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McDonald's Corporation (MCD)

November 10, 2011 11:30 am ET

Executives

Jill McDonald - Chief Executive Officer of the U.K. and President of Northern Europe

Karen King - President of East Division

James Johannesen - Chief Operations Officer of McDonald's USA and Executive Vice President of McDonald's USA

Mike Andres -

Teresa Olson -

James A. Skinner - Vice Chairman, Chief Executive Officer and Chairman of Executive Committee

Jeffrey P. Stratton - Chief Restaurant Officer and Corporate Executive Vice President

Charlie Strong -

Timothy J. Fenton - President of Asia Pacific, Middle East & Africa

Douglas M. Goare - President of Mcdonald’S Europe

Neil Golden -

David G. Garland - Outside Director

Donald Thompson - President, Chief Operating Officer and Director

Unknown Executive -

Janice L. Fields - President of McDonald's USA

Bane Knezevic - President of Europe Western Division

Peter Rodwell - President of APMEA Greater Asia & Middle East Division

Peter J. Bensen - Chief Financial Officer and Corporate Executive Vice President

Kathy Martin -

Analysts

Keith Siegner - Crédit Suisse AG, Research Division

Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division

Nicole Miller Regan - Piper Jaffray Companies, Research Division

David Palmer - UBS Investment Bank, Research Division

Ronald J. Hottovy - Morningstar Inc., Research Division

John S. Glass - Morgan Stanley, Research Division

Paul Westra - Cowen and Company, LLC, Research Division

Andrew M. Barish - Jefferies & Company, Inc., Research Division

Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division

Mitchell J. Speiser - Buckingham Research Group, Inc.

John W. Ivankoe - JP Morgan Chase & Co, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Larry Miller - RBC Capital Markets, LLC, Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Benjamin Maurice Walker - The Children's Investment Fund Management (UK) LLP

Unknown Analyst -

Howard Penney - Prudential Equity Group

David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division

Jason West - Deutsche Bank AG, Research Division

Kathy Martin

Good morning, everyone. So welcome to McDonald's Investor Day. I'm Kathy Martin, Vice President of Investor Relations, and hopefully, all of you had a chance to sample some of our great McDonald's breakfast products this morning. We had a terrific selection for you.

I also want to welcome those who have joined us on the webcast. For those of you here, you should have received an investor book this morning. You'll find an agenda with photos and biographies of today's speakers and our Q&A panelists, and we've also included the photos and some information about some of the other McDonald's officers who are attending this meeting today.

Today, we're going to share our vision for the coming years and expect to maintain our forward momentum and continue to enhance our shareholder value. And in just a few minutes, I'm going to introduce our McDonald's CEO, Jim Skinner; our COO Don Thompson; and our CFO, Pete Bensen, who'll discuss our strategies and our global priorities for the future.

Then, we'll have our area, the Presidents join us, Tim Fenton, Jan Fields and Doug Goare, and they'll provide an update on how our global initiatives will come to life at an area of the world level. Following to the sessions, we've included ample time for Q&A, which I know you all immensely enjoy, and then we'll the day with a final Q&A session with Jim, Don and Pete to cover anything else that you might have on your minds.

Now, please remember to state your name and your firm number when you're asking for questions, and wait for the microphone so everyone can hear. It helps the folks on the webcast as well. During our lunch break, you're going to have a chance, again, to interact with our management team and sample some wonderful products, including some that are in tests, as well as some products from our international markets. And then we'll conclude this evening with a cocktail reception. That, again, provides some time for you to spend with our management team and our officers from various disciplines from across the company who are here today.

Now your name badges are access to all events, and so we're going to ask you to wear it at all times, so that you can get in to the places you need to be. We will be issuing a press release this morning, summarizing the highlights from today's meeting and a copy of the release is going to be available at the courtesy desk in case you want to pick one of those up, and of course, it will be online.

We're going to distribute some handouts, which those in the room should have already received as you walked in, and the webcast participants will see the slides but not the commercials and the videos. Those key slides will be available on the web if you want to access them.

And finally, before turning the meeting over to Jim, I want to remind everyone if you can please silence your BlackBerrys and your cellphones throughout the meeting, that would be helpful.

So with that, let's start the meeting. It is my pleasure to introduce our McDonald's Chief Executive Officer, Jim Skinner.

James A. Skinner

Thank you, Kathy. Good morning, everybody. Thanks for coming all the way to Oak Brook to hear more about McDonald's. The first thing I like to do is introduce our Chairman, Andy McKenna. Andy's here in the front row. Andy, say hi. Andy has provided great leadership and governance, particularly to the Board of Directors during this great growth that we've had over the last 8 years and was right there at the beginning of our revitalization.

It's my pleasure to really be here with all of you today and to get us started on the day and talk a little bit about the comprehensive look at McDonald's business and where we're headed. I was already pigeonholed this morning by some of my old friends outside, and I asked them to just wait until later. I didn't try to answer all the questions because I couldn't necessarily answer them without having my team weigh in, and they wouldn't want me to do that, so I apologize to those of you who asked me those very pointed questions, and I didn't answer them because it wasn't my place to do so. If you stick around for all the presentations today, which I know you will, your questions will be answered.

In the 2 years since our last meeting, McDonald's has continued to make strong gains around the world, which you're going to hear more about today from all of our area, the world leaders. This morning, I just want to take a few minutes to talk with you about why I believe we're succeeding as a system and give you some confidence in the future of McDonald's or at least portray the great confidence that I have in the future of McDonald's.

We're succeeding really through the same principles that spurred our revitalization and continue to drive our momentum: number one, focusing on our customers, delivering at the front counter and drive-thru at, what I like to call, the moment of truth, the most important thing that happens in any McDonald's around the world, and we're seizing every opportunity to modernize, innovate and execute to keep our brand moving forward; and last but not least, of course, is our commitment to financial discipline. These factors have helped us deliver continuous growth over the past 8 years, and we're continuing that momentum into 2011.

Somebody congratulated me this morning on a great year, and I said, "The year ain't over." But thank you for that. We're confident that we're going to have a great year, but the fact is, year-to-date, operating income is 9% and earnings per share grew 10% both in constant currencies.

At this time, 2 years ago, we were serving 58 million customers a day around the world. Today, that number is 64 million. Simply put, we're giving more customers more reasons to choose McDonald's. So as we look ahead, our message is this: We're staying the course on what got us here, but we're not standing still.

We intend to keep following our overall operating plan, the Plan to Win our focus on elevating the 5 Ps: people, products, place, price and promotion that all of you are familiar with. That Plan to Win continues to be the right blueprint for us, and it has served us well, and it remains very, very relevant. Most importantly, it enables us really to focus on the future.

Now one of the things I always like to say is we still have plenty of growth, strategically within all of the Ps, when we pay attention to what kind of expectation we have for the future and strategize around those Ps in a meaningful manner. And we intend to go after it. Now Don's going to discuss and you'll hear throughout the day, we are focused on 3 global priorities under our Plan to Win: menu, experience and accessibility. We still have tremendous opportunity to get better in all 3 of those priorities.

We see tremendous potential still ahead for our brand. We are the biggest player in a large and fragmented industry. In our top 7 markets alone, the quick-service restaurant business is worth $420 billion, with McDonald's having 14% of that market share and more than 4x the sales of our nearest competitor. And despite the economic difficulties that still exist, the overall eating out industry is poised for growth. The world's middle classes are growing, increasing, particularly in the developed markets and in emerging markets as well.

Looking ahead, Euromonitor projects more normalized global informal eating out growth of 5% by 2014. We all know informal eating out's been rather flat over the last few years, so a 5% growth rate will put McDonald's in a great position to capture our share of that growth.

Our strategies are enhanced by an overwhelming competitive advantage in our size and scale and our ability to invest, our brand strength and most important, system alignment. With our sheer number of restaurants, we're closer to the customer than anyones else in a convenience-driven business, and we can speak louder than anyone with our marketing share voice. Now as you'll see throughout the day, we are reinvesting like no one else, making our business even stronger when conditions improve.

In addition, we have a brand that's trusted and recognized for our many attributes from speed, to convenience, to value, and perhaps most importantly, our system has never been more aligned or more focused than it is today, with owner operators who are passionate and dedicated to delivering the best restaurant experience everyday. Suppliers who perform what I call the McDonald's daily miracle, providing all 33 restaurants around the world an assured supply of safe, high-quality products at competitive prices and our talented and committed employees around the world beginning with our crew, our managers on the front lines and extending all the way up to our senior management team, a group of experienced leaders who together are one of the best management teams ever assembled. You'll see them today. Talent Management and leadership development remain a priority and a passion of mine, and I continue to believe it is McDonald's greatest strength. The best plans are only as good as the people who can execute them.

I started off in this job by focusing on putting the right people in the right place to achieve success and execute McDonald's strategies. I like to say that a lot of people can create strategies. Few people can execute them, and so getting the right people in the right place, which I feel we have done, is extraordinarily important. And that's what we've done with the leadership team that you're going to see today and I think you'll -- and you know many of them. Many of you have been in the markets with our team, both in Europe and Asia and certainly, in Latin America.

Now backed by our plans and our competitive advantages, we'll continue to execute what has been our winning formula, building on the basics as we modernize our brand. Now as always, running better restaurants is our #1 priority. We're getting better at it around the world, with improved customer satisfaction scores across our major markets, but we're keeping at it. You have to stay after this. This is where we have the most moving parts through a sustained focus on operations excellence, better training for our people and new technologies that make the restaurant experience easier for our customers and crew. At the same time, we're committed to making our brand even more modern and relevant. Through our robust consumer insights process, we understand what our customers want and need for McDonald's more today. We have a better understanding of that today than any time in our history. The most important thing though is that we're at it.

It's good to know things, but if you don't do something about what you know, you're not going to be effective, and we're very committed to doing the things that we know are going to be important to our customers and our brand in the future. We're implementing new services around the world from cutting-edge ordering systems in the U.S. and Europe that improve our accuracy and speed to delivery of products across Asia, which now accounts for over 10% in some of our businesses in those markets where it's offered.

We're also pushing forward on our restaurant reimaging plans, and not only do the restaurants we reimaged benefit, but when we attain a critical mass of reimaged restaurants, the entire market sees a lift in both sales brand scores. So we expect more growth ahead as we continue to add to those numbers and get to critical mass in more and more markets. And we're continuing to optimize our menu with a focus on core products and new offerings that stretch our brand.

Now the last time we met, we recently launched our McCafé specialty coffees, and we were less than a year away from rolling out Frappes and Real Fruit Smoothies. We had high expectations for these products, which you have reminded us of often, and they have delivered on every level.

All in all, our entire McCafé line of both hot and cold beverages has become more than $1 billion business here in the United States. It's moving us really toward a beverage destination and added millions of new customers to our brand, and there's a lot more room to grow this part of our business globally with more than 2,700 McCafés across Europe and Asia and more on the way, including -- I think we're going to have 200 in China by the end of this year, which is a big play for us in China. In addition, several of our major markets plan to launch blended iced beverages over the coming years, which will drive significant incremental sales into the future.

Now as big as all of this is, I think we said this a couple of years ago, this is just one example of the kinds of things that McDonald's is moving forward with. We're determined to keep finding new opportunities, expanding new platforms and meeting new customer needs. But I always have say, we do that while not forgetting about the enormous impact that we have through core food at McDonald's, our iconic brands.

Now as we do all of these, we remain committed to fiscal discipline and maintaining a strong financial foundation with our primary franchise business model. Our ongoing focus in this area has contributed to our success in continuously exceeding the average annual long-term targets we laid out several years ago: 3 to 5, the sales growth, the revenue growth; 6 to 7 operating income and a return on incremental invested capital in the high teens. These targets have served us well and will remain intact going forward. We continue really to see them as realistic and sustainable targets for our company of our size, particularly as we invest to widen our competitive advantages and stretch out our brand. We believe they keep us focused on making the best decisions for the long-term benefit of our shareholders.

We continue to operate under our same philosophy regarding the uses of cash flow. Our first priority is to reinvest in our business. After that, we expect to return all of our free cash flow over the long term to investors through a combination of dividends and share repurchase. Year-to-date, through October, we have returned $5.1 billion to shareholders through dividends and share repurchases and expect to finish the year around $6 billion.

Our stated mission is to become our customers' favorite place in way to eat and drink, and while we continue to make great progress toward that goal, we're not satisfied. Looking ahead, we see tremendous opportunity for McDonald's to keep separating ourselves from our competition by building more frequency in our customer base and attracting new customers to trade in to McDonald's, to continue growing market share by creating an even deeper connection with our consumers and to position ourselves to sustain our momentum well into a recovery and beyond.

Now with that, I'm confident that you'll hear today how we're demonstrating this and demonstrating how McDonald's is well positioned for sustained growth and that we're an investment, which will continue to yield many returns for all of our shareholders and stakeholders.

Now with that, I will turn the show over to Don Thompson. Don is really the Chief Operating Officer and the operating guy, who through the areas of the world Presidents, is really delivering on all these strategies around the world. And Don, I want to congratulate you on your efforts on behalf of brand McDonald's, and good morning.

Donald Thompson

Good morning, boss. How are you? That's kind of the normal greeting in a day. Thanks, Jim. Good morning, everyone. I'd like to share a high-level view of our business before Tim, Jan and Doug, then, and their teams dive into some of the details by geography. It's been about 20 months since I stepped into the role of President and Chief Operating Officer, and I can honestly say that I'm even more excited and energized by some of the things I've seen and the potential for our brand today even more so than I imagined just 20-short months ago. I visited our major markets multiple times. I've met with the teams who are working to bring our Plan to Win to life in the restaurants, and I've seen all 3 legs of the stool come together in an uncertain economic environment with even more passion and more energy for our customers.

Now from country to country, teams are doing an even better job learning from each other and working together to leverage best practices, to scale some of the proven system solutions that we have and grow our business by staying focused on the fundamentals that underpin our existing momentum.

That's why global comparable sales are up 5% year-to-date October. That's on top of 5% in 2010 and 3.8% in 2009, and I think even more so, guest counts. Guest counts are 3.3% for the same time period, on top of 4.9% in 2010 and 1.4% in 2009. Important note, we continue to grow guest counts, which have driven nearly 70% of our current year sales growth. Now this is a testament to our ability to grow our share and to stay relevant at a time when consumers are keeping a tighter grip on their pocket books and their expectations of leading global brands like ours continue to rise.

Our ability to stay close to customers during these times is the direct result of the plans and the processes that are put in place with the Plan to Win as Jim mentioned. We're using better data. We have deeper consumer insight today, and we're focused on executing at the absolute highest levels. In short, we have today a more holistic view of how we're building the business.

This clear view is why we've been able to continue pushing ourselves to accelerate efforts in those areas within the Plan to Win where we have the greatest opportunity. That's how we identified our 3 global priorities, which are optimizing and evolving the menu, modernizing customer experience and broadening accessibility to our brand.

So today, I want to reiterate that the Plan to Win remains the foundation for all of our efforts, and as Jim likes to say, the opportunity within each P is limitless. He keeps us going on that limitless piece. These global priorities simply represent the opportunities within the Ps. In other words, they are 3 areas where we're intensifying our efforts to drive the business and create new demand. That's why for the last 18 months, cross-functional teams with representation from each area of the world have been working together to ensure that we're sharing and scaling learnings and best practices within these areas.

So let's just take a look at a video that provides a little more texture and insight behind each of these priorities.

[Presentation]

Now at the most fundamental level, our business has always been about 3 things: food, the customer experience and convenience. That's why we're confident that these priorities are the right areas for us to place added emphasis upon within our upcoming plans and why they're global and focused. What you'll see today is that each geographies is placing varying degrees of emphasis on the priorities that are based on market-specific needs. This tells us that we have plenty of runway within each area of the world relative to menu, relative to modernization and relative to accessibility. You'll hear more about each of the areas of the world's focus throughout the day, so I'll just share a few of the highlights for these 3 priorities.

In area of menu. Menu has always been a key part of our growth. We are, first and foremost, a restaurant company, and as we look to the future, our menu growth will primarily come from 5 categories: beef, chicken, beverages, breakfast and desserts. Today, we dominate the beef category with multiple products that are $1 billion brands like the Big Mac and Quarter Pounder with Cheese. In fact, McDonald's accounts for more than 25% of beef servings sold in informal eating out restaurants. You'll continue to see premium burgers with an emphasis on variety and different components of the sandwich. The patty, the buns, sauces, toppings, you'll see the Pub Burger that's underdevelopment by the U.S. team today and the 1955 Burger that's spread across Europe since its introduction about a year ago. And these are 2 great examples that you'll have a chance to also taste today at lunch.

Let's go over to chicken. The chicken category is another significant opportunity for us. In the past year alone, our chicken business has grown nearly 5x faster than the rest of the industry. It's such an important category because it also drives good-for-you perceptions and enables us to create special tastes and ways of eating. The customers didn't expect from McDonald's products like our large wraps from Poland or snack items like McBites from Australia.

Beverages, as Jim mentioned earlier, are another major brand differentiator. In the U.S., the McCafé lineup has been a significant source of growth, particularly when you take into account the contributions of our blended ice platform, which offer indulgent items like frappes and smoothies made with real fruit. We're also increasing our focus on specialty coffee by emphasizing quality, flavor and variety with items like our Peppermint Mocha that some of you may have sampled this morning. And that's just the tip of the iceberg. We continue to look for new and different ways to leverage this beverage platform.

Now specific to blended ice -- many of you asked the question of this quite often. You'll get to try a new innovation today, the Cherry Berry Chiller this afternoon. It's a drink similar to a slushy, but maybe with 100% fruit juice.

Breakfast also remains another critical daypart for us globally. Although we've been serving breakfast as part of the menu here in the U.S. for nearly 35 years, there are many of our markets around the world, which still have a significant opportunity to develop or expand this daypart. We've also added products that are portable and provide additional wholesome choices like our Fruit & Maple Oatmeal and the new blueberry banana nut version of our oatmeal that's currently in test here in the U.S.

And finally, over to desserts. They've always been an important part of our business and will continue to be. We're creating excitement by balancing indulgence and portion size. That's a really important parameter with even more emphasis on premium ingredients and quality. You'll have the opportunity again to taste one of these great new products today, our Magnum McFlurry from the U.K. I'm getting a little hungry up here.

Now, while we'll continue to build our global menu pipeline, we'll continue to remind customers about their core favorites as well, and Jim mentioned this as well this morning. Today, our 5 flagship global core items, Big Mac, hamburger, cheeseburger, fries and McNuggets account for about 30% of our total sales.

Lastly, we know that when customers feel good about eating at McDonald's, they visit us more often. So we're looking across our entire menu pipeline with a lens on quality, choice and nutrition, and we're confident that this will ensure that we continue to drive both the health of our business and also the health of our brand.

So let's shift over to modernizing the experience. All of us have seen that the look and feel of a restaurant represents a significant and a near-term impact to our brand. It's absolutely critical that we have uniquely defined McDonald's designs. It's also critical that we drive world-class retailing. Differentiate the family experience and we reach critical mass more quickly. We've already reimaged nearly 45% of our global interiors, and we expect to hit the 50% of the exteriors within the next few years.

However -- and this is a big point. I can't stress enough that modernizing the customer experience goes far beyond our reimaging efforts of contemporary interiors and exteriors. We must improve customers' perception of our brand. Therefore, we're changing the way we tell our story and using our dining rooms to communicate quality and community. We're changing the way we interact with customers from elements like our menu boards and dual-lane drive-thrus, to our front counters and center islands. We're changing the way we engage families by providing small amenities and new ways to play within our restaurants, and we're changing the way we leverage technology to interact with customers whether they're on the go or in our restaurants with mobile ordering, McDelivery and self-order kiosks. By doing these things in concert with our food efforts, in short, we're changing the McDonald's brand.

Our third priority is broadening accessibility, and our goal is to reach more customers more often. Convenience is a significant component of this strategy and no one is better positioned than McDonald's to capitalize on this opportunity. Our returns remain strong as we've continued to grow our restaurant base. At the same time, we've put the right capabilities in place, our people, tools, technology, processes, so we can grow faster when and where appropriate. We won't grow faster everywhere, but when and where appropriate. We're accelerating new restaurant development in emerging markets like Russia, China and South Korea, and where opportunities exist, we're also growing in more established markets like the U.K. and the U.S.

At the same time, we continue to build the capacity of our existing restaurants to handle additional demand. It's not always about changes to the physical facility. In fact, 80% of our restaurants can expand capacity with labor and operation solutions that are built around staffing, scheduling and positioning of crew and shift managers. Now restaurant department management in the U.S. and Europe's web-based crew portal are 2 great examples that you'll hear more about today regarding these efforts.

Also, want to quickly touch on the third component of our accessibility strategy, and that's value. Price value leadership remains a critical component of our strategy. We're committed to ensuring our menu offers something for every customer regardless of whether they plan to spend a little or a little more in our restaurants. We apply the price value screen to the menu development process in every area of the world and with every product category. In fact, the items you'll sample throughout the day are all from various price tiers, which is the best demonstration of the teams' commitment to ensuring value remains top of mind across our menu board.

So in closing, I just to want to reiterate my confidence in our brand as we continue driving toward our mission to become our customers' favorite place and way to eat and drink. We have no doubt that our emphasis on the 3 priorities of menu, of modernization in terms of the customer experience and broadening our accessibility will move the needle in the right direction.

We also know that the priorities alone, they won't do the trick. We have a strong experienced management team all around the world, and you'll get a chance to meet and talk with a number of these folks today. We have the best owner operators, the best suppliers within the industry, and we have a base of restaurants and average volumes around the world that no one can replicate. I'm excited about the opportunities before us and look forward to your questions throughout the day.

And with that, I'll turn it over to our newly named Chicago CFO of the Year, Pete Bensen

Peter J. Bensen

Thanks, Don. That wasn't in the rehearsal. Good morning, everyone. Over the past 8.5 years, we've performed well in both robust and challenging economic environment. October marked our 102nd consecutive month of global comparable sales growth. This steady consistent performance benefited our shareholders as well as the entire McDonald's system. Through September, we've delivered a 5-year compound annual total shareholder return of 15.2%. This compares quite nicely to the Dow Jones and S&P 500 as you can see from this chart.

Looking forward, we see continued opportunity for growth, so we are wisely investing to further widen our gap versus the competition. After more than 100 consecutive months of positive comparable sales growth, I'm often asked, "Can McDonald's continue to grow? Or what inning are we in?"

In short, I don't think we're anywhere near the ninth inning. I believe we have a unique opportunity that did not exist 10 or even 5 years ago. As Don said, we have the potential to redefine brand McDonald's in the minds of our customers, stressing our brand in ways no competitor can match. The future is bright for McDonald's.

With our focus on the customer and operational excellence, each area of the world has contributed to enhancing overall profitability as measured by combined operating margin. Combined operating margin is a critical measure because it speaks to our fundamental economic model, effectively driving top line sales growth while prudently managing expenses, thereby increasing overall profitability.

At over 31%, we see opportunity for continued growth in this key metric over the long term. As you can see in the slide, a mature, more heavily franchised system such as the U.S. at 89% franchised can yield a combined operating margin in excess of 40%.

Three factors contribute to our combined operating margin. The first and most significant is franchised margins, which are primarily driven by comparable sales. Increasing comparable sales year-after-year requires discipline with regard to pricing, especially in the QSR segment where value plays such a vital role. It also requires effectively managing product mix by successfully introducing or promoting higher margin items that can expand the average check without alienating the core customer base. Above all, it requires generating more traffic year in and year out.

With 80% of our 33,000 restaurants owned and operated by local entrepreneurs, franchise margins are the biggest beneficiaries of our comp sales growth. Our rents and royalty income, based on a percentage of sales, is a very stable revenue stream, which has relatively low direct cost and capital investment. Our refranchising efforts over the last several years have enhanced the stability of this income stream. Franchise margins, therefore, are the most significant driver of overall profitability, representing 2/3 of total restaurant margin dollars. Year-to-date September, franchised margins have contributed $380 million of the $488 million increase in constant currency operating income.

The second element of growing combined operating margin is our company-operated margins. For perspective, company-operated margins totaled $2.6 billion year-to-date September, less than half of the $5.4 billion of franchised margins. Despite challenging comparisons against the favorable commodity environment a year ago, our year-to-date global company-operated margin is a healthy 19%. This compares quite favorably to the past 5 years as the chart indicates.

Looking at commodity costs for 2012, our preliminary guidance is for our basket of goods to be up 4.5% to 5.5% in the U.S. and 2.5% to 3.5% in Europe, and we're prepared for continued volatility in the commodity markets.

The third component of combined operating margin is G&A. Our business is growing, and we want to seize the potential for more growth in the future. So our intent is to manage this expense effectively, investing where appropriate while seeking efficiencies where warranted.

Looking to 2012, we have 2 significant events, our biannual worldwide convention in April, which allows our global system to maintain and further enhance the alignment that has been so vital to our success and the Summer Olympic Games in London where we're a worldwide sponsor. In addition to these 2 events, we are making significant investments in technology to extend and accelerate future capabilities in the restaurants, as well as upgrading certain back-of-the-house systems like HR and accounting.

The total cost of these 3 items, the technology enhancements, the Olympics and the convention will be approximately $100 million or $0.05 of EPS next year. As a result, 2012 G&A is projected to increase approximately 7% in constant currency. This is a targeted investment in the future and not a change in philosophy. The magnitude of the increase is temporary and will be confined to 2012, and even with these incremental costs, we expect to meet our financial targets in 2012.

Over the longer term, we project relatively modest increases in G&A. Some volatility between years is expected due to the convention and Olympic sponsorship that occur every 2 years. We have demonstrated responsible spending and attention to G&A as depicted in this chart, as G&A as a percent revenues has declined each of the past 5 years.

Driving top line growth while effectively managing expenses yields strong and growing cash flow and returns. Return on invested capital has improved 670 basis points since 2006 to 22.5%. Each area of the world has contributed to this performance. Our 1- and 3-year returns on incremental invested capital of 28.4% and 36.9% are well above our high-teens target, reflecting the underlying strength of our business.

With these strong returns, we think now is an opportune time to increase new store openings and reimaging. We're operating from a position of strength, a global leader with the financial capacity, the pipeline, processes and talent to secure long-term competitive advantages. We'll do this by investing about $2.9 billion in 2012, building new restaurants, reimaging existing restaurants and investing in technology to build capacity and enhance the overall customer experience. As we increase the level of our investments, we are confident our returns will continue to exceed our high-teens target. These investments will yield considerable value to shareholders over the long term as they add to our growth and contribute to redefining our brand.

Consistent with past years, about half our capital will be allocated to new restaurant openings with the other half primarily allocated toward reimaging activities. As you'll hear in the areas of world presentations, we are underpenetrated in many emerging markets, and we continue to have new restaurant opportunity in many mature markets. To take advantage of this, we plan to open more than 1,300 restaurants next year, a little over half of these openings will be in APMEA with 225 to 250 in China.

The growth in emerging markets is well balanced with over 400 new restaurant openings in the U.S. and Europe, mature, developed markets with average unit volumes and brand recognition that is strong. Next year, we also plan to increase the number of reimaged restaurants to more than 2,400, including 800 in the U.S., 950 in Europe, 450 in APMEA and 150 in Canada. Our customer feedback in newly reimaged restaurants is consistent. Everything is simply better, the taste of our food, the friendliness of our crew, the speed of service and their overall experience with our brand.

As Jim mentioned, we remain committed to returning all free cash flow, that is cash from operations, less capital expenditures to shareholders over time. Over the past 5 years, we returned an average of over $5 billion per year. After reinvesting in our business, our first priority is the dividend. We have increased the dividend every year since we started paying a dividend in 1976. Our current annualized dividend of $2.80 per share is more than 2.5x what we paid just 5 years ago.

The final use of our free cash flow is share buyback. Over the past 5 years, annual share repurchases have ranged between $2.6 billion and $4 billion and on average, have added about 3% to EPS growth. Since 2006, we repurchased approximately 360 million shares at an average price of $54 per share. We continue to repurchase shares in a disciplined and consistent manner.

With our strong business momentum and our increased investments this year and in 2012, I'm confident we'll continue to grow our free cash flow in the future.

Finally, I'd like to comment briefly on our capital structure. A strong financial foundation and balance sheet is vital to our system. As our franchisees and suppliers benefit from our industry-leading single A credit rating. As our business grows, so does our ability to modestly increase our debt levels, which we will do prudently while keeping our credit metrics within current ranges.

In closing, I remain confident in our strategies and our ability to execute against them. The future is bright for McDonald's. We remain focused on widening our competitive advantages while leveraging our size and scale to build long-term value for our customers, our shareholders and the McDonald's system.

Thanks. Now I'd like to bring Jim up to lead our Q&A.

Question-and-Answer Session

James A. Skinner

Thank you, Don. Thank you, Pete. Kathy, please, let us know when we're getting the end of our time here and we'll take the last question accordingly. Who's got a question? Mr. David Palmer.

David Palmer - UBS Investment Bank, Research Division

Question for you, Don, I think. With regard to reimaging and customer satisfaction, it seems the U.K. has been such a stunning example of a market that was a problem market for you guys in the past. Now it's really -- it's led Europe for much of the last 2 years, let's say, 3, 5 years. Reimaging, I think, has been a big part of that. You said the lift in reimaging in the U.S. has been something like 5%, 7% or something like that, some number that's a respectable number. But it seems like when you look at the U.K. and when that reimaging has gotten to scale, it's been a much bigger deal because of the employees' engagement in some other things. Are you secretly thinking this reimaging thing for the U.S. once it gets going, it's going to be a much bigger deal than the 5% lift that you've been talking about?

Donald Thompson

David, I would say -- hopefully, this is on. David, what I would tell you is 2 things. One, you're going hear -- get a chance to hear from Jill McDonald or at least hear from the European team, and then Jill will be up here for some Q&A. Not to set her up, but you might want to ask her a little bit more about -- and I mentioned this, it's not just the physical asset changes. This is a really important point. If you look at the U.K., if you look at the U.S., you look at other areas around the world, the plan is, yes, to change the physical assets but also in the U.K. we have a great tiered menu approach. We've done a lot relative to operations in the U.K. Breakfast has improved in terms of percentage, so it's more than just the reimage. And I know Jan and the team are looking at exactly the same thing, and you'll get a chance to talk to them in just a moment as well. But I would offer to you it is much more than just the reimaging piece, and so when we change the physical assets, as we believe, it opens up the door for us to do even more things and have even stronger consumer credibility relative to our menu and relative to the experience at McDonald's.

James A. Skinner

Now David, I think we have to realize that I think the U.K. just reimaged their 1,000th store, which is a large part of the base, so they're clearly critical mass. The other thing to remember about the U.K. is that we've been through a massive refranchising effort there, and at one time, it was a wholly-owned market, all company owned, and today, it's 65% franchised. And we know that our business model on a daily execution basis in the communities is better in the hands of franchisees, not because our company stores don't do a good job but because that engagement you were talking about and the execution around this. And when they have invested their dollars into those reimagings, we've seen the benefit of that as well.

Michael Kelter - Goldman Sachs Group Inc., Research Division

Michael Kelter, Goldman Sachs. I wanted to ask every year that goes by, it seems increasingly clear that your competitive set is shifting, and the traditional QSRs that you had always competed against for decades, many of which have gone into decline and now you've got the fast casual kind of group getting bigger and bigger. So what does that mean for you guys? Are there opportunities whether they're real estate or otherwise because you have some weakened competitors, legacy competitors? Are there offensive or defensive things that you think about now that the landscape is changing with quick -- fast casual? Just talk about what that means for your business.

James A. Skinner

Yes, I think, first of all, we think about ourselves more in the informal eating out space, if you will, as we bump up against that and fast casual as you've talked about. But relative to the competitive landscape, as we've talked and as represented by my colleagues here this morning and you'll hear all day long, it's about focusing on the strategies and the things that we can do best for our customers around the world. And as we do that, it continues to separate us from that competitive landscape, if you will, in the traditional quick-service restaurants. Yes. Are there strategic opportunities with real estate and other kinds of things? I guess the answer to that is yes in some specific markets, but it's not is a strategy. It's an opportunity if you will, and so we don't spend a lot of time strategizing over the woes of others in terms of how their business is running. We focus on the strategies that are going to continue to grow our business and separate us over the long term. Number 4.

John W. Ivankoe - JP Morgan Chase & Co, Research Division

John Ivankoe, JPMorgan. I think one quick question and one may be a little bit longer. Pete, could you talk about the dynamics of the U.S. versus Europe commodity inflation for '12. Obviously, you take a very global view of your business and why those numbers wouldn't be more similar either in '12 or over time? And secondly, Jim, if I may, for you, I wanted to follow up on a comment that you made fairly explicit and to paraphrase, franchisees, locally -- serve a local market better than a company. That's an enticing comment. So as you think broadly across, the corporation, obviously, needing customers is why you're going to work everyday. Why isn't 80% franchise even a higher number over time?

Peter J. Bensen

Okay. John, we actually buy our commodities differently across the U.S. than we do in Europe. Europe, it's a little bit more fragmented, and we do more purchasing within individual countries. So if I look more broadly at the guidance in just 2 specific categories, in chicken and dairy next year in Europe, we're expecting lower increases than we are in the U.S. So that's really by 2 categories, the difference in our growth, but you can believe we're trying to do more in Europe like the U.S. as much as we can purchase consistently across the continent, as much as we can use some of the instruments we use in the U.S. We're doing more and more of that really to secure the predictability and stability of the pricing versus just trying to beat the market per se.

James A. Skinner

Thank you, Pete. In terms of the ownership structure at McDonald's, as you know, it's been all over the board over all the years, and the business model as we have refranchised and realizing that the critical mass of franchises around the world is the best way for us to grow the market -- the company over the long term. However, as I say that I always say the same thing, we will always have company restaurants. You how to skin in the game. We're in the restaurant business. Our people have to know how to run restaurants. We can't bark out orders to franchises and expect them to live up to the standards of operating excellence unless we're able to do it ourselves. And there is a place for company restaurants in terms of the development of people for our organization, and so when I say those things, it doesn't mean that we're going to go to the 90th percentile or the 95th percentile. I think the structure, the way it is today -- because if you look at the various numbers of franchise models, we have 64 developmental licenses around the world if you will and if you look at Latin America, the developmental license there. And then, of course, when we have 89% franchised in the United States, that company piece of that business, 11%, contributes a lot to the top line and to the bottom line and are very, very well-run organizations. But depending on the marketplace, we find that franchising model just works best for us, but I think that number over time is going to stay about the same at that 80th percentile. It's not going to move much from that, John. Yes, Number 2, and then we'll go there.

Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division

Sara Senatore of Bernstein. Actually, the question is for Pete, but more broadly, it's about the guidance of 3% to 5% top line and 6% to 7% operating. Essentially, in my mind, a fairly wide amount of margin expansion for such a mature, well-run company, and the implication from top line is maybe that comp will be fairly modest. Clearly, you've beaten this handily for a long time, but can you talk about where you see the most opportunity to get that margin expansion? Is it -- I mean, franchise, because as you said is a relatively lower cost, you don't get a huge amount of margin expansion unless sales leverage to the SG&A. Is it company-operated stores in some of the less mature markets? Maybe just talk a little bit about that.

Peter J. Bensen

Sure, Sara. It's actually all of them, but if I had to rank them, the franchise margin is what drives the -- is the most incremental to the combined operating margin. So if you look at it, 83% of the revenue that we get from our franchise business falls to the bottom line, and so if the combined operating margin is 31, pushing more comp sales through that franchise model is going to be accretive to that combined operating margin. So it's not a -- reiterating that guidance is not some discussion that we think comps are slowing. In fact, as you pointed out, we've beaten that 3% to 5% every year, and we're disappointed, frankly, if we don't beat it. And so we're as confident as ever in the top line momentum, and that really is what drives the margin expansion, both at the franchise level and for our company-operated restaurants. So driving comps through there, even with the commodity cost environment, that helps cover those fixed costs. And around the world, while our kind of major refranchising efforts are kind of behind us in that regard, we're doing a lot now to what we call optimize the McOpCo portfolio. So a couple of years ago, in the U.S, we put that organization all under one leader, and now that's operated as one organization with the accountability to improve the performance. Whereas, before it had been dispersed amongst the different divisions and regions, it didn't necessarily have that same level of focus. And other countries are taking that same model and doing that, which doesn't mean operating a static portfolio restaurant either. We're constantly looking for opportunities, are there restaurants that are better in the McOpCo portfolio versus better in the hands of franchisees and constantly rebalancing that portfolio as we move along.

James A. Skinner

Yes. Here, John.

John S. Glass - Morgan Stanley, Research Division

It's John Glass from Morgan Stanley. Question relates to capacity expansion within your restaurants. Don, you had mentioned that 80% of your restaurants have the ability to expand their capacity just by repositioning the crew. So I wondered if you could expand upon that. Is that something you've actually done? Is that something you're doing in a positive sub and maybe what the implications are for 2012? And Pete, on the remodel side, 2,400 units, how many of those include capacity expansion beyond maybe just remodeling even the drive-thru? How many actually make the restaurants bigger or somehow increase sales capacity?

Donald Thompson

Thanks, John. several different areas here: one, we have a huge focus around the globe on what we call peak hour capacity. So when I talk scheduling staffing positioning, one of the things in our restaurants is that where you place people basically can inhibit or expand the productivity in the restaurant, particularly at daypart and based upon the product mix, so we know that we should be placing our -- if you have 10 folks on the floor, you should place them in certain allocation across the floor. Having said that, we also know that if you're running a peak hour on average at 10 people, you're probably running a couple of people short for that shift. And so I know Jan Fields and her team will probably talk a little more about it, Jimmy Johannesen. But the reality of it is when you add that incremental labor, it gives you a benefit above and beyond the labor cost itself in terms of margin benefits. So what we've got to be able to do is to get that word out even more broadly. We have done this, and Jim talked about McOpCo. One of the things we do in McOpCo, McOpCo is also a bit of a test bed, so when you look at things like being able to expand capacity, increasing number of folks on the floor at certain periods of time, technology deployment, McOpCo was the first to have that. So we have seen these things. Put them in place in McOpCo already, so we know it gives us a benefit. Our challenge is to get it across the board. Also, we have Jeff Straton and our team, in terms of restaurant capacity, are looking at different changes to operating platforms around the world. Made for you has been a solid platform for us. It is not in all countries around the world, and based upon the peak hour capacity and the guest counts, Made For You, typically, has been a system that has yielded great results. So it's operating platforms, scheduling staffing positioning, and it's just the communications and focus on those peak hours across the daypart.

Peter J. Bensen

And John, from a capacity side, I don't know the number globally, but I know in the U.S., around 80% of the reimages are doing some kind of capacity enhancement, and the #1 capacity enhancement they're doing is the side-by-side drive-thru. So to Don's point, getting more orders, we know getting more orders back into the kitchen during those peak hours is going to increase our throughput.

James A. Skinner

Over here.

David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division

It's David Tarantino from Baird. Just a question on the ramp-up in investments for '12. I was wondering if you could talk at a high level what led you to the decision to get more aggressive, especially given all the uncertainty that we're seeing in the global economy. Was it something maybe you're seeing in the external environment that makes you want to be more aggressive or maybe something in your internal data? And what led you do that?

James A. Skinner

Well, I'll start, and I'll let Don and Pete give you the specifics. I think we're at a point in time relative to our investment portfolio with technology in particular where it deserves some acceleration because it was enabling our restaurants to be able to deliver a better experience and increase capacity and opportunity for us to give a better experience for the customer. And so it happened to be now and what better time to do this. We invest for the future as you well know and the time is right, and this is really the reason why and of course, the number of new openings, which is also part of that in the reimagings, which is business as usual in terms of our investment packages over the last number of years. It just happens to be this year in 2012 more openings, more reimagings and then this technology piece that Pete talked about earlier.

Donald Thompson

David, there are several things. We've been working really hard to make sure that we have a high level of quality relative to the openings that we do have, which means -- it means several different things. One, when we slowed down development to focus on the core of our business in existing restaurants, absolutely, the right thing to do. We have been able to focus on that, and at the same time, we focused on the financial discipline around whether it be construction costing and our supply chain's involvement more so in terms of material costs, in terms of newbuilds. We focused on building up the talent in the development teams. We've been working several years on building up an effective pipeline of sites that we can then turn on an annual basis to get those sites into the pipeline because you can't open if you don't have sites, and that's a little bit of piece that we know very well. We've chased that a little bit in the past, trying to open up sites and turn them to quickly. Today, we are much better positioned. Our focus is still broad based relative to focusing on the core of our business and development, but we have gotten much, much better at this. The other thing I'll tell you, and all of the folks know this very well, you have to earn capital. So in other words, we don't come -- people don't come in and provide the plans to Pete and I and Jim and say, "I need x amount. Therefore, are you going to give it to me?" This is kind of based upon historical returns. It's based upon your ability to open up. Its based upon months of operation. It's based upon the talent that you have, and it's also based upon the quality of those openings from our -- an estimated versus an actual performance. And so there's a lot of things we look at today, both financially and measurably that we are able to take a much deeper look at development. So even the change that we're making probably for many of our folks they say we could probably go a little faster, but we think that this is about right pace.

Peter J. Bensen

And David, one more thing about that, it's about 150 restaurants, give or take a few in terms of the increase. 100 of those are in APMEA, and 50 of those are in China. So it's China. It South Korea. It's Taiwan. It's Hong Kong. It's some very targeted areas where we know we're underpenetrated, where our unit volumes are good and our potential to build great free-stranding drive-thrus are very ample.

James A. Skinner

And I would just say in closing off in that particular question is that we have not changed our process around G&A build from the hurdle rates that we created back in 2003. We're still stingy. When these guys bring their number, they go, "Oh, it's 2.9." I go, "Why? It's 2.7 last year. Now it's 2.9." And so there's a lot of explaining to do around making sure, of course, that the one barometer is meeting our hurdle rates and the fight for capital in the segments. And every year, I do the same thing, checking off with the leadership of saying, "Are we getting weak? Are you letting this people have capital they don't earn?" And the answer to that question is no. You can ask the Presidents today as they have that dialogue with you later. I think, we have time for 2 more questions. We'll go there, Number 2.

Mitchell J. Speiser - Buckingham Research Group, Inc.

Mitch Speiser, Buckingham Research. And this question is probably for Pete. McDonald's in some ways is much of a real estate company as it is a hamburger company or a restaurant company, and related to ROIC, I guess first off, can you give us a sense of what percent of your real estate portfolio is owned? Or how many restaurants where the dirt [ph] is owned? And secondly, on unit development over the next 5 years, I'm sure some markets you could own the real estate, some maybe not as easy. Do you think the real estate portfolio will be additive to ROIC over the next 5 years? And maybe discuss over the past 5 years, was the real estate aspect of your business a headwind or a tailwind to that very significant improvement in ROIC.

Peter J. Bensen

Yes, Mitch. I think globally, the number is about 45% of our owned real estate. I'm seeing some heads nod, so I got that number right. There has been a focus. I would say, probably internally, back in 2002, 2003 when we kind of put the brakes on capital and really scaled back development, that probably encouraged a little bit more leasing versus purchasing of our people just generally at the fringe. And I think over time as we've gone through the revitalization and you've seen the average unit volumes grow, and you'll see in each area of the world today, they'll give you some of those examples, that we realize the opportunity for us to get in and actually purchase sites and secure that occupancy cost for the long term is better than it's ever been. And so part of the increase in CapEx the last couple of years has been a movement toward not only building more freestanding drive-thrus, which we know are higher volume, higher returning assets, but also purchasing more land versus leasing it. Now it's not like every country we can go we in and just purchase because we want to purchase. There are still are countries, especially in some areas in Southern Europe where landlords who'd rather have McDonald's as a nice secured tenant for a 20- or 40-year period versus sell us the land, and so there are some places we'll never be able to purchase land or they just want such an exorbitant amount of money that the deal won't pencil. But for the most part, we're focused on purchasing more where we can and over time, that is definitely accretive to our business.

James A. Skinner

Thank you. One more. Yes, go here. Number 4.

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Jeff Bernstein from Barclays. Just 2 questions, I guess, just first, on the operating margin. I guess, Pete, in your slides, it's obviously fairly impressive to jump 1,000 basis points over the past 5 years. I think you mentioned the greatest flow-through coming from the franchise side of things. I'm just wondering without further refranchising, potentially, if we kept that franchise component the same, what's the opportunity to take that meaningfully higher in terms of the franchise component of it with that 80% flow-through? And you had that chart, I guess, that shows kind of each of the 3 major regions in the U.S. now running north of 43% operating margin. Is it safe to -- is it reasonable to extrapolate Europe and Asia-Pacific that, over time, they can achieve that? I mean, they're north of 1,000 points below the U.S. and I'm just wondering about opportunity.

Peter J. Bensen

Yes. Those are great questions for Tim and Doug when they come up here.

James A. Skinner

Yes, they are great questions, but I'm going to answer it, Pete. Look, we're in markets around the world where we have no franchisees, and so that opportunity exists there if you look at China, for example, and Tim's going to tell you we're going to have some critical mass relative to franchisees over the next number of years. But it's a -- margins are a top line game, and so when you get the margin expansion, it comes through efficiencies and other issues not just because they're going to enhance your franchisees, but in effect of that combined margin, growth is driven by top line and then capacity and efficiencies, and we expect that trend to continue over time. Because most of that growth, if you saw was in the franchising side of the model, we don't have to increase the number of percentage of franchisees on the overall base around the world to continue to get efficiencies in margin, one. Number two, we're going to increase the absolute number of franchisees around the world and particularly in Asia as you'll see over time.

Donald Thompson

Jim. Just, Jeff, also realize the U.S. -- a lot of times, we like to extrapolate based on the U.S. It's one country though, so I say that because it's one country and you have the ability to have Charlie run McOpCo in the U.S. When you get to Europe and APMEA, we're in multiple countries, over 30 and over 40 countries in these areas of the world, and so if we're going to have a viable McOpCo base, which we need to have even in some of those smaller countries, some of them to Jim's point wholly owned, but where we're franchised i.e. Poland and PO2 here today, we want to have a McOpCo base. It helps us to lead with people development and be able to do some of the things we need to do. Just by virtue of that number of countries, you may not be able to get to a franchising ratio similar to the 89% that we see in the U.S. So we can't exactly extrapolate the U.S. 89% and say, "Wow, it'd be great to have 89% in Europe and 89% in APMEA." Very, very different business scenario.

Peter J. Bensen

And one last point. Only 1/3 -- when we look at the combined margin growth over that period, only about 1/3 of that was driven specifically by the weak franchising mechanics, so the other 2/3 were from the business growth that Jim and Don have been talking about.

James A. Skinner

Very good. Thank you very much. You'll have time this afternoon to grill us some more when the session's over. I understand. And am I turning it over to Tim Fenton? Tim Fenton is the President of Asia-Pacific, Middle East and Africa. Good morning, Tim.

Timothy J. Fenton

Good morning. Thank you, Jim. Well, good morning, and certainly appreciate the opportunity to talk about the business in Asia-Pacific, Middle East and Africa or APMEA as we call it. Joining me is Dave Garland, he's our CFO. He'll be going over the financial results for APMEA. Also, is Peter Rodwell who's one of our division Presidents in greater Asia, the Middle East and Africa.

Well, since the last time we presented in November of 2009, the momentum across APMEA has been very strong. APMEA's delivered significant results with a disciplined focus on the fundamentals of value, convenience and operations. We are achieving this by providing a total restaurant experience that is connected to our customers and to their needs.

Our performance is a result of strong alignment and collaboration across this segment. The alignment within APMEA has created a culture of learning that encourages in transferring and adapting best practices across all of our markets. For example, we've leveraged market learnings to deliver convenience at an accelerated pace. This includes delivery service, which is available in 19 countries; breakfast, which is often in almost everyone markets and an increasing number of restaurants that operated 24 hours.

APMEA is the most far-reaching segment of the system, with over 8,600 restaurants and 37 markets, serving nearly 17 million customers per day from established markets like Australia to growth markets like China, South Korea and India.

And today, APMEA represents 26% of the company's restaurants, generating 22% of total revenues and accounting for 18% of McDonald's operating income, that's double from the 9% it was in 2006. APMEA also includes some of the world's fastest-growing economies like China, with the 2011 projected GDP of 9%, India at 8% and the Middle East region at 4%. Over the next few years, these markets are predicted to rapidly expand as economic progress creates a growing consumer base with rising disposable income.

The informal eating out industry or IEO in this segment is also expected to expand with 2011 projection to reach $876 billion, it is expected to grow and excess of 7% in 2012. With our share of the IEO at nearly 2%, we have significant opportunity for growth in our markets, and we are prepared to capture this potential with the strategies that we have in place. Now I would like to turn it over to Dave, who will quickly give you some highlights on our financial results.

David G. Garland

Hi, good morning, everybody. Thanks, Tim. APMEA has continued to grow over the past 5 years and 2011 is no exception. Our year-to-date results underscore that we are stronger, stronger than ever. 2010 marked our seventh consecutive year of constant currency operating income growth, excluding impairment and other charges, something we're very proud of. Through September 2011 revenues reached $4.5 billion, an increase of 11% in constant currencies compared with the same period last year and operating income grew over 11% in constant currencies before impairment and other charges. Now the growth rate on top of constant currency increases of 15.6% in 2010 and 22.5% in 2009.

The comp sales year-to-date October were up 4.1%, specifically now China, up 10.9%; Australia increased 3.2%; and Japan was down slightly at negative 0.4%. And we're seeing broad-based positive results with most markets delivering strong year-to-date comp sales growth. Average restaurant sales have grown from $1.3 million at the end of 2005 to nearly $2.3 million as of September 2011, up more than 75% during this period. Clearly, our strategies are working as we capture growth opportunities within the region.

Now sales from -- sales have driven franchise margins from 87.8% in 2006 to 89.3% in 2010 and remain strong at 89.4% through September 2011. Now franchise margins in APMEA represent approximately half of total restaurant margins and include royalties from over 1,700 developmental licensed restaurants. This franchising approach, as you're aware, has been very successful for us. It's been a very successful option. Nearly 30 of our markets are developmental licensed and they require no capital. APMEA's company-operated margins have also grown, reaching $672 million and 17.6% year-to-date September. Margin dollars have increased every year since 2006. Australia delivered some of the highest company-operated margins across the world at nearly 24% through September 2011 while China has driven significant margin improvement over the past 5 years. Year-to-date, China's company-operated margin nearly 16% and there continues to be upside in the margin in China, especially as new restaurants mature.

APMEA's strong top and bottom line growth contributed to return on invested capital, reaching 23.7% for the trailing 12-month September 2011. Additionally, 1 in 3-year returns on incremental invested capital are strong, 30.3% and 45.1%, respectively. With these results and the growth opportunities that exist within the zone, we plan to open approximately 750 new restaurants and reimage 450 during 2012.

So lastly, let me share some highlights from our top 3 markets in APMEA: Australia, China and Japan. They represent 55% of APMEA's revenues and 70% of operating income. I'll start with Australia which recently celebrated their 40th anniversary and remains our strongest market in terms -- both in terms of financial results and brand health. Through the first 9 months of 2011, operating income grew 2% in constant currencies. Australia continues to produce strong results, having achieved 33 consecutive quarters of positive comp sales. We now have over 850 restaurants that generate average restaurant sales at nearly $4.6 million U.S., and we're growing market share in Australia where we now have an 11% share of the IEO market, our highest level in 10 years. We achieved this by optimizing the menu and leveraging conveniences such as extending hours and reinvigorating value through the Value Lunch program that was introduced earlier this year.

Japan. Japan is McDonald's largest market outside of the U.S. in terms of units with over 3,200 restaurants and average restaurant sales of $2.4 million. Despite the economic environment and a shrinking marketplace, McDonald's Japan is taking share in the informal eating out category, growing 6 straight years. Our connection to customers and our brand strength has seen us through these crises in this market and will support the business in the future. And we are encouraged by the recent results we've delivered with September and October comp sales at 4.8% and 1.5%, respectively. Energy mandates were lifted on September 9, helping sales as more consumers are returning to eating away from home. However, we also realized challenges remain and we could experience some volatility in the coming months as the Japan market -- as Japan continues to rebuild.

So finally, China. It goes without saying, China provides significant opportunity for our business. GDP has expanded over 9% year-to-date September, it is expected to grow at a similar pace over the next several years and we're taking advantage of this opportunity by accelerating growth where we currently have nearly 1,400 restaurants with plans to reach 2,000 by the end of 2013. And today, the majority of our restaurants are company-owned. Over time, you'll see more developmental licensed restaurants and traditional locations, rather, with expectations for the portfolio to be 15% to 30% franchised by 2015. Operating income in China grew nearly 15% in constant currencies through September 2011 and has grown from $23 million to $160 million over the past 5 years. Average restaurant sales have climbed and are now at nearly $1.5 million U.S.

Now overall, APMEA's financial performance is very strong and our growth potential is significant. We see meaningful opportunity both in more mature markets such as Australia, as well as other fast-growing markets like China, Taiwan, South Korea and Malaysia. So with that, I'll hand it back over to Tim to discuss our strategies to capture these growth opportunities.

Timothy J. Fenton

Thank you. We are very pleased with our financial results that we've delivered this past 6 years. Yet, there is still tremendous opportunity for us. Now within the Plan to Win, we're focused on delivering a differentiated restaurant experience through our 3 global priorities: optimizing the menu, modernizing the experience and broadening accessibility. We have opportunities under each of these priorities, in particular, broadening accessibility. Many of our markets are young and they're growing, with increasing disposable income and consumers are looking for new eating out experiences. And our markets are in different maturity stages. With APMEA's restaurant density among the lowest in the system, consumers in our part of the world have many eating choices so we need to make our brand as convenient as possible with great food and great value. 3 issues define our broadening accessibility plans. The first is to ensure everyday affordability of our menu through robust value. This includes affordability across all dayparts, including breakfast. A large percentage of Asian population eat breakfast away from home, providing a great opportunity to deliver a uniquely McDonald's breakfast experience. Today, over 70% of our restaurants are serving breakfast and making a good contribution to the comp sales growth for the region.

Now China's value breakfast program, currently offered nationwide, is driving double-digit comp sales, and today, breakfast represents 8% of China's total sales, up from just 6% several years ago. This daypart continues to be a significant growth opportunity in China, especially compared to Hong Kong where our breakfast is excessive -- in excess of 20%. Lunch still generates the largest percentage of sales in China and the Value Lunch program drives guest counts into our restaurant at anchor price point of RMB 15 or just $2.35 U.S. Other markets like Taiwan, Singapore are also benefiting from the Value Lunch program. Now snacking has always been a popular item within Chinese consumers. Our McWings on the snacking menu can be enjoyed for RMB 7, approximately about $1.10. McWings in China account for about 11% of our total sales and the product is also available in markets like Singapore, Malaysia and Australia.

Now in Australia, value has recently been even more of a focus as the economy -- economic uncertainty and low-consumer confidence has materialize this year. Australia leverage the learnings of other APMEA markets and launched a Value Lunch program which features numerous value meal options. Value is only one component of broadening our accessibility, offering convenience through options that differentiate our brands such as 24-hours delivery, drive-thru, kiosk will continue to move the brand forward. Now over half of APMEA's restaurants are now open 24 hours, with nearly 75% in China and over 50% in Japan and Australia.

Delivery service is unique to APMEA and has shown great promise. Today, delivery is at approximately 1,500 restaurants, including several countries in the Middle East, Singapore is a market where this has performed well and their delivery service now accounts for nearly 12% of total sales. And drive-thru is a critical point of brand differentiation for us. In China, drive-thrus are currently available in only 10% of our restaurant and we have plans to include drive-thrus in 40% to 50% of our new restaurants over that time, securing first mover advantage as automobile ownership continues to rise. Dessert kiosks are another way for consumers to enjoy McDonald's. These kiosks generate brand awareness and provide an important point of first entry for consumers to experience our brand. Kiosks offer varying kinds of desserts including ice cream, McFlurry, shakes in nearly 20% of APMEA's restaurants offer this feature and has become very popular with our Asian consumers.

And the final initiative I'll touch on under broadening accessibility is new unit expansion. We are on track to open over 635 new restaurants this year and expect new unit expansion to be a priority as we continue to grow. New unit expansion is a significant opportunity for the region. APMEA's now accounts for over 50% of the global openings and China alone accounts for over 35% of APMEA's new openings.

China's moving towards mass urbanization with megacities of over 10 million people and a boom of mass transit construction. By 2025, 10 megacities and 140 super cities are predicted with massive infrastructure, transportation hubs and railways, subways, highways and 18 million new cars on the road every year. Clearly, we will take advantage of this opportunity and expand amongst this great potential.

Now to do this, we put together a premier development team by hiring, training and developing talent. We've also created sophisticated tools to better identify and manage a robust restaurant pipeline. This is especially helpful in developing countries where traditional mapping tools aren't sufficient given the fast-changing real estate landscape. We are utilizing trade area surveys and site planning analytics that allow us to identify real estate sites where market penetration gaps exist. And as a result, our new development pipeline is growing and is stronger than ever. We continue to be excited about the potential in China, and we know we've just begun to scratch the service and development. We are on track to open 200 restaurants this year. That's the high end of our guidance that we gave, and we are projecting to open an additional 225 to 250 restaurants in 2012, as Pete mentioned earlier. The opportunity for future growth from broadening our accessibility is significant and the time is right for us to focus on this. But as we have said many times, no one initiative will drive our business for the long-term. So let me take a few minutes to share what we are doing on the other global priorities.

Modernizing the experience through reimaging continues to be an important priority in APMEA. We are adopting best practices from all over the world and have tailored them to create a design that is most relevant to our consumers. Approximately 30% of our restaurant base have already been reimaged with an additional 450 sites to be completed in 2012. And our goal is to reach 60% of our sites with new designs by the end of 2013. Australia has been a segment leader for reimaging. While 100% of their asset base has already been reimaged, we continue to update those restaurants by adding capacity in their drive-thrus and refreshing the interiors which are aligned with the new APMEA designs. And in China, we are making great strides with over 90 restaurants reimaged so far this year. I want to show you an example of some of the restaurants we did in early January.

[Presentation]

Timothy J. Fenton

I would be remiss if I didn't take a moment to recognize our crew and management. Modernizing the experience also applies to the work experience of the staff that we have working in our restaurants. And we're doing this through better training options and using technologies such as continuing the roll out of new POS 6 [ph] Which lays the foundation for many crew enhancements. This has helped maintain strong satisfaction levels and we have recently won the Aon Hewitt Best Employer Award in Asia in many of our markets such as China, Hong Kong, Singapore, Malaysia and Thailand. And the Deloitte Best Company To Work for Award in South Africa. We are extremely proud of our employees and managers for providing the leadership that has led to win these such prestigious awards.

Finally, let me talk about the last global priority which is menu optimization. Our menu offers value and variety, from beef to fish to pork to chicken, and this variety continues to be a significant driver of comparable sales growth. We're creating innovative locally relevant chicken products, the dominant protein in this region and building brand loyalty.

In China, we created excitement and variety with the introduction of iconic chicken products such as the highly successful spicy chicken burger, which at its peak, drove double-digit guest counts in sales during lunchtime. I think we'll be testing that today.

Japan continues to create breakfast priority -- variety in excitement we've recently introduced chicken muffin and tuna muffin as limited time offerings which have resonated with consumers looking for something new during the breakfast. It's Japan, they love tuna. And I love the comps with it. Beverages are also a growing category. Later this month, actually next week, Australia will be launching a range of real fruit smoothies and frappes. This is a great example of leveraging a new product from another part of the world. These new products will expand our beverage offerings and compliment the current McCafé line we already have in Australia.

Opportunities also exist with our core beef products. For example, we have launched Quarter Pounder with Cheese in Singapore, Hong Kong, South Korea, Japan, over the past couple of years with great success, and we're continuing to look at core opportunities across APMEA with Taiwan launching Quarter Pounder with Cheese later this month. These are just a few examples of the ways we are creating excitement around our menu regardless of where you visit in APMEA, you'll find McDonald's winning combination of classic core favorites, compelling value options and locally relevant products. There's a wealth of opportunities throughout APMEA. We are taking a balanced approach to pursuing these opportunities whether it's modernizing the experience in a mature market like Australia, broadening accessibility with delivery in a market like Malaysia, or expanding our new restaurant development in emerging market like China. Our success in APMEA and throughout McDonald's system is fueled by a pipeline of ideas that has continually strengthened by the diversity of the markets where we do business.

Now in closing, we are extremely excited about the possibilities and the opportunities we have in APMEA. Our future is bright, our strategies are in place, and we have the talent in place to take care of those opportunities. So with that, I believe we have time for some questions if you have them before lunch. Thank you.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Joe Buckley with Bank of America Merrill Lynch. Can you talk about the decision to move to more franchising in China? It seems like your returns are still good and the opportunities for growth are still pretty substantial. Do you think about capturing that economic value for your shareholders? Do you think you'll sacrifice something by moving to franchising? So just talk a little bit about that.

Timothy J. Fenton

Sure. Well, we are a franchising company and we didn't want to get down the road and have 3,000 -- 2,000 McOpCo restaurants. And we realized that some of the outer areas of China would be better served by having local entrepreneurs. We are still going to have a mix. We will have conventional licensees, we'll have developmental licensees and we'll have our standard McOpCos, but we think it helps us develop faster. We think it takes ease off of CapEx. And some of the markets that we're going, at some of the outer markets where we've got some of these developmental licensees, have very talented individuals have a good sense of business. And I have never met an unsuccessful Chinese entrepreneur in Asia.

Keith Siegner - Crédit Suisse AG, Research Division

Keith Siegner from Credit Suisse. I just have a question about China, again, to follow up on this. The opportunity has been there for quite some time. The capital has been available for some quite time. The returns on that capital have been there for quite some time. Today, we're hearing about reimaging, new products unit expansion, signing of developmental license agreements for inland and northern provinces to really commit to growing this country. It feels uncharacteristic of McDonald's to have sat on this opportunity for a while. Why not earlier and maybe what's changed and why now?

Timothy J. Fenton

Well, I think we've always saw the opportunity in China. It took us 19 years to get to 1,000 restaurants, the fastest in the system outside of the U.S. It will take us 4 more years to get to 2,000 restaurants. I think we had priorities elsewhere. There is a lot of things that happened over the years, be it avian influenza, Chinese currency and we had a bigger other priorities. There's no other bigger other priority right now than China. It's taken us a while to get our team in place, to get our inventory, of real estate in place. In fact, Peter just commented a couple of where we stand on that, if you will. And we've had a lot of changes in management in China over the years. If you look we've had the same team in place now pretty much close, and I think the results are reflective of that stability and that consistency. May I have Peter on this.

Peter Rodwell

Yes. It's just -- we've got very strong stable leadership in China now which we have quite a number of years and it comes from the bench of Asia. We also have developed with our #1 development talent from the region, created a whole very complete mapping system, a very complete process that's enabled us to accumulate a very significant pipeline of opportunities. So right now, we're at that stage where we've been continuing to build up that mass in the pipeline in order for us to make better choices on the right locations. And as you and I have discussed before, we're very focused on growing faster, but also maintaining great quality control to ensure that we build the right restaurants in the right place with the right brand representation. So we're 225 to 250 is our target for next year or our plan for next year, and we can say that we continue to expand that over the years, including the DL for the franchise expansion as well, which will enable us to continue to expand in those -- right across China.

Timothy J. Fenton

And one thing we're extremely good at anywhere in the world is once we get something, we get the right formula, we know how to scale and that's what we're doing right now. We're scaling in China.

Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division

Matt DiFrisco, Lazard. Tim, I guess, can you take us through how you see the annual unit volumes at the store level for China, specifically, when you mentioned a lot more of those new stores coming on being with the drive through. We all know obviously of the hyperinflation that they have in that market. Should we just look at the AV growing with the inflation rate, superior to the inflation rate given that you're having stores equipped with the drive-thrus, with 24 hour, historically, should we see now an uptick from what you're doing right now of those levels?

Timothy J. Fenton

Well, Having lived in Eastern Europe, hyperinflation is certainly not what we're seeing in China so everything's relative, I guess. But on the drive-thrus, in every country, we have drive-thrus. Every country with the exception of one, Hong Kong, because we have no drive-thrus. Drive-thrus out index have higher average volumes than non-drive-thrus and their comps are much higher. So it's pretty obvious for us. It takes us a little longer on the development cycle for a drive-thru, remarkably China is one of the easiest places from start to finish to get a restaurant up and running. You'd think it would be one of the more complicated ones because of bureaucracy and the government, but it's actually a very easy. It takes us, Peter, 6 to 9 months on an in-store?

Peter Rodwell

Absolutely. Even at some times, a little less.

Timothy J. Fenton

And the drive-thru is?

Peter Rodwell

Yes. Well, in the pipeline process could be 12 to 18 months, up to 24 months, max.

Timothy J. Fenton

And what we're seeing is, the drive-thrus start out kind of crawling and then they quickly walk and then they run, particularly when the ownership of cars continues to increase, we're seeing our drive-thru as said, I'll comp the non-drive-thru stores and that's kind of the same everywhere in the world.

Jason West - Deutsche Bank AG, Research Division

Jason West from Deutsche Bank. This is may be more for Dave, but if you can talk about the margins in China and I think you guys have mentioned that some of the new stores may be pulling down the average margins there and what does the core margin look like on the restaurant level in China, if you say exclude maybe the last couple of years of new stores? And then separately, if you could just give us an update on the in the inflation outlook in China into next year, given some of the numbers that we see out there and APMEA, overall, might be helpful as well?

James A. Skinner

Dave, just to point, though, we had a little glitch in the program so while he was talking about China, the slide show went blank so you didn't see some of the numbers that were representative even though you talked about it. I just want you to know that because I'm sure you...

David G. Garland

No, I didn't know that...

James A. Skinner

Slightly flat.

David G. Garland

You caught the comments though? Okay. So a couple of parts to your question. So the core margins which when you look at just the comp stores, very strong, okay, and continue to grow very rapidly or at a very strong pace. The new stores, and while they take a number of months, so less than a year to get up to some of the core, the comp average, there's just a really, really sharp focus right now on how do you, if it's 9 or 10 months, how do you make it 6 months or how do you make it 5 months? And as we -- there is a drag from new stores. I thing there's a predominantly in any market that opens up new restaurants, there's going to be drag from new stores. Okay? And when you layer on the number of new stores that we're layering on China on the base that they have, it just exacerbates or compounds it or the number just appears to be a bit larger. So there is a significant amount of work by Pete and the team and Kenneth in China to address the opportunities to be able to close that gap sooner to mitigate the drag on China. And so that is a key focus and it's not just in China. We're accelerating growth in a number of other markets and the learnings that we have in China are applicable in all of the other markets as well, so that we can close the gap and minimize any sort of drag from non-comp stores. And so but I tell you, the core stores in China, the comp stores doing really, really well. So the food and what we're looking at in the way of some commodities are low- to mid-single digits, are the numbers that we we're working up against. But despite some of the food inflation in China, broadly across China being low double digits, they're in the 11% to 12% range and so we've been able to manage that in the 3% to 5% range. Hopefully, I got your question or answered your questions okay.

John W. Ivankoe - JP Morgan Chase & Co, Research Division

John Ivankoe, JPMorgan. Maybe just slightly different topic is to talk about India and even Indonesia through markets that McDonald hasn't spent a lot of time talking about in terms of where you are in those markets, how the returns are and maybe how many stores there could be and what obviously in the case of India, less so in Indonesia, fairly big population centers.

Timothy J. Fenton

Sure. Peter do you want to talk about Indonesia and India?

Peter Rodwell

Yes. With a Developmental licensee in Indonesia. Recently, we had a change there, say, 2 years ago and we've got a great partner there. We see a great opportunity to grow restaurant base at 15% to 20% per year, and as they build up their competencies around their organizational structure, there are other possibilities. India itself, we have 231 restaurants today. We'll have 240 by the end of the year. We've been opening at a rate around 10% to 15% new units. We expect to increase that going forward. Next year's plan is 15% to 20% increase in new units. That unit economics in India are very strong. Margin wise, as good as anywhere else in APMEA and so that foundation work, again, building up the organizational structure, the competencies of our franchise partners there which is a Developmental Licensee in India in one area, or in a joint venture in another area, building up their organization structures as we've done around the region, transferring the learnings from China across to India on how to go about planning, development and executing development. So Indonesia, 15% to 20% unit growth; India, a little higher going forward; and margins strong in both areas.

John W. Ivankoe - JP Morgan Chase & Co, Research Division

And there's just a lot of discussion at the best of McDonald's brand, in general, what it means around the world. I mean is it where, in your opinion, it needs to be in India, is it sending a relevant message to that consumer?

Peter Rodwell

In India, we are the leading brand in the category. Big wide open space. We've been there long time and we've got a very well established platform. We've got great partners in India. On the consumer side, you're probably aware, we've had to create our menus in India because of the differences in culture. And so we're very, very in touch with the consumers and what their needs are and what they're trends are. In fact, just recently, Jim pointed out the spicy chicken fillet in China, but we recently launched that in India, along with a spicy paneer burger and these are premium products, great profit margins and it's driven our comp sales 20% plus, all based off the consumer insight.

Michael Kelter - Goldman Sachs Group Inc., Research Division

Michael Kelter, Goldman Sachs. I wanted to ask about China. And in isolation, the acceleration that you're pursuing makes all the sense strategically in the world. I guess my question is, your primary competitor in that country is moving even faster. And so I wanted to ask how you think about the prudence of dotting your Is and crossing your Ts versus the fact that in -- especially in Tier 3 to Tier 6 cities, someone else is getting the prime real estate, defining the category, getting that first mover advantage. And then, the other question on China is, the macroeconomic view there is, let's say, a little murkier than it had been in the last few years, and I was curious for you guys talk about your ability to withstand any sort of slowdown in the U.S. and developed markets, you guys are the low-cost option eating out in many cases. In China, you are more expensive than the local options. And so I wanted to hear about how things would hold up if the economy slowed down a bit.

Timothy J. Fenton

Sure. First of all, when it comes to development, we are best qualified to be McDonald's and that's what we focus on. So we focus on doing what we do best. So if you compare it to, say, to a competitor, we're going to have 18% unit growth next year. That's unprecedented in the McDonald's family, if you will. so we went from 166 in 2010. We'll be at 200 this year, 225 to 250, 275 to 300 and we'll see how it goes from there. We've proven we can go to any country, in any market late and still dominate and take market share. We've done it in the Middle East. We've done it throughout Asia. I have no doubt what our plans in China, where we'll end up there as well. On the macroeconomics, as you know, Peter why don't you just give us an update just on Southern China, what happened in 2008 when the crisis hit and what happened to the Western QSR and to the Chinese QSR?

Peter Rodwell

So that's a great point. Back in 2008 when the global financial crisis occurred, we saw a shift from the Western QSR per se [ph] into the home and then the local. So over time, we've evolved accessibility platforms and affordability and many are aware of our lunch value and our breakfast value. What they've -- What that's done is enabled us to go much deeper into the whole IEO market. So where we've had some hiccups over the last 18 months to 2 months where the consumer trend would normally revert back to those same patents as home and Chinese QSR, it hasn't occurred. We've been able to continue to grow our share. And I would tell you that as a result of us broadening our accessibility, more restaurant locations, more relevant focus around our menu and also more meaningful affordability to them. That trend has changed, I'd say for both. However, just reiterating the point that Tim made, we are our own brand. We are McDonald's, we have a great brand, we have a great model and we'll continue to focus on our model. Our competitors will do what they do and I guess that one other way of looking at it is that the more the Western QSR grows in China, the deeper the Western QSR will go into the massive opportunity that there is. So it really behooves us to stay very focused on our brand and our business model whilst challenging ourselves to grow faster and capture the opportunity faster. So of course, franchising is one way of doing that as well.

Timothy J. Fenton

I know there were some other questions. You can catch us during the break for the rest of the day, we can answer those. I think that's it for us and bring Jim back up.

James A. Skinner

Just before we go off to have a great lunch of some of the items you saw in the optimizing the menu presentation show this morning, I just want to weigh in on this China issue, okay, because I want to take some responsibility for our growth rate in China since I've been involved with China in different ways for the last 20 years that we've been in the marketplace or 25 years we've been in the marketplace. All the way from the times when I used to originally go there and realized that there were, at that time, 2 million new cars being put on the road every year in Beijing and everyone kept asking the management of the company there, where is the next drive-thru? More importantly, where is the first drive-thru? Because we didn't have drive-thrus and we were developing the country through an in-store process. And so when you look at this particular team here today, and this whole issue of getting the right people in the right place to execute our strategies around the world, this is a perfect example of that in terms of what we know about the consumer in China and throughout APMEA and the growth rate in China, these teams, over the years, have continued to fight for capital like everybody else. And until we had the development model right, we knew how to penetrate the market, we're not going to be able to scale to the extent that we want to.

The other thing that I think is important for us to remember here is that when you try to bring on a new restaurant, a new McDonald's at the average unit volumes and the guest counts that we bring on in any country in the world, it takes a minute or 2. The training that's necessary to train 60 or 70 people to be able to execute at the front counter and drive-thru as we expect to be done around the world, it's the same in China. And so when you look at the growth rate of China, as a percentage basis, it's been one of the higher growth rates around the world. And yet, the importance of penetrating that marketplace in the right way, I've said this for years because I've seen it happen, if you want to accelerate the growth and you build 100 restaurants and you get 10 or 12 of them in the wrong location, you're going to have a problem over the long-term. You're going to have restaurants that are not going to deliver at their optimum capability not only in terms of the top line, but in terms of the bottom line and in the community.

And just to close that out, I would say that we are not in a race with anybody relative to building out China. When you look at the opportunity and the potential in China, right, it's an enormous opportunity for everybody. Who has the most number of units? I don't think there's going to be the tail of the tape over the long-term. I think what really makes a difference is how we penetrate those vast opportunities and those market places that Tim talked about and these megacities that are being created as the middle-class continues to grow there. We know it's an enormous bet for us in McDonald's, but if we don't do it the right way at the pace of McDonald's, we're not going to reap the benefits that are so important to all of us, and particularly our shareholders. And So I'm not defending the team, I'm just spelling it out to say perhaps talking about the role that we and the leadership play in this whole thing in terms of the number of restaurants that gets opened in China and so I wanted to take that personally off their plates say, look, if you want to talk about the pace of growth in China, talk to me. Whenever we get the mechanism and the development capability in that marketplace to the point where we can open 300 stores, we'll do it. But in the meantime, we have to penetrate the marketplace in the appropriate fashion, the speed of McDonald's that brings those restaurants on, in a meaningful way both in terms of average unit volumes and execution, the most important thing. It's a small part of our overall worldwide operating income, okay? When Tim says, we have other fish to fry, other things to focus on, and yes, there's been some fits and starts and whatever. You can imagine going into China when we were in there in 1991 and then what's transpired since then. And so we have priorities around the system and no more priority than really building out China at the appropriate rate. And so I just wanted to weigh in on that so as we continue to ask questions about it the rest of the day, I want to give you my two cents worth. Let's go to lunch.

[Break]

Unknown Executive

This presentation contains certain forward-looking statements that reflect management's expectations regarding future events and operating performance and speak only as of November 10, 2011. The forward-looking statements that are detailed in the company's filings with the SEC such as our annual 10-K and quarterly 10-Q reports also apply to this presentation. Our website also includes reconciliations of any non-GAAP financial measures we mentioned in our presentation to its corresponding GAAP measures. Those reconciliations may be found at www.investor.mcdonalds.com.

Kathy Martin

Okay. Welcome back, everyone. If we could take our seats. All right. So we are going to kick off this afternoon's session with our U.S. business group and I am pleased to announce or introduce Jan Fields, the President of McDonald's U.S.A. Jan?

Janice L. Fields

Good afternoon, everyone. Did everyone get enough to eat? Because we've got some more coming, and none of you fall asleep. I know after eating like that, it's easy to do that. But I'm Jan Fields. I'm proud to be here today with our Chief Operating Officer, Jim Johannesen; Controller, Teresa Olson; President of our company-owned restaurants, Shirley Strong [ph]; and 2 of our 3 division Presidents, Mike Andres and Karen King. Jim and I will start out with an overview of the McDonald's U.S.A. business before the others come up and join us for some Q&A.

I always say that McDonald's is more than a job, it's a way of life. That's how it's been for me since 1977 when I started as a crew person in Dayton, Ohio. Now 34 years later, as the President of McDonald's U.S.A., my enthusiasm for and confidence in the business is stronger than it's ever been. Today, I plan to highlight our U.S. results and talk to you about the strategies we're using to write the next chapter of our growth story in 2012 and beyond.

McDonald's U.S.A. is truly one of the strongest economic engines of our global business, representing 42% of the company's total restaurants, generating about 31% of total revenues and accounting for approximately 43% of overall operating income through September 2011. Our nearly 14,000 restaurants in the United States are about 90% owned and operated by more than 3,100 franchisees. We manage and support these restaurants through an organizational structure that spans 3 divisions and 22 regions. Our traditional restaurants now achieve industry-leading average annual unit sales of $2.5 million.

Through October of 2011, the U.S. business generated comp sales growth of 4.1%. Through September 2011, our operating income rose 4% to more than $2.7 billion. Year-to-date September, U.S. franchise margins were 83.9%. Company-operated margins also remained strong at 20.5%, something we're extremely proud of considering the current environment.

We've outpaced the competition by increasing guest counts and gaining market share even in the challenging economic conditions and as the restaurant industry has contracted. In fact, year-to-date October, our comp guest counts increased 2.9%, contributing to a 50 basis point increase in our IEO share, which is now at 12.3%.

We've outperformed the QSR sandwich category for the vast majority of weeks in 2010 and 2011 with our weekly comps sales gap averaging nearly 3%. Our return on invested capital has continued to grow 25.9% for the trailing 12-month period ending September 2011. Additionally, our return on incremental invested capital reached 24.2% for the 1-year period and 36.6% for the 3-year period, both well above the global high teens target.

Owner operators are sharing in this success although their cash flow has been pressured this year due to commodities. Trailing 12-month September average annual cash flow per franchised restaurant in the U.S. is now almost $338,000, and average organization equity is now at $5.5 million.

Although cash flow and equity have dipped a little in 2011, they remain strong, and these metrics demonstrate the overall good financial health of our franchisees which is one of our prized competitive advantages in this industry. These results show that we're continuing to build the positive momentum of our growth story, which began more than 8 years ago with the introduction of the Plan to Win. Our unrelenting focus on that plan has kept us grounded in what's most important and that's our customers.

For McDonald's U.S.A., this has meant working to make our restaurant experience fit our customers' evolving lifestyle. Societal trends such as 2-income families, a 24/7 way of life and ongoing economic woes are causing customers to change their eating out habits and they're demanding more value for their money. As the result, convenience, good value, accuracy and friendly service are just green fees for the quick service industry that's why we're giving people more reasons than ever to visit McDonald's by offering exciting new products, increasing our convenience with extended hours, modern technology and new locations, renovating our restaurants with fresh decors and exteriors, focusing on our employees training and development, and engaging in conversations with our customers about what they want from a food company like McDonald's. We're looking for new ways to do these things and connect with our customers in ways that are relevant to their life, a great example is that McDonald's U.S.A. Listening Tour which we kicked off with our national nutrition announcement in July which talks about our nutrition commitment, as well as the updated Happy Meal.

As a company, we have a history of dialogue with our customers and stakeholders. But with this tour, we wanted to reset the conversation and give them a very real opportunity to weigh in on our business. We've held 5 listening sessions to date, meeting with moms, registered dietitians and nutrition opinion leaders, experts in environmental sustainability and our very own employees. Our efforts generated valuable feedback, positive testimonials and hundreds of positive tweets and blog posts viewed by over 14 million people. Social Media is just one of the ways that we're connecting with our customers, which we know is crucial to the ongoing growth and success of McDonald's U.S.A. It's why I can say with great confidence that our strategic plan will continue to push our baseline performance in a positive upward direction because I know that we'll be delivering what our customers want and need.

Moving forward, we'll continue to drive our growth by aligning with the 3 global priorities with an added emphasis on a fourth focus area. The first is optimizing our menu. This is about evolving our menu to maintain the iconic products our customers love, our core, while giving them affordable choices and excitement through line extensions and new food. The second is broadening our accessibility to be able to available to our customers how and when they want us while making operations easier on our crew. This includes enlarging our drive-thru capacity with dual lanes, moving to extended hours and technology innovation just to name a few of them. The third is modernizing our experience by investing in our restaurants' interiors and exteriors to make them more relevant to our customers' daily lives. And then our fourth area in the U.S. business is elevating talent management at the restaurant level through a new management structure and training tools to better leverage and develop our talent across the system.

Now when we talk about optimizing our menu, it's always tempting to jump into a sexy new products and other news that get people talking. But the reality is that our strength lies in our balanced approach to creating demand across our business. Since 2002, 25% of our growth has come from beverages. 23% from chicken, 12% from beef, 19% from breakfast food, 10% from fries and desserts, and the remaining 11% from salads and fish. And over that 9-year period, average traditional restaurant annual sales have grown more than $875,000.

We remain focused on providing our customers with affordable products while maximizing our core business through effective advertising and balancing it all with exciting new products, reminding customers of how easy it is to enjoy McDonald's. This strategy allows us to grow in the future by extending our current product line by adding new sauces, innovating by introducing new flavor profiles to familiar product platforms, all the while satisfying the customers who love our iconic products or come to us for every day good value. And of course, I'm sure more than a few of your wondering about one particular product, one that I had at lunch today, by the way. It made its much anticipated return earlier this fall. Take a look at this ad for our beloved McRib.

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Janice L. Fields

I'm sure none of you can identify with that. 3 great examples of this include our recent extension of the McCafé beverage line with the introduction of a third flavor of real fruit smoothies, the delicious mango pineapple which I know many of you enjoyed, the update to our Premium chicken products with the new chicken Patty and in test McBites products and the planned promotional food event for the blueberry banana nut oatmeal. All of these products will not only build on our current business, but also attract new customers and give people an opportunity to fall in love with McDonald's all over again.

Since we introduced America to our real fruit smoothies and the delicious frappes in July of 2010, we've sold more than 570 million cups of these great McCafé beverages which deliver a higher than average check. And in the 4 months since the addition of mango pineapple flavor, we have sold nearly 60 million. Needless to say, we're quite proud that these products continue to sustain at levels well above what we initially projected 5 years ago when we made the business case for CBB to our system.

And just to give you a taste of that energy, check out this recent ad for our Hispanic consumer market.

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Our coffee business also continues to perform well and truly has been the foundation for our recent success with new beverages as it established McDonald's as having something more than fountain drinks. Since September of 2009, we've grown our share of the brewed and espresso-based coffees Beverage business by more than 2% to over 13%, which is the highest share gains in the industry and has come as we have maintained a leading market share in hot brewed coffee.

The beverage category has grown to be about $156 billion, and we've also talked about wanting to move from beverages that complemented our food to being a beverage destination. And when you look at our full repertoire from fountain beverages and hot coffees to real fruit smoothies, frappes and Frozen Strawberry Lemonade, I'd say that we're making progress. But while we've surpassed our original goal of adding an additional $125,000 in average annual sales to our restaurants, we are not done. We see even more room to grow with products like the Cherry Berry Chiller which you tasted at lunch.

Next is oatmeal which was launched nationally in early 2011 and that you sampled at breakfast this morning. The great thing about this product is, that it's a feel-good wholesome product that taps into an enormous category, as well as our most profitable daypart. And that's why we're building on this line with rotating flavors that will keep our customers excited about eating breakfast or grabbing a mid-day snack. In fact, we're seeing customers order oatmeal throughout the day with 14% of our sales occurring in the hours outside of breakfast. And 4 out of 5 consumers who tried our oatmeal said it demonstrated our commitment to improve nutritional value.

Breakfast is a $57 billion category, and we believe this habitual meal will continue to be a meaningful growth driver in the future and we are going to aggressively protect and grow our position against the competition even as they steal pages from our playbook. We'll do this with a focus on value, nutrition and promotional food events.

Our efforts are working. We're proud that we've increased demand for our breakfast entrées on weekdays despite a business environment hit hard by job losses. Through October, sales are up almost 5.1% during the breakfast daypart. The enhanced Premium chicken sandwich, which I mentioned earlier, is just one way that we believe we can continue to take market share in the overall chicken category. We updated our sandwich by introducing a new flavor with a tasty chicken marinade and by swapping the familiar bun for a bakery style roll made with 8 grams of whole grains.

We'll also be introducing new products through promotional food events like the Chicken McBites that we borrowed from Australia and by improving on those products our customers love such as the recent reduction in the amount of sodium in our beloved chicken nuggets. To talk about how we're broadening our accessibility and modernizing our experience, I'd like to turn it over to my right hand and our Chief Operating Officer, Jim Johannesen. Jim?

James Johannesen

Thanks, Jan. Broadening our accessibility is about being there for our customers when and how they want us. The first sure fire way to impress our customers is simply to be open when they need us to be open. Approximately 40% of our U.S. system is open 24 hours a day, 7 days a week. Our focus now is to significantly increase this percentage because of what we know about the profitability of these hours.

In addition, the results have also shown us that midnight to 5:00 a.m. is the fastest growing daypart from a comp sales perspective. I promise you that it's not me, but there are plenty of people out and about between midnight and 5:00 a.m. For those restaurants where the needs of the marketplace do not justify a 24-hour operation, we will also continue to focus on opening earlier for breakfast. Right now, close to 90% of our U.S. restaurants are open by 5:00 a.m. As proud as we are of how well early opening has been adopted, we know we can do even better and we know that virtually all of our traditional restaurants should be open by 5:00 a.m.

Accessibility is also about making it easier for our customers to order what they want and how they want it. As our menu offerings continue to grow, so, too, do the choices and options for our guests to customize the product they order to meet their individual taste. In October, we completed our 2-year systemwide rollout of a new technology platform and point-of-sale system. This allows us to continue expanding our menu offerings while making it easier for our crew to fulfill every order accurately and at the impressive speed of service that our customers have come to expect from McDonald's. And this is just the beginning. Our new technology platform opens up a world of opportunity to grow our business. We're now leveraging this new technology in our freestanding restaurants where the drive-thru represents 66% of our business. One example of what we are able to do because of this new technology is the use of our handheld order taker, which we now have in nearly 1,000 restaurants. Handheld order takers provide restaurants that are landlocked the opportunity to expand their drive-thru order points, delivering even faster and more convenient service to our customers. Many single lane drive-thrus have a capacity limited to a single order point. By using the handheld order taker, our restaurants have the ability to take 2 orders at a time, thereby increasing throughput. But handheld is only one option for a multiple order point drive-thru and this option is often used to help determine when to make more permanent changes to the drive-thru.

We have 2 additional options we referred to as tandem drive-thru and side-by-side drive-thru. These solutions are for those restaurants that have the real estate necessary to add additional physical order points to their drive-thru lanes. Currently, 36% of our traditional freestanding restaurants have some type of multiple order point in the drive-thru, whether it's side-by-side, tandem or the simple use of the handheld order taker. The results we are seeing from adding an additional order point in the drive-thru have been so positive that we anticipate this percentage to increase significantly. In fact, for the major remodels, rebuilds, relocations and new restaurants, the side-by-side option is chosen 85% of the time.

We're also evaluating other technology enhancements such as using the handheld order taker at the front counter, mobile ordering from your smartphone and continued advancements to improve our front counter service system. And lastly, we will continue to broaden accessibility by staffing our restaurants to fully capture the greater demand for brand McDonald's than we are currently serving.

As Jan said earlier, the U.S. system has seen sales growth of $875,000 per restaurant over the past 9 years, and it's been in all dayparts. except we haven't been able to realize that same benefit during the peak lunch hour or the peak breakfast hour. There is significant opportunity to drive growth during these times, and to do so, we are focused on properly staffing and positioning our restaurant teams. We will continue to provide ongoing education, training and communication to help restaurants build their peak hour performance in a long-term, sustainable way. It's all about making sure that we have the right people in the right place at the right time to ensure our drive-thrus and our front counters are inviting and ready to serve our customers.

Modernizing the McDonald's experience is an exciting area for us. It's about revitalizing our brand from the inside out. All customer touch points are our priority. We've talked throughout the year about our goal of completing in the U.S. 600 major remodels. I'm happy to tell you that the franchisee demand will allow us to exceed that goal this year. Virtually every franchisee that completed a major remodel is so pleased with the results and brand change to the restaurant that they have signed on for additional restaurants.

We plan to expand our major remodel program to another 800 restaurants in 2012. Remodeling gives the restaurant a new look inside and out. The majority of the restaurants that are undergoing a major remodel are adding capacity to capture additional customers and to achieve our growth goals. We are continuing to partner with our franchisees on this investment. Total investment is averaging about $600,000, with the company contributing, on average, $275,000 and the franchisee contributing $325,000. We're very pleased by the initial results. While the number of sites that have been operating long enough to evaluate is still relatively small, sales are averaging 5.5 points over market, and we expect that to continue to grow.

With time, the customers in the community get exposed to the new look and feel of their McDonald's restaurant and the sales lift over the rest of the market improves month over month. In fact, for those restaurants completed and operating for 9 months, we are seeing a sales lift of approximately 6.5 points over the rest of the market. In addition, our customer satisfaction data after the major remodel shows strong positive reactions to these design elements, as well as improvements in quality, service and cleanliness measures.

Feedback from franchisees, restaurant crew and customers has been overwhelmingly positive. Our new contemporary look changes the way customers think and feel about McDonald's. And as a result, changes their behavior and they visit more often. While the major remodel program itself is very exciting, our pace of rebuilds, relocations and new restaurants also continues to expand.

This year, we will complete more than 200 rebuilds and open 160 to 165 new restaurants. Next year, we plan to rebuild an additional 225 sites and open 175 new restaurants. Even though we have 14,000 restaurants, there is still a great opportunity to grow. As Tim Fenton reviewed earlier, the gap trade area analysis tool is in place to scientifically measure where our restaurants are and where we should be, taking into consideration our existing restaurant base and opportunities based on both demographics and traffic patterns. This tool helps us to determine the absolute best locations and prioritize the optimum areas to build. Our endgame is to ensure that we are relevant and appeal to our customers with our new look on the outside and a contemporary look and feel on the inside. Between the major remodels, rebuilds, relocations and new restaurant openings in a relatively short period of time, the majority of our restaurants will have a modern look inside and out. For a system as large as ours, that's a remarkable change that our customers won't be able to help but notice. This is definitely a brand changer. And now, I'll turn it back over to Jan to cover the work we're doing to elevate talent management.

Janice L. Fields

Thanks, Jim. Our people are the ones who bring the customer experience to life, and we're focused on ensuring that we have productive and passionate crew and managers who can meet the demands of our ever-changing customers and that's what we mean when we talk about leveraging our talent.

4 years ago, we embarked on a people strategy meant to drive higher employee engagement. We saw an opportunity to leverage the size and the scale of our system, redefining our employment brand and differentiating ourselves from other retail employers.

Today, I'm proud to report that we've built upon the solid foundation of benefits, hiring, orientation and training to achieve the lowest annual turnover rates among crew and managers in our company history.

And the fact that our turnover rate is significantly lower than the rest of the industry proves that our success is not merely driven by the high rates of unemployment, but that because of our business success and our focus on employees, we are recruiting and keeping high-caliber talent. When our restaurants hire and retain the right people, train and orient them effectively, and provide a competitive compensation package, it truly makes a difference in terms of service, speed and accuracy, as well as the feedback our customers give us on crew friendliness. Our next step is redesigning how we structure and develop our restaurant management teams with new roles and training tools that allow our managers to achieve a better work-life balance while being even more effective and efficient in their work. We call this change Restaurant Department Management and we began rolling it out nationally this year. Restaurant Department Management elevates the role of each restaurant manager to one of a General Manager and spreads out much more clear responsibilities and accountabilities to 3 Department Managers who own the kitchen, people and guest service. In turn, the newly formed departments allow for greater delegation and ownership of results throughout the restaurant, which is having outstanding impact on the commitment of our people. The redesign development program employs an industry-leading learning management system, which allows us to offer a more robust and dynamic training program for our managers. To date, 3,590 restaurants across the U.S. have made the transition to the new structure and training approach. We're extremely optimistic about the impact RDM will have on our business. At its earliest stages, we have already experienced the 10% decrease in manager turnover and a 24% decrease in crew turnover and a 5.6% improvement in our own internal customer satisfaction metric.

As I've said before, to go from annual restaurant sales of $1.6 million to $2.5 million as we did in the last 9 years and even greater in the future, it takes a different kind of manager and crew. I'm confident that these new tools will give our folks the resources they need to lead our restaurants into the future. We also recognize that it's important to share this story externally, which was truly the motivation behind the National Hiring Day event which we held in April. Similar to July's nutrition announcement, our intention was to reset the conversations around careers at McDonald's. With more than 1 million applications, McDonald's USA and our franchisees were able to surpass our goal of hiring 50,000 people to hire 62,000 people in that one single day. It also resulted in more than 892 million media impressions with 95% of the coverage being positive to neutral in tone. And I believe we made incredible strides in improving the perception of what working at McDonald's means by demonstrating the very real opportunities for success that are available under the arches. In fact, in the weeks surrounding that event, we welcomed approximately 100,000 people to the McFamily.

Now in closing, let me repeat the one thing I want you to all walk away with today. The future is very bright at McDonald's USA. In my more than 30 years in the business, I have never felt the passion, focus and alignment as strongly as I do today. Our opportunity is to harness that passion as we sustain our growth story and continue to focus on the Plan to Win. We'll continue to strengthen our core business while introducing a pipeline of new products over the next several years. We'll employ new technology in our restaurants to make the ordering experience easier on customers and crew, and we'll create a modern fresh restaurant that will be vibrant parts of their surrounding communities. Our growth plans not only represent incredible immediate opportunity, but also reflect how we are building our business to meet our customers' needs and desires for the long-term. By continuing to evolve, we will be relevant parts of their daily lives and we'll satisfy them with quality products at the speed, price and convenience, only at McDonald's. Thanks, and now I'd like to call up Charlie, Karen, Steve, I mean, Mike and Teresa to help with some Q&A.So welcome, everybody. As you get seated, I'll start with the first question.

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Jeff Bernstein from Barclays. So question is, as I look at the company operating margins, they seemed to improve for a number of years. Obviously running into this year, but then there were headwinds that seemed to be out of your control. So I'm wondering if you could talk about how much of, I think it was a an 80-basis point year-to-date decline you saw on those margins. Can you break that out in terms of what margins would've been or how the impact of commodities have had on that? And then if you could just talk maybe more theoretically on how you look at those margins, whether you want to take pricing to literally protect those margins or is pricing so much secondary that driving the traffic margin is really not a focus?

Janice L. Fields

I'm going to have the President of our McDonald's Corporate-Owned Stores, Charlie Strong, answer that one since he lives in breathes this every day because he knows that the #1 question you ask.

Charlie Strong

So let's start with the second piece. I think the piece about pricing and how we go through that, it really is, and I think it was said in the opening today by Jim, traffic and sales solves most of our margin problems. We use an outside company that gives us counsel about when we take a look at menu pricing, but it is about trying to balance that and being very customer focused about how we try to take price, how much we take and when. So we feel very good about the third quarter results, as you saw, and you see them continue to get better. We just went through the process in the last week and took a price increase that will come out, the amount at the end of the month, we'll tell you what that was. But again, then 30 days after, we measure the resistance and what happens to product mix by the customers, but feel very, very good about where we are with it today, and where we're going to.

Janice L. Fields

We have record margins on the McOpCo, and we have been able to do little bit more on the price. The majority of what we've seen in the reduction has been commodity-based.

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

But if that's 3 -- I know you guys are talking about maybe getting up to 3% to 4% pricing by the end of the year. Would that be enough looking at that basket for next year, that you talked about [indiscernible] would that protect the margin expand or...

Janice L. Fields

I think you have the rollover from year-to-year too. So we took pricing this year, we'll have taken 3 price increases and we'll take price increases next year. Not everything from a commodity standpoint hits at one time. So as it rolls in, we'll be able to measure the impact because we want to balance the guest counts along with the margin. But I'm confident that we'll be able to do some price increases. We measure this against food at home and food away from home. You see that both of those are growing significantly. So I think we feel pretty confident about being able to manage through that.

Nicole Miller Regan - Piper Jaffray Companies, Research Division

Nicole Miller, Piper Jaffrey. And looking at your competition, and for example, I believe Burger King is going to be building out in the next few months their beverage platforms with things to do with ice cream, for example.

Janice L. Fields

I just wonder where they get that idea.

Nicole Miller Regan - Piper Jaffray Companies, Research Division

Exactly. To the point that this is a market share conversation more so in the U.S. perhaps than globally, when your peers or competitors, however, how you want to look at it, make those changes, does it grow the overall category and help you continue to grow those daypart or new platform sales? Or then are those become market share gains and losses amongst the eating out group?

Janice L. Fields

Karen, you want to take a stab at that one?

Karen King

What we found with desserts and with beverages is that when we enter a category, we literally invent the category and it actually grows larger. So like most of the discussions around categories and our product lines, we will execute our strategies that are unique to McDonald's in a very strong way that our customers appeal to and if other competitors enter the category, then they do theirs, but it doesn't necessarily change our strategy or our implementation.

Janice L. Fields

I think the category does grow, too.

John W. Ivankoe - JP Morgan Chase & Co, Research Division

Hi Jan. John Ivankoe. The questions on marketing. I mean I guess as your share of voices multiples 3x, 4x, that probably of your number 2 at this point, you're still growing some units modestly in the U.S., you're growing sales in the U.S., your marketing budget continues to go up. So the question is just, what is your return? I mean in general, I guess on incremental marketing spending, do you have an opportunity to spend less and still get the same effectiveness? I mean are you at the point now where you kind of -- customers know exactly what you are, who you are, what is that your selling? Do you have an opportunity to perhaps help franchisees save margin by spending less money or can you spend your current amount of money better?

Janice L. Fields

Yes, and I think we always look, first of all, it's unlikely that we'll spend less money. You want to keep your share voice out there too, but we spend it in different ways. And I think, we talked a little bit about social media and everything from outdoor advertising. So Neil Golden is with us today, our Chief Marketing Officer, and we look at that every year. Our operators understand the need to invest in advertising. So it isn't a place that they immediately look to pull back on. Different years provide different levels of spending. In a year that there's elections, Olympics, the costs end up being a little bit higher, so you may, in fact, get a few less GRPs but spend the same amount of money. But I would tell you that we invest in media. One nice thing for us is, because we've had the value messaging for a long period of time, we don't have to spend as much on that, so we are able to spend on other products in a bigger way also and give other messages. But the dollar amount from a spending is unlikely to go down in order to save money.

John W. Ivankoe - JP Morgan Chase & Co, Research Division

And maybe again just thinking about traditional media, there's a lot of other ways that you can market. I mean does it make sense for you to some extent invest more back at the customer level like couponing or probably different things?

Janice L. Fields

Yes, we do. I think you're finding that we certainly do different markets, do heavier amounts of couponing. Couponing is getting bigger and bigger, but it's also geographic also. So we look at the different ways. We're always looking and moving the shift of media, and the vehicles that we use changes every year and oftentimes quarterly as we start to make those purchases.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Joe Buckley, Bank of America Merrill Lynch. Could you comment on the benefits of the new POS systems now that the rollout, I believe, is pretty much complete? And then secondly, talk about the opportunity for 4-tier products in the U.S. There always seems to be a lot more news coming out of Europe on that and just kind of curious if you think that's an opportunity in the U.S.

Janice L. Fields

I will ask Mike, if you want to do on the POS and Jim on the...

Mike Andres

We just completed the

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We're very excited about that and

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customer side, as well as the back office side. Specifically, on the office side, our orders now will be able to be completed on one screen for the crew person, which, if you just do the math, that's allows us to create more orders and over a period of an hour. Also if you look at what Jim just talked about relative multiple points of order in the drive-thru, side-by-side, handheld ordertaking, the ability to take cash outside in the drive-thru, all those things allow us to build capacity and that's clearly what we're seeing with 6.5. Another initiative we're testing is management of the shift. It's very exciting. Some of the features of that allow us to actually compare the results in 5-minute increments of what our restaurant is doing in the drive-thru versus other restaurants in the marketplace. So you literally see a screen in the drive-thru, which would compare their order times, their present times, their cash times with their peers in the marketplace so the restaurant manager will be able to make immediate responses to any bottlenecks, changes that's obviously going to drive throughput. And then there's a number of things in the back office at 6.5. And the other thing, clearly we're not going to be able to talk about optimizing the menu. We haven't been able to without the 6.5 capabilities, plenty of keys to do whatever we want in the future.

Janice L. Fields

Jim?

James Johannesen

I'm going to connect the 2 pieces of your question, if I can. So from a technology perspective, just one last caboose, one of the back office benefits of this new technology is that we're going to be so much better at scheduling and positioning our people appropriately and we believe, therefore, we're going to be able to deal with the peak hours better than we ever have before. So a huge benefit from technology. And then tied to the fourth flavor items, I won't bore you with all the details, but in the absence of our having made this investment in technology, we would have significant restrictions on our ability to add new products. You literally just run out of key punch assignments, buttons that you could press. With the new technology, that is no longer an issue for us. The world is available to us. We have a pipeline of 150 international products around the world that we can draw from and you had a chance to taste some of them today. So our owner operators are excited about the ability of getting the payoff on the investment that they've made in technology by being able to sell these new products that otherwise would have been unavailable to us.

David Palmer - UBS Investment Bank, Research Division

Dave Palmer, UBS. It seems there's almost a fast casualization going on of the traditional fast food chains out there. On the food side, particularly, you've seen the growth of the fast casual burger chains and it seems to have gotten attention of the Wendy's and the Burger Kings who are upgrading the quality of their, some of their core menus. They're renovating their menu, basically, and upgrading the quality sort of value engineering by adding the value back to the food. It looked like you did something similar with the chicken sandwich lately and you've been doing things like this for years arguably, starting with the chicken nuggets way back when. But do you think you need to do more of this, do a new version of some of your core in the coming year, years?

Janice L. Fields

I would tell you, core is something, there's a reason why it's core. John talked about it this morning. It is beloved and it's a huge part of the menu. So we always look at different tweaks to it as we go along. Just [indiscernible] here and can tell you from a global standpoint the recipe and the different things that we have to make, whether it'd be sodium or some small cooking changes. But I don't see us significantly changing core. The changes in the additions are what we do in the 4 flavors, the promotional food events, the limited time offers. That's where we really end up getting most of the variety of -- the core you wouldn't want to change. Whenever we advertise core, when people talk about the pipeline and how important it is about this pipeline, I would say come back to when we advertise core, it goes up significantly. You advertise something like Chicken McNuggets. We may have a different sauce or new sauce. Believe me, the increase that we see in that is as good as putting something else in the pipeline. So we wouldn't and don't look at significant changes to the core, but there are tweaks as we move along and always have been.

Mitchell J. Speiser - Buckingham Research Group, Inc.

Mitch Speiser, Buckingham Research. Two separate questions, if I can. First on kids marketing which is in the news a lot and your Happy Meals, you did make some changes, I believe, starting just recently. Can you give us a sense of the profitability of the Happy Meals and with now the inclusion of apples in there in lieu of french fries, has that changed the profitability profile that much? And then secondly, just on digital menu boards, if you can just give us a sense of how many stores have these menu boards and has it ever been thought about, it seems like it's easy to change prices with digital menu boards. Would you ever consider having different prices for the same products throughout the day or is that just way too ahead of the curve and only done maybe with the airline industry?

Janice L. Fields

I'll answer your Happy Meal, then I'll give Jim the digital menu board, if I can. The change on the Happy Meal which we just now rolling out, that was the announcement that we made in July, and it includes adding a fruit, vegetable or dairy product to every Happy Meal that we sell. We were able to do this at very low impact from a cost standpoint because we reduced the size of the fries, that had been in initial Happy Meals. It's now a 1.1-ounce fry. It's in a really cute red box. And a half a portion of the Apple, what were Apple Dippers now are apple slices, it's a quarter of a cup. So the pricing ended up being significantly less than if we just had made the wholesale change and added something to it. I think that we're going to be okay from a profitability standpoint. We expect to sell more of it. We would expect parents to accept it at a greater level than before. So we're not looking at any significant impact from a Happy Meal costing standpoint. On the digital menu board, Jim, you want to talk about our McCafé Board?

James Johannesen

So relative to digital menu boards, we are going to continue to monitor digital closely and we're waiting for that moment when the prices come down far enough and technological benefits come up high enough that those lines cross and then we would jump. We are going to continue to migrate to a more contemporary menu board both within the inside of the restaurant, as well as in the drive-thru. They are not digital, but they have been specifically designed to be digital retrofitable, if that's a word. Very important to our owner operators that they only buy things once. So as we make these improvements to our existing static boards, the new boards that will come in that are more contemporary will be modifiable to receive a digital application down the road when the timing for that is right.

Janice L. Fields

You know, we introduced the McCafé digital menu board. It's in all of our restaurants and it's working out very well. One of the things that you have to remember on that digital platform is the cost to operate. So it isn't you just invest in the boards and then everything else is free from that point on. So there's ongoing cost in those. The other thing is technology is changing so quickly, at what moment do you jump in and at what platform? We're pretty confident now, but we have the digital McCafé board. We have enough time to really measure the results from it and then we'll go from there.

Andrew M. Barish - Jefferies & Company, Inc., Research Division

Andy Barish from Jefferies. Question on the kind of the operation side of things. The menu is certainly growing more items, more flavors, more complexity from my perspective. Just from an operations perspective, we've clearly heard about the new POS, but in the back of the house, where are you kind of making adjustments or where are you seeing bottlenecks that have to be addressed sort of holistically as you approach more menu items going forward?

Janice L. Fields

Karen or Mike, would either one of you guys want to do this one?

Karen King

I can start. We have a lot of productivity and labor-saving pieces of equipment that have been part of our platform offerings for many years. What comes to mind is the new prep table. So it helps condense the size and the length of our prep table so that we can continue to move the products down the line in HLV. So that's one example, the work that's being done with grills is another coming out next year. The offer we're really excited about is a Teflon, I'm not quite Teflon but cooking with it doesn't require to have scrapers and spatulas. So a lot of productivity and labor-savings opportunity in the kitchen, no major changes to the platforms as we see in a foreseeable future.

Mike Andres

No, I was just going to say, and we run an innovation center that we are able to go through the differences in product mix and see what the changes do. And Jeff runs that group over there, Jeff Straton. And we're able to make changes there to then see what needs to be done in the field. So we don't have to test the lot in the field. We are able to test it there, finalize what we want and be able to roll it out into the field.

Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division

Sara Senatore at Sanford Bernstein. Just a couple of questions on Page 6 of the deck. The first question is, I think that owner/operator cash flow has come down. I think the last I heard it was $360,000, now it's $338,000. So obviously industry leading. I'm sure franchisees are very happy with it. But can you talk a little bit about that? I assume some of it is just commodity? But adjacent to that is the incremental return on invested capital has also come down? So this the kind of thing where we're seeing some investments now and we would expect returns to kind of trend back up after some investment years.

Janice L. Fields

Teresa.

Teresa Olson

Cash flow, as you had said, at the end of last year, we were at the all-time high $364,000, we're at $338,000 now. So it's trailing 12 months September. So still very high and significantly over where we were in 2009. And so what we're seeing is strong cash flow there. And also what that's enabling us to do is make the investments that we've talked about currently. So our franchisees are very aligned with the Plan to Win, and where we're at, we look at where we're at versus the competition. We have outpaced ourselves in terms of not only sales but cash flow, which is then allowing us to make these investments. And so when we talk about that and the investments and the return that we'll get from not only the technology that we've done, but also the reinvestment in terms of the reimagining. We also have set ourselves apart in terms of the capital that is available to our franchisees as well. So not only do they have the cash flow that is extremely high, but they also have the access to capital.

Howard Penney - Prudential Equity Group

Howard Penney with Hedgeye Risk Management. I know there's a lot to fit in, in a compressed timeframe, but it's rare that the marketing guy doesn't get any airtime. So there's 3 buzzwords today that are important, I guess. Social media, you mentioned briefly but connectivity and loyalty are also 2 buzzwords that are, a lot of your competitors and competition they use at the mobile community to drive traffic. I'm just wondering if there are initiatives on that or the POS system can drive conductivity or loyalty and then a question on the $5.5 million in the owner equity? How do you calculate that or what are the components of that $5.5 million?

Janice L. Fields

I'll answer the first one on the connectivity. And Neil, if you want, you can grab a microphone. And Teresa, I'll let you do the equity. The social media and the whole connectivity is huge. It is the way the world is moving. I got on Twitter last week so we know that it's an important element. It's part of that mix that you asked about earlier. Now I will say that every McDonald's in the U.S. that can have Wi-Fi has free Wi-Fi and we've had that. We're the biggest location for free Wi-Fi in the U.S. But the whole connectivity, the customer loyalty is something that now that we have the platform from a POS standpoint, you can argue with a little bit of an IT person versus the marketing person, which one came first. We will be able to move into things like that. And we're working through that. It's a huge opportunity and we absolutely see it, agree with it and are working our way towards that. Neil?

Neil Golden

Ditto.

Janice L. Fields

He's never been that quiet. From a timeframe standpoint? It's ongoing. It's actually ongoing. I would tell you that it's not going to be all in one point, but we've already started a number of things like that. I know it might sound funny, the mobile app, you think, oh, that's child's play. It is compared to some of the things that are out there. But we continue to introduce things. We just got the POS done literally within the last, it was right before Halloween. So we've got to take things in steps. That's the way that we do things best is when we scale and an we stay focused on something instead of trying to go after everything, get in something, get deep in it, and then you can move to other things.

James Johannesen

And Jan, just beyond the -- beyond the loyalty type of program, you talk about mobile and connectivity, take a look at the MONOPOLY program. A huge number of consumers play the game with their mobile phones. They enter the codes that way. So we're clearly expanding even now well into that and continuing to develop programs that will have even greater one-on-one type of communication.

Janice L. Fields

And Teresa, on the equity?

Teresa Olson

And we look at equity, we look at really a proxy for what that gross [ph] Value is over the restaurant. And so we look at a cash flow multiple after G&A and that average restaurant organization size and then we back out net debt. So we keep those constants and we look at where we're at and we look at the historical trends and when we look at where we were since the beginning of the Plan to Win, 9, 10 years ago, where our average equity per organization is 3x of where it was back then.

John S. Glass - Morgan Stanley, Research Division

It's John Glass from Morgan Stanley. I wanted to back go to the beverage platform. You said in excess of $125,000. I'm wondering if you're willing to talk about what it is actually. Number 2, what's the next time or what's the next milestone you like to set for that business? And third on beverage, there's something in the fountain business for innovation there, Coke freestyles, some other things. Are there opportunities beyond the McCafé in beverages, what do you think they are besides the dollar platform?

Janice L. Fields

Jim, you want to start and then I'll tag on at the end.

James Johannesen

Sure. I guess working from the back, we have freestyle in a few of our restaurants and we're learning about it, just trying to make sure we're conversant with it. But with virtually all of our restaurants running 2/3 of the business through the drive through, that gets a whole lot more complicated. So it's more of an application for an inline location. So we're monitoring that closely. The great thing about the beverage initiative is the heavy lifting has been completed. We did all that work several years ago. We invested, the owner/operators invest getting that sell right, getting the drive-thru present booth large enough to handle that additional capacity, having all the necessary equipment. Now when we talk about adding a very, very chiller, I don't want to say that anything is easy. But it's as easy as it gets for us in terms of an execution of a new product. So an opportunity to lever existing investments.

Janice L. Fields

I would tell you when people ask me the upside on the beverage, we don't know what it is. Every time we bring something out, it's gone extremely well. The strawberry lemonade was a huge hit, mango, the pineapple Mango smoothie, huge hit. So the upside is unlimited when you think about beverages in general. So whether it'd be teas, which we haven't really touched on, others is the sweet tea and the unflavored iced tea, I think that we have a lot of upside on it. It's bigger than we projected, significantly.

Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division

Matt DiFrisco, Lazard. A question on the reimaging and specific to the in-store dining occasion. Have you seen the in-store dining occasion comparable sales numbers, is that growing a little faster than the rest of the overall comp or especially in those stores that you have remodeled? And then what is the benefit you get from that consumer? How is that consumer different? Is it a higher-end consumer? Is it a person who spends more? And just also not to nitpick, and I like all your information you give us so I don't want to discourage it, but the 12% beef growth that you quantify or basically a couple of, almost $100,000 or a little over that in dollar terms, has that also implied that you've held your share or have you lost share over the last 9 years in overall beef occasions or away from home beef occasions? If you can give us any data on that?

Janice L. Fields

Okay. Do you want to start, Jim?

James Johannesen

Sure. I'll take the first piece of it on the lobbies. What I can tell you is that the information that we get and the anecdotal feedback that we get from our owner/operators and our company leadership is, these are incremental visits. It's a different occasion of use. People are coming to us now, taking advantage of free Wi-Fi that we have in virtually all of our U.S. restaurants. So they're there. Business men and women coming into our restaurants now who may be prior to that lobby being done didn't. They were only using us for the occasion of use but they wanted to come through quickly through the drive-thru. Somebody's having in a meeting. They are in the lobby having a meeting in a much warmer, contemporary environment. Families, so we're very pleased by the incremental visit aspect of the new lobbies.

Janice L. Fields

Yes, they are loving it. From a share of beef standpoint, I believe it's -- we've maintained our share of beef without a question. It's up. With that, they're telling me my time is up and I get the opportunity to introduce the newest area of the world President, Mr. Doug Goare. Doug?

Douglas M. Goare

Anyway, Jan, thank you. Great job, great job to the team and thanks to all of you for joining us. Before I start, Jerome Tafani, Europe's CFO, and my partner in crime today is joining me on the stage, as well as in the audience and I want to have some folks stand. CEO of McDonald's U.K. and President of Europe's Northern Division, Jill McDonald; COO Germany, President of our West division, Bane Knezevic; and COO of Russia and President of our East Division, Khamzat Khasbulatov. So in addition, as you all know, that Europe is a collection of 40 countries and there's many issues around our markets and it was a great opportunity for us to also have some of those markets join us and in some of the dialogue you have in the reception, you can pick their brains. And joining us today is managing Director of Poland, [indiscernible] ; Director of Italy, Roberto Masi; and Julia Lopez, Senior Vice President of France and Europe Southern Division. So again, many activities across our 40 markets in Europe and they'll be glad to dialogue about their geographies as well.

So over the next half hour, I'd like to provide headlines on our financial performance, outline key strategies and initiatives and share our plans to continue Europe's momentum in 2012 and beyond. But I probably ought to first talk and share with you a little bit about myself and it reminded me 33 years ago, I was generating P&Ls for Jan Fields as she was running a restaurant in Ohio. So I would rather take the position of some of the media in Europe who introduced me as being 33 years old but they didn't have the picture. But I did start in 1978 in the accounting side of the business, moved into operations. I operated several business units in the U.S. prior to my most recent responsibility of leading the global supply chain and the restaurant development groups. In these roles, clearly, I had the opportunity to travel extensively, learn about the various geographies and being a member of senior management, I got great exposure and great learning and good perspective. So it's truly a privilege for me to be here today to lead this very important business segment.

A little bit about McDonald's Europe. We have over 7,000 restaurants in 40 markets, serving more than 14 million customers per day. With about 20% of McDonald's global restaurants, we generate about 40% of total revenues and account for 38% of the consolidated operating income through September 2011. Europe's success in recent years has been driven by a clear focus on our priorities under the Plan to Win. We have balanced the global size and strength of our brand while increasing McDonald's local relevance for our diverse customer base. We've driven trust in our brand by focusing on the quality of our food, developing our reputation as a progressive employer. All of this has helped us create a closer bond between our customers and our brand. But we're also focused on relentless progress, making sure that our customers see that McDonald's is a brand on the move. We have a rich culture of innovation in Europe and we're committed to learning, sharing and scaling those initiatives that work best and make the biggest impact. Europe has the right strategies and a team of proven leaders in the markets. And I'm confident that we can continue to deliver future growth to McDonald's System.

Let's look at the facts and the opportunity. We're a leading player in the region. We enjoy tremendous size and scale advantage by being larger than the next 9 competitors combined. As consumer expectations about choice and variety continue to change, they are increasingly looking for high-quality food that represents good value, is sourced responsibly and is served in comfortable, appealing surroundings. Our continued emphasis on these fundamentals has enabled us to increase market share in both the QSR segment and the informal eating out market for the last 14 quarters. And there's still significant opportunity for future growth if we continue to broaden our menu offerings, modernize the restaurant experience for our customers and maintain our strong value credentials. Now despite the economic downturn, we've continued to invest in our food, our restaurants, in technology and in our people in a time when many of our competitors have fallen behind. We'll continue to leverage this advantage by investing wisely and to further differentiate the McDonald's brand in the minds of our customers. All of this added together brings us real opportunity. So before I discuss our strategies, I'm going to have Jerome walk through the highlights of our recent business performance in Europe. Jerome?

Jerome Tafani

Thanks, Doug. I'm very pleased to share that Europe's year-to-date September 2011 results reflect the continued strength of our business. Through third quarter this year, McDonald's Europe revenues have increased to $8.2 billion, up 8% in constant currencies over the same period in the prior year. Comparable sales year-to-date October, were up 5.4%, led by performance in the U.K., France and Russia. Germany's year-to-date October sales have also remained solid. Europe's strongest traffic is the key to sales performance in 2011, contributing roughly 60% to segment's overall, year-to-date comparable sales growth. In addition, Europe's average restaurant volume has increased over $1 million over the last 5 years to more than $3.6 million, reflecting a greater than 50% increase for the period. With over 70% of the restaurants now owned and operated by franchisees, Europe's franchise margin is our primary profit contributor, representing more than 60% of the segment's overall response margin dollars. Since 2006, Europe's franchise margins have grown 80 basis points to 78.2% in 2010. Year-to-date this year, margins are up again an additional 80 basis points, boosted by the segment's strong comparable sales. Company-operated margins have grown significantly over the last 5 years to 19.8% at year-end 2010. Through year-to-date September, despite the current environment, our company-operated margin has remained very strong at 19.3%. Europe's GDP growth top line sales while still [indiscernible expenses has translated into operating income growth of approximately 9% in constant currencies through September. Europe's return on invested capital has also continued to increase, reaching 22.6% for the trailing 12-month period ended September. Additionally, our 1-year and 3-year returns on incremental invested capital have been robust and well above the company's global high teens targets at 29.3% and 33.2%, respectively. These increases have been driven by performance across Europe, reflecting the success of our strategies and enabling further investment to drive even greater shareholder value. That's the big picture across Europe.

Now I'd like to share some highlights from our 4 largest markets: Germany, France, the U.K. and Russia. Combined, these 4 markets represent about 65% of our revenues and about 70% of our operating income. I'd like to start with the U.K., which is still showing strong momentum in a dynamic and a highly developed QSR marketplace. We are seeing sustained performance over the past 3 years as we have reenergized as a brand with local customers. Through September, operating income has increased 13% in constant currencies. U.K.'s performance has been largely driven by leveraging our comparable sales growth, which has brought [ph] The market's average restaurant sales to $3.2 million. In addition, the U.K. also benefited from our re-franchising program. Today, 64% of the U.K's nearly 1,200 restaurants are owned and operated by our franchisees compared with less than 40% just 5 years ago. And we continue to evaluate opportunities to optimize our market's restaurant mix for the long-term.

Next, is France, still very close to my heart. As a leading QSR player in the country, McDonald's France has a very strong financial story to tell. Today, 82% of France's more than 1,200 stores are operated by franchisees who enjoy average unit volumes of nearly $4.9 million. As of third quarter 2011, France reached 32 consecutive quarters of positive operator sales and delivered 7% constant currency growth in operating income.

In Germany, where as well 82% of the market's more than 1,400 stores are run by franchisees with nearly 5 stores [indiscernible], results have been solid. Average restaurant sales volume are now at nearly $3.5 million. And through September, operating income in Germany was up 5% in constant currencies. In addition, despite a highly priced [indiscernible], our business in Germany has been outperforming the QSR segments on both sales and visits. In fact, year-to-date September, Germany sales trend has outperformed our competition as a QSR segment by 5.5% in sales and 6.2% in visits against the backdrop of a changing market.

Finally, I want to mention Russia. Through the first 9 months of 2011, operating income grew 16% in constant currencies, contributing $208 million to Europe's operating income with just 279 stores. Most notably, over the last 5 years, on average, each individual restaurant in Russia has contributed nearly $800,000 in operating income annually. The Russian economy is still volatile and economic challenges remain. However, with about 143 million consumers, Russia provides significant growth territory for McDonald's. In fact, our existing restaurants averaged more than 2,000 transactions per day, one of the highest volumes in the world, which demonstrates the tremendous consumer demand for McDonald's in the markets.

These 4 markets are very well complemented by 36 others, including Spain, Italy, Austria and Poland, all of which are generating good returns and have well-developed eating out categories.

Now let's have a look in more detail at our opportunities for future growth in the context of Europe's overall economic outlook. While the situations vary by country, Europe's overall markets landscape remains challenging. Recent IMS and EU estimates project GDP to grow [indiscernible] on the group and unemployment, which is very high in some countries like Spain is expected to stabilize at higher levels. Despite stable but low levels of consumer confidence in the earlier part of 2011, we're seeing consumer confidence fall significantly in the third quarter, impacted by new austerity plans and uncertainty around the European debt crisis. This will likely further impact consumer spending for the remainder of the year. We know that in about half of our markets, there is a significant correlation between consumer confidence and eating out behaviors and our UN QSR this [indiscernible] declining markets where drastic austerity plans have been passed. However, great execution of our existing strategies is what we focus on to back the trend and grow our share. U.K. and Spain are 2 very good examples. In light of the current environment, the informal eating out market, which is a $185 billion industry in Europe, is expected to be relatively flat to the remainder of 2011 and throughout 2012 and return to positive growth in 2013. For these reasons, we know that our growth at existing stores, particularly next year, will continue to come by growing our market share. We also know that despite these challenging economic environment, there are significant opportunities for new restaurant openings in Europe. Now I hand it back to Doug to discuss Europe's 2012 opening plan and strategies for the future.

Douglas M. Goare

Thanks, Jerome. We're obviously very pleased with our financial results, especially since we are facing some very difficult economic times and the conditions are only getting tougher. But we've made good progress in increasing market share in both the QSR market, as well as the wider informal eating out market. In fact, we served 55 million more customers in third quarter 2011 compared to 2010. But there's still significant opportunity for future growth in the eating out market if we continued to optimize our menu, modernize the restaurant experience and broaden our accessibility.

So let me take a tour through each of these areas in the eyes of Europe. We're going to start with modernizing the experience. Europe continues to lead the company's reimaging efforts, particularly in the major markets. At the end of last year, about 40% of Europe's exteriors and nearly 75% of our interiors reflected modern vibrant designs such as those you see here. This year, we'll have reimaged another 15% of our total restaurants to about 1,000 locations. Reimaging will continue to be a differentiator for our existing restaurants in the years to come as well. By the end of next year, we expect to have reimaged around 90% of our restaurant interiors and about 2/3 of our exteriors. This will include about 950 full reimages that we plan for 2012. That's a huge undertaking and it speaks volumes about our brand to new and existing customers, who clearly appreciate the updated surroundings. To date, in our reimaged restaurants, we've see an incremental sales lift of 5% to 6% over and above the market's comparable sales performance. Another opportunity to modernize the McDonald's experience is through the McCafé concept where it makes sense to do so. McCafé helps attract a broader customer base and drives positive perceptions about our brand. Our offer of high-quality coffee at a price more affordable than our competitors and in a modern McDonald's atmosphere puts us in a unique position. This combination provides us an opportunity for growth and we're moving very quickly on capitalizing on this emerging consumer demand. We are on track to add about 150 McCafés this year, taking us to about 1,500. For 2012, Europe plans to open more than 150 additional McCafés.

Now technology as we've heard a lot about today plays an important role in modernizing the experience for our customers. One of our major technology initiatives is our new POS system that will be rolled out to roughly 30% of our restaurants by the end of next year with implementation to be completed by 2014. We're a bit behind the U.S., but we are learning from their implementation and we'll be moving forward. In addition, we are using handheld order takers in the dining areas and in the drive-thru lanes to speed up service. We have self order kiosks in 850 restaurants, mainly in France, that allow our customers to explore the menu at their leisure rather than giving their order at the front counter. And we're investing in future Web ordering through the use of smartphones.

Continued innovation is also a critical component of enhancing the experience for our customers. We've recently opened 2 restaurants to test some new concepts for our family customers under our overall family banner of smart eating, fun play, favorite experience. We call this initiative Spirit of Family, and it combines a wide range of ordering options, interactive video and different theme zones. This concept is in the very early stages of development and we're still evaluating which aspects might some day be suitable for wider rollout. Most importantly, this test speaks to our ongoing commitment to raising the bar on consumer relevance with breakthrough innovation. Let's take a look at the video.

[Presentation]

We also see opportunities in the digital world to help us to connect more with our customers outside the restaurant. The work we've done with our new Happy Studio launched this year is a great example. This unique extension of the Happy Meal brand brings together children's favorite characters in one website for play and educational purposes. That's not just the experience for our customers that matters. We are also working on modernizing and upgrading the experience for our employees, since well trained, energized and engaged staff are essential in our all of restaurants. We have a diverse workforce and our training programs are increasingly carried our online. This enhances the effectiveness of our training, and our staff values the flexibility that it brings to their busy lives. We have successfully created an online engagement tool or crew portal called Our Lounge that relates our staff in a way that they understand and includes topics that interest them. This web-based portal can also be used to review work schedules and request changes. Our Lounge is currently available in the U.K. and is being rolled out to other European markets. Where possible, McDonald's training programs in Europe are aligned to nationally recognized qualification. This is a significant benefit for our staff and it provides proof that our standards of training are high. In over 30 of our 40 European markets, we've developed a suite of nationally recognized qualifications. This really differentiates us not only in the restaurant industry, but across the business community as well. And to be recognized in over 30 markets for being best employer is a testament to that fact. Now I'd like to make a few comments about broadening accessibility. Our future growth depends partly on driving guest traffic, getting more customers to visit more often, in addition to building new restaurants. For your, broadening accessibility is being manifested in several ways. At the forefront is making sure our menu and price points are appealing to a broad range of customers. This covers many facets of our business that our everyday affordability platforms are critical components to delivering compelling value to our customers, while the name is different from market to market. For example, SMS in Germany, Saver Menu in the U.K., Dos Por Uno in Spain and there's many others, but we also have many options on those menus based on what works best locally. Everyday value menus account for about 14% of sales overall. Also in many markets, we've successfully rolled out a fourth tier, our P’tits Plaisirs or Little Tasters, a range a small but very tasty and appealing items with a higher than average margin. And in common with our other partners around the world, we continue to extend our operating hours. We've got a lot of opportunities, though. Today we have over 1,600 restaurants open 24 hours at least one day of the week. Going forward, we are going to continue to look for additional opportunities to expand the availability of those expanded hours to meet our customers' needs.

Europe also has a huge opportunity to grow breakfast, and it's becoming an increasingly important daypart for us. Today, our largest market serving breakfast is the U.K., where it accounts for 13% of total sales and is growing. This daypart is also growing in Germany, Austria, Russia and Poland. However, in many countries, the morning meal tends to be a coffee and a pastry, rather than a protein-based entrée. To appeal to the broadest range of customers, we're working to make our coffee even more compelling and, in fact, we sold over 335 million cups in 2010 and our share of the IEO coffee sales has increased from 2.5% to 3.5% from 2008 to year-to-date 2011.

I must also reference drive-thru. Unlike the United States, market in Europe has relatively few drive-thrus. Currently, we have just 63% of our restaurants offering drive-thru service. In those restaurants, sales accounts for 45% sales coming through the drive-thru lane. As people are increasingly looking for convenience, we're capitalizing on this major competitive advantage and we expect over 2/3 of our new restaurant openings this year to be drive-thrus.

So to further enhance that customer experience, we're also adding customer order displays in most of our drive-thru lanes, helping to improve order accuracy and streamline the order process. We're looking at the other great ideas around the world and looking to scale those, such as side-by-side drive-thru lanes to increase capacity where we actually have that volume and demand.

And finally, certainly not least, we will also continue to support topline growth by opening new restaurants. In fact, there's potential to add a significant number of restaurants in Europe and we're focusing on opening even more restaurants moving forward. We opened an average of 160 restaurants per year between 2004 and 2009. This year, we expect to open between 230 and 240 new restaurants. For 2010, we expect to keep up the pace, concentrating on Russia, France, Italy, Spain, Germany, Poland, Austria and the U.K. as our biggest markets. In fact, we expect that total to exceed 250 restaurants in 2012.

Now to our food, the European business has had a successful tremendous history and a legacy of food innovation, and we are committed to continuing the tradition of great taste and great value, balancing our food offers and promotional activities across the 4 tiers of our menu. We continue to develop the Premium end of our menu and our innovation reinforces our leadership on beef. We introduced [indiscernible] a few years ago and this year introduced the 1955, which many of you took a bite or 2 today. That sandwich has been launched in over 20 markets and overall sales and customer feedback has been very encouraging. Chicken is also a growth opportunity and we're creating new news at every level, with products like Value Chicken, Chicken Bacon and Onion, Chicken Legend, Chicken Mythic, as well as Chicken Wraps. The large wraps represent a completely new platform, thanks to the work carried out by our colleagues in Poland and Austria. Large wraps appeal to customers for their taste, freshness, convenience and offer endless combinations, including beef, chicken, shrimp and curry. We even have breakfast wraps in several markets. By the end of 2011, large wraps will have been introduced in 21 markets across Europe.

Let's take a look at an ad from France for this new product offering.

[Presentation]

We also know that food events promoting both beef and chicken often with side order, dessert or a beverage creates excitement and interest in our markets. They allow us to tie in with seasonal events such as Christmas or summer or to celebrate local relevance with locally themed menus such as McItaly or [indiscernible] in Germany, and also to promote our American heritage, such as the Stars of America promotion. We also continue to provide support for most of our existing famous products. The Big Mac chant in Russia, Flavors in the U.K., Double Cheese in France and the Big Mac EVM in Germany.

Moving on from our food and looking at the success in other areas of the world, beverages are clearly on opportunity that's untapped in Europe. While McDonald's coffee is already very popular throughout Europe, we're just beginning to explore expansion of our beverage line up with options like real fruit smoothies and frappes. We're also keeping a watchful eye on consumer trends towards a healthier lifestyle and nutrition. Our happy meals throughout most of Europe are available with fruit as an option and we're committed to making fruit and vegetables more fun for children. As you can see here in the example, we're introducing new innovations, such as Kiwi on a Stick in Italy and using licensed characters to make fruits and vegetables more appealing. We also run local events, such as Crunchy Wednesdays in France, where a fruit or vegetable option is free for children. And we also continue to be very open and transparent about the nutritional profile of our food by including information on our packaging, as well as rolling out menu board labeling in the U.K.

Now a couple of comments about quality. Having led the supply chain for over 4.5 years, I know that our quality standards set the industry benchmark and it's important that we communicate this to our customers. We do this in a variety of different ways. For example, we actively seek out local endorsements, such as the AMA stamp in Austria. We source ingredients locally, where it makes sense to do so and we use iconic local ingredients and promotions such as we did with Charolais beef in France earlier this year. We also use sustainably certified coffee across Europe. And just a few months ago, we were the first major retailer to have its whitefish certified by the Marine Stewardship Council. We have more to do, but great progress has been made to communicate that we will not compromise on quality.

Let's take a look at an ad from the U.K. that represents our passion for quality.

[Presentation]

Connecting with our consumer on quality but it's really about our brand, what do we stand for? I want to make a few comments before I conclude about building our brand and the bond with our customers. We're committed to being a good neighbor and playing a role in enhancing the communities we serve. Our goal is to show we live the values we set for ourselves and we're responsible in everything we do. This takes many forms from providing a range of high-quality balanced choices on our menu to supporting sports and physical activity in children to initiatives that promote sustainability.

Sustainability in the environment are of paramount importance to our European consumers and we've made great strides in the last few years. We're working to reduce our impact on the environment with energy management tools that enable us to use green energy in markets where available. With the help of these tools, we've been able to reduce our overall electricity consumption. We're also making improvements to our construction standards and being more energy efficient by requiring that all of our new and reimaged restaurants conform to green building guidelines. And finally, we are recycling more and actively working to minimize the carbon footprint of our European business.

And I'd be remiss if I didn't make a comment about our upcoming Olympics in London. Next year, the U.K. will be the host of our Olympic sponsorship. London 2012 marks the ninth consecutive time that McDonald's will serve as the official restaurant of the Olympic Games. As part of that sponsorship, we'll demonstrate our commitment to quality food and champion the farmers who provide ingredients to McDonald's U.K. restaurants every day. In addition, we'll underscore our commitment to children's well-being by launching a new global program that encourages a balanced approach to nutrition and activity for children.

So as you can tell from this tour, McDonald's Europe continues to leverage the most successful strategies from around the world to keep our brand relevant, contemporary and compelling to our customers while driving improved profitability. As we look forward to 2012, our plans are focused on building market share with the right mix of comparable sales and guest count growth, strategic reimaging and expansion. While much has been done to improve our business in the last few years, we still have a lot more work to do and we'll be relentless in driving that momentum.

And in closing, what excites me most is that future potential, continuing that journey, leading innovation in the restaurant business, differentiating ourselves from our competitors and ensuring that our customers continue to see that we are moving from fast food to good food fast. Thanks, for your attention and now I'll invite my partners in crime to take your questions. Thank you.

James A. Skinner

Number one.

Ronald J. Hottovy - Morningstar Inc., Research Division

RJ Hottovy from Morningstar. In an environment of tighter credit in Europe, is there any concern about the franchise's ability to grow, remodel, reimage or put in a lot of the initiatives that you put in place in the presentation in 2012 and beyond?

James A. Skinner

Jerome, I think it's right up your alley.

Jerome Tafani

So far, I mean we monitor this environment very, very carefully, however, as you can see top line is still doing well, and as most of you are all aware, our top line is doing well, our franchisee cash flow is doing well, and our franchise is committed to invest in the good news is that thanks to the actually good grading of the brand so far, we don't have any issue for franchisee to have access to funding. And we still have access to funding at a very, very good rate. So no change.

James A. Skinner

Number two.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Joe Buckley, Bank of America Merrill Lynch. 2011 sales performance has obviously been very good, but have you seen any signs of consumer behavior changing from macro influences and as the macroeconomic news gets worse out of Europe, how do you position yourselves for 2012? Are there any changes in the game plan as you try to sustain the positive same-store sales growth?

James A. Skinner

Joe, let me kick it off and I'm going to throw it to my partners here. We just had the opportunity to go through what we call our Phase II planning to look at the upcoming year and I will tell you that overall in the plans we saw, the focus continues. The Plan to Win is working, the detailed focus in the plan is still relevant. I think clearly value plays a role, and we've seen a number of our markets continue to evolve their value proposition and looking at making sure that we keep that connection when our consumers are a bit more crunched with some of the austerity measures and the rigors that they're going through in their businesses. But I'll throw that out to Jill and Bane, you're 2 of the markets that certainly have some challenge. So any thoughts?

Jill McDonald

Okay, as you saw from the graph that was shown earlier, the U.K. has had declining consumer confidence. However, we continue to see very strong growth both in sales and guest count. And interestingly growth, right across our menu and right across different dayparts. So value is important but what we are seeing from consumer behavior though is when it's a little bit doom and gloom out there, giving ourselves a little affordable treat is certainly playing through in the U.K. So we are seeing just as much growth from our premium platforms and our premium food events as we are from, say, the menu, which is our everyday affordable pricing platforms. So we are through a whole sort of multiple layering of different initiatives managing sort of but the trend in declining consumer confidence, which makes me confident that we're in a good place to weather different economic conditions.

James A. Skinner

Bane, any thoughts?

Bane Knezevic

I do so [indiscernible] price sensitive. I am sure that the overall global market will play a role, it's no question about this, at least in Germany, because when you know that in front of you need to bailout 1/3 of Europe, certainly German consumer will not be happy. Nevertheless, having said that, GDP growth is slowing down but if you compare over quarters, quarter 3 in Germany was the strongest quarter with 4% same-store sales. And absolutely, once when we have all 3 tiers in the position, then I'm absolutely confident, especially the laps between us and competition is out of this point, then we'll see a good results and excellent results in the future. And especially business model of McDonald's. It's not the first time that we are going through a crisis, especially not in Germany. We have this 2-years ago, and it was positive, and last year was positive. So business model coming [indiscernible] you can do bad economy, good economy, growth, no growth, employment, no employment [indiscernible].

James A. Skinner

[indiscernible] do you think on Eastern Europe, you're in a different [indiscernible]?

Unknown Executive

[indiscernible] it's a continent that's growing up and you can see by results. And we have more penetrations than ever before. We have more guest coming to stores. We have shift from value to more premium product. We have taken our average check, it's totally opposite.

James A. Skinner

Number one.

Michael Kelter - Goldman Sachs Group Inc., Research Division

Michael Kelter, Goldman Sachs. I wanted to follow up on the first question about access to capital since it's such an important part of your growth algorithm. Maybe when you did experience the crisis a couple of years ago, and franchisees had to make decisions, what did they forsake, was it the new unit growth, was it the remodels, was it building the McCafés? When they have to make choices, what kind of decisions they make? And then looking further, if capital markets do seize up more significantly than they have, just as you went into the real estate business, would you go into the banking business?

James A. Skinner

So Jerome?

Jerome Tafani

We'll start with the we are not in the banking business. We will not. So we never lend any money to a franchise in Europe. There is no one case where we will do it. And about investments, I mean, it's through the franchisee makes its decision and then we are there to partner with them and to guide them and we have what we call an investment roadmap, which sequences what they have to invest. And clearly, I mean, as you saw, you have seen through the plantations, our priorities, so we started reimaging about 7 years ago. Now, we are going to the other cycle of this big reinvestment, exteriors and interiors. So we'd be done somewhere end of 2013, end of 2012 we will be done with interiors. And now they have to be prepared to some investments around IT and service. However, the magnitude of the investments, which are in front of us has nothing to do what they have done in the last 7 years. So the good news is that we have been able to align the franchisee with us on this total reinvestment piece, which was reimaging and as you saw the numbers, most of it is done. And what is in front of us is much less than what we need. The cash flow is still growing, and we monitor very closely their debt-to-cash flow ratio to make sure that they are not too leveraged, and this is why maybe in some countries we have slowed down a little refranchising to make sure that they keep funding available to go to investments instead of buying company stores. And because of that, we were confident that they still have access to capital and we still have capacity to face reinvestments they have to do.

James A. Skinner

I would add to that, in the last couple of months as I've had the opportunity to travel markets and meet some of the operators, the attitudes are so positive. The success breeds success. The investments that they've made have returned for them. They're proud of their business and the brand, and they see this as an opportunity to continue to drive forward. So they're in the best position financially in their lives, With unprecedented success, and I would suggest that they've been very responsible in growing their business. So I think we're in a great position. And as we continue to have opportunity to grow and bring new innovation, I think they're absolutely as I've gone through the different markets and been introduced to the franchisee groups, there's a lot of energy to continue this momentum with the franchisee group.

Larry Miller - RBC Capital Markets, LLC, Research Division

Larry Miller with RBC. You mentioned in one of the slides that half of the markets were subject or conducive to weaker consumer confidence, is that -- obviously, it doesn't sound like the U.K. or possibly Germany maybe. What are the markets that are more sensitive to the consumer confidence? And then how does the weaker consumer confidence play in the pricing plan across the European businesses or can you give us a sense of how you're thinking about taking price in 2012?

James A. Skinner

Okay, let me start, and you guys can all kick in because there, again, 40 markets, you have almost 40 different points of view. But in some of the more extreme situations where you've got severe austerity, that consumer confidence is almost creating paralysis, okay. And you take Greece to the extreme or Portugal, you have tremendous concern because the folks are being faced with some severe situations in their countries. In other situations and Bane already mentioned in Germany. Germany is a pretty darn healthy economy, and yet the German consumer is very concerned about what Germany is going to do to help everybody else in the Eurozone. And so it takes on a different flavor. In U.K. while there is concerned, there's still a lot of energy in the marketplace. So it's hard to put one broad answer. So guys, you want to add, and then we can go back to the pricing second?

Jerome Tafani

No. I mean, I think, you said it all. I mean, we can explain, I mean how are we -- we can place through the 40s, the pricing. I mean, you can take some examples where we have -- see a strong value and before we go to some examples, I mean, you have to understand that all the work we did in the past years with the brand, with reimaging has positioned us at the level where we have, let's say, more power to communicate to franchisee and to customers and to convince our customers about the good values it can have within McDonald's, and we have some permission to sell them some good premium products and we can maybe have some examples on how you play with your [indiscernible] market.

Jill McDonald

Yes, so we introduced, actually following the lead from France 4 or 3 years ago, which is sort of comprised position between our entry-level menu and our core menu. And that's just enabled as we continue to -- well, sort of try and retain some really iconic price points on our saver menu but we will obviously continue to move prices forward in a very planned way. We have an external company, called RMS, to help us with some facts around pricing moves. But as we continue to sort of move our prices up, we have a fourth tier that we can sort of help to fill the space in our menu between core and the entry-level price. And certainly for a number of markets in Europe, that's playing very strongly.

James A. Skinner

Okay, number 4.

David Palmer - UBS Investment Bank, Research Division

Dave Palmer, UBS. Question on the reimaging front. And I guess this is for you Doug, and also Jill. I noticed that reimaging overall in Europe is happening at a faster rate at least now, but it seems like over the last few years, the percent of the overall system is happening faster than what is happening right now in the U.S. where only about 7% of the system is being reimaged per year, and it feels like the direct sales lift that you guys were talking about, something like 5%, 6% type lift, is similar to what's being quoted in the U.S. but you guys are moving faster and we've seen reimaging, at least I perceived from the outside, that it's played a huge role and may be the most improved market in the world for McDonald's in the last 4 or 5 years, which has been the U.K., where you've the gotten scale. Are there lessons from the U.K.? I mean, I keep on wondering about this. As the U.K. -- the Europe and the U.K. in general, should we be stepping on the gas in the U.S., is going to be the question I have for Jim and the gang. But am I perceiving this right, as far as you guys going faster, because you see something more here?

Douglas M. Goare

Let me give you just -- I'll give you a perspective in there, again, I'm 2 months and less than 2 months in this role but I've been traveling for the last 5 years, and so I've had a chance to experience Europe in a significant way. I would not underestimate the holistic plan that is encompassed in driving the business. And I think while in Europe, the energy started perhaps a little quicker, but I would also suggest to you that there might have been greater need. And that's just from, I'll give you a little of my observation. And so as the momentum gained, it was not just the reimage, it was all of the elements within those country plans that are driving the business. So when we talk about the success in the U.K., reimaging is just one piece of that. It is the holistic plan to improve operations is to bring value to life, is to reimage the restaurants. It's that execution. It's expanding the accessibility of the restaurant through extended hours. And it's that whole collection of business strategies driving it and I think the same thing as I have the chance to experience APMEA or experience in the U.S. it's the collection of strategies. The priority focus may be greater or lesser in one geography and you take a beverage platform in the U.S., I would suggest to you that we didn't quite have that same energy in Europe, but it's still an opportunity for us. So I think it's a collection of strategies and it's happening in different ways, in the different areas of the world. So I don't know that there's one better way than another, but it also tells us that we can learn from each other in each geography. And I think that's what we all tried to do.

Jerome Tafani

Just to confirm that when we started in the European in the year 2000, the level of brand perception in Europe and in U.K. had nothing to do with white walls in the U.S. As Doug said, there was a real need to change the brand perception. And reimaging was the kind of greenfield [ph] we allowed us to improve the brand perception, to improve the employees' pride, to improve our employee management, to improve our corporate responsibilities. We had to do it because we were far away from the U.S.

Jill McDonald

Just to build on that. I think that is the key point. The reimaging has sort of provided a tipping point for brand McDonald's reappraisal in the U.K. But if we'd just done reimaging, I don't think we'd be seeing the results that we're seeing now because we have been focusing on extended hours, operational excellence, menu innovation, as other markets have. We have a greater need to represent brand to customers. We've got a little bit to [indiscernible] with design trends. So I think we're coming from a different place to the U.S.

Douglas M. Goare

Okay. I guess we got time for another one. Number one.

Nicole Miller Regan - Piper Jaffray Companies, Research Division

An easy one. Nicole Miller from Piper Jaffray. As it relates to the self-serve kiosk where the customer can order for themselves, how does the average check compare to ordering at the traditional point of sale?

Douglas M. Goare

Jerome, you get to...

Jerome Tafani

The average check is much higher. I'm not sure this is something you have to focus too much on it because if you just move consumers from the front counter to the self-serving kiosk, you don't make more money. So what is key is to compare the average check of the store before you put in place the self-serving kiosk to after you had put it. And what we see is a lift in the average check, which is probably in the range of minimum in France, which is a market where we have a large sample, which is about more than 1%, and with 1% of average check lift, it gives you a pay back in less than 1 year. And you are on second benefit, which is a little more discount. But to the first benefit, is the average check of the store is going higher.

James A. Skinner

Okay. We've got time for one more? Well, I guess, we can take another one. Anybody else? Everybody is in need of a bio break. Okay, getting can get back here. Number 2.

Unknown Analyst -

It's Bob Coleman [ph], Gardner Wooster & Gardner [ph]. You mentioned that the spirit of the family stores, the comps were at 15% in some cases. Is that a true statement? And more importantly, over what -- but over what time period is that measured? Is that one month, 3 months, 2 months? And then more importantly, are you entering a period where you're going to have to spend more at a faster rate because you're introducing more technology to the store?

James A. Skinner

Let me, I'm going to start because we have the 2 Chiefs of the 2 restaurants that are in town. So we're in a great position for that. But with any innovation, you have to have a learning lab, and I would call the spirit of family restaurants learning labs to bring family energy back into our restaurant. I would suggest to you that we've done a great job in reimaging the brand across Europe and as we're doing it around the world. We need to make sure that we don't lose sight of that family business, and we felt like there was an opportunity to connect in a bigger way as we've continued this journey. So it's part of that is just looking at the elements that resonate and are of interest to the family and the child. So it's not just about building out and blowing out a great restaurant that you saw the 2 examples here. It's about trying to take those learnings and understand how we can continue to be relevant and connect in the family business with our little consumers and engagement with moms and kids. But you guys can talk specifically about each of your restaurants because your each doing the test.

Jill McDonald

Can I just now look where you're telling a lie question? I wasn't telling a lie. The period that was referring to was 10 weeks into the test. The store was reimaged at the same time. So that is the comp sales growth that we are seeing as a result of the reimage which obviously included the spirits of family within it. But as Doug was saying, it's early days. It is a truly amazing store. There Is certainly nothing like it in the U.K., and I'm sure not in Germany as well. So we need to get that time to bed in, operationally understand how it's performing, also to get a better understanding as to which bit of that concept is scalable. So to the true concept store. Some stuff will work brilliantly, some stuff probably won't work so well but it's such a really, really early stage. But it's very exciting. Bane?

Bane Knezevic

Germany is actually a brand new restaurants, so it's not comparable, so it's like 3-months old. Basically what we can say it's only that this restaurant is extending trading area than restaurants without family spirit concept. So this is something which is clearly seen. The point in the German restaurant is we project these restaurants around to be a EUR 2.3 million, and so far, it's progressing to be a EUR 3 million. It's far above production. But again it's 3-months old restaurants. We need to go to the winter, and then we'll be more clever next year.

Unknown Analyst -

[indiscernible]

James A. Skinner

Just a thought on that. And there, again, I call it innovation and I call it a lab. But I would tell you in meeting with Michael Henrici [ph], it's the opportunity that continue to bring new news on our restaurants. And there again, we're going to evaluate those opportunities based on their merits and the returns and what it brings to the consumer and I think everybody have seen -- Don, I don't know if you have any comments? You've seen at least one of them, if not both of the restaurants, just trying to understand that energy that it will bring.

Donald Thompson

Just a couple of things. One, is we have 33,000 restaurants. So for us not to test would be -- it would be definitely not prudent. I mean, we should test. The other thing is you have to understand the restaurant's premium post. So if we do a rebuild in the U.S., we may get 15% to 20% comp sales increase based upon the rebuild itself. When we've done this restaurant to Jill's point, it was a reimaged restaurant. What we're trying to test out with the spirit of family concept is which aspects of technology maybe scalable to the points Jill made in a broader context. We're not looking at taking a model or test store and stamping that out all around the globe. Having said that, there are some things that we're seeing that we say, wow, this is very relevant to a certain aspect. The other thing that's not transferable, I'll call it, and I think it was a question that Nicole asked, you have to understand also the dynamics of the various markets. So if we talk about a kiosk as an example, kiosk in a restaurant that has a much higher in-store percentage is very different than a kiosk you couldn't just stamp it out say in the U.S. where you've got 66% of the business going through the drive-thru. Now we might look at a different approach relative to the drive-thru. But it's just very important not to take a certain comp benefit and say, wow, if they did this around the board, bam, they plug it in. Next piece, on technology and investments. We will be very prudent relative to our investments. So believe me, there's no way that we're just going to approve a budget of a technology increase to stamp out spirit of families all around the globe, and it impact us from both the CapEx -- capital expenditure perspective and a return perspective. So you all have to rely upon our historical prudence relative to how we budget and how we execute within our restaurants.

Unknown Executive

All right, is that it? Thank you. Kathy, all yours.

Kathy Martin

All right. We are ready to get started. We are going to begin our last session of the day with our senior management team, Jim, Don, and Pete for about 45 minutes of Q&A. Jim's going to start with some concluding remarks and then he'll moderate the Q&A, and then I'll come back up to lead us to our next event.

So with that, I'm going to turn it over to Jim.

James A. Skinner

Thanks, Kathy. Kathy asked me what order I wanted to these closing remarks, and I thought, well, maybe I'll do them now because after the Q&A, you might not want to hear them. Or as I always say on the conference calls we have for earnings, I always have a closing piece, and I always wonder if anybody's on the other end of the phone when I get to the closing. And, yes, I see head shaking, I know what the answer is. So I want to do this now as a run up to our final Q&A session.

I just want to thank everybody for coming out. I've seen a lot of old friends today and it's a pleasure to see you back here on behalf of McDonald's and your investment in many cases. We appreciate the opportunity to provide you with a compressive look at McDonald's business and our plans for sustained profitable growth over the long term. And I want to reiterate the optimism that I hope I gave you this morning, that all of us have in the ongoing success of our brand and what you saw today from the area of world leadership.

McDonald's continues to drive results around the world by offering what customers are looking for more than ever. Great value is at the top of the list but outstanding convenience, modern restaurant experience, relevant great tasting menu offerings, our entire system of owner, operators, suppliers, and employees remain aligned around our Plan to Win, I said that this morning. The most important thing relative to our success over the last 8 years is the alignment of the system. And we work tirelessly to make sure that, that alignment doesn't start to shift it's important for all of us to be on the same page, operators, suppliers, employees.

Now, as you heard today, our focus is on driving growth by optimizing the menu, modernizing customer experience and employee experience and broadening accessibility to our brand -- for our brand. And its apparent that there's still a great deal of opportunity as you saw today and we plan to take it as best we can. We'll continue to run our business by listening to our customers and transferring their needs into winning growth strategies across our system. We are in a unique position to truly extend our leadership in the marketplace in every market we operate in. We have the right strategies in place, as you saw today and the right people to lead them, and the capital and resources to invest and execute at the highest level.

And while the economic recovery, depending on where you are in the world, continues to have starts and stops, some place -- places it's starting and some places it's stopping, or being delayed. We are staying focused on what we can control. This is the important thing about the brand, the McDonald's business model. And we can control quite a bit but we control it within the parameters of our business model and our capability to do what we can in staying committed to our winning plans and delivering an exceptional experience for our more than 64 million customers and growing around the world everyday.

And our unwavering commitment to an outstanding execution of the Plan to Win has created significant brand differentiation and strong business momentum. And I know you saw today, but we are well-positioned for sustained profitable growth, and I'm confident that the investments we are making will yield long-term value for shareholders well into the future. So thanks again for coming, and your continued investment and support of McDonald's.

And now, we're ready for those tough questions that you have for Pete, Don, and I, or whoever else might be down here if we have to toss it to them. Thank you.

Benjamin Maurice Walker - The Children's Investment Fund Management (UK) LLP

Ben Walker from TCI. I see in 2006, '07, and '08, the gap between your comps and guest count was above 3% and it's fallen down a bit, and now it's on its way back up. I see that's a price mix. Is that something you specifically target and do you think that you can get that above 3% again next year?

James A. Skinner

Well, we don't necessarily target the gap per se, but what we do, do if you look at our pricing and you look at our menu and product mix breakdown, we price against food away from home, food at-home, and most important, is to maintain guest count traffic at a reasonable level and growth of that traffic, particularly during difficult times '08, '09, 2010 in those economic environments. And when you start to add new menu items on the higher end of the menu, of course, you get some impact on the average check but it all balances itself out over time in that relationship. We do not target specific gaps, but we target our pricing relationship so that our traffic continues to grow. And if we do it right, regarding what our consumers want from McDonald's, some of those are premium items, and some of those are Dollar Menu or those 4 Tier items that we talked about earlier. And so, until you just told me, I didn't really realize what the difference in those gaps were in those years. It doesn't mean I shouldn't have known, except to say, we don't really target the business in that particular way. I think we have one now here, number 4.

Keith Siegner - Crédit Suisse AG, Research Division

Keith Siegner from Crédit Suisse. Pete, this is a question for you. Clearly, the franchise business model is working in a tough economic inflationary environment, even with McOpCo margins down slightly, franchise margins are up in every single region. Leverage off of comps is part of that, but 2 years ago at this meeting you talked about exploiting opportunities in the commercial real estate developed market, buying a little bit more real estate underneath existing units including franchisees and the nice thing about that it's instant margin, right? The revenues don't change, but the rental piece of that goes away. Over the last couple of years, how much did you buy, maybe what benefit did this have to margins? And is that opportunity still there?

Peter J. Bensen

It's much less than we had hoped, Keith, to be honest with you. We thought with the recession that we get more opportunities to purchase real estate and the reality is in some of the international markets, the landlords didn't want to give up the property. They had a great secured tenant in McDonald's and they wanted that cash flow versus giving up that property. In the U.S., a lot of the properties were tied up into some of the off-balance sheet structures and other things, so it wasn't just one owner for each parcel of property per se, so that became much more difficult. So that being said, we're still looking at opportunities and someone mentioned earlier the competitive landscape, we're seeing other operators of other brands that are closing shop and we're taking advantage of acquiring some of that real estate if it makes sense. So again, not as much as we would like, but it's certainly on our radar screen and we'll continue to pursue that where we can.

Keith Siegner - Crédit Suisse AG, Research Division

And so no meaningful contribution to those franchise margins?

Peter J. Bensen

Not that I could quantify, no.

James A. Skinner

The other thing that's important to -- real estate markets and real estate sites and the high streets and very valuable real estate doesn't go down as much as people think it does in that sort of environment. Obviously, you had a lot of real estate in the housing market and all of those other kinds of housing prices going down. But the valuable real estate on the corners where highest and best uses for someone like McDonald's. Those really don't go down to the extent where there's so many tremendous values out there. Other than this whole issue about portfolio owners who had a lot of properties or whatever, we might be able to renegotiate leases and do some of those kinds of things and we did some of that but it wasn't measurable in terms of the overall. Number one, Bob?

Unknown Analyst -

Pete, I know you're doing all of your reporting on and running your business on a constant currency basis, and obviously, that's the right way to do it. But so that this group of analysts are not going to be disappointed with your results next year, at least you've given them a heads up, let's assume the dollar gets even stronger in a tougher situation in Europe and all, what kind of a reversal effect or maybe you can certainly measure it from the current levels, would you see on currency, which has been a big plus this year, what would you see being the effect on results next year? And while you're on that slightly sticky issue, would you pinpoint a little bit more the effect of some of those accounting charges that will be realized next year related to, I think, it was the Olympics and special costs, and is it worth your -- our knowing what that is in terms of its impact on earnings?

Peter J. Bensen

Okay. In terms of currency, so if we look at today's rates where the major currencies are relative to averages for the year, obviously, the most of the major currencies are weaker than the average. So that does imply that we will have negative currency impact next year. I don't have all of the plans, the detailed plans from the countries yet loaded into our system to be able quantify that for you. Again at today's rates, looking where they are compared to the averages year-to-date, I couldn't imagine today that it would be more than a few cents negative. But by the time we get to the January call, I'll have all the plans loaded in and be able to quantify that in a little bit more detail. Regarding what you referred to as charges, this is an additional $100 million of G&A that is split between our support of the Olympics in London, our costs associated with the worldwide convention in April, and the increase in our technology investments around the world. And so roughly half of that is related to technology and the other half is related to the Olympics and the convention. And it's spread amongst all of different initiatives you heard in the areas of world oral presentation. So what we call new POS, the NP6, the new point-of-sale system that's done in the U.S. that's going to over a dozen countries next year, and while it's a global system that they put in the U.S., that means about 80% of that is transferable around the world, the other 20% has to be localized for local VAT schemes, local fiscal reporting, integration with the local back-office system. So there has to be work done in each country to get that system ready for mass deployment. And so by doing this in a dozen or so countries next year, that is a significant cost. You saw Doug talk about our lounge in these crew portals, that's going to several other countries next year. So that's going to be some expense.

Unknown Analyst -

Let's just put this in terms of earnings per share. It sounds like the foreign currency is going from a $0.20 positive to maybe up to $0.05 or so negative and this other -- if it's $100 million, that would, given your tax rate, that might be another $0.05 a share. Now this year, has there been any special costs that won't exist next year?

Peter J. Bensen

Not of any significance.

James A. Skinner

I think, let me just take the rest of this Bob. First of all, we have a nonrecurring expense every 2 years at McDonald's. Well, for every 2 years, we have a worldwide operator convention. Every 4 years, we have the Summer Olympics. Every 4 years, we have the Winter Olympics and they are 2 years apart. So every 2 years, we have this nonrecurring expense. The only thing that is out of the ordinary that's nonrecurring in 2012 is this technology piece, that's different from our normal course of business and our spend that otherwise would have impacted our G&A. And so that's the way I always look at it because I ask them the same questions when we do the G&A review. The other thing that I would say is if we could be that good at predicting the currencies, we could simply phone our scores in. I don't think anybody knows for sure what the overall impact of the currencies are going to be in 2012. Certainly sitting here on November 9 or 10, I realize we all like to have some prediction and some understanding when you look at the projection in the out coming year and the constant currencies all of those other things. And so I appreciate the question and Pete, answered it as eloquently as he can based on everything we know right at this moment. But those rates as you saw the difference 3 days ago, the euro was down $.035; and Greece had a problem, and Italy had a problem, euro went down, euro went back up. So when you look at it over a 12-month timeframe -- and the other basket of currencies that we have around the world also have fluctuated. And so it's very complicated. And this team does about the best job of any that I know of and being able to sort of factor that in and what we might expect to happen over the next 12 months, on an as-reported basis. Number 3?

John W. Ivankoe - JP Morgan Chase & Co, Research Division

John Ivankoe. We've seen a lot of different operating platforms over time from grow direct to bridge, Made For You. Made For You, of course, came in the U.S. in late 90s and it's interesting to see that Made For You is kind of talked about as the operating platform of the future for some countries now is I guess most flexible and perhaps sufficient [ph] System that's out there. Now the context of the question is maybe it was 4 years ago or 6 years ago, I can't remember now, at an analyst meeting, there was some flexible operating platforms, modular operating platforms, kind of McDonald's of the future of what it could be in the kitchen of hey, it's less, we were concerned about labor cost, we want to be more efficient, we want to have more flexibility, all of these different things and obviously it the wasn't the point of the meeting today. But just wanted to get your sense 3 to 5 years out, is there like a real opportunity to change the way that the kitchen back-of-the-house itself if you will, is actually run.

James A. Skinner

Well, We've talked a little bit later today. I'll take this and maybe if we could ask Jeff Straton to weight in on this. Jeff is the head of RSG, Restaurant Solutions Group and all the equipment and technology migration in terms of that orchestration in terms of enhancing the customer experience. But we have been all over the board on the operating platform over the years. We have landed now in a place where we say, the best and most efficient operating system for any restaurant in the system today relative to menu proliferation and our technical capability is made for you. We had bridge operating platform in Europe, which we sort of said well, okay, you can use that now because that's a bridge to the Made For You and then I think we've now landed on the idea that the best system for the best use in most of our restaurants around the world is Made For You. And Jeff, do you want to talk a little bit about that?

Jeffrey P. Stratton

I'll make a comment on the future operating platform also that we talked about a couple of years ago but Jim is exactly right. We have made the decision that we think the best operating platform for us is Made For You. It's our intent to, over the next few years, right timing to put that in all of our freestanding restaurants where it makes sense, so we're moving forward. One of the things that's happened many of you have seen the operated, the modular operating platform as you referred to, John, instead of doing that kind of whole hog in the system, we've actually taken the best of that testing and actually have begun to implement that throughout the entire company. So someone talked a little bit earlier, I think it might have been Jimmy J or one of the folks in the U.S. business high-density prep, so the reduction in that prep line but with more capacity. High-density UHCs. The changes that we made in our drive-thru to make it more efficient, what we've done with technology not only at the back of the house but the front of the house. That was all part of that platform testing that was done at the innovation center and in our [indiscernible] restaurant a few years back, which I know a lot of you had an opportunity to see. We've done other things, too. Audio remediation, okay, better audio communication with our customers. All the changes we made on our POS system that Pete, and Don, and Jim have referred to have cost us a significant increase in order accuracy, and our ability to perform on the customer side. Kiosk, restaurant order proposal, automated ordering, these type of things. These efficiencies are all being woven in to the operating platform changes throughout the system, and that all came out of the modular operating platform testing and the way in which we've made decisions to make life easier for the restaurant managers. And it's paying big dividends and you heard a lot in the presentations today, a lot of commonalities on the initiatives that are being pursued all over the globe. So I think we've done a fairly good job working with our area of the world partners on making sure that these are all blended into our plans in the way in which we want to operate our restaurants moving forward into the future.

Donald Thompson

There's another part 2 and I know Jeff and the team are working on it, John. But we are at a point now where we also have to integrate service and production much more effectively than we have historically. So we have quite a few tests that are looking at. If you look at Europe, we had some tremendous peaks in some of the markets in high items per transaction. So the integration of service with production is important. So we're testing things and they won't mean much to you guys but we're testing everything from kiosk setups, which we talked about, to dual point ordering versus pickup. The other thing that we have to be mindful of is relative to technology -- and someone asked the question earlier on kiosk. What is the technology of the future? It's very akin to the digital conversation. We don't necessarily want to move forward and put a lot of kiosks in if we're going to a mobile platform with smartphones. It would not be the most prudent investment. We have to, in markets like Asia, be able to look at how's McDelivery going to factor in to any service platform that we put in? How's it going to be housed in the restaurant? When you implement the beverage strategy that's in the U.S. now in other parts of the world, how do you integrate that from a production perspective relative to how that's integrated into the service platform that we have. So Jeff and the team are doing a lot of work, a lot of test around the world that are really the next phase, if you would, of all the work we did before with the evolution from go to direct, through Made For You, [indiscernible], et cetera. So there's still a lot of work that's going on but a lot of these folks, there are test going in their markets

James A. Skinner

And the way we look at it John, really is from a practical standpoint, it's about continuous improvement on whatever operating platform we're using, in whatever country, and whatever store. And people have been asking me over the last few years, or after I had some credibility in the organization, I have a couple of years in the job, what's the next big thing? Even the Board of Directors, and you remember one of our first strategy, what's the next big thing? And I think everybody was somewhat dismayed when I said I have no idea. And I say it that way because when you look at the way we spend our time on continuous improvement on all of our equipment and technology platforms and the delivery systems and the way we are structured today and the freedom within the framework and the food studios, development studios, equipment and technology labs, all then sort of orchestrated through the innovation lab and restaurant solutions group, we've gotten really smart about understanding the protocols of innovation. And then so, what I say after I say I have no idea is that I know that based on our protocols and our processes around this innovative sort of evolution of our McDonald's delivery system, we'll find it, we'll scale it and we'll execute it better than anybody else. And I say that because back in the day, who would have thought drive-thru was an innovation and we weren't necessarily the first. But when you scale it, McDonald-ize it and then execute better than everybody else around that, but it takes time to take those new ideas and those new things to be able to work the bugs out and get them in a position where you can scale. We're not interested in scaling something across 5,000 stores. We need something that can be applicable across the world.

Yes? Back here. Wait a minute, do I have to go there? Okay, number 2.

Mitchell J. Speiser - Buckingham Research Group, Inc.

Mitch Speiser, Buckingham. I'd like to follow-up just on the question or on the topic of 2012 and how you can maybe help us out modeling, I guess, Pete, this is a better question for you. And the combined restaurant margin, I believe, for the first 3 quarters of this year is down about 60 bps and that's despite comps up about 5% and franchise margins up about 50 bps. So as we think about 2012, you told us food costs in the U.S. probably up about the same as in 2011, Europe food cost up maybe not much as last year. I guess the first question can you give us maybe Asia-Pac, the food cost outlook is there in 2012 versus 2011? And maybe just as we think about that combined restaurant margin, what levers should we think about other than, I guess, comps growth to grow combined restaurant margins given that they are running a bit down this year even with comps up about 5%?

Peter J. Bensen

All right. Combined operating margin is up through the 9 months...

James A. Skinner

Mitch, you talking about company-operated margins?

Peter J. Bensen

Company-operated [indiscernible] are down.

Mitchell J. Speiser - Buckingham Research Group, Inc.

The combined franchise margin has been [indiscernible] the company-operated margin is down, franchise margin's up. The overall combined restaurant margin is up, I'm sorry. As we look to 2012 with food costs running up about the same maybe a little bit better, comps running out 5, should that -- is that same algorithm in check for 2012? Are there any other pressures that we should think about when we think about that combined restaurant margin?

Peter J. Bensen

I think the algorithm is pretty much in similar. So we don't predict comp sales. You throw out a number. We feel pretty confident in the ability to continue the top line momentum. If you think about the U.S. when we started 2011, we had no pricing carrying over from 2010 and yet when we start 2012, we're going to have a little more than 3% price increase carrying into January when we start the year. So we'll have some benefits earlier in the year to help combat some of those commodity cost increases. As you point out, the cost increases in Europe next year are going to be lower from a commodity standpoint at least as we sit here today compared to this year. APMEA, the number, I think, Garland mentioned this very similar in terms of the commodity cost increase expected next year. So as Jim mentioned earlier, the biggest contributor to our margins is growing those top line sales and we're confident that momentum is going to continue.

James A. Skinner

I think the other thing is Mitch is we continue to be behind the cost of food away from home and food at home and so we still have, as what's mentioned I think in most of the presentations today, we still have some pricing flexibility, pricing power, if you will. We are a company that's reluctant to take that. We certainly don't take it to pass on all of our costs to the consumer, but our indexing would tell us that as we move through 2012, as we did in 2011, we'll take a look at these parameters and I think we still have some flexibility there. Yes, ma'am?

Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division

I'm going reask sort of a question that I have asked a couple of times already. It's Sara Senatore, by the way from Bernstein. So it actually comes down to the return on invested capital. So it sounds like there's a step change on the way you're thinking about investments. I think you said integrating service and production more effectively than ever before. Obviously, we've seen an uptick in CapEx. Is the way to think about that we're kind of in a period of heavy investment, maybe it last a couple of years where incremental returns on capital are a bit lower than we're historically used to, and then you get to ride on those investments a few years from now and then we get back up to the kind of incremental returns we have seen in recent years when it was very much, you were comping really well and combined margins were going up. I guess I'm just trying to think through this period, does it differ from the recent history?

James A. Skinner

Well, I think we talked about this quite a bit today. The technology piece is one-off 2012 piece. The convention in worldwide, I talked about earlier. Beyond that, there is no reason to think that, that technology investment won't accrue the benefits that we expect it will. And I think Pete said in his presentation that, that is not necessarily a sign that, that kind of spend is going to continue in 2013, unless I heard you wrong?

Peter J. Bensen

You heard me correctly.

James A. Skinner

And so I don't think you can read anything into this about how we are spending more and expecting less in terms of the return side. We're spending this money in 2012 because where we find ourselves in the migration to the technology that's going to enable our restaurants to be able to do a better job because it is so effective for us in so many countries and stores need to get on this POS system that's going to help us so much into the future. And that's why we're willing to spend the money.

Peter J. Bensen

But if you think about that Sara, so mechanically, that could mean that little incremental spending in 2012 could put a little pressure on the incremental return but they're at such high levels, we're not talking about them going into a free fall. If they come down a little bit, exchanging a little bit of that for future growth, we think is a pretty good trade-off.

Paul Westra - Cowen and Company, LLC, Research Division

It's Paul Westra, Cowen and Company. I have 2 questions, one for the U.S. and one for Europe. On the U.S. Don, could you just talk a little bit more about the beverage program. The way you framed it, $156 billion business opportunity, I assume means, all beverages sold anywhere in the U.S. I mean, what does that exactly mean. Does that mean you can capture occasions within the McDonald's box that are now sold in convenience or supermarket stores, inversely does that mean you may sort of grab-and-go cases of bottled beverages? What does it mean, what it doesn't mean as you look out in the next 5 or 10 years? And then my question for Europe is, is it really just a follow-up on the drive-thru question, I wish I got it in during the European section, but you mentioned 2/3 or 63% of your existing stores I think have drive-thru, yet you're building new stores that have roughly the same ratio. So is the opportunity in drive-thru, it doesn't seem like your capturing it in new store development, and I know the percentage of sales and drive-thru of sale that go through the drive-thru for stores who have it are less than 50%. I guess my question is I didn't hear a lot about the reinvestment at 90% of external stores are reinvested that you didn't seem to grow, the amount of drive-thru lanes, I guess, such as give us an idea of how aggressively you're going after the drive-thru and what are you doing to really capture it in Europe?

Donald Thompson

Well, I'll take an initial shot and then we can ask Jan and then Doug to comment on the different pieces. So I think in the U.S. piece, the U.S. team was conveying that this overall beverage sector is about $156 billion. Many of you may recall about 4 years ago, we gave a presentation and we talked about wow, there's this big category of $60 billion in beverages. Boy, did we undershoot. But that's because we were looking at certain aspects of it. What Jan and Tim were talking about is that whole beverage industry is about $156 billion. We're not suggesting that we're going to tap all of that $156 billion. We are saying that there's more opportunity. So I think that's the headline that I would takeaway from that. And if you translate that into the other markets around the world, the same thing bodes true there. We're saying that there is additional beverage business that we have not yet captured. So if you break down Blended Ice, we already talking about an espresso-based in terms of coffee, there's teas out there, there's the carbonated sector, we've done a great job relative to value-based pricing in terms of that commodity sector I'll call fountain-type beverages. And so we'll continue to execute in those regards, but there's a big opportunity in beverages and that's what the team kind of relayed today. On the European side, drive-thru, so 63% and then 45% of the sales, excuse me, in those restaurants. Now, when we just went through all the business reviews in Europe, in Asia-Pacific, the Middle East, Africa and the U.S., believe me, every site that we look at, we are trying to find drive-thru sites that we can own. Those are the first 2 criteria that we're looking at. In many cases, it's difficult to get the ownership piece and in many cases, it's difficult to get just the drive-thru path and we've not said we don't want to be in that marketplace. However, those are 2 criteria we're looking at. I will tell you that the percentage of sites that are in the incoming portfolio and incoming pipeline are greater than the percentage that we have with drive-thrus today. So we're growing relative to drive-thru base in both Europe and in APMEA. And so with that, I don't know if Jan if you want to talk more about the beverages, and then Doug, maybe just touch on the real estate side. Here, it's you or Jerome.

Janice L. Fields

You've really answered the big part of it. I think there's one other piece on the beverages besides the flavors and the teas and bottled drinks if we should go into that, we are not going into it right now. But should we decide down the road, there's a lot of opportunity. One other thing to remember is the fact that we have a drive-thru, and so a lot of other people from a beverage standpoint don't have the convenience of a drive-thru that you can go through. And one of the things that we see people are using the drinks during a snack period, they come through it and an anecdote about the sweet tea, I swear the people come 3x a day. They will tell you, I'm in there all the time for a tea. It also had an impact on average check. But the visits, they're there. So I think that in addition, that reason why we're seeing such an expansion on the beverage business overall is because of the convenience, the variety, the price point that we have and then you add to it the flavors and the uniqueness. We just see that there is still a tremendous amount of upside with it.

Peter J. Bensen

In terms of drive-thru, as the numbers played out, you heard the 63% of the stores with drive-thru and those stores are doing 45% of their sales through drive-thru. That number is growing across all the markets with drive-thru. So that's a very positive trend and I think that's typical of what we saw over the years in the U.S. As drive-thru is something that grows over the course of time. So that's happening in all our markets where we have drive-thru. The 2012 number, which was 2/3, that's just the way that the pipeline shook out for the year. Our focus is on drive-thru where we can get freestanding drive-thru restaurants, that is a priority in all our development plans. We also have a number of opportunities across Europe and there's focus on the high-density populated locations such as transport areas, airports, train stations, and some of those opportunities are starting to open up to us, and we're taking advantage of those. So some of the number play I think in 2012 is a function of just what's coming to fruition through our pipeline. But I can tell you in every market, the first thing we talk about is freestanding drive-thrus, and how we're growing the marketplace, and situating those restaurants where we can be setup for the future, but not to ignore some of the highly populated dense marketplaces where we perhaps haven't penetrated in some time. And I know we've got Downtown Paris where we're back in the market, where the business model can work again. And so we're not going to discount those opportunities as well.

James A. Skinner

Yes, and I think you have to remember that's how Europe was built out. Europe was built out from the inside out and was in-store-based development plan over all those years before we started to migrate to drive-thrus in the suburbs and outside the big cities around Europe. And so we started off with some markets with no drive-thrus and then sort of build our way along over the years. 2 more, I got 2 more, I'm told, okay?

Unknown Analyst -

Sean Leader from Leder Investments. When you talk about driving incremental sales, and Don touched on this a little bit ago, we talked about, I guess, there was a statement that the kiosks tend to have, let's say, 1% bigger average check. When you get into all the new point-of-sale systems, has there been a lot of thought into how you can drive even more incremental sales besides just price that a tea is $1, but actually giving that little incremental nudge because it seems like the people are giving it to themselves when they're at the kiosks and this is one of those things where you don't probably have to spend anymore money, it just maybe a little bit of training where somebody or where you track it a little bit so if there's somebody, is there a 3x a day and earlier in the day they had this, or the other the, they got that afternoon tea and they grabbed the small fry. But maybe today, they're not doing it, that maybe the point-of-sale system knows it somehow if they use some sort of card, so you keep that getting that incremental sale, incremental sale, and it doesn't really cost you anymore. Because it seems like the people want to nudge themselves and maybe if there's a way of not nudging themselves at a kiosk because there aren't many of them but maybe there's a way at the point-of-sale system to nudge them.

James A. Skinner

I think just anecdotally on the kiosks and we've tested them in a lot of different places and what we find is that when people are on their own, ordering without somebody looking over their shoulder, they buy more food. It's just human -- I'll have one of those, and one of those, and so on, and so forth. And so how we translate that into behavior and loyalty and I'll let maybe Don talk a little bit about that, because as you say, even though that's experience we have, we don't have a predominance of kiosks in all of our restaurants around to be able to take advantage of that opportunity.

Donald Thompson

Sean, 3 things. I mean great points you brought up, but one of the things Jerome mentioned is, and I don't know if everyone picked up on it, because you've got to be careful of how you quantify the increase in kiosks sales because the other part of a kiosk sale is that the question is whether or not -- especially if you're tracking guest counts, whether or not that's one person that was ordering for 3, when 3 used to order at the front counter. And so yes, we have to really dive a lot deeper, and I think that was Jerome's caution to us as you look at those numbers but we are looking. On your other points, yes, relative to the point-of-sale system. There are things that we are looking at, testing, relative to when a person places an order. Everything from what the amount of change that's left, is there an item you would suggest a sale? All the way through to based upon this order, there is also smarter software that looks at what's a great complement to the order. So those are things that we are looking at. We also have to be careful not to badger customers though. Last thing you wanted someone always asking you, don't you want more? Don't you want more? Can I take the last $0.69 out of a $5.31 average -- out of $5.31 check. So you don't want that. So we have to do that in a smart way. The other aspect gets into mobile ordering smartphones and it gets in the customer relationship management. Once people log into the site, once they're paying with a debit card and they're doing this mobile-ly, we have the information to be able to send him coupon offers to be able to get their favorite orders, so that we could be at a point where if a persons coming into McDonald's, we could say, would you have your normal order today? Or we might even be able to do it through a mobile app. So this new POS system and our ability to go mobile opens up a whole world of customer relationship management.

James A. Skinner

One more, Herb.

Unknown Analyst -

At previous meetings, you've had a food and other suppliers attend the meeting several years ago, I'm thinking back to potato suppliers or Johnsonville brats, which was an experimentation. I'd like to know what has been done today to enhance productivity work in regard to supply-chain management and getting the potatoes to the right place, at the right time, at the right price?

James A. Skinner

Okay, well, I think I can handle that. If I get off course Doug, help me out or all you supply-chain leaders here. Our supplier partners that deliver that daily miracle that I talked about before. First of all, when you consider the fact, 33,000 restaurants and other stack keeping units in the food and products that we serve around the world, the food safety is -- you gave him the mic, you think you're not confident? When you look at the daily miracle, particularly from a food safety standpoint with all of the vulnerability there is around the world today, we most recently had the head of the FDA come here and meet with me and Margaret Hamburg, interesting name, and I said to her, she was in the job since 2009, what a great job she must be doing. And she said, why is that? I said, I haven't heard one bit of controversy out of your department, but she was here to look at the way we logistically deliver safe food around the world. And when you start looking at free-trade agreements and everything around the world, their job on compliance and performance around food safety and labeling and all the other kinds of things that are going on is going to get tougher and tougher. And it's a great compliment that we have these resources and people from the government working with us to see how to get it done. On the collaboration of our suppliers with us on a regular basis, they build-out all these logistical scenarios all the way from efficiency, we hold their feet to the fire regarding what they can bring to the party as you said, safe, guaranteed supply, competitive prices. And we haven't had a supplier here in a while to go through that. We can certainly do that at the next meeting because in most cases, those are the same suppliers and I'm sure we're at that meeting, I don't know about the Johnsonville guy. We still do that promotion up in Wisconsin and around. But I think you would be pleased with the partnership we have with our suppliers and understand the great contribution they make, not only to competitive prices, it's not just a one-way street there but the high quality of those processes and the end state food and products that they serve our restaurants. And so was that okay, Doug? Okay, thank you.

I think that's it, Kathy. I'm I turning it over to you?

Kathy Martin

Okay, everyone. Just to wrap this up, I'd like to thank all of you for your interest in McDonald's. And I do want to recognize the efforts of a group of folks who helped to make this meeting a success. The IR team, our Corporate Controller group, the area of world staff, our Communications Creative Services departments, and many others for putting this together. Thank you.

We are now going to head over to our Grand Oaks Pavilion at the lodge where we'll hold our cocktail reception. There is a covered walkway back over to lodge. We've got folks who can help get you there. So we'll see you there in a few minutes. Thank you.

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Source: McDonald's Corp. - Shareholder/Analyst Call
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