Mary Kay Shaw – VP, IR Ralph Alvarez – President and COO Pete Bensen – EVP and CFO

David Palmer – UBS Karen Elmhirst – Credit Suisse David Tarantino – Robert Baird Jeff Farmer – Jefferies Matt DiFrisco – Oppenheimer John Glass – Morgan Stanley Joe Buckley – BoA-Merrill Larry Miller – RBC Steven Kron – Goldman Sachs Jeff Bernstein – Barclays Greg Badishkanian – Citigroup John Ivankoe – JPMorgan Jason West – Deutsche Bank Tom Forte – Telsey Mitch Speiser – Buckingham Rachel Rothman – Wedbush Jeff Omohundro – Wells Fargo Paul Westra – Cowen

Hello and welcome to the McDonald's July 23rd, 2009 Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. Following today's presentation, there will be a question-and-answer session for investors. (Operator instructions). I'd now like to turn the call over to Miss Mary Kay Shaw, Vice President of Investor Relations for McDonald's Corporation. Miss Shaw, you may begin.

Thanks. Hello everyone and thank you for joining us. With me on the call today are Chief Operating Officer, Ralph Alvarez and Chief Financial Officer, Pete Bensen. Jim Skinner is travelling today and will not be joining us on the call. Today's conference call is being webcast live and recorded for replay via phone, webcast, and podcast. Before I turn it over to Ralph, I want to remind everyone that as always, the forward-looking statements in our earnings release and 8-K filings also apply to our comments. Those documents are available on investor.mcdonalds.com, as are reconciliations of any non-GAAP financial measures mentioned on today's call with our corresponding GAAP measures. And now, I'll turn it over to Ralph.

Thank you, Mary Kay and good morning, everyone. Our solid business performance continued in the second quarter. Global comparable sales increased 4.8%, consolidated operating income increased 11% in constant currencies, every area of the world contributed to our growth and EPS reached $0.98, a 3% increase in constant currencies. Excluding last year's $0.10 benefit from the sale of Pret A Manger and this year's $0.01 benefit from both the Redbox and Indonesia transactions, EPS increased 13% in constant currencies. Today, I'll talk about the strategies driving our momentum. I'll also share a few highlights from each of our geographies, the U.S., Europe and Asia/Pacific, Middle East and Africa or APMEA as we call it, and then B, we'll go through the numbers in greater detail before we open it up for Q&A. The "Plan to Win" continues to serve as our foundation as we remain focused on our strategy of getting better, not just bigger. Our strength continues to be driven by everyday predictable low prices, menu choice, better restaurant operations, convenience, and our ongoing restaurant reinvestment programs. Now, turning to the U.S., comparable sales for the second quarter were up 3.5% and operating income grew 5% to $835 million. Our share of the U.S. informal eating-out or IEO category is up about 50 basis points year-to-date. That's the strongest IEO share growth the U.S. has experienced in more than six years. A balanced marketing calendar is contributing to these increases. In the second quarter, we advertised Big Mac, Dollar Menu, the McCafe launch, and Breakfast. And now, for an update on McCafe. We’ve grown our coffee business from 2% to 5% of sales over the last few years. And this has largely been driven by McCafe. The national advertising launch in May created excellent awareness and drove significant incremental unit movement. Results are at or exceeding our expectations and are also accretive to our restaurant margins. As a result of our balanced approach, sales remain positive across all our day parts. While comps did slow in June, we were positive. While the IEO category, however, was negative and thus we continued to grow share. Our U.S. July comp sales are trending similar to or better than they did in June. We have now started the rollout of the Angus burger during the month of July, but won't advertise it nationally yet. Early results are strong and customers are telling us they love the products. The Angus burger line will also be accretive to our margins. Now, let's turn to Europe where our momentum continues. Sales and guest count increases were strong with comp sales up 6.9%, resulting in an operating income increase of 10% in constant currencies. Europe strategies to upgrade the customer and employee experience, build brand transparency, and enhance local relevance continue to deliver results. Our share of IEO business continues to grow in Europe also. In fact, we experienced 6% to 8% greater momentum in customer visits than the branded competitive set in Europe's top five countries. The U.K. maybe the best example of our brand continuing to get stronger. The combination of balanced marketing efforts, beautifully reimaged restaurants, a focus on operations excellence and the introduction of great new products that are affordable continues to produce outstanding results. For the second quarter, the U.K. delivered an impressive 13% comp sales increase, resulting in double-digit operating income growth. Our French business also remained strong. Families are choosing to visit McDonald's for an experience that offers quality food at an affordable price in great surroundings. Starting in July, the French government has reduced the VAT for all in-restaurant meals, which will effectively increase our sales going forward. The VAT reduction also enables us to reduce the price of some of our menu items and accelerate the interior – the exterior reimaging of our restaurants over the next couple of years. It will also translate into more benefits for our crew. Now, let's talk about Germany, Europe's most price sensitive market. It also delivered positive comparable sales and guess counts for the quarter in addition to significant share growth. But business in Germany does continue to fluctuate. We are seeing a shift in our product mix to more core menu items and entry-level products, which is impacting our average check. While our margins are up, we must continue to grow traffic to produce results in this economy. It is a market share battle at McDonald's' way. Consolidated Europe's July comp sales are currently trending stronger than they were in June and we are confident our emphasis on convenience, menu choice combined with value will continue to produce excellent results. Now, let's turn to APMEA where comparable sales increased 4.4% and operating income grew 34% in constant currencies. Our markets are aggressively working to ensure value initiatives are strategic, branded, and support baseline growth. I'm going to start out with Australia, which continues to deliver double-digit sales counts. We have reimaged nearly all of our restaurants including the addition of McCafes to freestanding locations. We continue to offer everyday value while introducing relevant new products and improving our operations. Our ability to collectively execute on these aspects is what's driving our business in this important market. In fact, over the last five years, Australia has grown the average guest count per restaurant by 105,000 and now exceeds 500,000 per store. Now, let's talk about China where comparable sales have been negative. We have been most impacted in the South where 40% of our restaurants are located. Significant factory closings and a hurting economy are causing millions of people to relocate back to their home provinces. We continue to have confidence in China though and believe this situation is a temporary one. We have strong in-restaurant control and lower commodity costs, which are both helping us to continue to grow margins. Our business remains solidly profitable with excellent returns and we remain on plan to open 140 new restaurants in 2009. Overall, APMEA delivered a solid quarter with great growth in operating income. Looking ahead, July sales also continue to trend positive. Australia continues to remain strong, China is soft, and Japan has been slower. In closing, McDonald's continues to win. In an economic environment where GDP is declining and unemployment is increasing, we are growing share. In fact, comp sales, guest counts, and operating income all were stronger in quarter two than they were in quarter one. Our brand is getting stronger and we continue to deliver. Now, I'd like to turn it over to Pete.

Thanks, Ralph and good morning, everyone. It's clear to us that consumers today are much more discerning about their money and time. They count on McDonald's for friendly convenient service, variety and value across all tiers of our menu. We are meeting their needs and in turn, building sales, guest counts, and market share around the world despite the current economic environment. As a result, second quarter revenues, operating income, and earnings per share all increased in constant currencies. And we strengthened our operating profitability with year-to-date combined operating margin up 200 basis points to 28.7%. This performance demonstrates our success at driving restaurant margin dollar growth, as well as our ongoing control of G&A spending, which declined in constant currencies. As a percent of sales, consolidated company-operated margins increased 20 basis points in the second quarter due to solid comparable sales and refranchising, partly offset by higher commodity costs. This performance demonstrates our success balancing price increases, product promotions, and cost to manage restaurant profitability. For example, in the U.S., our refranchising efforts along with the launch of our McCafe specialty coffees and a focus on the Big Mac at full price, contributed to second quarter company-operated margins increasing 50 basis points to 19.6%. This improvement came even as we took only nominal menu price increases during the quarter. U.S. company-operated margins also reflect moderating commodity cost pressures. In the second quarter, our basket of goods increased 4.4% versus 2008. This is down sequentially from the 6.7% increase experienced in the first quarter. We continue to leverage our collaborative supplier relationships, scale and risk management practices to take strategic advantage of opportunities to effectively manage the impact of fluctuating commodity costs. As a result, we are adjusting our outlook for the U.S. food and paper costs. We now expect a 3% to 3.5% increase in our basket of goods for the full year, which implies an increase of about 1% for the second half of the year. In Europe, company operated margins rose 10 basis points, thanks primarily to strong sales in the U.K. and refranchising in both the U.K. and Germany. This was partly offset by margin declines in some Eastern European countries, which continued to feel the effect of weak local currency on commodity imports. Due to the local supply chain infrastructure, many of our Eastern European markets import 30% to 50% of their products. These purchases, mainly beef and chicken, are primarily denominated in either euro or U.S. dollars. We remain confident in the long-term opportunity in these markets as we navigate these short-term challenges. For Europe overall, we are also seeing an easing up commodity cost pressures. In the second quarter, our basket of goods rose 6% versus last year, down sequentially from the 9% first quarter increase. For the full year, our revised outlook is for Europe's basket of goods to also increase 3% to 3.5%, resulting in relatively flat costs in the second half of the year. In Asia/Pacific, Middle East and Africa, company operated margins increased 60 basis points, driven by positive comparable sales in many markets. Australia continues to benefit from our premium menu offerings and convenience initiatives including 24-hour operations and drive through. In China, while sales continue to be negatively impacted by economic weakness, our margins are solid and were up in the quarter, primarily due to lower commodity costs and improved operating efficiencies. Turning to franchise margins, consolidated franchise margins as a percent of revenues were strong at 82.3% due to positive global comparable sales, offset by the impact of refranchising and higher occupancy costs. We have evolved to a more heavily franchised structure, now 80% franchised worldwide. In the second quarter, about 200 restaurants were either refranchised or transitioned to the developmental license structure. This has direct positive implications for the stability of our very substantial and growing cash flow. Our first priority for this cash continues to be reinvesting in our business to build returns and enhance shareholder value. After capital expenditures, our next use of free cash flow is to fund dividends and then finally, to repurchase shares. Through June, we’ve returned more than $14 billion to shareholders under our three-year $15 billion to $17 billion cash return target. We will likely end the year in the upper half of this range. A key focus of our capital expenditures has been to elevate our brand in the mind of our customers to drive growth in sales and market share. This can take many forms from building one of our new modern design restaurants to reimaging existing locations to make them more comfortable and contemporary or to enhance efficiency to take advantage of new business opportunities. Today, more than a third of our restaurants worldwide reflect a more contemporary design. Our business will continue to benefit from these efforts in the years ahead. It's important to realize that as we make these investments in our business, we are also upgrading our asset base. We currently own the land for about 45% of our sites in our wholly owned markets, which is on our book to historical costs and we lease the rest. Our preference is to own our sites where possible. The fact that we own or control the leases for our sites is an important distinction that sets McDonald's apart. It fosters a greater alignment with our owner/operators, not only because we have a mutual best interest in optimizing sales performance, but also because our owner/operators have a financially strong partner who shares in the cost of going into business with them. As a result, our owner/operators require less debt, have stronger balance sheets and given our ongoing momentum, their cash flow is strong and growing, better enabling them to reinvest for the long term. A financially strong franchisee base is reflective of McDonald's' strong financial foundation. With our healthy balance sheet, strong credit rating, and significant cash balance, we can be opportunistic in the current environment. For example, as one of the few retailers adding new units, we are being even more selective to secure better sites that will deliver better returns in the long run. Our strength also gives us an advantage as we negotiate leases. On a final note, it's a good sign that I don't need to say much about currency translation this quarter as going forward, it appears the impact will lessen. At current exchange rates, we expect the negative impact of currency translation in the second half of the year to be about $0.04, a nice change from the $0.17 impact we saw in the first half. More specifically, at today's rates we expect a negative $0.06 impact in the third quarter, turning to a positive $0.02 impact in the fourth quarter for a net negative of $0.21 for the full year. It's no question that the current economic environment is challenging and we are not completely immune from its effects. As we have said before, we are not recession proof, but we are recession resistant. We offer products and experiences that customers continue to want today, tomorrow and well into the future. We are leveraging our unmatched operating, development, and financial strengths to continue to increase our leadership position around the world. Thank you. Now I'll turn it over to Mary Kay to begin our Q&A.

Thanks, Pete. I'll now open the call for questions. (Operator instructions). And the first question is from David Palmer from UBS. David Palmer – UBS: Hi. In the – Ralph, in the U.S., the McCafe launch has been successful, you've said in terms of your internal projections and goals, in terms of sales mix. I'm wondering if you could talk about how that's turning out in terms of the overall top line. Obviously, you are gaining a lot of share versus the market, but as you think about the balance of your marketing spend and your overall focus on this initiative, do you think in some way this might – there might be a kind of a side negative impact that could be the lack of support that you are offering other core products? And perhaps, how could you – when you think about lapping the Southern Style chicken sandwiches introduction last year, do you think that that product is perhaps coming off of that honeymoon introduction period and that's perhaps providing a little bit of a headwind? Again, as you are getting the sales mix up on McCafe, maybe something else is dropping like the Southern Style chicken sandwiches introduction last year. Thanks.

David, we don’t think so. Again, we don’t have all the – it will take six months before we can get the really good data to understand how much of the business on the McCafe is incremental, how much is tradeoff, et cetera, et cetera since we just started advertising in mid May. But what we did do is to ensure that didn’t happen and we were fortunate this year because of the media cost. We had a stronger wait against core menu in supporting Big Mac as we had the year before supporting core menu. So we did not give up wait, at least on broadcast media, obviously, to give up some – the store-level exposure, but on a broadcast media point of view, we doubled up on our advertising in order to protect the other 95% of the business, which is really what drives everyday success. So – when you combine all of that with what's going on economically, what's going on in IEO, it's hard to separate the pieces and I'd only be guessing so I just wanted to be able to give you that type of information.

Okay, thanks. The next question is from Keith Siegner at Credit Suisse. Karen Elmhirst – Credit Suisse: This is actually Karen Elmhirst [ph] for Keith today. We've seen some other retailers and restaurants who've been able to leverage just into the economy and generally weak commercial real estate environment into some rent reductions from their leasers. Did you feel any pressure from your franchisees or your franchise sub leasers to do the same thing?

We have not. We – and we've got long-term agreements with our franchisees. Their cash flows are at all-time high. Obviously, we are growing our results. What we have done is we've been out there very aggressively communicating with our landlords that potentially would prefer to have cash and sell a lot of that lease and we’ve been a buyer in the marketplace, buying land that we then control forever. On a secondary basis, in markets like the U.K., U.K. is the biggest one, where rents are set or reset every five years based on market, obviously the market conditions have softened and that will help what those rents are going to be set out here over the next coming years.

Thanks. Next question, David Tarantino from Robert Baird. David Tarantino – Robert Baird: Hi, good morning. Just wondering if you could give a little bit more perspective on the slowdown in comps you saw in Europe and APMEA in June. Was it broad based across countries or were there specific areas of weakness? And generally, with July getting better, is there anything you are doing tactically to make that happen or do you think we are just starting to see a little bit more stability? Thanks.

Yes. David, I'm going to start with APMEA first. The slowdown in APMEA was really Japan and China. Japan, we don’t consolidate those results, it doesn’t have a large operating income effect, but Japan was very weak in June and slightly better in July, but still has brought the numbers down from where APMEA was in and what Japan ran at first five months of the year. China, as we mentioned, continues negative, even though they had been negative, but June was weaker than it had been the first five months. Turning to Europe, our Europe business is stronger in July than it was in June. You get some of the holiday changes and it was a hot June, but we had – Germany was slightly weaker, we knew that. We had some coupons last year that we decided not to float at the same time this year and because of our emphasis on everyday value and so, we knew we were going to have a little bit of an impact and – but the rest of our Europe business is strong and continues strong – actually stronger in July. And so – IEO is down 4% in Europe for the first quarter. The second quarter data is not out, but we don’t think it's going to be much different based on the data we get from other sources and – so we are not getting helped by the IEO category. We are obviously benefitting from both – we've got a very strong brand in Europe and we are basically the category from a QSR point of view.

Thanks. The next question is from Jeff Farmer at Jefferies. Jeff Farmer – Jefferies: Great. Thank you. Just coming back to coffee for a second, I think in the past you guys have indicated that you expected your combined beverage initiatives to add about $125,000 per unit. So I guess that you recognize that you are right in the middle of that, there is a lot of beverages in play, but where do you stand in terms of hitting that $125,000 target today?

We are on target and that’s why I said we are on target. That eventually does include some level of fruit drinks and smoothies and the crushed ice drinks and frappes. So those two are both – again, high margin, good sale items that we won't be into till next year, but the pieces of what we talked about in the $125,000 [ph], which does not include not fruit drinks, coffee, obviously we had that already. It's on target.

Thanks. Next question is from Matt DiFrisco at Oppenheimer. Matt DiFrisco – Oppenheimer: Just a little detail about – Pete, what you expect in the U.S. with margins heading into the second half, given the minimum wage increase, what impact that might have on margins and do you expect to take price? And then also, if – just a follow-up to that last question about the crushed ice drinks, can you update us on the timetable, when we should expect that just start to get critical mass and begin the launch of a national program behind that again? Just update us on the quarter that you expect that to occur.

Matt, it's Pete. On the U.S. margin question, we don’t expect there to be a significant impact from the minimum wage increase. Over half the states already have their state minimum wage set higher than the federal is moving to and our wages are pretty close to that in the other. So we don’t expect a significant impact there. And so with wages not increasing that significantly and commodity costs moderating in the second half, we have less need to get to the menu board and do a lot with price. So we don’t see a lot of activity in that regard in the second half. And regarding the rollout of the other beverages, we are going to start softly in late 2009 and then start to get into that in 2010. We don’t have a fixed date exactly as to when those beverages will get in, but we want to obviously reap benefits of the investment we've made in the espresso based coffees, get that awareness up and let that product have time to get into the marketplace.

Thanks. The next question is from John Glass from Morgan Stanley. John Glass – Morgan Stanley: Thanks. This maybe a bigger picture question, but your operating margins now are almost 30%, which is just astounding probably in absolute and they are up over 1,000 basis points since you began this restructuring back in '04. So how do you think about what a target is considering there is really nothing you could compare it to either your own history or another company and maybe just specifically, one is, what are the key drivers going forward that we get it higher than it is today and what's the risk that you need to actually reinvest? And I guess, maybe to make it specific to this core, you talked about Germany and the need for value and maybe a trade-down there. Is there a risk we might see near-term margin compression because of that negative mixture, particularly in Europe either because of customers creating that or because of you – of your own promotional activity creating that?

No, I – on the second one, we don’t see – we think our margins are going to be better for the second half of the year. We don’t have – the market where we have had some of that trade-down, as I mentioned, that is more obvious is in Germany. We've had some trade-down throughout all the economies. We are not pushing the premium products as heavy as we were before. They are not as big a part of our marketing calendar. And quite honestly, the other piece is, we are going to do a lot less price increases next year than we did the last two years because of what's happening with commodity costs and what's happening with just inflation in general. And so we don’t expect that to – and thus price increases are the other things that create more trade-down. We ourselves won't be driving that. So we feel that margins are actually going to grow based on the stability of commodity costs that we see in the second half of this year and going into 2010.

And John, in terms of a target, we really don’t have a target in terms of the operating margin. We think we can continue to grow that and as Ralph said, the margins will be key and driving comp sales off of that is really the key to our business in terms of our profitability and as we move to more franchising, it's less G&A intensive. So we get a benefit from that as well.

Thank you. The next question is from Joe Buckley, BoA-Merrill. Joe Buckley – BoA-Merrill: Thank you. First, just a bookkeeping question. I think in the June sales release, you were expecting a gain on the Indonesian transaction and from your and from what you've said here today, it doesn’t look like there was one. So I just want to verify that. And then secondly, talk a little bit again about the transaction counts. I saw the footnote data in the release and it indicated they were stronger in the second quarter than the first. So what kind of consumer activity are you seeing, is the consumer trading down within the menu or have you just run off on the price that – that's a restraint on the kind of counts which you expect going forward?

Joe, it's Pete. I'll talk about Indo and then Ralph can get into the transaction counts. But – really we had a gain, but it was smaller than we originally anticipated and when we included that with the Redbox gain together, they rounded to a penny instead of two and so there were really nothing significant there.

On the transactions, as I said, we've got three things working there. We've had some trade-down mostly from promotional high-price products that we ourselves are not pushing as much around the world and moving that – moving into core menu is a part of the – what's happened. We are taking less price and we'll take less price over the next year and but at the same time, we've had a slight uptick in guest counts, which we believe in a market share battle that is the battle. That’s what needs to happen. So we had some quarters last year. If you looked at it where we may have had 70%, 65% of our sales came from average check. We are definitely back at the 50% level and maybe or will be below that level as we go into 2010.

Next question is from Larry Miller, RBC. Larry Miller – RBC: Thanks very much. I just wanted to go back to that comment you made, Ralph, about the IEO being negative in June. It seems across the board in fast food, something has changed there with the U.S. consumer. You guys clearly see the consumer more than anybody else out there and I was wondering if you could shed any light on what you think is happening out there. Thanks.

We don’t know – we – and many of you wrote about it. We saw it. We saw it, it was an effective – we saw kind of when school let out. All of a sudden, we don’t know how much of that was last year – we know we had benefit at last year from the incentive checks that went out from the government and back then, people weren’t in saving mode, those dollars got out there and got spent. So we don’t have good enough data yet to tell you, but we saw that slowdown and then we've seen a slight uptick in traffic since that initial hit and so, we like the fact that we are gaining market share. Obviously, we don’t want IEO to be down. We want to gain market share when IEO is up. And we think the customer reacted, it was summer, gas prices were up, you didn’t have the same component of investment checks out there that you had last year, customers saving 7%, unemployment is 10% or the gross figure you read at 16%. We think all of those things had an impact with the customer and from our point of view, we just need to make sure we are getting our piece of the pie in the meantime and we got to be very careful on price and we got to deliver outstanding service at this time.

Thank you. The next question is Steven Kron from Goldman Sachs. Steven Kron – Goldman Sachs: Great, thanks. Hi, guys. One follow-up, I guess, on the margin question. It seems like you guys are pretty comfortable with the sustainability of what you are seeing in the U.S. given the expectations for the commodity outlook in the back half. In Europe I guess, certainly from the first quarter, which was down 70 basis points at the company level, back up to 10 basis points, my sense is that a lot of that has to do with kind of the easing of that transactional headwind. Can you maybe put some context around what the sequential improvement in that transactional headwind was? And then secondly, a follow-up I guess just to Larry's question on – in the U.S., how are the consumers using your menu differently? Are you seeing any change in mix that's concerning to you or the competitive environment adjusting how you guys are thinking tactically and is your decision to not go national from an advertising perspective with Angus, is that because it's just the wrong time right now to be promoting something premium like that? Thanks.

Steven, it's Pete. I'll talk about Europe margins a little bit and then Ralph will follow up on the U.S. question. Compared to first quarter, one of the big drivers was our comp was significantly better in the second quarter compared to the first. So that helped our margin improvement along with the softening of the commodity costs a little bit. The Eastern European imports actually was relatively similar in terms of its impact, but we did – we were able in some of those markets to get a little more aggressive in price to help offset some of that, but not significantly. Really, it was the better comps than the weakening of the commodities that really were the two big drivers.

And thus, we expect that to be helpful in the third and fourth quarter with what we know is happening with commodity costs in Europe. As far as the U.S. – first on the Angus to clarify, we are going to nationally advertise Angus. We just haven’t started that yet. So I just to want to make sure that was out there, we are in what we call soft launch where we make sure that we have all – we are doing the right things operationally and we get supply to all the corners of the country, but we will be in a national launch period coming up here soon. The – on the trade-down piece, we are not seeing anything sequentially in a big way out there that changes. We have gone to advertising more core, we were – for example, Big Mac versus bringing in premium chicken sandwiches last year for items like that. Obviously, Angus goes against that. Timing is not perfect on Angus I'll tell you, but customers love the product. We've been sitting on the sidelines with it, it's something that we wanted to put out there and we know it will help average check and we know that customers that trade from our core menu to them really think highly of the product. So we felt that was – again, the time for us to go out there. It was a gap in our menu and so we'll do that. But there isn't something on the tradeoff pie piece that would be concerning other than resistance to price increases if – that you can't cross that line.

Thanks. The next question is from Jeff Bernstein at Barclays. Jeff Bernstein – Barclays: Great, thank you. Actually, this is just a question on cost cutting efforts, which has been a theme across the industry lately. Sounds like your peers are perhaps slowing their unit growth and seeing some pretty significant cost benefits from, I guess, the removing of the cost of growth. I know you guys have been focused on managing your G&A down. I’m just wondering whether there are any other major cost cutting opportunities or initiatives you see within your business to support the earnings growth perhaps during this stretch, whether there is any quantifiable target. And then separately, I know it's too early to look at 2010, but any comments on kind of a bigger picture returning of cash to shareholders. I know $15 billion to $17 billion is kind of running out. I didn’t know whether we'd get a similar type promise in the coming quarter or whether you might predict more of a one-year type plan. I’m just wondering whether you think it will be higher or lower based on kind of the current trend that we are in.

Yes. Jeff, on the G&A side, we try to stay away from the pendulum swings on the G&A piece and so, we continue to work at it on a regular basis. We are down – first half of the year, we are down 4% on a constant currency on G&A. Some of that is a benefit of not having an Olympics year and our convention. But we are still giving increases to people, we are not cutting benefits, we are not doing any of that. So it is a headcount reduction both from the efficiencies of a more franchise organization and just being more efficient with the people we have. We have retirements or situations similar to that. We continue to get more efficient. And that's the way we are going to go at it. We are not going to go at one particular item. The – and then I'm going to throw it to Pete for the money question.

Yes. Jeff, we are not ready to give a target or talk specifically about 2010 per se, but you can expect there is not going to be a dramatic change in our business model and we are going to continue to generate a significant amount of cash and as I said in my remarks, we are going to continue to invest in the business because we are getting great returns. And after that, we like to fund the dividend and then buy some shares.

Thank you. The next question is from Greg Badishkanian from Citigroup. Greg Badishkanian – Citigroup: Great, thanks. Hi, just a follow-up on China. You mentioned that there is sort of a temporary impact from the macro that we've all kind of heard about. And I was just wondering maybe when you would expect a pickup there and also, I know there is not a lot of data, but maybe just some color on market share changes in that market?

Okay. Yes, the – all of China has been impacted, but like I mentioned, the South – and that's our stronghold. 40% of our business is down, basically centered around Guangzhou and that's the factory haven of – for the world. That's where the impact has really happened and we felt it there and – we chased some of that business initially if you guys remember, about six months ago when that started happening. And it hurt margins and we made a decision to – we are stronger in value, we'll give it up a little bit average check in that area, but we are not giving that house away. And that's an important piece because we do believe this is going to come back and you have to establish a brand for the long term. The rest of China is not faring that poorly, commodity costs have really swung around. We've got a really strong management team and so good in-restaurant controls. The only other impact that it did to us on a temporary basis is, we pulled back on some of the openings that we had in the South because we want to wait for – understand where the factories reopen and the population shift to occur again, but we are very confident on it. We are getting excellent returns; our margins are at, for us, at all-time highs in China. So overall, we are strong on it. On the market share side, I don’t have any updated information. The data from there is not as robust as the monthly type stuff that we get in the U.S. and Europe. So we don’t have any recent data. You can look at our comps and you can look at the other couple of big players there. They are pretty similar, where those numbers are right now. So – and the growth numbers, my gut says share is about the same.

Thank you. The next question is from John Ivankoe of JPMorgan. John Ivankoe – JPMorgan: Thanks. Actually, just – first a follow-up and then a question. Ralph, it seems like you are alluding to commodity cost staying relatively flat in fiscal '10. Did I hear that correctly? And secondly for, I guess anybody, if you could update us where we are in the remodel cycle in the U.S., maybe what percentage of the system are you doing in ’09, 2010 and what kind of sales lift are you seeing from that project?

Yes, first up, on the commodity costs, John, we – early read on '10 is stable. So we are not giving any predictions on it yet, but there is nothing out there either on significant drops in acreage of head of cattle or demand change or any of those items that we had seen in the past that you knew what was – that something was coming through that was changing. And so, we – right now it looks like a fairly stable first part of '10. The second piece – on the remodels in the U.S., I'm sorry. Yes, the U.S., about 40% of the restaurants were touched with the reimagining program that we had that ended about a year and a half ago. And so, there is significant work to be done. We are further ahead in places like Australia, we are almost done Germany, we are done France where we are fare ahead. So it's an opportunity for us in the U.S. obviously. We needed to do some things in the kitchen in the U.S. to deal with the huge growth in the drive through business over last ten years. And so, the combination of that which we tied in together with the beverage initiative was a priority the last 18, 24 months. At some point here, we'll go back to getting on a regular cycle with the U.S. to make sure that our brand is as contemporary as we want our products and our advertising to be.

Okay, thank you. The next question is from Jason West at Deutsche Bank. Jason West – Deutsche Bank: Yes, thanks. First, just wondering if Ralph, you could clarify the comment you made about doubling up advertising I think when you were talking about Big Mac and McCafe. And then secondly, just if you could talk about the overall competitive environment in the U.S.? Does it feel like things are still sort of decelerating to the downside there or – and how does the current environment feel relative to back in '02 when I believe we were in a similar kind of environment? And if you could just touch on the value menu mix, if that's still at 10%? Thanks.

Yes, on the advertising piece, as you know, rates have come down in a pretty big way on the advertising side. Many of those savings, we translated into additional gross rating points and outdoor billboards, so it's not just TV, it's using other mix of media, magazines and some of these are down more in order to be able to – when I said double up, being able to have an adequate reach in frequency message for McCafe and the same thing for Big Mac, advertising or core menu advertising. As a company, we threw in some dollars also, which are reflected in our margins and our franchise margins to make sure that we had that as the operators have done on their side of the investment. So it was a combination of better rates and some additional spending in order to both drive a new business and protect the core. On the competitive situation, it hasn’t changed much. On the real estate side, nobody is building units of the freestanding kind. And so, we are still out there kind of with building 140, 150 a year on the freestanding side, but – and with very little competition for those sites. But as far as, the rest of the category, the menus are about the same, our product mix is about 10%, it hasn’t moved much on the dollar menu side and I would say there is more couponing on the direct mail side, et cetera going on, but in general, in our category, that's so convenience driven. That doesn’t have much of an effect.

Thank you. The next question is from Tom Forte at Telsey. Tom Forte – Telsey: Great, thank you. I wanted to get a little more detail on the consumer. You just mentioned a percent of sales from the dollar menu. I’m wondering if there is any change in percent of sales from the core menu and how that's trended really since the recession has started. Also wondering if you are seeing any difference on breakfast versus lunch and dinner. And then lastly, you made some comments before on Michigan, California and Florida. I think at Michigan, you rolled up McCafe early. In California, I think you were benefitting from Sweet Tea and some other beverage initiatives. I can’t recall what you said on Florida. I was wondering if you could give us some comments on those areas to give a feel for what sales is like or what the consumer is like in some of the more challenged markets. Thank you.

Yes. I’ll start out with the last question, geographically. Our business is pretty steady across the country. Our tactics are different. So I can tell you, we are up in Michigan on an overall basis. Our business is up in Michigan, which is remarkable, but we are much more aggressive on price in Michigan than we are in other parts of the country and need to be in order to have that level of traffic. Florida and California stabilized last year and we saw pretty good sales last year, partly making up for going again some really soft numbers from the year before, but we don’t have a significant variance across the geographies right now. On the menu side, all five of our day parts that we measure, were up for June. So the latest mug that we have and so the slowdown we saw quite obviously hit all day parts, it wasn't concentrated one place or the other. We have some benefit during the breakfast timeframe because we are advertising coffee, but if you take that out, the rest of breakfast may have slowed down some, but would still be positive just like the whole day part.

Thank you. The next question is from Mitch Speiser of Buckingham. Mitch Speiser – Buckingham: Thanks very much. Just a clarification and a question, just on the stable commodity food cost outlook for 2010. When you say stable, does that mean theoretically kind of flat year-over-year or stable meaning that up 3% to 3.5% that you are expecting here in '09? And separately, can you just clarify on the U.S. comps? It sounds like you are saying that traffic has pretty much been steady, but it has really been the check that has come in. And maybe more specifically, the traffic trends from say first quarter to second quarter, and maybe from June to May, has it been steady and it has been the check that caused the deceleration in the comp? Thank you.

First, when we say stable, meaning it's – the 3.5% this year, we don't consider stable, because it was 6% to 7% in the first half of the year and 1% or flat in the second half depending on U.S. or Europe. Stable meaning that it will grow whatever the inflation is in general in the marketplace. This is what we mean by stable. So if we are back to a 1%, 2% inflation and that is what we would expect. If it is a 2% to 3%, depending on where CPI goes to, that's what we mean by stable. On the U.S. business, while average check did slow down, the transactions have been positive, but they did not grow in the second quarter versus first quarter. They were fairly constant.

Okay. The next question is from Rachel Rothman at Wedbush. Rachel Rothman – Wedbush: Hi, good morning. I just wanted to follow up on your commercial real estate question. I think you had some commentary on the U.S. about people not building. We've heard that of some of the other sectors that we covered, their commercial real estate development globally has slowed barely materially. And can you talk a little bit about whether or not you are seeing something similar internationally, maybe specifically in India or in China or in some of your developing markets and then whether or not that would have an impact on the pace of unit growth going forward, and I know you guys are growing much slower than some of your peers, but it is still a large number of stores. Thank you.

Yes, Rachel, on the – in the U.S., it did affect – we had allocated more capital this year beginning at – or at the end of last year to grow more restaurants in the U.S. Quite obviously, we grow more if we could get the sites, but planned unit developments are way down. And so, that has had some effect, we're still going to build, like I said, 140 or 150 freestanding units. We would have done more, but they are just not there. So it is definitely an issue in the U.S. That's not necessarily the same type of developments that we go in Europe. When it comes to Asia, and specifically in China, one of the reasons we didn't grow at the rate that we did is more than half our restaurants there are non-drive through, they are part of commercial center-type of scenarios. Some of those aren't being built, especially in the South and so that affected some of our growth. But China still – the real estate market in China is still broad. Their GDP is still up overall, they are still pumping money into construction; it was more of an isolated issue in the South. And India is not a big enough market for us. We are building I think 30-some restaurants there this year and I don't know enough to give you more than that.

Thanks. The next question is from Jeff Omohundro at Wells Fargo. Jeff Omohundro – Wells Fargo: Thanks. I just wanted to follow up on some of the commentary coming out of Europe. You mentioned the market share gains, for example in Germany continuing. I am wondering though about the pace of gains in light of some increased promotional activity by competitors. What your sense is in terms of the level of promotion, whether McDonald's might want to respond? Thanks.

We have been pretty aggressive in Germany. And so, I don't know that we will respond beyond where we are right now. We've got a very strong everyday value menu there that is over 20% of our sales. We strategically do mailers, freestanding type inserts in Germany. They work there; it drives people out versus what may happen in other places. And so, we've got a – we are pretty aggressive in that marketplace already that way, at a rate that still provides really strong margins, our volumes are – and customer accounts are pretty high in Germany. So we don't see – and it really isn't competitors of enough size of – in the category to take us off of our program. The consumer there is just – they have cut back. I mean, the German GDP is highly dependent on manufacturing, it is 47% of GDP, it's way down, depending on what you look at rates, it's down double digits and they go into saving mode and so you have to be out there with value in order to have them and we will be as strong as we need to be to continue to take market share there, because it's a very resilient customer, it could – they come back pretty fast when things turn around.

Thank you. We have another question from Paul Westra at Cowen. Paul Westra – Cowen: Yes, hi, good afternoon. And I just had a couple of follow-up questions on the U.K. I was wondering if you can give us an idea roughly where you perceive yourself to be on this multi-year turnaround and how much maybe longer we could expect such stellar performances, how far have you come to get personal profitability back to near-peak levels we are seeing elsewhere around the globe. I guess more specifically on the refranchising and remodel program, how many have you done and how many more have you got to go?

The U.K., as I said earlier, it's probably our best brand turnaround. Strong management team, I mean that's in the current environment continuing double digits on top of double digits. I just spent a week there and it's just impressive. We still have 50% of the restaurants and the majority of our drive-through restaurants to be reimaged. So we started first with the in-line high street locations, because even though they are actually lower-volume more-profit locations, they are our highest exposure, they get more eyeballs than your drive-through ones and so we actually reversed what we normally do and did those remodels first in order to make a brand impact. And now, we are coming around the backside and hitting the – it went to about 200, maybe 230 this year. We need to do that for another two, two-and-a-half years in order to get the rest of the estate reimaged. On the refranchising, we are at 55% franchised there. At one point, we were only 30% and we are not going to rush into it, but our target probably is around 70% of the restaurants will be in franchisees hands and that – it may take us another two to three years, because they have to have the ability to handle the debts and do the reimaging at the same time. And so we're making sure that is a balanced approach so one – neither one of those suffer.

Okay. It looks like we have one final question in the queue, Larry Miller from RBC. Larry Miller – RBC: Yes, thanks. On the McCafe – final thing, it's our understanding that sales are a lot stronger in the West than the rest of the country and I was just curious why that is and is that more of an opportunity to grow sales in the other parts of the country or is it just what it is? Thanks.

I don't know if it is what it is, but in general, we always sold more coffee out West than we did in the East, so we expected that and it's – and we expect that in the initial, just trial – especially those that just convert from being – we do higher breakfast sales that way and the category is not as well developed. And so we think over time, those are things that will change, but it was in our numbers that we wouldn't be as strong out East or South as we would be out West on the coffee business. We think that's a longer-term trend to change.

Okay, thanks everyone. I will turn it over to Ralph for closing comments.

Thanks again for joining us on the call this morning. We are pleased with our strong performance for the second quarter. As I mentioned earlier, a sequential improvement from our results in the first quarter and we remain optimistic about our ability to continue to deliver for the remainder of 2009 and beyond. Thanks and have a great day.

Thank you.