Welcome to the Mattel, Inc. third quarter 2007 earningsresults conference call. Today's call is being recorded. At this time foropening remarks and introductions, I would like to turn the call over to Mr.Mike Salop, Treasurer and SVP, External Affairs. Please go ahead, sir. Michael Salop: Thanks, Connie andgood morning, everyone. Today we issued a press release which detailed Mattel'sthird quarter 2007 results. On the call this morning Bob Eckert, Mattel'sChairman and Chief Executive Officer, will give some remarks on the quarter andrecent events; and Kevin Farr, Chief Financial Officer, will provide moredetail on our financial results. After Kevin's comments, we will open the callfor your questions. Before we begin, let me note certain statements made duringthe call and in the question-and-answer session that follows may includeforward-looking statements about management's expectations, strategicobjectives and anticipated financial performance and other similar matters. Such forward-looking statements may include commentsregarding performance of our brands and product lines, product safety, newproduct introductions, brand strategies, international growth opportunities,American Girl retail expansion, profits and margins, the impact of productrecalls, supply chain operations, export and import licenses, capital spending,income tax provisions, share repurchase and our capital and investmentframework. A variety of factors, many of which are beyond our control,affect the operations performance, business strategy and results of Mattel andcould cause actual results to differ materially from those projected in suchforward-looking statements. Some of these factors are described in our 2006report on Form 10-K filed with the SEC and Mattel's other filings made with theSEC from time to time, as well as in Mattel's other public statements. Matteldoes not update forward-looking statements and expressly disclaims anyobligation to do so. Information required by Regulation G regarding non-GAAPfinancial measures is available on the investors and media section of ourwebsite, Mattel.com, under the subheading “Financial Information and Earnings Releases”. Now I would like to turn the call over to Bob.

Thank you, Mike and good morning, everyone. Since we lastspoke in July, Mattel has faced more than its share of challenges. As I'vealways said, it's my sincere hope that we'll not be judged solely on the issuesthat have confronted us, but also on the manner in which we have responded tothose issues; on the prompt, corrective actions we've taken and on theimprovements we've made for the future. As an organization, we've tackleddifficult issues before and we've demonstrated an ability to make change forthe better; within our own company, and also throughout the broader industry. As you know, in August and September, Mattel announcedvoluntary recalls on two very different issues. One issue was impermissiblelevels of lead paint which affected a relatively small portion of productsrecalled, but attracted a lot of attention. The other issue was the expansionof an initial list of toys with very small and powerful magnets that werecalled last November. We expanded the list voluntarily because we wanted toapply retroactively new and more rigorous standards that we helped pioneer forthe retention of those magnets. The lead paint recalls have been particularly disappointingfor me, because Mattel has long applied what we believe are some of the most rigoroussafety protocols in the toy industry. Unfortunately, despite these manysafeguards, some toys with unacceptable levels of lead paint made it throughour safety system and into the marketplace. We moved quickly and vigorously toaddress the immediate issues and tightened those safety protocols even further.We held back all products in Asia, whether made at aMattel facility or a vendor facility, and we undertook additional testing on amassive scale. With respect to the products in Asia,for example, we examined a comprehensive range of samples of the toys to ensurethat we identified any products with paint that violated applicable leadstandards. This testing was applied to even the…

Your first question comes from Michael Savner - Banc ofAmerica. Michael Savner - Banc of America: It seems like this quarter's results were a little bit moretricky to get into what the apples-to-apples would have been, since you hadsome supply chain issues related to the recall. But when we look atFisher-Price, which has been a great growth engine at least in the first halfof the year, it would seem that ex the core brands there was a huge falloffbeyond just Fisher-Price Friends. Maybe if you could give us a little morecolor on what's going on there and where else the weakness was and to theextent that could you even quantify what was related to recall slowdown,shipments and what was maybe organic weakness? A similar question about Barbie. We've been hearing for thelast year that that brand is being revitalized, and I think your target was forthis fall you would see a nice improvement. Obviously, there's some recallissue going on there as well, but it still doesn't seem to be materializing.Maybe if you could just revisit your conviction level that this fall and winteryou're going to see a revitalization in that brand domestically. Thanks.

The basic Fisher-Price toy business continues to grownicely. We did benefit early in the year from rebuilding retail inventorieswhich were depleted last holiday season, but since then, we've seen solidperformance at retail. The digital camera is doing well, Imaginex Dinosaur isdoing well, Shake and Go Cars is doing well and most recently, the Fisher-PriceSmart Cycle seems to be a real winner. Also the baby gear business, which arethe non-toy items from Fisher-Price, they continue to grow at very good ratesall around the world. The second part of the Fisher-Price business, which is theFriends or licensed character brands, it's still a nice-sized business, butDora has begun to decline and I believe I have mentioned that in the lastquarter or two. The Sesame Streetportion of that business benefited last year from the September 19th launch ofTMX. This year's Elmo, which is a surprise, launches in November. I know someof you got a clue from one of our customers who put it on their top toy list.But the decline of the Dora business was more important than the shipmentdeclines related to supply chain issues in the quarter. Moving over to Barbie, we do need to work more on Barbie.Following some encouraging results in the U.S.last year, we have slipped again in '07. Some of it's related to supply chaindisruptions, but some of it is related to point of sale needs. Internationalcontinues to perform better than the U.S.The reality segment everywhere continues to perform better than fantasy. Thatsaid, through three weeks, the DVD sales for Barbie and the Island Princess,this year's movie launch, are ahead of a year ago but that hasn't yettranslated to doll sales. MyScene is doing well internationally, the collector dollsare growing worldwide. We've had good traffic on Barbie Girls. We have launchedthe MP3 device. It's still early in the season. We still do have strong holidayplans, and I guess I would characterize it by, we'll have to see how theholiday season plays out.

Your next question comes from Tony Gikas - Piper Jaffray. Tony Gikas - Piper Jaffray: Maybe just a quick update on what you're hearing from someof your key retail partners concerning the recalls. Do they expect thatconsumers will be deterred by the recalls? Second question, housekeeping, what was the share count atthe end of the quarter?

I would say in general, retailers are probably a littleanxious about the impact of recalls, but they're at least as anxious about theoverall economy and consumer plans for the holiday. At this time of year, wealways call it the early fall jitters. There are a lot of toys in the pipeline-- in our pipeline and retailer's pipeline -- and we're waiting for theconsumer to come and start shopping. I think it will happen again this year. Related to that, we have fielded several consumer trackingstudies related to the recalls. The most recent results indicate that there hasbeen widespread awareness of the recalls, more than three-quarters of peopleare aware of toy recalls. The vast majority of those believe that Mattel andFisher-Price have handled the recalls quite well. Image perceptions of toymanufacturers have stabilized in the past month; they haven't yet returned topre-recall levels, but they've clearly bottomed out. By brand, Polly Pocket is showing weakness in the U.S.That's true both in imagery and at retail sales. We're responding with whatwe're calling the Polly Promise, which will begin later this week. It's asignificant coupon on-shelf and online. Plus, for any reason, if consumersaren't satisfied with anything that they buy from Polly Pocket, we'll refundthe purchase price in full over the next year. So we want to re-engage,particularly parents, with the Polly brand. Finally, I'd note on the brand imagery work, thatFisher-Price continues to enjoy the best brand imagery in the toy business. Sooverall, it looks like from a consumer standpoint, I think the anxiety aboutthe recalls is largely behind us. Kevin Farr: Tony, with regard to your second question, if you look atthe end of September 30th, basic shares outstanding are about 370 million. Tony Gikas - Piper Jaffray: It sounds like the recalls are essentially behind us, andthe testing is essentially behind us and there were some incremental costsduring the quarter. Going forward, what will those ongoing costs be forincreased product safety testing? Is it a measurable dollar amount or reallynot material? Kevin Farr: Tony, the ongoing costsassociated with our three-point check system will reflect in cost of sales. Wecurrently expect the ongoing test procedures to be well under 1% of our totalcost of sales.

Your next question comes from Sean McGowan - Wedbush Morgan. Sean McGowan - Wedbush Morgan: Bob, could you talk a little bit about American Girls in thequarter? With the first new historical doll in five years, one might have anexpected an increase there. Do you think that's just going to be showing up inthe fourth quarter, or is there something else going on there?

We'll have to see.The girl of the year doll this year, which was Nikki, continues to do well. Julie,the character you referred to, the 1970s-based historical character -- which Ithink is an oxymoron, at least from my vantage point, it would be. We alsoopened the Atlanta boutique whichKevin mentioned, which is off to a good start although it's very early; and Dallasopens, which is a larger boutique, early in November. But the base business is soft. The holiday wish book mailstoday. We have high expectations for that. Regionally, we're going to be doingsome testing of some television marketing for the brand. So we're hopeful. Iwould have liked to have seen the quarter do a little bit better than it did,but we'll have to see how the holiday season plays out. Sean McGowan - Wedbush Morgan: Can you give us some framework for looking at the riskpresented by Brazil?How much of an impact in the third quarter might there have been and what's upfor grabs in the fourth quarter? Kevin Farr: Maybe I'll step back,Sean, and give you an overall view of the fourth quarter. I think it'sdifficult to gauge at this point where the overall impact of supply chaindisruptions may be on the year. Certainly some and possibly most of the lateshipments could be recovered in the fourth quarter. I think in my speech wesaid about $30 million to $50 million of shipments were delayed in the thirdquarter. That said, our fourth quarter shipments for Brazilmay be at risk. If import licenses are not reinstated soon, that couldrepresent approximately 2% risk to Mattel's fourth quarter sales. Sean McGowan - Wedbush Morgan: 2% of the quartersales, you mean? Kevin Farr: That's correct.

If that were to materialize, we would work hard to move thatproduct to some other market, if we could. Sean McGowan - Wedbush Morgan: Have there been any shares repurchased since the end of thethird quarter?

I don't think wedisclose any share repurchases at any time in the middle of a quarter, do we,Mike? Michael Salop: No, we don't.

Your next question comes from Felicia Hendrix - LehmanBrothers. Felicia Hendrix - Lehman Brothers: I have a follow-up on American Girl. You have talked for severalquarters about catalog declines and if I understand what you were saying -- andplease correct me if this isn't the case -- are the catalog declines completelyoffsetting any of the strength you're seeing from Julie and the new Atlantastore? If that's the case, what can you do to help generate better sales fromthe catalog business?

They did in the quarter, Felicia, but also the Atlantastore opened quite recently and Julie just launched this month, so I think ourexpectations continue to be pretty high on both of those launches. But the basebusiness has been soft. We are doing some more marketing this quarter and thebig book, which is what counts and will feature Julie in terms of catalogshopping, mails I think literally today. We also have, as I may have referenced in previous calls, afull length feature film next year, which could stimulate some sales ofhistorical dolls. That film features Kit Kittredge, which is one of the earlycharacters. Felicia Hendrix - Lehman Brothers: When did Julie ship?

Julie doesn't ship like toys ship into retailers. Julie waslaunched late in the third quarter. But the real marketing of Julie starts nextweek. Felicia Hendrix - Lehman Brothers: I know it's not a big deal because it's not that manystores, but when does it ship into the stores that you do have?

I believe it's in thestores. But that wouldn't count as a sale until consumers buy it. Felicia Hendrix - Lehman Brothers: A follow-up on the Barbie front. You're pretty clear aboutwhat's going on there, but I'm also wondering, do you think there's a systemicweakness in the fashion doll business in general?

I don't know if Iwould use the word systemic. But looking at girls toys overall, they do looksoft to me. I haven't seen really anything on a competitive front that seemsoverly important right now. I guess the exception to that will be the continuedpopularity of Webkinz, which is not exactly fashion doll play. But I have seenmore softness in our girls business overall than I've certainly seen in boys orin infant and preschool. The obvious exception to that are things like HighSchool Musical, which are selling quite well. But the base business, I wouldsay across girls, is a little bit soft right now. Felicia Hendrix - Lehman Brothers: Of the $40 million charge, $9.1 million was related tosubsequent recalls or future recalls. Is that just a “just in case” kind ofthing or is that for something specific? Kevin Farr: The $9.1 millioncharge includes a cost for the third recall and it is related to specificrecalls.

Your next question comes from Linda Bolton - Oppenheimer. Linda Bolton - Oppenheimer: Just going back to your discussion of the impact of thesupply chain disruptions on U.S. Barbie sales, could you explain better why theimpacts would be greater on the U.S.than in other regions in terms of Barbie sales? Is it just because the productneeds to travel further to get here or can you further explain that?

I would say it'sbecause the product needs to travel, because of the timing of shipments thatvaries by market and because of the amount of direct import business -- that isFOB Chinabusiness -- which is largely done in the U.S.and not as pronounced internationally. That's also why the supply chain disruptionsimpacted Fisher-Price Friends more than other brands, because that's anotherbrand that has more FOB Chinashipments. Title transfers in China,and that's when the sale is recorded. Because we missed some of those sales,that was the impact. Linda Bolton - Oppenheimer: Also just in terms of your discussion of the potentialfuture impact of the incremental testing, when we're thinking of unit orvariable testing costs, you're going to be increasing the number of times thatyou're testing a bunch of units. It seems that that would make a very large --maybe five times, 10 times even -- impact on the costs because it's mostlyvariable costs. So even though it's only 1% of COGS, if that were to increaseby five or ten times, that would be significant. Can you just explain better?

I don't think, Linda, the 1% would be increased by five orten times. I think the point is the less than 1% of total COGS cost isassociated with testing. So when you have the new testing on an ongoing basis, costof goods would increase by less than a percentage point. Kevin Farr: Yes, that's correct.The incremental testing that we'll be doing with regard to products will haveless than a 1% impact on our total cost of goods sold.

Our COGS are still going to be heavily influenced by basiccommodity costs and labor costs and shipping costs and those sorts of things. Asthose sorts of things continue to increase, we'll look at pricing again,probably in the January through April timeframe next year. Linda Bolton - Oppenheimer: Finally, you had mentioned that in the other income line,there was a favorable effect of currency and that made that line item positive.I would expect then that that same concept would apply to the fourth quarter of'07 in terms ofcurrency still being favorable? Kevin Farr: Again, we don't, asyou know, Linda, project or give guidance; but not necessarily. It's going todepend upon what the currency does relative to the U.S. dollar. So that foreignexchange gain related to our Latin America operationsand we'll have to see whether exchange rates go up or down with respect to thevarious currencies.

Your next question comes from Margaret Whitfield - SterneAgee. Margaret Whitfield - Sterne Agee: Good morning, everyone. Per Wal-Mart's remarks the otherday, could you give us the commentary on the state of consumer activity interms of retail toy sales here in early fall?

Well, I think we are clearly anniversarying last year's TMXElmo launch, which not only did well for Fisher-Price and Fisher-Price brands,but I think everybody understands drove people into the toy aisle earlier lastyear. Now, we do have news coming on Elmo but it will be later this year, and Ibelieve that most retailers planned for the season to be later this year thanit was last year. I think that's being reflected in today's retail sales. Margaret Whitfield - Sterne Agee: Would you say the toysales are down double-digits at this stage, Bob, given the difficult compareand the environment in general and the concern over the recalls?

No, I wouldn't saythat. When it comes to kind of that level of detail, I'd steer you towards theretailers, because obviously the results vary by retailer. Margaret Whitfield - Sterne Agee: is there any unusual cancellation activity, given the factthat you've had delays in the supply chain and given the environment?

No, I wouldn'tdescribe it as an unusual. Clearly we work very, very hard to get these exportlicenses back; in some markets to get the import requirements met. We haddelays but I wouldn't say, Kevin, that there was a larger than usual number ofcancellations, would you? Kevin Farr: I would agree withthat, Bob. Margaret Whitfield - Sterne Agee: On Polly Pocket, is this a competitive issue, a recallissue, why the Polly Promise campaign?

I think it's more ofa recall issue than a competitive issue. There's a lot of competition in girlstoys and that's been true for the last couple of years. But the fact is, whenwe do our consumer tracking studies, Polly Pocket is the one brand that has themost pronounced consumer issue right now. That's the background on the Polly Promise,is to re-engage moms with the brand. We know girls love the brand. The brand isan evergreen property, has done well. It continues to grow internationally. Theissue is here in the United Statesright now and we want to provide some extra motivation for moms to re-engagewith the brand. Margaret Whitfield - Sterne Agee: Kevin, what was the bottom line benefit from currency in thequarter? Kevin Farr: It was about $0.05per share.

Your next question comes from John Taylor - Arcadia. John Taylor - Arcadia: Given the reassessment of export license policy in Chinaand so on and the press coverage of sort of inflationary pressures over there,do you guys get the sense that you'll be facing any more than an average annualincreased demand in pricing for products next year? It seems like we might havesome inflationary pressures that are getting a little bit too hard to handleover there, and I'm wondering what the capacity implications of that is? Aside from American Girl and aside from the Polly Promise,I'm wondering if your retailers are expecting you guys to step up or toymanufacturers in general to step up a little bit more with just some generaldemand creation spending to jumpstart the holiday this year? Kevin Farr: We will be again modestly increasing prices in the January toApril timeframe. That's going to vary by country to reflect the current costenvironment, as you've indicated. We're seeing upward cost pressures on keyinput costs, including wages, commodities, like resins and packaging, andcontinued appreciation in the Chinese currency.

Retailers do expect manufacturers to step up for theholiday. We have worked hard with them to develop plans to make sure that thereis strong demand for toys this holiday season. As I mentioned on the consumertracking studies, I'm optimistic about the consumer coming back to the toyaisle. I think we're going to spend somemarketing dollars, particularly with retailers, to partner up to make sure wecan stimulate as many sales as we can. John Taylor - Arcadia: Let me follow up, Kevin, if I can, on the inflation thing.So I guess what I'm looking for here is you guys have been facing cost pressureincreases for some time now and you get a little here, get a little there sortof thing. I'm wondering if the testing requirements and particularly the newlicensing requirements may take some capacity offline with subcontractors, etcetera, whether you expect that to have any unusual impact on negotiations thisyear. Kevin Farr: Overall I don'texpect that to have any unusual impact on negotiations. I think every year weface these input cost issues and challenges and we've been successful over thelast several years in putting in place modest price increases.

Your next question comes from Gerrick Johnson - BMO CapitalMarkets. Gerrick Johnson - BMO Capital Markets: Follow up on Margaret's question, could you tell us whatyour point of sale data is looking like since the fall toy resets at retail?

No. Again, Gerrick, Iwould say that kind of question is better sent to retailers instead of to us. Gerrick Johnson - BMO Capital Markets: Dallas toy fairwas last week. Can you describe the mood of retail buyers at that event?

I was not at thatevent. I was in China. I can tell you the general mood ofretailers is, as it is about every September/October, anxiety about the holidayseason, anxiety about the economy, anxiety to make sure we get the recallsbehind us, particularly should there be future recalls. But I think we all recognizealso that there will be a Christmas and toys have historically sold well, evenin tough economic times. Gerrick Johnson - BMO Capital Markets: Switching over to the recall, what has the return rate beenon recalled items?

It's been a little bithigher on the lead paint-related recalls than normal. I would say normal recalls is mid to highsingle-digits. So we've seen higher than that level of returns on the leadpaint. On the other hand, as it relates to the magnet recall, we have seenlower than historical recall averages and that's not that surprising, since werecalled toys made in some cases two, three, four years ago and since toys tendto move pretty quickly in and out of somebody's home, it's unlikely that wewould get a lot of those back. We have seen more recall returns internationally than thehistorical practice. I think that's a function of the widespread publicity allaround the world that these recalls have achieved. So overall, the return ratesfrom both retailers and from consumers have been higher than typical. Gerrick Johnson - BMO Capital Markets: So international hasbeen a little bit more than U.S. Would you also characterize the consumer moodin international markets as anxious as well?

I wouldn't say thatthe recall rate has been higher internationally than the U.S.In fact, it's higher in the U.S.than internationally. It's just compared to a typical recall, the internationalrecall has been higher than normal. Point of sales, again, we encourage peopleto talk to retailers but I would say just if you look at our shipments in forthe quarter, if you look at point of sale for the quarter, internationalmarkets continue to grow. Gerrick Johnson - BMO Capital Markets: Do you have a domestic wheels number? Kevin Farr: It's minus 5%.

Gerrick, on that one, our basic Hot Wheels business, the carbusiness is doing well domestically and all over the world. Matchbox is doingwell, up double-digits all over the world, I think. The issue really is a yearago, particularly in September and late August we were shipping the radar gun,a higher-priced Hot Wheels branded item.

Your next question comes from Tim Conder - Wachovia. Tim Conder - Wachovia: A couple follow-ups on the previous line of questioning.Bob, you were mentioning that overall the U.S.returns were greater than the international, it sounds like on an absolutebasis. What are your historical benchmarks for returns domestically versusinternational? Is it that high single-digits you were alluding to? Is that forboth? Is that a collective? If you could break that down. Secondly, your marketing spend. Again, we saw that marketingspend drop last year on the strength of multiple different product lines. Canyou give us any directional indication, if it's going to be up whatever X -- ifyou want to about X that's great -- but can you give us any directionalindication of how much that increased marketing spend would be related torecalls versus just sort of priming the pump due to retailer fears over theeconomy?

Well, you're right,Tim, we won't talk about X. But I appreciate your asking it that way. I wouldsay my recollection, Kevin, is that advertising spending was up, at least inthe second half last year. It was that sales were up so high that as a percentof sales basis, it declined, but I think dollars were up last year. Kevin Farr: That is correct, Bob.

Tim, in response to your question, the advertising this yearwill largely be related to stimulating product demand, not related to recalls.Now, we have certainly spent money. You've seen newspaper ads and things likethat. We've been online with Yahoo! and Google and other places, specificallytalking about recalls. But I don't think that will continue into the future. Itwill be product-based advertising. Tim Conder - Wachovia: Then on the returns,the historical rate, again, the high single-digits?

The high single digits was a U.S.number. We tend to get more products returned in the U.S.than internationally. Tim Conder - Wachovia: Any benchmark for the international historical returns?

No, I don't know itoff the top of my head. Kevin Farr: It's generally less,obviously.

We'll take afollow-up question from Sean McGowan - Wedbush Morgan. Sean McGowan - Wedbush Morgan: Are there any other products that you're shipping betweennow and the holiday season like Elmo that might be significant? Second, on theFisher-Price Friends decline, could you compare the impact of the decline inDora versus TMX, which was more significant?

There is an Elmo which could be quite surprising and I thinkone of the retailers put it on its hot dozen list that will launch in Novemberof this year. Our plans for that are not public, but we'll see. But it's apretty cute Elmo, I'll tell you that. Sean McGowan - Wedbush Morgan: Other than that, youmade reference to that before. But are there additional products that you'reexpecting to ship that could be significant?

No, I don't thinkthere is really anything that we're unveiling that late in the year this year.Kevin, does that seem reasonable to you? Kevin Farr: I think that'scorrect. Then your second question, the biggest impact on the decline atFisher-Price Friends really was the decline in Dora.

Now, TMX was clearlydown, if you look at this year's Elmo versus a year ago. But we have all yearlong had some pretty good halo benefit across all of Sesame Street from the TMX launch last year. Sean McGowan - Wedbush Morgan: That leads to anotherquestion about that. Would you say that the combination, at least in the thirdand fourth quarter, combination of TMX ongoing shipments and the Ernie andCookie Monster or whatever he is called these days, could that roughly equalwhat TMX was last year? Kevin Farr: I think it's in theballpark. I don't want to get into the specifics. We have done well with Sesame Street all year. But now we're facing certainly inthe third quarter, we faced the tough comp on TMX.

With no further time left for questions, I would like toturn the conference back over to your presenters for any additional or closingremarks. Michael Salop: There will be a replay of this call available beginning at 11:30 a.m. Eastern time today. The number forthe replay is 719-457-0820. The passcode is 1976462. Thanks for participatingin today's call and I would like to wish everybody a good day.