Would the U.S. numbers be available?

No. Nice try, though. Joe Buckley - Bear Stearns: Two questions, if I can. One, Matt, on your comments, you talked about or made reference to your debt ratings and how they affect the franchisees and suppliers. Could you elaborate a little bit on that, if they are really affected and how so? And then, a follow-up question on the SG&A. It as very, very well-controlled in this quarter. Should we expect that to continue or was there anything unusual in that year-over-year comparison that will make the SG&A grow a little bit more, even though less revenues in following quarters?

I will take the question about how our credit rating does or does not affect our franchisees. I would say it has a couple of effects. Our franchisees admittedly are very strong compared to the rest of the industry. Their equity compared to debt levels is extremely healthy and getting healthier year by year. But still, we believe that they enjoy a bit of a halo from the strength of our brand. Not that we provide any guarantees, but our banking system and the banks that participate in our lending programs we think make credit available more inexpensively because of our financial strength. In addition, you know what franchisees pay other franchisors in terms of fees, and we get a very generous franchise fee payment from our U.S. franchisees, for example. The same thing for our franchisees all over the world. If you got them collectively in a room, they would say one of the things they get from McDonald's is our financial strength. If we decided to take a downgrade of a couple of notches to make a big return of cash to shareholders, one of the things we would examine is okay, what does it do to that relationship? Does it change the expectations of our franchisees? Will they come to us and say maybe we should not pay you as much because you are not giving us the halo from your financial strength anymore? We do not know all the answers to all those questions, but that is some of what we think about.

On the SG&A, Joe, the rate that you saw for the first quarter is a fairly normal rate of growth. We have tight controls on G&A. It is one of the commitments that we made to our shareholders. There will be savings in excess of $125 million a year from the Latin America transaction that will come off of that once that transaction closes. So that will be a benefit towards later on in the year.

Just one other comment on G&A, so the 4% we talked about was an as-reported number. If you did it in constant currency, it was 1.6% or 1.7%. And then because Europe had a really good quarter, they accrued some incentive compensation. It was probably above their 100% target, and so that is in there as well. If you factored that out, it would be below a 1% growth.

Thank you. The next question is from Larry Miller at RBC. Larry Miller - RBC Capital Markets: Just two questions; can you update us on where the U.S. and European business stand in terms of reimaging? How many stores have been done and what kind of sales increases you guys are seeing and plans to get the rest done timing wise? Also, just in terms of U.S. average unit volumes, I think they are roughly around $2 million. Can you give us an idea of where the variance is around there? Is it pretty tight around that $2 million range, or do you have some laggard in the group that could really catch up to that volume? Thanks.

The reimagings done through the end of ’06, about 4,500 U.S., about 1,100 Europe. There are still some more being done but the formal program in the U.S. stopped at the end of ’06. That does not mean we will not find things where we choose to co-invest with our franchisees in the U.S. That is always a possibility. We really like what the reimaging program did and there are several effects, not all of which we can measure. One is the that we reimage has a sales lift and that varies all over the place, but a second effect is the employees and operators who work in that store get a lot more excited, and the third effect is reimaging a significant percentage of our base of stores to bring them into this century sends a strong message about our brand. Ralph talked about all the premium products that are in test. You cannot sell a premium product in a dining room that looks like it has not been touched for 20 years and we are fully aware of that. This is one of the ways we tap into our competitive financial strength as a franchisor and also among our franchisees. We know the rest of the industry cannot match what we are doing in this area but we are going to be very careful. We have generally been touching something just under 10% of the store base per year. I do not ever think it will get greater than that. Probably for this year it might be a tiny bit less.

One other item on that, Larry, is in the U.S. because of the older, the much older restaurants, we will do between 200 and 250 rebuilds this year, so while they are not reimaging, they are major rebuilds. It is a tear down and set up and so you will see some of that as the system continues to age. That is the best thing we can do for brand. Somewhere we already know how successful we are and in most cases, our rebuilds, because we can also improve drive-thru layouts and most of those buildings back then were built way back from the street, get better visibility, et cetera. They are very strong. On the $2 million amount, we are over $2.1 million in the U.S. on our traditional restaurants. So if you say which ones are -- we are at about 1,000 Wal-marts. We do not put that in that equation because they are not a full service type, whatever. Quite honestly, the distribution is pretty tight around that $2 million because our brand is so strong and our real estate selection process over the years has been pretty solid, the way we spread out those restaurants. So yes, obviously we have some very high volume ones but we do not have a lot of very low volume ones in that equation.

Okay, thank you. We are out of questions and out of time. I will go ahead and turn it over to Ralph for a few closing comments.

Thank you, and in closing, 2006 was an outstanding year and that resulted in returns on incremental invested capital, one of our key measures, far exceeding our high teens target at 35% for both one- and three-year periods, and we are off to an excellent start in 2007. The roadmap to our future remains our plan to win supported by continued focus on our customers and importantly, alignment with our owner-operators, our suppliers, and our employees. We are getting better at being better and we are confident that we will continue to build the top and bottom lines. Thank you for your time.

This concludes today’s teleconference. You may now disconnect.

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