Wednesday December 6, 7:44 pm Eastern Time

Hasbro to sell interactive units, sees 2000 loss

(UPDATE: Adds analyst comment, other details throughout)

By Monica Summers

NEW YORK, Dec 6 (Reuters) - Beleaguered toy maker Hasbro Inc. (NYSE:HAS - news) said on Wednesday it will sell two interactive software units and cut its cash dividend, saying it expects a poor fourth quarter to keep earnings below Wall Street estimates.

Hasbro, the world's largest toy maker, said fiscal 2000 earnings would come in at between zero and a loss of 10 cents to 20 cents a share, far short of the 43 cents a share profit expected by analysts polled by First Call/Thomson Financial, which tracks earnings data.

Hasbro, whose brands include Playskool and Tonka, has taken a beating this year on a sharp slowdown in demand for its Pokemon, Furby and Star Wars products, while its interactive operations have suffered mounting losses.

``This is about having a tough year after a really good one last year,'' said Melissa Williams, an analyst with Gerard Klauer Mattison.

``None of those (products) are doing this year what they did last year and there's not any big hot product to replace them,'' Williams said, referring to the three products, which took the entertainment world by storm in 1999.

Williams said the fourth-quarter slowdown was specific to Hasbro, and not the industry as a whole.

Although Williams said she expects Hasbro's problems to seep into the first half of 2001, the second half of the year will likely improve as it sheds the loss-making interactive units and focuses on making its toy business profitable.

Hasbro said Wednesday's forecast excludes the $140 million to $170 million of pretax restructuring and other charges it said it would take in October.

In addition, the company said its earnings before interest taxes depreciation and amortization (EBITDA) for 2000 is now expected to be about $320 million to $370 million, or about $1.81 to $2.09 a share, also before the charges.

Before the announcement, analysts polled by First Call were expecting fourth-quarter earnings per share of 23 cents.

Hasbro Chairman and Chief Executive Alan Hassenfeld said in a statement the shortfall is a result of the overall decline in global revenues from the sale of trading card games, such as last year's popular Pokemon trading cards.

Although the Pokemon cards are still selling well, Hassenfeld said, ``We were too aggressive in our forecast following incredible demand in 1999 and 2000.''

Hasbro also said it will cut its cash dividend to 3 cents a share from 6 cents a share, payable on Feb. 15 to shareholders of record on Feb. 1. The cut is expected to result in an annual cash savings of $21 million beginning in 2001.

RATINGS CUT

The company, based in Pawtucket, R.I., suffered a further blow on Wednesday when the two main credit rating agencies, Moody's and Standard & Poor's, cut some of their ratings on Hasbro's debt as a result of the earnings warning.

In a move to make the company ``leaner,'' Hasbro also said it would sell its Hasbro Interactive and Games.com units to French entertainment company Infogrames Entertainment SA for about $100 million in cash and stock.

Infogrames is the parent company of New York-based entertainment firm Infogrames Inc. (NasdaqNM:IFGM - news)

``We are confident that we are making the right moves to make Hasbro leaner and more consistently profitable for shareholders,'' Hasbro's Hassenfeld said.

``While 2000 has been a very painful year, we are looking forward to returning Hasbro to profitability in 2001 and beyond,'' he said.

The company said it would take a $35 million write down as a result of the sale.

It also said it expected to cut costs further by eliminating 750 staff positions across all divisions, up from the 500 to 550 job cuts it announced in October.

Shares of Hasbro, which are down more than 36 percent since June, fell 1.6 percent, or 3/16, to close at $11-9/16 on the New York Stock Exchange on Wednesday. The stock's 52-week low is $9-1/16.

Hasbro's move to rid itself of its flagging interactive software units followed a similar move this month by the company's rival, Mattel Inc. (NYSE:MAT - news), which sold its Learning Co. educational software unit for virtually nothing after it acquired the company in May 1999 for $3.5 billion.

As part of the deal with Infogrames, the Lyons, France-based company said it would buy all of the common stock of Hasbro Interactive and Games.com for $100 million, including $95 million in Infogrames Entertainment SA securities -- about 4.5 million shares -- and $5 million in cash.

In addition, Hasbro signed a long-term licensing agreement giving Infogrames exclusive rights to develop and publish Hasbro's interactive games, from which Hasbro will get a undisclosed percentage based on sales generated from the agreement.

Product titles included in this deal are Hasbro's Microprose brand interactive game, as well as Hasbro's popular Atari, Centipede, Missile Command and Pong.

Also included are interactive versions if Hasbro's board games, such as Monopoly, Scrabble, Clue, Risk, and Boggle, as well as children's games Mr. Potato Head, Tonka Trucks, Action Man, My Little Pony, and Candyland and the wildly popular multiplayer interactive game Dungeons and Dragons.

The deal with Infogrames is still subject to shareholder approval, regulatory approval and other closing conditions. The two companies said they expect the deal to close early in the first quarter of 2001.


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