Mary Kay Shaw - VP of IR Ralph Alvarez - COO Matthew Paull - CFO

Steven Kron - Goldman Sachs Jeff Bernstein - Lehman Larry Miller - RBC CapitalMarkets David Palmer - UBS Glen Petraglia - Citigroup Jason West - Deutsche Bank Andrew Barish - Banc of America John Ivankoe - JP Morgan John Glass - CIBC Joe Buckley - Bear Sterns Paul Westra - Cowen Jeff Omohundro - Wachovia Larry Miller - RBC Jake Bartlett - Thomas Weisel

Hello, and welcome to McDonald'sOctober 19, 2007 Investor Conference Call. At the request of McDonald'sCorporation this conference is being recorded. Following today's presentationthere will be a question-and-answer session for investors. (OperatorInstructions). And now I would now like to turnthe call over to Ms. Mary Kay Shaw, Vice President of Investor Relations forMcDonald's Corporation. Ms. Shaw, you may begin.

Thank you. Hello, everyone, andthank you for joining us today. With me on our call are Ralph Alvarez, ChiefOperating Officer and Matthew Paull, Chief Financial Officer. This conferencecall is being webcast live and recorded for replay via phone, webcast andpodcast. As always, the forward-lookingstatements which appear in our earnings release and 8-K filings also apply toour comments. Both the earnings release and our 8-K with supplemental financialinformation are available on investor.mcdonalds.com, as are reconciliations ofany non-GAAP financial measures mentioned on today's call with theircorresponding GAAP measures. And now, I will go ahead and turnit over to Ralph.

Good morning everyone. It's agreat time to be in McDonald's. Our business is strong around the world for theevery area contributing to growth and posing positive comparable sales andtransaction accounts. And we have tremendous opportunity ahead of us. I willbegin today's comments with the quarterly results and discuss the strategiesthat are driving momentum. Then Matt will take you through the earnings pershare numbers and provide details about the Boston Market transaction and ourcapital structure. Our management team is verypleased with our results and can assure you that performance this quarter isdue to McDonald's continued focus on the plan to win. Our strong sustainedmomentum is due to our winning strategy of being better and not just better. We are running better restaurantsand have become more efficient given the evolution of our kitchens to provideconsumers with even greater choice and variety. Operational excellence enablesus to capture additional sales from customers who are recognizing our serviceimprovement and rewarding us for it. Equally important, we have system linealignment behind one plant, a compelling benefit for company our size. In addition, our decentralizedorganization is a competitive advantage, because it enables each area in worldto implement aggressive, locally relevant strategies that ensure our brand willappeal to their customers. They have the flexibility to emphasize differentbusiness drivers for their specific market conditions. These drivers fit forthem what we call the common success factors. They are branded affordability.Platforms that offer everyday predictable prices, here in the US you knowthat as Dollar Menu, greater variety in menu choice. Building on our strongcore menu to provide customers with additional food choices that they didn'texpect to get at McDonald's, better operations creating a more satisfyingexperience, expanded convenience, which helps our customers access our brandwhere, when and how they want to and our ongoing reinvestment programs make itour restaurants the most contemporary and best places for both our customersand for our employees. As we go through our thirdquarter results, you will see that all areas of the world are succeeding due totheir local deployment and execution of the common success factors that applyto their marketplaces. For now let's talk about operating income and margins.Driven by strong comparable sales, our revenues increased 3% in constantcurrencies in spite of the Latin America transaction and refranchising ofrestaurants in the UK and Canada. In the US, Europe and Asia/Pacific, Middle East and Africa, the revenues were up 6%, 7% and 13% respectivelyin constant currencies. Operating income for the quarterreached $1.5 billion, up 13% in constant currencies. Our consolidated franchisemargins were up 110 basis points to 82.3%. Now, in the phase of a morechallenging worldwide commodity and labor environment we are pleased to reportconsolidated company operating margin increased a 100 basis points to 18.3%.This margin expansion is a result of healthy sales growth and a good balancebetween traffic and average check increases and we remain committed to furtherimproving margins as we continue to grow our sales. Let me now provide thedetails about how each area of the world has contributed to our success. First Europe, Europehad a strong quarter with comp sales up 6.5%. Franchise margins increased 80basis points to 79.4 and company-operated margin improved 120 basis points to19.5% the highest level in seven years. This improvement was driven by strongsales across the segment, ownership changes in the UK and supply chain efficiencies.This was also partially offset by increased labor cost and to a lesser extentcommodity cost. These are impressive resultsespecially when compared year-over-year as Europewas up against its best performing quarter from 2006. Nearly all countries in Europe posted strong numbers. We are having consistentperformance across Europe beyond the big three markets of France, Germanyand the UK.Notably, Russia, Italy and Spain are countries with strongresults and the ability to contribute more over time. The European business hasachieved these outstanding results with their continued focus on three corestrategies. Upgrading the customer experience, enhancing local relevance andbuilding brand transparency. We continue to attract customers by featuring avariety of premium products, combined with compelling value options. The goodexample is Europe's expansion of the chicken category, including new chickenproducts at various price points such as the Snack Wraps at an entry level inthe UK and Germany. ChickenSelects at the core level in Germanyand the Chicken Gourmet and Chicken Mythic sandwiches at premium price pointsin Franceand many other countries. Franceis also experiencing success in terms of innovating a rather fourth tier ofmenu pricing with their combination of Le Petit Plaisir for small pleasuresofferings. This strategy is being exported to other markets in Southern Europe with comparable success. Separately, our reimaging work withbest-in-class restaurant designs coming out of our European design studio isalso resonating with customers. In addition to new restaurants openings withdesigns, almost the fourth of the European restaurants, 1,500 of them, over thepast five years have been re-imaged and are adding to overall brand experience. Now, let's turn to the US. In the US momentumcontinues with third quarter comp sales up 5.1%, marking 54 consecutive monthsof positive increases. Performance is especially impressive when put into thecontext of a drop in consumer confidence and the higher gas prices that areimpact the overall industry. USfranchise margins for the third quarter were up 90 basis points to 83.2%,driven by the strong sales mentioned above. Company-operated margins remainedhigh at 18.4%, but did decline 60 basis points versus the same period lastyear. This was primarily due to wage increases and commodities. We have adjusted prices byapproximately 3.5% over the last year. Still below the food away from home inflationindex and we will continue to make adjustments, but do so only with thelong-term health of the business in mind. As a result, we continue tooutpace the compensation with strong traffic growth, significant market sharegains and growing restaurant cash flow. While we have more pricing power thanever before, our comprehensive value strategy enables us to achieve resultswhile meeting consumer needs for everyday affordability and convenience. Our three-tier menu approachprovides consumers with the range of menu options. It starts with $1 menu valueplatform, which is now been in place for five years, and continues to bring inconsumer while looking for ways to stretch our wallets and encompasses thehigher end with premium salads and sandwiches. Another important part of thevalue proposition in the USis the addition of Chicken Snack Wraps. The August introduction of the ChipotleBarbeque Snack Wrap further extends this product line, and is sellingsignificantly above target. By staying in the course, we will continue to buildconsumer loyalty and grow our customer base. We will leverage these gains withadditional rollout of new products from our strong menu pipeline. In terms of the drivers behindthe quarter's USresults, breakfast and beverages continue to feel that growth, as we providedmore choice and variety. We have continued to capitalize on the strongfoundation we built with last year's successful introduction of Premium RoastCoffee. Overall coffee sales, bothPremium Roast and Ice coffees contributed to the sales increases. Thecreditability we have established in coffee propels us to further expand ourtests of specialty coffees such as cappuccino, lattes and mochas. Also driving US continues to bethe added convenience we offer customers to extended hours. Late night, early morning and 24hours the gains in market share we've had this year have strengthened ourcompetitive position. Our US business has a strong plan inplace and the best owner-operators in the industry to execute against it. Now, let's turn to Asia-Pacific,Middle East, and Africa. Robust sales growthin all major countries in Asia-Pacific including Japan, Australia and China,resulted in an 11.4% comp for the quarter, the highest in 10 years. Franchise margins for this areain the world are strong at 88.4%. In the phase of increasing labor andcommodity cost, company operated margins still improve the 190 basis points to15.8%. This improvement was primarily driven by strong sales, guest counts andimproved operating performance in South Korea,Ankara, Australia. EMEA is achieving theseresults due to their strategy of our everyday predictable value coupled withday far expansion into breakfast and conveniences like extended 24 hours drive-thruand delivery. Now, let me give you somespecifics from our three largest business units there. Japan hasachieved 20 consecutive months of positive comp sales and broke severalprevious sales records are leveraging the popularity of many line extensionsuch as EBI Filet-O and Mega Teriyaki. Our team in China hasrelaunched breakfast simplified our valued platform and continue to promote therange of proteins we offer, chicken, beef and fish. No other quick servicerestaurant in Chinaoffers such a broad variety. Australia has recently drivendouble digit comp sales growth for the focus on big burgers, breakfast andcoffee, they have also benefited from an expansion into 24 hours a series ofsmart price increases. Now, I would like to switch andtalk about our worldwide ownership strategies. McDonald's previously announcedplans to reduce the number of company operated restaurants by putting more ofthem into the hand of local owner operators and qualified entrepreneurs. As we look to optimize ourbusiness under the Plan to Win we will continue to evolve our ownership mix bymaking changes in those markets where it makes more sense, either traditionalfranchise agreements or development of licensees. Today, I want to take a moment toupdate you on the progress we are making as part of this strategy to evolve ourownership to best serve our business needs, our shareholders and our customers. In the last 12 months, we havereduced the percentage of company operated restaurants around the world by 5%or 1,200 units from 27% down to 22%. In UK, the percentage of companyoperated restaurants decreased by 3% this quarter, bringing the total to 53% ofthe restaurants under company management. We have also made progress in Canada with acomparable 3% reduction, so that 33% of the restaurants are now companyoperated. Also in the third quarter, wesuccessfully close the transaction to franchise restaurants in 18 LatinAmerican countries. We are pleased to report the transition to convert theserestaurants were seamless for our customers, employees, suppliers andfranchisees. Our Latin America business had another impressive quarter with comp sales up18.3%. With new capital and local entrepreneurship, McDonald's Latin America has a very bright future. And now, let me turn it over toMatt.

Thank you, Ralph and good morningeveryone. Despite a challenging consumer and cost environment, we'vestrengthened our business build our momentum and delivered solid results withoperating income of 13% in constant currencies to $1.5 billion. Third quarter earnings per sharewere up from $0.68 last year to $0.89 this year, the $0.89 includes $0.83 pershare from continuing operations an 18% increase in constant currencies over'06 and $0.06 per share representing an after tax gain of $69 million on thesale of Boston Market which closed in August. We received proceeds of about$250 million from this sale. The sale of Boston Market is consistent with oursingular focus on driving growth at brand McDonald. The capital gain on BostonMarket allows us to utilize a greater amount of our capital loss on theLatin-America transaction which also closed in the quarter this resulted in a$0.04 per share tax benefits. However, this tax benefit was offset byadditional charges related to the Latin Americatransaction of $53 million. Our effective tax rate of 31% inthe third quarter reflects this tax benefit without it or the additionalcharges our tax rate would have been 33.3% for the quarter. The IRS tax audit Imentioned last quarter is nearly complete and we hope to come to a finalagreement soon, until we do so, we cannot provide tax guidance for the comingquarter or the full year. Since Ralph addressed theoperating results, I'll just touch on a couple of miscellaneous items for thequarter. Other operating income was higher in the third quarter than in ‘06primarily due to higher equity pick up on our Japanese and US affiliates, higher gains on sales of companyoperated restaurants primarily in Canada where we franchised 21restaurants and lower asset disposition costs and other miscellaneous expensesin ‘07. In constant currencies, G&Adeclined 1% in the quarter partly due to $25 million decrease in Latin America as a result of the DL transaction. Thismorning I also want to discuss our commodity outlook and share some of ourthinking related to our capital structure. Given our menu variety, there aremany different commodities that we carefully monitor. In the US, dairy andto a lesser extent chicken were the primary drivers that increased commoditycosts in the quarter. Dairy, including cheese, was up 20% to 30% in thequarter, chicken was up 3% and beef was relatively flat. For the year, weexpect dairy to be up 14% to 20%, chicken to be up between 4% and 5% and beefto be relatively flat. In Europe,third quarter beef costs were down 4% while chicken was relatively flat. Wecontinue to expect beef and chicken costs to be flat in Europefor the year. We are evaluating the current commodity costs environment. In general, most commodities arecyclical in nature. Historically those cycles have been somewhat predictable.Today, however, we are seeing the beginning of a shift in the demand/supplybalance in many areas of the world that could change these cycles and ourability to predict longer term commodity costs. This shift as most of you knowis driven in part by growing interest in biofuels, which is increasing demandfor corn and soy and is likely to exert upward pressure on other commoditiesincluding beef, dairy and poultry. Higher demand for dairy andprotein in Chinais also contributing to this pressure. We will continue to leverage our scale,global supply infrastructure, and effective risk management practices to helpdeliver predictable competitive prices for our restaurants in a rapidlychanging environment. We believe we can continue to manage consolidated companyoperated margins while driving customer visits and sales given our diversity ofproducts, dayparts in countries, the value our menu offers, our pipeline ofpremium and higher margin products, the convenience of our restaurants, and ourenhanced pricing power and improved consumer relevance. We will update youfurther on our '08 outlook at the Analysts Meeting in November. Now, turning to our capitalstructure. In September, we announced our intent to return $15 to $17 billionto shareholders by dividends and share repurchase in 2007 to 2009. This isabout double the $8 million we returned from '04 through '06. When we set thistarget, we considered all of our sources of cash including cash fromoperations, cash from our balance sheet, our ability to increase leverage andthe proceeds of the Bostonmarket sale. Most importantly, thisannouncement reflects our confidence in our continued business momentum and thestrength and reliability of our cash flow as we continue to evolve to a moreheavily franchise less capital intensive business model. We expect to take on fromincremental debt to reach this target. The actual amount and timing of incrementaldebt will depend on business and market conditions and our intent to retain astrong credit rating. We are not giving specific guidance, as we want to retainmaximum flexibility. As most of you know, when makingcapital structure decisions we consider how the rating agencies look atleverage which is different than what appears on our balance sheet. The biggestdifference is as most of you know is that credit rating agencies view operatingleases as a future cash commitment and therefore consider it a part of totaladjusted debt. Typically, the rating agenciesuse a factor of 6 to 8 eight times rent, when converting leases to debt.Accordingly, they arrive at a total adjusted debt figure that's much higherthan what is on our balance sheet. Regardless of whether we agree or disagreewith this perspective, it's something we need to consider and manage in ourglobal business and making capital structure decisions. The real headline hereis that our actions to strengthen and build our business by being better notjust bigger have combined to strengthen our free cash flow, a substantialamount of which will be returned to shareholders. In closing, we are confident thatour plan to win will continue to drive McDonald's forward and deliver evengreater value for our customers, our system and our shareholders. Thank you,and now I will turn things over to Mary Kay to begin the Q&A session.

Thanks Matt. I will now open thecall up for questions. (Operators Instructions). First question is from StevenKron at Goldman Sachs. Steven Kron - Goldman Sachs: Hey, thanks. Good morningeveryone. Question on the USmargins, I guess I am just trying to reconcile the 60 basis point decline. Irecognize there is a bunch of different pockets here, namely the commodity andthe labor side of things. But, I guess as I look at the commodities these beingflat enough to guidance for the year, chicken up for the quarter and expectedto be up for the year, but not an unreasonable amount. And I know cheese wasthe big outlier here. But, I would have expected, given the increasing mix ofwhat I would expect to be higher margin product and around 3% and 3.5% priceincrease that we could maybe defend the margins little bit more. Can you speakto it little bit more specifically, and do you think going forward this 3.5%that you now have in the menu can protect margins a little bit better?

Yeah. Hi, Steven. Steven Kron - Goldman Sachs: Hello.

Getting back to you on that, inthe third quarter on the USbusiness we were very aggressive on our marketing concern going in to thesummer both the drop in consumer confidence and what was going on with GAAPprices and took a strategy to protect and grow traffic during that time. Andso, if you look at our marketing calendar, the amount of weight we put onDollar Menu advertising, the aggressive launch or extension of Snacks Wraps,attractively priced drinks, sweet ice tea, soft drinks and ice coffee. We didthat on purpose to build traffic at a time that we felt there is going to besome risk. Those items also have a small effect and being diluted on themargins beside the items that we mentioned. The labor had a little bit moreimpact then the food, because there was a minimum wage increase and some ofthat ripples through, for much higher than minimum wage our price point ofview. But the all states moved their reserve also and so we had little bit ofthat ripple and that takes over time. But, the headline is, we are comfortableat margins over the long-term. We are not going to manage it over theshort-term, especially the pricing side of the equation. We believe that's animportant one to spread out over time and we will continue to do so.

And Steven, as you would hereprobably our November 13th at the Analyst Day meeting. We are very excitedabout some of the premium products in the US pipeline. And it is veryimportant to keep guest counts up when you have those kinds of products in thepipeline. Thanks.

For notification, we talked abouthaving about 50%, 55% of our sales growth coming also in guest counts versusaverage checks, it was closer to 70% this quarter. Steven Kron - Goldman Sachs: In United States?

In United States

Thank you. The next is from JeffBernstein at Lehman. Jeff are you there? Jeff Bernstein - Lehman: Yes, I am. Can you here me?

Yes.

Yes. Jeff Bernstein - Lehman: I guess my question, you guysmentioned the labor cost, which obviously impacting you worldwide just lookingfor your thoughts by region I know in the US you would seem to be in a minimumwage driven Do you think to be in the minimum waste driven and I think pressurewould begin to ease as we look into '08 based on this lap the state increases.And I guess the federal won't be lap until mid year. Just wondering if youcould talk about the impact in US as we look to '08 and perhaps separately howyou see labor pressures playing out in Europeand EMEA in coming quarters, in other words, mention its limiting profitabilityin each region? Thanks.

Yeah, and in your labor andmanaging the labor pressures, if something we have on a regular basis, it’sbeen a little bit more intensively US as the minimum wage the national minimumwage finally got adjusted. We think we are in a cycle where those increases nowin the US will be fairlynormal there were some states that took big increases, Michigan is an example they went up a $1.80overnight. And so, if we cycled on those now, it won’t be or you are going tohave flat increase. It's not going to be flat, you are going to have increasesbut they will be at inflation rate. And so, when we have that, then we are fineon margins. In Europe, Europehas always had, managing wages there is a big issue. Things like what we'vedone with our BOP operating platform make us more productive. Somereinvestments we are doing in July through over there right now, also have notjust customer benefits but productivity benefits. And so, we’ve seen is, theirheadwinds when we talk about it because it doesn't let you better staycompletely from the price increase you took but they are at a fairly normalrate of growth at this point. Jeff Bernstein - Lehman: Thanks.

Yeah. Asia,I am sorry. On Asia-Pacific, we're having some higher increases in places like Chinain the geographies that have great GDP happening, that middle class is growingfast. We have that in our models, and so labors are much more percent of ourcost of doing business in those marketplaces, and so when you get a largeincrease here in the wages, it's on a very low base. And so on an overallbasis, as long as we continue to drive the comp sales are doing will growmargins.

Thank you. The next question isfrom Larry Miller at RBC. Larry Miller - RBC Capital Markets: Yeah. Thanks, guys. Ralph, youguys have added a lot of new products in the past few years, and I think youplan on adding a lot more over the next couple of years. The beverages and Iguess the Southern Style Chicken sandwiches. And to my recollection, I can'trecall that you've really removed anything. So, I am just curious, can you helpme understand what you are doing from an operations perspective, to handle theincreased complexity, and not jeopardize any kind of speed or service?

Yeah, absolutely, I am going togo to Europe and Asia, the other places, they are putting in either Made forYou or BOP, so Made for You is what we are putting in all of Asia, Britishoperating platform is also putting in Europe, what we mostly complete, but notby the end of '08, by mid '09 gives us the menu, the operation of the abilityto handle more menu complexion. That combined with the POS improvements thatallow us to take the orders up and more complex menu easier and then have thosepop-up in the back for our kitchens to get ahead of the game. It actually opensup the possibilities for us to handle more products. The other piece we did all aroundthe world is, we did remove low selling items, they are not important becausethat's why they were low selling. But we have been very careful to not, wereset five size of the price, five size of drinks. We are down to three on eachof those, significant benefit on the operating side. And in Europe,things like the Big Tasty, Chicken Mythics that have help sales a lot. Don'ttake in and out. We don't keep them in. We bring them in for 8 to 12 weeks, geta big benefit and then bring them back the next year when the customers lookforward to it. But if we kept that on the menu, under the bridge operatingplatform, on an everyday basis, it would have, it would be a challenge. Wemonitor this closely through our operations metrics, and we are running betterrestaurants. We are faster; we have better accuracy, than we did last year,significantly more than we did three years ago. And that's the check in bounce.

Thank you. The next question isfrom David Palmer at UBS. David Palmer - UBS: Thanks. On Europe,you mentioned the bridge operating platform. I was just wondering, just giventhe fact that I think you are going to be done the big three markets there,this quarter and the fourth quarter. Is that a big deal for '08? Is that a realbig enabler? And I guess, two more smaller questions. Could you update us onthe reimaging that's going in the UK? And where are you going withthat, and how far you are alone. And third, last is Russia. That's been such afantastic market for you guys, really great returns might be the best in theworld. Is there any chance that you can meaningfully accelerate your unitgrowth there and how might you think of that? Thanks.

Sounds like you've read The WallStreet Journal. First on BOP, getting completed on BOP, it will make a bigdifference in Europe in the big three markets.As I mentioned, some of the product promotions we've done, we literally cannot,we can't overlap them, in some cases we'd like that beef and chicken promotedat the same time, off the balance on the menu. But we can't, because wewouldn't execute it will. And so, it does open up the possibilities. Weinvested in our European Food Studio, we moved that to Munich, made a big investment and both peopleand facility in order to strengthen our future food pipeline. And so, we'vedone that in anticipation of being able to have BOP to be able to executeagainst it. So, I wouldn’t say, I think '08 will be good, I think it willreally reap more benefit out of that towards the end of '08 and into '09, as weget through the testing of the products and get them out there. Relative to the UK, we are going to do 130 reimages this year inthe UK,we just said it yesterday. And with the significant impact on our high streetlocations, they are not highest volume locations, but because it’s all inside,obviously we don’t have drive-thrus. And because of the amount of foot trappingthey are going far to those restaurants. There is significant brand implicationand we are seeing that traction. So, we will do a comparablenumber next year. Actually, we may accelerate a little bit more next year inthe UK.Try to get close to 200, is what we think, we can execute well, within both thecapital budgets that we've allocated and just the contractors and our people.And so at that point, we'll start getting close, where you start gettingcritical mass, and the brand has a different look, and when we’ve seen that inother countries, where it has been to US or France or Germany. We see our brandscores accelerate that gives us pricing flexibility and menu flexibility and sopretty encouraged by that. In Russia, we have great business withreally strong management. It's all [Paul McCockill] and when it looks like wecould grow faster, we are adding 30% to 40% to our business every year rightnow in number of restaurants and we got to grow all that management internally.And so, we will grow as fast as we can do restaurants well. And we've pushedthem, but we are not going to get ahead ourselves there. We have a strongpipeline of real estate, and it takes in some cases three years to get our realestate done there, especially for our drive-thru locations. But, right now we think the pacethat we have of 30% to 40% growth a year is a good number to be able to manageit from account point of view. Interesting enough is as we are growing at thatpace our comparable guest count growth in our existing restaurants and were newrestaurants are averaging at, both continue to go up. And so, the marketplaceis absorbing it very, very well and that's definitely encouragement.

And when it comes to thefinancial picture in Russia,on a per restaurants basis it's the most profitable market we have in theworld. And when you look at our returns you are right, David, it is also thehighest returning market in the world. So, we are doing everything we can tomove our growth along in Russia.Thanks

Next question is from GlenPetraglia at Citigroup Glen Petraglia - Citigroup: Good morning. Just as a quickfollow-up to that. I was hoping you could maybe comment on what sort of sales liftyou are getting in the UKwhen you remodel a restaurant? And then just secondly, with thecommodity environment, and with labor environment as it is here in US, is thereany thought or is there any perceived need to maybe change the price point forthe Dollar Menu. I know, obviously, one of your competitors had done it coupleof years ago and was unhappy with the result. But, I was hoping you could maybecomment on that?

Okay. On the UK, above 5%. We are gettingslightly higher increase in our High Street locations, because it's allcustomers that are inside you walk by the restaurant and it's 5% in thedrive-thru location. So, we are very happy with the impact. You know that thebrand implications are even more important overtime. The Dollar Menu, we believe weneed to hold on Dollar Menu. It's really from a consumer point of view we havegreat equity, it's less than 14% of our sales. Some of our other competitorshad 25%, 28% of their sales on their value menu, they were much more dependenton it and had much higher impact to their markets from it. So, maintaining itis something we believe it's so important. We continue to test ouralternatives, not just in US, but around the world where, especially in moreinflationary places how to move off of a set price menu. But, for the timebeing we have the room in our business, we have a rich product pipeline, andfor the US for the next two to three years, and we believe having traffic inthe restaurants I get to see that pipeline is the winning combination.

And Glen, from time-to-time weare opportunistic in hedging some of the commodity cost that go into making adouble cheeseburger, which is the number one item on the Dollar Menu. So, inmany years we will lock in those costs ahead of time, so we can tell ouroperators exactly what the food and paper costs will be. Also, we've been verysuccessful with the Snack Wrap, which has clearly taken some margin pressureoff the Dollar Menu.

Yeah. Overtime, we've kept theDollar Menu, but we did move the majority of the US and we do this on a localmarket-by-market basis based on the needs of the consumers. But, when we firststarted it was medium fry and medium drink, in most cases now those are smallfry, small drink. And so, items like that actually have a big difference andbeing able to sustain it.

Thank you. The next question isfrom Jason West at Deutsche Bank. Jason West - Deutsche Bank: Yeah. Thanks everyone. You mentioned a couple of times challengingconsumer environment, first, I just want to clarify that's just the US that you arereferring to. And secondly, if could just talk about, have you seen any changerecently. We are seeing some pretty weak numbers in September from somecompetitors in the US.Have you seen any change recently in the US consumer environment? And thenin Europe kind of same question, I think stronger there relative to the US. And how youcompete the comps in Europe that have beenvery strong now for over a year?

Yeah. In the US consumerconfidence is slightly down, but we have not seen an impact. You have seen thenumbers in our business. As we do mentioned, we did adjust some of ourmarketing and made sure we counteract what are perceptions out there. We dobelieve that today with our convenience play in the US were much more of the businessthat people need to have than it is bearable, but they can decide to have or notto have. So, destination, when you have destination of business it's adifferent standard. When you have much -- have a bigger piece of your businessbeing driven by convenience, you are part of people's everyday solutions. Andif we are the best value for that everyday solution, we believe we'll win. Andso, that's the piece in the Europe, the economy is strong in Europe. The only place where we had someimpact was in Germany,because of the VAT increase that they needed to do based on the rules of the EuropeanCommunity to balance their deficits and that had an impact on retail sales andwe felt some of that, even though we've managed pretty well through it thisyear. But, the rest of Europe, the economiesare strong.

And regarding the challengingconsumer environment that was only a US based comment that we were making. Andone of the things that Ralph and I were talking about before the call was theimportance of the Dollar Menu in terms of the value perception our brandenjoys. When you go into a grocery store these days to buy the ingredients tomake a meal at home, I think most consumers have the impression that inflationis higher than the government is admitting. So, when those same consumers comeinto our restaurants and they see the Dollar Menu that's been there for four orfive years now, it gives us great pleasure for providing every day value. Also, I think, Jason, one of yourquestions had to do with, are we seeing any impact from the challengingconsumer environment, the higher gas prices? We have some stores of smallnumber in highway locations and in lower income neighborhoods and we intend tosee a little bit more reliance on the Dollar Menu in those stores. But, it's afairly small percentage of the USspace. Thank you.

Thank you. Next question is fromAndrew Barish of Banc of America. Andrew Barish - Banc of America: Hi guys. Just taking into the US businesslittle bit more. Industry data in US I mean, traditional lunch, dinner has notbeen a robust day-part. In fact, maybe flat to down. Your commentary on the US sales, Ithink over the last year or so is really focused on kind of breakfast andnon-traditional day-parts. I mean, what do you attribute that to and are youconcerned about it continuing or is it really just kind of lifestyle changes ofAmericans, and that's kind of driving people in to the restaurants at differenthours than the traditional kind of lunch at noon and dinner at 6 'O clock.

Yeah. I do think its lifetimechanges as a part of it. And we've adjusted, that's why you see us focusing onsome of the snack business, beverages its destination versus just complementaryto the sandwich purchase and increasing our product pipeline for breakfast. Butour lunch and dinner business is up also. And just breakfast is up more andlate night stuff more, but the other two are healthy both on sales and ontraffic. And, but there is no doubt when you do the cross section and look atthe all industry data that the higher growth is coming in the off hours andthere's a business to be have there and we are going to capitalize on it.

Thank you. The next question isfrom Rachael Rothman at Merrill Lynch Mike Feng - Merrill Lynch: Good morning guys. It's actuallyMike Feng in for Rachael. Couple of questions first on BLAs. Could you talkabout, you have some language in outlook section at 8-K that says, the companywill continue to pursue the sale of certain existing markets to development oflicenses over the next several years. The original planned BLA converts werefor [200] stores which should leave roughly 600 by the end of '08. Is that'syour plan or do you plan to do more stores but over a longer period of time? Secondly, could you talk aboutthe kind of feedback you are getting from franchisees about the marginpressures and the pricing increases by competitors given that some QSRs arepicking much greater pricing? Thanks.

Hi, Mike. This is Matt. I'll dealwith the development of licensing issue. The biggest transaction we needed toget done and we completed in this quarter which was Latin America. There are still quite a few markets on our list, but wewanted to give ourselves more time to do this the right way, to be sure themarket is in shape where we can get a decent surprise for any restaurants wemight license. And to be certain that we end up with a partner who believes inthe business, has a rather deep pocket and has patience and so a couple ofquarter ago we said, this will take us little bit more time to get it done theright way. But all those stores and countries are still on our list.

Yeah. On those franchisees andmargin pressures, they're feeling. You see on couple of margins, reflection ofwhat the franchisees have in their P&L's, but the overall cash flow it'sstill up. Not at the rate, obviously that we had the last two or three years.And so it's a constant debate around, and it's one of the most important thingswe do to decide how do you price to the consumer, to still have traffic growth,but to grow margins and we are not here to debate. We have great usually, thisis only an art, kind of guess that it. Basedon your experiences, we've got a lot of science around this now, onsophisticated pricing tools, that let us know what happens, when you moveprices on one item, where the customers trade to, what's the impact on margin,what's the impact on traffic. And we have that data down for the individualrestaurant. And that's why we go into the market places, you will see every restaurantpriced differently and it's getting to that perfection on pricing. And so, that'swhat we use and we'll continue to manage it, but it's a long-term strategy, notmonthly or quarterly strategy.

Thank you. And the next questionis from John Ivankoe at JP Morgan John Ivankoe - JP Morgan: Thank you very much. There haveobviously been some articles recently, not only about beverages but alsoMcDonald thinking about doing some new working of its drive-thrus in the US.Certainly, as lunch is obviously very busy and breakfast is very busy. Do youthink it's necessary to actually redesign, the physical plan at some point, topush through more capacity and is that something that may become a system-wideeffort in relatively near term?

First, I do think it's necessary.We are doing over 60% of our business through drive-thru, and the average iscloser to 65% for those restaurants that have drive-thrus. And in many cases,those booths are five foot wide and we've got a lot of products and thosecustomers who drive-thru are less forgiving on problems, because they can'tcome back to the counter and fix them. And so, we are very concerned with orderaccuracy issues, wrong orders are slowing down the drive in which in most caseshave a single point of ordering. And so, we are working through those pieces. Ihave read all the articles that are out there too. That's the reason we aredoing extensive testing. We are in 1500 restaurants with some form of thisbeverage initiative with different variations in the drive-thru, with 85% ofthose restaurants which has been franchisees, and we will get to the solution,but its investment not just a beverage strategy, its really, eventually its along-term investment no different than reimaging the dining room and thebusiness where its going.

Thank you. The next question isfrom John Glass at CIBC. John Glass - CIBC: Thanks. In part of the answer youmay have answer this in part, but Ralph you mentioned you are compelled to continueto extend the coffee test. What are you waiting for? Is it just, is it thatbottleneck of the drive-thru and is it reasonable at this point to expect animpact from specialty coffees in '08? :

Hey John, those are all thepieces. We are literally in the middle of this, as you know we put in a very,four years ago, now rigid new product testing protocol where we go to differentmarkets, get diversity of geography, diversity of customer base and of the typeof restaurants we have, probably get effect in this area. We do believe that all theseissues have solutions. So, we are not hitting anything that you would sit thereand say the equipment can't keep up from a service point of view that wouldhave been the case with espresso machine equipment fours ago. Today, they candeliver at the speed and recovery rates that can make it happen. It's making sure that when we putthis in how it ties into our POS, what customers really want as an offering, weare not going to offer it, we get into this business that the breadth ofproducts that stockers offer but we have to offer enough of a breadth that youare destination point. And so what is that breadth, what's our pricing, thoseare the pieces that we are working through. We've got the product qualityconsumer acceptance piece figured out. And now it's the operational pricing howdoes it fit into our restaurants and what are the overall economics that comeout of it, that we are working on very closely with our franchisee body and wewon't go until we are ready to do it the right way.

And John, in the United Statesalone it is a $60 billion market price. And if we can find a way to do this, ifthe speed, convenience and value you expect from McDonald then do it throughthe drive-thru is all different counter, we have a duty to our customers, ouroperators and our shareholders to pursue it. So we are going to look at it verycarefully. Thanks

Thank you the next question comesfrom Joe Buckley, Bear Stearns Joe Buckley - Bear Sterns: Thank you. First a follow-up toRalph, you mentioned 1500 restaurants that you are testing some form of beverages,and could you elaborate a little bit more on that, and talk about the differentthings that maybe in test there? And then a question for Matt on the commentson the commodity cycles, McDonald's always had a very unique supply system. Doyou foresee any changes in the way you source food, and elaborate a little bitmore on your comments, because I found them interesting, but I am not quitesure where you are headed?

John under 1300, but what we aretrying to do is get a variety of areas. So, espresso-based drinks havesignificantly different volume per capita today across the U.S. Obviously,number one would be Seattle, but when you go in to some of the middle America,it's a newer phenomena, newer meaning last three, four, five years. And so partof what we wanted to do is get a breadth of testing that allow us to understandboth, how consumers will use to the drinks, because they use it differently.Their knowledge of the variety you got to offer. And then the other pieces are ourbuildings. We have a lot of different building, a lot of different kitchenlayouts. And business comes at different rates and differentials. We want it ahigh volume, lunch driven businesses or breakfasts, and then be ableadvertised. So, you got to have enough scale in the market that you can get onTV, and put enough ads. And that's why the numbers 1300, it's between 1300 and1500, we are in some stage of roll out, build restaurants right now. And allmarkets don't have the same test, because if not it's just an early roll out.

John well regarding my quickercomments on commodities, let me first start by passing on my sympathies on JoeTorre I know you are big Yankees fan. But back to commodities, what I wasreferring to is in the normal course of things, when the price on the commoditygoes up, supply reacts to produce more supply and the price adjusts. And we havenot seen that happening, in some areas of commodities. It's probably, becausesome of the government rules have just been created subsidies and eventuallythis will work its way out. But, while the markets are in the process ofworking things out, all we know is that our unique supply chain approach andour unique suppliers give us a competitive advantage that nobody else has inthe industry. So, we will get through it. We hope that government kind of stayout of all these. Let markets figure it out for themselves, but, we are veryconfident we will be able to manage through it. Thanks.

Next question is from Paul Westraat Cowen. Paul Westra - Cowen: Great, thanks. There may be aquestion or two left. I think you mentioned the G&A savings. There was aquestion about on Latin America, I think youmade a mention to $25 million for this quarter. Is that a good run rate for theyear $100 million of ultimate savings, that you had a $160 million last year? Iwonder what you would expect that number to bend down to on an annual basis?

Paul, when you look at Latin welicensed the market on August 1st. So, one third of the quarter we still hadthat G&A, two third we did not. So, you should not multiply that $25million number by four, because you come up short than what the number shouldbe. The guidance we've given in the past, that we continue to stand by is thatwe'll save about $125 million of the G&A in Latin America. We're still as an organization serving Latin America, still have some G&A, we'd expect their savings versusthat $160 million to be about a $125 million on an annualized basis. Thanks.

The next question is from JeffOmohundro at Wachovia. Jeff Omohundro - Wachovia: Thanks. Just the question aboutmarketing, as you look out into 2008 with the Olympics coming just wonderinghow you re integrating that into the plans, maybe just a general overview onthat? Thanks.

Sure. We've been out actuallylooking at plans for last two weeks. From a China point of view, we are makinga significant bet. We believe that we can leverage our involvement with theOlympics in a big way for our emerging business in China. And everything we are doingthere is all about allowing for our crew, our customer to access the Olympics, lureto be able to go to the Olympics. And we have some creative ways that we havedone with our crew is just selecting the best crew from each restaurant, and theyare ones who would work. We have four restaurants at the actual Olympics Village and they are the ones who haveto work at the village. And then, we have some customer type of programs thatwe are doing. The rest of our advertisingaround the Olympics in China, we will use to communicate in a way that webelieve that will make us more locally relevant and basically when China wins,you win type promotion that ties us to the Chinese Olympic game. In the rest of the world, we arejust putting different plans together. And it will be based on what they do andmake it look relevant. We do know its going to be one of the biggest Olympicsever, because viewership projections are high. And so, with Europejust presented us this week, and they have got some unique ways they are goingto leverage the Olympics. Mostly supporting core food, so it's not promotional,it's supporting core food, and using the Olympics to tell a story

Thank you. The next question isfrom Larry Miller at RBC Larry Miller - RBC: Yeah. Hi. Just had two quickfollow-ups. Matt, I think you guys are an AAA or A rated company. Are you guystargeting an optimal credit rating or an optimal credit structure? I mean howdo you how do think about that? And then secondly, may be you guys can talkabout this. It sounded like you reacted really quickly on a change in marketingas the consumer took a dip in September, how quick can you guys react in termsof changing your marketing plan?

Larry, on the capital structureissues, when we went through the announcement we made in September, I'll justshare our thinking with you and hopefully that will address your question. Wewanted to try to find a way to reinforce that we believe in better not justfigure that it's working that we are going to be a company that relies more onfranchising and relies less on capital to grow. And we thought pumping thedividend and saying we are in a position to generate a lot of cash and we arechurning an awful lot of that to shareholders. We thought that's what we wantedto do. But we wanted to do it in a way that didn't financially weaken our systemas compared to our competition. We have the best franchisees in the world at McDonald's. One of the reasons is that they like our brand, we think there'smany. But one of them is that we are financially stronger than anybody else wecompete with. We wanted to maintain that difference between us and the rest ofthe competition. So, when we put together ouranalysis we weren't focusing on a specific credit rating. We were willing totake our rating down a little bit in fact one of the agencies did adjust usdown one notch. But we wanted to stay much stronger than our competition,because we want to have flexibility to deal with the opportunities that mightcome and I'll let Ralph deal with the marketing issue

Yeah. On the marketing issues,Larry, we can move pretty fast if it's a product. If it's a new product then wewon't, because we've learned that being disciplined on the rollout and thetraining at the restaurant level, and ensuring that we have that in place withsuch a distributing system. We can't move as fast, but if it's a product thatwe already have or if it's some other promotion, we can move pretty fast. Our operators, as you know ourmarketing fund is a separate entity that we all contribute into ourselves forour company restaurants and operators for theirs. So we have an empowered boardof operators that can make decisions very fast.

Thank you. The next question isfrom Matt DiFrisco at Thomas Weisel Jake Bartlett - Thomas Weisel: Hi this is Jake Bartlett in forMatt. I just had a quick question on drive-thrus in the UK. Could youtell us what percentage of the UKstores total system have drive-thrus?

It's between 50% and 60%. And it'swhere our growth has. The reality is that first 400 locations were all in linedup. And so, when we have 1,300 restaurants there, we still have the significantamount of high sweep, which is the way people shopped in the UK. But as thesociety there has changed, its more of the big box type retailers, we've movedour business that way. And as they move to having conceptions on highways, weare also doing that. So, you'll see that percentagegrow overtime to be more drive-thru. Interesting enough, it is our highestdrive-thru percent for those restaurants that have drive-thrus. So, we are at55% and growing and for those restaurants that have drive-thru, and whatpercentage comes to the drive-thru. So, the consumer uses it. We got to waitfor retail establishments to catch up and that's how we'll grow our business there.

Looks like we have one finalquestion from Joe Buckley at Bear Stearns. Joe Buckley - Bear Stearns: Thank you. First, Matt, thanksfor your thoughts on Joe Torre. I have got question on the international coffeeinitiatives and the McCafe's. We talk a lot about the US and what youare doing. But, what's going on in Europe and Asia,I guess primarily with coffee?

Yeah. Coffee is a big part of oneof our common success factors, but we are leveraging it different in different places.And we don't have one set formula. So, if you go from I would say the extremes asAustralia and Germany, wherewe have strong coffee cultures without any strong players, and we decided to bevery aggressive in our McCafe development. And to a certain extent we areputting McCafe's everywhere we have the ability to physically put in ourrestaurants. And have a full coffee experience, the whole gamut there, and bevery successful. So, Australiais pretty much there, Germanywill be at the 400 McCafe's by the end of this year and another 100 next year.And the rest of the world, we have some McCafe's also, but we are definitelyleveraging the coffee strategy starting with strong drip coffee first, PremiumRoast, and then various accessible, the different expresso-based drinks. With a high focus on conveniencein the USand in APMEA. So, the US'sconvenience is drive-thru. Our customers believe a product that we offer needsto be offered both in drive-thru and front counter in the US. It's acritical part of our brand. And in APMEA we do a lot of kiosk and on-the-go, especiallywe have high density, and so we are leveraging it there with convenience beinga very big driver.

Thank you. We are out of time andquestions. So, I will turn it over to Ralph for few closing remarks.

Okay. In closing, we are pleasedwith our performance for the third quarter and believe we are on track toachieve a record year, both for our system and our shareholders. Although, weare proud of our recent business performance, I can assure you we will notallow success to make us complacent. Our management team is determinedto get even better in executing against our plan to win. We are in a greatbusiness with tons of opportunity, and we are confident in our ability tocontinue to deliver results by leveraging successful initiatives from onemarket, and replicating and scaling them to others ends of the world. Doing sowill enable us to deliver solid results for the remainder of the year, andaccelerate momentum in to 2008. Thank you, and have a great weekend.

Thank you.

Thank you. And this does concludetoday's conference. We thank you for your participation. At this time you maydisconnect your line.