Dianne Douglas - Investor Relations Robert A. Eckert - Chairman of the Board, Chief Executive Officer Kevin M.

Farr - Chief Financial Officer

Timothy Conder - Wells Fargo Tony Gikas - Piper Jaffray Felicia Hendrix - Barclays Capital Greg Badishkanian - Citigroup Linda Bolton-Weiser - Caris & Company Sean McGowan - Needham & Company John Taylor - Arcadia Investments Margaret Whitfield - Sterne, Agee & Leach Drew Crum - Stifel Nicolaus & Co. Gerrick Johnson - BMO Capital Markets

Thank you. As you know, this morning we reported Mattel's fourth quarter and full year 2009 financial results.

In a few minutes, Bob Eckert, Mattel's Chairman and CEO, and Kevin Farr, Mattel's CFO, will provide comments on the results and then the call will be opened for your questions. Certain statements Bob and Kevin make during the call may include forward-looking statements related to the future performance of our overall business, brands and product lines.

These statements are based on currently available operating, financial, economic and competitive information and they are subject to a number of significant risks and uncertainties which could cause our actual results to differ materially from those projected in the forward-looking statements. We describe some of these uncertainties in the risk factors section of our 2008 annual report on Form 10-K, as well as in our 2009 quarterly reports on Form 10-Q and in other filings we make with the SEC from time to time.

Mattel does not update forward-looking statements and expressly disclaims any obligation to do so. Information required by Regulation G regarding non-GAAP financial measures is available on the investor and media section of our corporate website, Mattel.com, under the subheading Financial Information and Earnings Releases.

Now I would like to turn the call over to Bob.

Thank you Diane and good morning everyone. At the beginning of 2009 I made some promises on behalf of the thousands of employees who work at Mattel.

I said, “Our agenda is clear. To deliver improved execution to position the company for the future and our promise is simple; to reward investors, run the business well and responsible and make kids’ lives fun.”

In 2009 we accomplished just that. We improved execution across the supply chain and throughout the company by realigning our infrastructure, controlling costs and expenses, tightly managing working capital especially inventories and reducing capital spending by doing only business critical projects and doing them exceptionally well.

The result was improved profitability, a stronger balance sheet and improved cash flow which we used to lower debt, increase cash balances and continue to reward shareholders through our strong annual dividend. We were also successful in bringing magic to the lives of children through innovative new toys including the revitalization of some of our classic and time honored brands such as Barbie and Hot Wheels.

Last year as you know we celebrated the 50th anniversary of the world’s most iconic doll and the world celebrated with us. This incredible milestone for the Barbie brand allowed us a unique platform to reconnect girls of all ages with the legacy of the brand; fashion, aspiration and cultural relevance.

We connected with girls beyond the traditional 30-second television spot. Barbie was everywhere.

We hosted global events like fashion shows and birthday bashes, made breakthrough partnerships with fashion icons like Karl Lagerfeld and Christian Louboutin as well as specialty retail outlets like Pottery Barn and Sephora and talked to girls in their own voice through social media outlets like Facebook and Twitter. The result of all of this cultural conversation I am proud to say is that for the first time in years all three brand health indicators are headed in the right direction for Barbie.

Our US shipments into retailers are up. Retail takeaway is up.

Share is up. That is the trifecta.

Barbie is back. In 2010 we expect to build on the momentum we created in 2009.

I am also pleased to report growth across much of our portfolio. In our wheels business both Hot Wheels and Matchbox experienced strong global performance driven by continued strength in the core product lines which includes basic cars and track and play sets as well as key innovations such as Hot Wheels’ color shifters and Matchbox’s Rocky the Robot truck which was a sell out by the holidays.

In our other girls business the Little Mommy large doll line did very well in the holiday season driven by the successful launch of our innovative Walk and Giggle doll. As for our games business we saw growth in core products like Uno and Apples to Apples as well as with our adult and family games like Pictionary and Blokus.

But the most exciting news in the games arena was Mind Flex, an early sell out and ultimately one of the hottest toys of the year. Max Steel also enjoyed another year of record sales as Latin America’s number one boy’s action brand.

We also experienced success with our partners with outstanding performance in our Disney Princess line driven by core dolls, fashions and accessories including robust sales late in the year of the Princess and the Frog line. Disney Pixar’s re-launch of the Toy Story franchise in fall 2009 drove performance in our Toy Story line of toys.

Additionally, Disney Pixar Cars had another strong year further establishing it as an ever green brand. As you are well aware, we were awarded new toy licenses last year that are coming to life in 2010.

WWE wrestling and hit entertainment’s Thomas and Friends have already hit store shelves with Disney Pixar’s Toy Story 3 hitting in early summer. Even though 2009 was a year of sacrifice and hard work for Mattel employees I am extremely proud that for the third consecutive year Fortune Magazine has named Mattel to its 100 Best Companies to Work For list.

Think about it. A year with essentially no performance bonus payouts, no merit or promotional salary increases and a significant reduction in force and our employees continue to proclaim their dedication and loyalty to our company.

Like me, I know they are really looking forward to seizing the opportunities this year. As I have said throughout the past year, companies that deliver improved execution during the tough times will be the ones best positioned to capitalize on the economic turnaround which will most certainly occur.

2009 was important because it set the stage for what I am confident will be a strong year for Mattel in 2010 and for many years to come. Now for the financial review, Kevin?

Thank you Bob. Good morning everyone.

As we have consistently said we entered 2009 with a number of significant headwinds and plans to deliver results based upon realistic revenue assumptions with our top priorities being improved profitability, strengthen the balance sheet and increase cash flows. Despite the headwinds that are still challenging us and the industry, I am pleased to say we did what we said.

We delivered our 2009 priorities with profits and margins up versus last year with $500 million more cash on hand than last year and finished the year with a stronger balance sheet. As I have done in prior years I will first review the results for the fourth quarter before reviewing full-year results.

For the fourth quarter total worldwide gross sales for the quarter were flat including a three percentage point positive impact in changes in currency exchange rates. US sales were down 2% while international sales were up 3% including an eight percentage point positive impact from changes in currency exchange rates.

On a regional basis sales in Europe were up 4% including a nine percentage point positive impact from exchange rates. Sales in Latin America were flat including a seven percentage point positive impact from foreign exchange.

Sales in Asia Pacific were up 8% including a 16 percentage point positive impact from changes in exchange rates. I will now review our core categories and brands for the fourth quarter.

Mattel girls and boys brands, worldwide sales for the Mattel girls and boys brands segment were up 4% including a six percentage point positive impact from changes in currency exchange rates. Worldwide Barbie sales were up 12% including a six percentage point positive impact from changes in currency exchange rates.

Barbie sales in the US were up 9% and Barbie sales in international markets increased 14% including a nine percentage point positive impact from changes in currency exchange rates. The worldwide sales for the quarter reflect strong performance in core lines including the Fashionistas and I Can Be as well as hot products like the camper and townhouse.

Consumer takeaway for Barbie in the US was up doubled digits for the quarter as well as full year leaving US retail inventories clean. Worldwide sales of other girl’s brands were down 17% including a five percentage point positive impact from changes in exchange rates.

Sales in the US were down 20% while international sales of other girl’s brands were down 15% including an eight percentage point positive impact from changes in currency exchange rates. The worldwide sales decrease for the quarter was driven primarily by declines in the sales of High School Musical products.

Sales in the wheels business which includes Hot Wheels, Speed Racer, Matchbox and Tyco R/C increased 11% including a five percentage point positive impact from changes in currency exchange rates. The worldwide sales increase for the quarter reflected strong performance in Hot Wheels and Matchbox partially offset by sales declines in Tyco R/C and Speed Racer products.

The core Hot Wheels, which excludes Speed Racer, worldwide sales were up 16% including a six percentage point positive impact from foreign exchange. Domestic sales increased 13% and international sales decreased 19% including a 12 percentage point positive impact from foreign exchange.

Sales in our entertainment business which includes games and puzzles were up 2% including a five percentage point positive impact from changes in foreign exchange. For the quarter assuming the positive impact of changes in foreign exchange, the worldwide sales decrease was driven primarily by lower sales of Radica and toys geared to the prior year’s three summer [inaudible] properties, Bat Man, Speed Racer and Kung Fu Panda.

These declines were partially offset by sales of toys geared to Toy Story and Toy Story 2, solid performance in the game business along with US sales of Cars related properties. Worldwide sales for Fisher Price brands were down 3% for the fourth quarter including a three percentage point positive impact from changes in currency rates.

On a regional basis international sales of Fisher Price brands increased 3% including a six percentage point positive impact from foreign exchange while sales in the US declined 7%. Worldwide core Fisher Price was up 1% including a three percentage point positive impact from changes in currency exchange rates.

US sales of Fisher Price core were down 3% and international sales were up 6% including a seven percentage point positive impact from changes in foreign exchange rates. The worldwide sales increase for the quarter was driven primarily by double digit growth in Baby Gear partially offset by disappointing sales of higher price point key drivers.

Worldwide Fisher Price Friends sales declined 14% including a two percentage point positive impact from changes in foreign exchange rates. Sales of Fisher Price Friends in the US were down 22% and international sales were down 3% including a six percentage point positive impact from changes in foreign exchange.

The worldwide sales decrease for the quarter primarily reflected a difficult comparison to a successful 2008 performance for Elmo Live consumer products. American Girl brands, fourth quarter sales of American Girl brand were flat reflecting solid performance in the retail channel offset by softness in the direct channel primarily drive by difficult comparisons to strong entertainment related sales in 2008.

I will now review sales for the full-year. Worldwide gross sales were down 9% for the full year including a two percentage point negative impact from changes in foreign exchange rates.

US sales were down 4% and international sales were down 13% including a four percentage point negative impact from changes in currency exchange rates. On a regional basis, sales in Europe were down 15% compared to the prior year including a four percentage point negative impact from changes in foreign exchange rates.

Sales in Latin America were down 12% including a six percentage point negative impact from changes in foreign exchange rates. Sales in Asia Pacific were down 7% including a two percentage point negative impact from changes in foreign exchange rates.

I will now review our core categories and brands for the full year. The sale of girls and boys brands, worldwide sales for Mattel girls and boy’s brands decreased 10% including a three percentage point negative impact from changes in foreign exchange rates.

The sales decrease reflects US sales declines of 2% and international sales declines of 15% including a negative impact from changes in currency exchange rates of four percentage points. Worldwide Barbie sales were down 3% including a three percentage point negative impact from changes in foreign exchange rates.

Barbie sales in the US were up 4% while in international markets Barbie sales were down 6% including a four percentage point negative impact from changes in exchange rates. Worldwide sales for other girl’s brands were down 20% which included a two percentage point negative impact from changes in the currency exchange rates.

Worldwide sales performance for the full-year was driven primarily by declines in sales of High School Musical products. Worldwide sales for the Wheels business were down 7% which included a three percentage point negative impact from changes in currency exchange rates.

The decline in worldwide sales reflected lower sales of Speed Racer products and Tyco R/C partially offset by strong performance in Hot Wheels and Matchbox. For core Hot Wheels worldwide sales were up 5% including a three percentage point negative impact from foreign exchange.

Domestic sales decreased 17% and international sales declined 3% including a five percentage point negative impact from foreign exchange. Sales in our entertainment business which includes games and puzzles was down 14% with a two percentage point negative impact from changes in exchange rates.

The worldwide sales decrease for the year was driven primarily by lower sales of Radica and toys geared to prior year’s three summer movie properties, Bat Man, Speed Racer and Kung Fu Panda. These declines were partially offset by sales of toys geared to Toy Story and Toy Story 2 along with US sales for the [cottage] related properties.

Fisher Price brands, worldwide sales for Fisher Price brands were down 8% with a one percentage point negative impact from changes in foreign exchange rates. US sales were down 8% and international sales were down 9% which included a four percentage point negative impact from changes in currency exchange rates.

Worldwide sales of core Fisher Price were down 6% including a one percentage point negative impact from currency exchange rates. US sales were down 4% and international sales decreased 9% including a negative impact of four percentage points from changes in exchange rates.

Worldwide sales of Fisher Price were down 13% including no impact from currency exchange rates. US sales declined 18% while international sales were down 5% including no impact from changes in foreign exchange.

American Girl Brands. Full year sales of American Girl brands were flat versus the prior year driven primarily by the November 2008 openings of our two new boutique stores in Boston and Minneapolis, offset by softness resulting primarily from a difficult comparison to strong entertainment related sales in 2008.

Now let’s review the P&L which is shown on Exhibit 1. For the fourth quarter gross margin was 53.4%, up 740 basis points from 46% for the fourth quarter of last year.

Gross margin benefited primarily from price increases, savings from our global cost leadership program, favorable product costs and favorable mix partially offset by foreign exchange. For the year, gross margin was 50%, up 460 basis points from 45.4% in 2008.

Compared with the prior year gross margin benefited primarily from price increases, savings from our global cost leadership program partially offset by foreign exchange. For the fourth quarter advertising expense of $238.8 million or 12.2% of net sales versus 14.2% for the fourth quarter of 2008.

For the year, advertising expense of $609.8 million or 11.2% of net sales compares to 12.2% last year. For the quarter selling, general and administrative expenses increased approximately $3.8 million to $388 million.

As a percentage of net sales SG&A expense was 19.8% or flat compared to the prior year. The year-over-year dollar increase was primarily driven by higher accrued incentive compensation partially offset by gross savings before severance of $25 million related to our global cost leadership program and a $22 million benefit for lower severance charges.

SG&A also benefited from the absence of a $15 million legal settlement charge recorded in the fourth quarter of 2008. For the full year, SG&A expense is $1.37 billion, a decrease of $50 million from 2008.

As a percentage of net sales, SG&A increased by 120 basis points to 25.3%. The dollar decrease in SG&A was primarily driven by incremental year-over-year gross savings before severance of $88 million related to our global cost leadership program, a benefit from foreign exchange and $27 million of lower litigation and legal settlement related costs.

These savings were partially offset by $81 million of higher incentive compensation expense and $14 million of higher equity compensation expense. For the year, overall equity compensation expense was $50 million compared to $36 million in 2008.

For the full year our global cost leadership program delivered gross savings before severance of $164 million. The full year gross savings includes about $88 million in SG&A, $62 million in gross margin and $14 million in advertising.

With $164 million of gross savings and $32 million of severance charges, we achieved 2009 net savings of $132 million from our global cost leadership program. As a reminder, in 2008 we had severance charges of about $35 million.

We remain on track to deliver cumulative net savings of approximately $180-200 million from this program by the end of 2010. Operating income in the fourth quarter was $417.4 million or 21.3% of net sales up 930 basis points compared with last year’s fourth quarter due primarily to higher gross margins and lower advertising expenses.

For the year operating income was $731.2 million or 13.5% of net sales, up 430 basis points from the prior year reflecting higher gross margins and lower advertising expenses partially offset by higher SG&A as a percentage of net sales. For the fourth quarter interest expense was $19.1 million down from the prior year’s fourth quarter of $28.9 million.

For the full year interest expense decreased from $81.9 million in 2008 to $71.8 million in 2009 due to lower average borrowings and lower average rates. Interest income for the quarter was $600,000 versus $3.2 million in 2008.

For the year, interest income decreased from $25 million to $8.1 million reflecting a lower yield on lower average cash balances for the year. In the fourth quarter other non-operating expense net was $1.9 million versus income of $19 million in 2008.

For the full year other non-operating expense net was $7.5 million versus income of $3.1 million in 2008. The change in other non-operating income and expense related to foreign currency exchange gains and losses, primarily in Venezuela.

The income tax provision for the year was $131.3 million compared to $108.4 million for 2008. The 2009 tax provision included net benefits related to prior years of $28.8 million or $0.08 per share primarily due to reassessments of previously accrued taxes based upon the current status of federal, state and foreign audits.

These benefits lowered the full year effective tax rate by 4.4 percentage points. For the full year 2010 we expect the tax rate to be about 27% based on current tax laws.

For the fourth quarter we reported net income of $328.4 million or $0.89 per share versus last year’s $176.4 million or $0.49 per share. For the year, we reported net income of $528.7 million or $1.45 per share versus last year’s $379.6 million or $1.04 per share.

So to summarize the P&L for 2009, an increase of full year net income resulting from higher gross margins, lower advertising expense and lower SG&A costs partially offset by a decrease in sales volume. Now turning to the cash flow and balance sheet, cash flow from operations for the year was $945 million driven primarily by net income of $529 million and working capital improvements of $261 million.

Consistent with 2009 priorities for capital deployment capital expenditures for the full year were $120.5 million down from last year’s $198.8 million. In 2009 we also continued to reward our shareholders with a strong annual cash dividend of $0.75 per share, flat with the prior year.

Year-end cash on hand was $1.1 billion up from approximately $618 million at the end of 2008 primarily due to strong cash flow generated from operations and disciplined capital deployment. Receivables were $749 million or 35 day says outstanding, down six days compared with last year.

Excluding the year-over-year change in factoring, receivables were down $45 million versus prior year with day sales outstanding down two days versus prior year to 50 days. Inventories of $355.7 million were down $130 million or 27% versus 2008 primarily driven by tight inventory management given the current economic environment and the lower cost of producing inventory in 2009.

Additionally our data suggests retail inventory levels of our products with our major US customers finished the year below prior year levels. Our total balance sheet debt was $752 million, a decrease of $148 million from the prior year.

During 2009 the company paid down $150 million of the maturing long-term debt. Our debt to total capital ratio ended the year at 22.9% versus 29.8% last year.

To summarize, as expected Mattel experienced overall sales declines in 2009. However, our core brands performed well in terms of consume takeaway and we executed on the things we could control to deliver on our priorities of improving profitability and strengthening the balance sheet.

As we move into 2010 we feel much better about our top line growth prospects due to the benefit of new license entertainment properties we announced last year and good momentum in our core brand portfolio. We are also aware of the continuing challenges resulting from economic and employment conditions.

In 2009 in terms of profitability our gross margins rebounded nicely and we delivered as planned on our efficiency initiatives resulting in returns of low teens operating margins. While we are pleased with these results our long-term performance goals for profitability are unchanged with an overall operating margin goal of 15-20%.

So for 2010 our focus will be to build upon our progress towards our profitability goal in the face of what we expect to be a challenging cost environment and the continuation of the difficult economic climate. As you heard from Bob we believe our disciplined execution in what was a challenging 2009 has positioned us well for 2010 and many years to come.

That completes my review of the financial results and now we would like to open the call to questions. Operator?

As it relates to the gross margin, I think you said in your preamble that FX was negative in the quarter. I just wanted to double check that.

How much would you attribute to your SKU rationalization benefiting gross margin in the quarter?

I think with regard to gross margin in the quarter and negative FOREX that really reflected the fact that for the first nine months of the year FOREX was negative to the company and that flowed through in the fourth quarter. We have seen the benefits of strengthening FOREX in the fourth quarter in next year.

With regard to the SKU reductions that was part of the benefit of getting improved margins but it was small. Really part of the global cost leadership program.

If you look at our full year gross margins they are up to 50% up 460 basis points from 45.4% in 2008. Compared with the prior year gross margin benefited from price increases and savings from the global cost leadership program which was about $62 million benefit for the full year and only a small part of that benefit really impacted margin this year.

We expect more benefits from that in 2010.

Could you make any comments, I think you alluded to it a bit in 2010, but how do you see the input costs here looking into the year? I would expect there will be a little bit more of a headwind in the back half of the year.

I think so. I think we made good progress on rebuilding our gross margins in 2009 with as I said full-year gross margins of 50%.

Our goal is sustained gross margins consistent with our long-term goal. As you know there are many factors impact our gross margins including input costs like freight, distribution, FOREX, mix and tooling to name a few so predicting our gross margin is very difficult due to the complexity of all the moving pieces, lack of transparency and predictability but looking forward we know we will have higher royalty costs in 2010 due to our new entertainment partnerships and whilst it is impossible to predict with what will happen with the commodity and labor markets we are likely to see year-over-year cost increases.

For example there has been a steady recovery in crude oil prices. The current level is up to about $75 per barrel compared with $30-40 per barrel at this time a year ago.

That said we are going to continue to execute our global cost leadership program and other costs at manufacturing efficiency programs in 2010 and price our products consistent with making progress against our long-term annual goal of 15-20% operating margins.

I will ask the Avatar question. I don’t think you shipped much in the fourth quarter but how did that sell through go?

Anything you can say about what retailers are telling you from a demand standpoint here looking into the early part of 2010?

Obviously retailers were very cautious about Avatar given it was a late December debut. The timing of when the fan appeal hits and those sorts of things was probably an issue.

So we developed a full line but it was very targeted and really more focused on collectors than it was for the younger audience. Sell through was fine but it wasn’t a big contributor in 2009 for either the retailers or for us.

2010 could be better. The DVD will come out.

I don’t know when it will come out but perhaps more younger fans will see the property when the DVD comes out. So if retailers want to get behind it further we have a line ready to go.

Today even though it has sold through nicely it is not a big deal.

Could you talk a bit about how pricing held up over the holidays? There was a lot of noise at retail and a bit more noise than reality.

Also Fisher Price is down I think you said 7% in the US. Maybe just the key drivers there.

Also at retail category shelf space, is that down a bit over the holidays? What did we learn?

Lastly, can you update us on where we are at with the MGA process and legal fees?

First, starting with pricing it held up well this holiday season or last holiday season. Obviously different retailers have different promotional and marketing programs.

Some have focused more heavily on price and others don’t. In general those retailers who didn’t focus as aggressively on price did quite well and picked up some market share.

I think once again there was evidence we now see year-over-year that one can sell toys. It is not a commodity and it doesn’t require huge price reductions to be successful in toys.

The second question about Fisher Price, business overall was a little soft last year and in this case it was particularly true in our higher priced, key drivers. So we have made some adjustments in that line for 2010.

Both we and our customers are optimistic about the Fisher Price line for 2010. Baby gear rebounded a bit in the fourth quarter.

That is the non-toy business in Fisher Price. Power Wheels and Friends were still soft.

So we have got some work to do on Fisher Price but overall the sell through was good and I think we have made the adjustments we need to make for 2010. What was the next question?

Next question was shelf space and then MGA.

Shelf space, I don’t have a number off the top of my head for the overall industry. I don’t think it was significantly changed.

One retailer has talked about strategically emphasizing food and other sorts of things in its stores so there probably was a little bit of contraction there. I don’t know I can conclude today there was any big impact on the toy business with shelf space overall.

That said, I don’t have real good data in front of me. As it relates to MGA, the Court of Appeal hasn’t yet issued any opinion addressing the merits of the case but it has issued an order staying the equitable release and that includes the transfer of the Bratz copy rights and the Bratz trademarks to Mattel.

In light of that development we put our 2010 Bratz line on hold until we hear further from the court. We do have a great line of dolls.

We are confident girls are going to love them and it is unfortunate we are not going to be able to proceed at this point. We are continuing with the mediation process that we began after the initial verdict and that was ordered as part of the Stay of Execution.

We are preparing intensively for phase two of the trial which could occur as early as this spring. Overall while we reduced legal expense in total in 2009 and we resolved much of the product recall litigation we will continue to make the appropriate level of investments and do the right thing to defend our brands and our positions until everything is resolved.

Legal fees in 2010 versus 2009?

As you know we have been incurring significant legal costs over the last couple of years related to MGA and recall related ligation. Full year 2008 we incurred incremental legal costs versus 2007 of about $37 million primarily for MGA litigation.

Litigation related legal costs decreased by $33 million from 2008 to 2009. Additionally in 2009 we recorded a $21 million charge related to legal settlements for product reliability related litigation.

In 2008 $15 million was incurred in connection with the recall related Maltese state settlement. Going forward we expect legal fees related to recall related litigation to be relatively minor given the recent legal settlement for product liability related litigation.

As Bob said we are still in litigation with MGA incurring legal costs associated with the case being heard by the Court of Appeals and in addition as Bob said we are also incurring legal fees to prepare for phase two of the MGA trial which could occur as soon as spring of 2010. We reduced expenses in 2009 and we will continue to make the appropriate level of investments in legal fees until the legal matters are resolved.

I was wondering if you could just touch back on your international sales. Obviously you went through some of the details but they were just still weaker than I had expected.

I was just wondering what were the drivers for that and how should we think about international going forward? In other words, was there something particular that was happening in your international marketplace?

No not really. There is no question in my mind that the economic conditions overseas have been more challenging at least in our business compared to the conditions here in the US.

Throughout the year we saw pretty widespread sales declines in all major markets and across all major brands. o it wasn’t a product line in a country or even two or three or four even really made a difference.

I think it is reasonable to conclude there are just more retailers either unable to buy or unwilling to buy or unable to pay but all that being said our international group really did a tremendous job in my mind delivering the P&L and balance sheet in the face of a rough revenue environment. They had solid margin improvement whether it is gross margin or operating margin.

They had tight inventory management and most importantly they collected the cash. I would say somewhat encouragingly we did see a wee bit of sales momentum late in the year that really started with Barbie around the globe.

So my view is we are not out of the woods yet outside of the US but we are clearly in a stronger position now than we were a year ago at the same time.

Did inventory levels there reflect what you are seeing domestically? Clean?

Yes. We don’t have quite the precision in the data that we do in the United States but I don’t have any reason to believe that inventories…I think it is reasonable to conclude that inventories were clean virtually everywhere in the world.

On Thomas is it going to be in Fisher Price or entertainment or both?

It is going to be in Fisher price. It is going to be on the Friends side of Fisher Price.

So when we think about Fisher Price and Thomas does that offset Sesame Street?

Nobody knows for sure. If you look at the history of these properties in general the Thomas property has been the biggest license property in infant preschool.

The Sesame Street business at least for us has been more volatile. Some years there is a big hit product and some years there are not big products.

In general our Sesame Street business has declined overall as the ratings of the television show have declined. It is too early to predict how it will play out over time.

At your Investor Day this past summer, looking forward to 2011 for a moment, you talked about several properties that you named but you did talk about an internally developed intellectual property you would name at a later date. I was wondering if we were any closer to that?

I am sure we are closer but we are not at that date yet.

We are not at it right now?

Not today.

How about in a few weeks?

I know we will be closer in a few weeks.

On the SG&A savings, you talked about $180-200 million in 2010. Should we assume that is all sustainable in 2011?

Yes.

Can you just go back through just one more time the FX headwinds in the fourth quarter? I didn’t really understand your answer.

I think what you see is when you look at the first nine months of the year FX was a negative to the company. When you think about our product flows our product flows usually lag by a quarter.

So if we manufacture product in the third quarter it goes through in the fourth quarter to the P&L. So FOREX was a negative in the third quarter so it continues to be a negative in the fourth quarter.

We got a benefit from FOREX In the fourth quarter it ends up in inventory on the balance sheet and that inventory will flow through the P&L in the first quarter of 2010.

I know this is a board decision but with things getting better and cash flow being so strong, you are definitely not in any “hunker down” mode anymore. Any thoughts on buybacks again?

I think as we said all year our number one priority last year was to strengthen the balance sheet. We did increase cash.

We did reduce debt and we also wanted to protect the dividend. Based on the meetings I had with folks throughout the year I think there was a fair amount of speculation that we wouldn’t be able to do that.

So when I think about going forward the economy certainly is not out of the woods. We are going to continue to run a conservative cash flow machine.

You are right the board determines capital deployment. I know they are committed to the capital investment framework we laid out in 2002 or 2003 or thereabouts.

Fortunately certainly compared to a year ago at this time we kind of have a high class problem. That said I doubt we are going to get ahead of ourselves.

I don’t have any specific comments on share repurchases other than as we do the analysis and look backwards in time at a lot of companies, share repurchases start to look like acquisitions. That is, if you really do the backwards analysis most of them do not contribute to shareholder value.

So we are going to be cautious about these things. Dividends today are more important in my mind’s eye than share repurchases but that is up to the board to decide.

Maybe just a little bit of color on retail sales in the US as well as internationally and how you think that compares with the industry?

In general I would say we saw through NPD for the year in the US sales down about 1% for the industry. As we look at our sales at retail whether we look at it at NPD or through the POS we get directly from large customers.

It was down about 3%, kind of in that neighborhood. So as we look at our retail inventories they are clearly down.

Remember we finished 2008 with retail inventories as we calculated them at about 8% over the prior year. We finished 2009 with the retail inventories down about 9% so it played out about as we expected.

When we look at our performance in NDP, the industry as I said was down something like 8/10 of a percent or 1% we were down a little bit more than that despite the fact we did gain share in dolls, vehicles, infants and preschool but it was a movie light year for us and the total really because of the mix of categories we lost a little bit of share here in the US. I think all the numbers as usual at the end of the year sort of triangulate to the same thing.

How about the fourth quarter?

I don’t remember the numbers specifically for the fourth quarter in terms of the performance of NPD and POS. My recollection was that our POS was quite a bit stronger than what NPD reported.

I really haven’t gone through the quarterly data yet because frankly literally we got the NPD data last night.

As you look at your retailers, inventory levels are pretty low as you said. Do you think that out of stocks were higher this year than last year and maybe left some sales on the table because of the lower inventory levels?

Some did and some didn’t. Clearly I think we have several retailers who think they lost some business because they were out of stock.

We had some other retailers who were in stock and who didn’t give toys away at the end of the year and they did particularly well. So I think it is a retailer by retailer sort of question.

Obviously our position is to make sure the retailers have everything all the time so we tell them how much sales they lost but I don’t think I would overly generalize that.

Looking out to 2010, how do you think your toy lineup compares with your lineup in 2009? Just kind of qualitatively in your view.

It is better. Here is the problem.

I think if you had asked me that question each of the last ten years I would answer the same. It is not only my point of view but we have also shown a big chunk of our line now for 2010 to retailers.

They are very supportive of our business. Some of the new stuff just looks fabulous to me.

If you go to stores today and look at Barbie, Mermaid Tales looks very good. The basic black dress segment of Barbie looks very good.

I Can Be is doing very well. We already have tens of thousands of girls voting on what Barbie’s next career is going to be.

I was in stores over the weekend and the WWE product we have done is just fabulous. We have products for both collectors and kids.

The collectors has a real level of precision and detail and for kids there is this force flex technology where the toy actually does what the character does. Reading USA Today last week on the airplane and I was looking once again at the ratings.

The top two shows in cable were WWE. So we have some great properties.

We clearly have more entertainment than we have had in the past. I also have to tell you our core brands are performing well in the marketplace.

Hot Wheels has been up for several years. I think Matchbox finished its third year of double digit POS growth.

Fisher Price is the one where it was a little soft this year and it is really just in the high priced key drivers and we have corrected that. I think my optimism about 2010 is warranted but I will also admit that this is the nature of the toy business and my view of toys.

When you look at gross margins obviously it is very strong results there and a nice increase. You mentioned a number of different drivers.

What do you think the one or two biggest ones are that led to the outperformance there?

It is really pricing and the global cost leadership program as well as other efficiency programs outside of the global cost leadership program; manufacturing efficiency programs.

Remember gross margins are only back to where we want them to be and about where they were a few years ago. It is when the commodity costs ran up and our prices didn’t go up quickly enough.

We have now over time made those adjustments. We got the prices right and the margins went back to where we expected.

So we weren’t all that surprised at strong gross margins this year.

I was wondering if you could go over any impact from the Venezuela Bolivar devaluation. Are you going to book a charge for balance sheet revaluation in the first quarter?

Do you have any quantification of that? Also are you gaining access at all to the official rate or do you have to go to the parallel rate to transact going forward in which case we may still see some negative impact on your income statement?

Going to Venezuela. Venezuela accounts for about less than 3% of Mattel sales volume.

The devaluation of the currency announced on January 8 did not have a material impact on our results. We also don’t expect it to have a material impact on our 2010 results because we typically obtain US dollars at the parallel rate.

So we continue to manage the risk associated with the Venezuelan government imposed currency controls by pricing products based upon the expectations of local currency, costs of acquiring inventory in US dollars generally at the parallel rate. So we have more or less been running the business based upon the parallel rate and not the official government rate.

When we look at next year there is actually inflationary accounting required in Venezuela. We consider it to be highly inflationary effective January 1, 2010.

As a result we will use US dollars as functional currency effective January 1, 2010 and local currency monetary assets and liabilities will be remeasured at the end of each reporting period with a net adjustment being recorded in earnings. Additionally, Mattel used the official rate to translate earnings in Venezuela to US dollars in 2009.

In 2010 Mattel expects to use the parallel rate to translate earnings. We estimate that Mattel’s consolidated net income would have been reduced by less than $10 million in 2010 if we had used the parallel rate in 2009.

Can I ask about advertising rates? Your advertising and promo ratio was down quite a bit in the fourth quarter.

Is that less spending or are you benefiting from rates? Do you have any, I know you don’t like to project but what do you think the outlook is for 2010?

The biggest change from a year ago was really the fact our sales declined last year when the economy tanked and we had already made the advertising commitment. So my recollection was sales were down some number like 11% in the fourth quarter last year and we hadn’t planned that and we had committed the advertising dollars.

So this year Kevin’s mantra has been all year long about realistic revenue assumptions in light of the economy. We executed the advertising program almost exactly as we had planned it this year in terms of expenditures.

There were some reductions. Mostly a couple of things as part of our global cost leadership program we consolidated some things and lowered some costs.

We are obviously using more social media, Twitter and Facebook and those sorts of things as opposed to television commercials. Overall I think the number on a percent of sales was 11.2% in all of 2009 and that range is about right for us.

I think we said some number like 11-13% over time. That is sort of what we planned for.

Looking at the inventory at the end of the year on your books and the fact that your retail sell through was so strong, better even than the sell in. Do you think that you lost some sales because you didn’t have the inventory?

Just kind of in view of that earlier question on retailer inventory?

Our inventory was down 27% last year. I think it was up some number like 11-13% the prior year.

So it came down. I think about ¼ of the inventory decline this year is just the cost of goods as opposed to real fewer units on order of magnitude.

We clearly left some business on the table on something like Mind Flex or Barbie Fashionistas as an example. But that is true every year.

We have 8,000 SKUs….we don’t have 8,000 SKUs…and we leave business on the table in some and we have too many of others. I don’t know if we had it to do all over again if we would have had more inventory overall.

We clearly would have had more on some products and less on other products.

When you cite something like Mind Flex or Fashionista, those are products that perhaps performed better than one might have reasonably expected or conservatively expected, so if you left money on the table it is because you could have sold more if you had built more. You have a situation where you actually have less and you built less so are you just not expecting what you did?

I think in general across the company the revenues for the year came in darned close to what we thought they were going to be when we built the plan a year ago. We knew there were going to be three things working against us in 2009.

They played out. Again, this isn’t precise.

But order of magnitude about 1/3 of the revenue decline was due to economic contraction whether it was lower consumer purchases or certainly lower retailer purchases. About 1/3 of the decline was lack of entertainment properties versus the prior year and about 1/3 of the decline was due to FOREX.

We had planned it that way. It worked out that way.

We built inventory that way and focused on the cash flow that way. It did what we expected it to do.

I think you said earlier when you were talking about employee morale type issues that I think you said there were no merit bonuses. Can you square that with the incentive comp and is there something I am missing here in the disconnect?

It is the timing of the payment. We had a bonus last year in 2009 so based on 2008 performance I got zero bonus in 2009.

We also gave no merit increases or promotional increases at all in 2009 across the company. In 2010 Kevin has accrued bonus based on our results in 2009 and we are expecting to get that cash.

I think in orders of magnitude on incentive compensation recorded this year was $97 million versus last year it was $15 million.

I guess I would want to be a Lexus dealer near your office.

I don’t know about Lexus or Toyota.

The question I would have then for 2010 is assuming for the sake of the question we will have another good year of compensation but I would assume nowhere near the kind of increase you saw in 2009. Is that right?

As you go back to and I said this the other day, if you go back to the 10 years I have been here we kind of have a target level of bonus. If you look over a 10 year period of time we are pretty close across the company to paying the target level of bonus.

That said we rarely pay above the target levels in bonus every year. We really do have a pay for performance philosophy here and it works.

So when the business doesn’t do well we don’t get paid well and when the business does well we do. Unfortunately as you are going through your P&L planning like we do in here, it is kind of hard to predict exactly how it is going to be but the program works out well for us and I think shareholders should be satisfied to know that we do well when they do well.

Regarding gross margins again, there has been a lot of questions about it. How would you characterize the sustainability of this current level?

You have recaptured some lost ground over the last few years, knowing what you know which isn’t everything but about the headwinds you might be facing do you think this is a level you can sustain assuming no major changes in the product mix?

Yes. In general yes.

I am not giving guidance and I don’t want to go forward at that kind of level and stuff like that. Since the year 2000 I said we kind of targeted a 50% gross margin or thereabouts.

It is going to change year in and year out. We made good progress.

Just bout got there and then we lost ground primarily due to the commodities and the fact our prices couldn’t keep pace with the rapid growth of the commodities. We are now back on track.

It is our goal to try and sustain good performance in gross margins. Whether or not we can do it in any three month period of time or 12 month period of time we will see.

But we are where we intended to be.

Nice job with a tough year. If you look at the products that were short in the fourth quarter like Mind Flex and maybe Fashionista and so on, I guess I am thinking about the environment where many merchants were cautious about bringing in large quantities.

Could you give us a list of things you think had an additional afterlife in 2010 which in the past might have been thought of as a kind of one and done opportunity?

I don’t know if I would do a great list. My number one on my list is Mind Flex.

Mind Flex we would have intended…it is a fascinating game but it is not the kind of thing that is going to be an ever green property and in our mind’s eye when we launched it, it was probably a one-year property. Well, it is going to carry forward into 2010 and now we have some ideas to extend the technology and do some new things with it.

That is a big one. Matchbox’s Rocky the Robot was a sellout.

We have gotten some follow-up products to Rocky. The one we are going to do this year I think is a really, really cool Matchbox item we will be showing hopefully at Toy Fair.

Uno Moo is another one. That was kind of Uno meets Fisher Price Farm.

That worked out well. That was a sellout.

There were several things in the Barbie line that sold out. The three story townhouse, the camper, the Fashionistas line.

Barbie really sold through incredibly well. Again, if you look at the 8,000 SKUs and the ones we rarely talk about are the bottom ones on the tail where we made too many, fortunately if our inventory is down 27% last year we didn’t make too many of those items.

As you look at the gross margin components going into 2010 I wonder you said I think part of the improvement in 2009 was a mix shift in favor of higher margin stuff. So as you get the new entertainment properties in is there anything in particular you have your eye on that might drag the gross margin down because of influence on mix?

Royalties in general, those products in general that carry royalties, that is somebody else’s intellectual property, have lower gross margins than our internal intellectual property. That being said from an operating margin standpoint they are very similar because obviously somebody else is building the intellectual property and investing more in the advertising than we need to.

As you ramp up on the new properties that are many years like WWE and Thomas and so on is there kind of a gross margin curve or do you pretty much hit the ground running with tooling costs and all of that as it deploys out through the year?

I think we pretty much hit the ground running.

I think that is right Bob.

In your 10-Q’s and K’s you break out the cost of sales number by product royalty, freight and so on. Could you share those with us this morning or do we have to wait for the K?

I don’t have that information. I think it is in the K.

Bob I agree with you the new lines for WWE look strong and also Thomas. I wonder if you have any initial response from consumers to the lines and how you might be supporting them this year with advertising?

We do. WWE in terms of its product life for us is probably a little bit ahead of Thomas.

There was some channel inventory when we picked up the Thomas business so it will take a little bit longer for our product to flow through on Thomas than WWE but I saw some of it last weekend. WWE reaction has been very strong.

Today I think it is primarily the collector community. We have started doing a little bit of advertising on the WWE shows.

We are going to do more. I think we start next week on the more kid oriented, Force Flex segment but the product just looks awesome on the shelf and I think the reaction has been good.

Again on Thomas it is very early. The reaction has been good but there just isn’t that much of our product out there.

Could you comment on what price actions you might take for the spring and fall lines this year because of higher input costs?

We have started showing our line for 2010 to retailers and we started that throughout 2009. At this point we don’t see any big price increases for the year.

That said we did go up a bit on some new items but we really haven’t priced continuing items. It is early.

As Kevin said our goal in pricing is to be consistent with our long-term 15-20% operating margin and we are really focused on executing continuous improvement programs and cost reductions across the supply chain and the business units. So that is likely to be the key to success for this year.

You mentioned at the onset that Barbie was back. You mentioned increases in share and takeaway.

Could you elaborate or give us specifics?

As I said all year if we can keep the POS and market share growing the shipments would take care of themselves and that is what happened. We had good success in the fashion segment with Fashionistas and beach dolls and I Can Be and the camper and townhouse.

Collector did well last year. We did the retro My Favorite Barbie’s going back and looking at Barbie over time.

Twilight is in the collector business. The Twilight product sold through nicely.

About the only thing we saw a decline in last year was the fall entertainment line. Three Musketeers which was up against the prior year’s Diamond Castle.

As we said all year we wanted to reduce the reliance on that segment and we did. We had good marketing programs, good partnerships with retailers as I mentioned and one of the things I found most interesting in the market share report last night, not only is Barbie obviously one of the toy industry’s biggest properties it is one of the fastest growing properties.

If you look at the top 10 growth properties of all toys Barbie was on that list last year. We had a really good year and Barbie performed very well at retail and we feel good about where we are.

Can you provide specifics on the share or the growth?

No other than it was up double digits in POS. It was up double digits if you measured by NPD, that is retail sales, share gain was consistent all year.

We gained share in the fourth quarter in the holiday season whether you measure it against dolls or whether you measure it against total toys. Barbie was a consistent performer all year.

How about American Girl. Another flat year likely or do you think there could be some growth?

I don’t know. Overall I have been very pleased with American Girl especially in light of the economic conditions and particularly in 2009 when we were doing comparisons to 2008 and the Kit Kittredge movie.

The retail stores did well in the holidays. 2010 we have the Laney doll now which is kind of outdoors oriented.

So I don’t know where American Girl is going to go this year but I have to tell you flat performance in light of the environment last year and in light of what that business unit was up versus the prior year to me it was very good.

A quick question on your CapEx. It was down pretty significantly year-over-year.

What are your plans for 2009? Are there any major CapEx initiatives you can highlight for us?

I think CapEx this year was $121 million. As Bob said we focused on business critical projects.

As I think about CapEx for next year I think we are opening a store in Denver. I think the CapEx will be around what we were doing before 2008.

Around the $150 million or less.

The other girls segment was down pretty considerably in the quarter. What do you have in the mix for 2010?

Just remind us kind of what you have there.

There are a couple of things going on. The big decline last year was driven by High School Musical and there is no new entertainment planned for High School Musical until 2011 at the earliest.

We have Polly in that segment. The roller coaster hotel did well in Polly and we have a new look for Polly coming in 2010.

Little Mommy did well in the holidays as I mentioned with the Walk and Giggle Doll. Probably the big news coming up is Disney’s Rapunzel movie which launches in November.

The Princess and the Frog did very well for us in retail late in 2009 and we are all excited about the Rapunzel movie in fall of 2010. It is hair play which is a no brainer for the doll business.

The other thing that is important is regionally we pick up the Disney Princess line in Europe this year. A competitor had been selling it previously and we have had really strong results to the Disney Princesses here in the US and we think we can replicate that overseas.

Just remind us again the debt maturities you have coming due in 2010? A dollar amount if you can provide it?

I think it is $50 million.

$50 million?

$40 million in May and $10 million in October.

I was wondering if you could comment more broadly on the fashion doll category. How do you feel about that category in the broader context of girls?

Do you see any shifts in girl spending and perhaps a comment on the competition that is out there.

I felt very good about the category. Remember there were some big declining properties in this past year.

Certainly one of our competitors makes a product they essentially just walked away from in the marketplace. Hannah Montana has declined.

High School Musical declined. These were big doll properties that had significant declines.

The doll category overall held up well and clearly we did particularly well in that category and picked up share. I was encouraged by the overall sale of the doll business.

On the appeal with MGA when do you expect best guess a decision there and when that decision comes through how quickly can you get new Bratz product on the shelves if that were the case?

We have no idea when the appellate court is going issue its opinion. There is no way to predict those things.

They work at a pace that they set. We don’t have any control over the timing.

We are ready to go with a Bratz line. We do have a great product line.

Girls like the product line. Obviously it would take us some time to start producing that line and get it to the market place but we have told the court all along that we would have had a line in the marketplace this spring and we would have had a line in the marketplace this spring.

We are ready to go if and when the court ever allows us to do that.

So it would be measured in months or weeks?

Yes.

Thank you operator. There will be a replay of this call available beginning at 11:30 a.m.

ET today. The number for the replay is 719-457-0820 and the pass code is 3945830.

Thank you for your participation today.