MCA to Sell LJN Toys Unit After Losses

Entertainment giant MCA Inc., which ventured into the toy business in a bid to retain more profits from the lucrative merchandising of its film properties, said Monday that it will sell its beleaguered LJN Toys unit and take a $53-million charge against earnings for the discontinued operations.

Despite the charge, the company also said it expects to report a record profit for the year.

The disclosure of the planned sale by a resurgent MCA--a diversified entertainment company whose businesses include the production and distribution of movies, television shows and recorded music and the Universal Studios Tour--pleased analysts. They said MCA, which last year catapulted from sixth to second place in market share of domestic film rentals on the strength of such hits as “Parenthood” and “Back to the Future Part II,” will be a more financially successful company if it returns its focus to its entertainment roots.

“The toy business is a very tough business,” said Harold Vogel, an entertainment industry analyst with Merrill Lynch. “Thank goodness they are done with it; they never belonged in that business.”

In another development Monday, MCA reached settlement in a legal dispute with the Beverly Hills-based production firm Quintex Entertainment Inc., which filed for bankruptcy protection on Oct. 19. Under the terms of the accord, MCA will assume responsibility for future programming sales, and the companies will split future revenue from accounts receivable. Quintex, which is best known for co-producing the popular TV mini-series “Lonesome Dove,” had been responsible for distributing certain MCA programming.

The settlement is not expected to have significant financial effect on MCA. And Shearson Lehman Hutton entertainment analyst Alan Kassan, among many others, predicts that MCA will thrive despite the planned sale of LJN. He expects MCA’s Universal Pictures unit to continue its strong box office pace into 1990, based on the promising early performance of films such as “Born on the Fourth of July.”

MCA, which acquired LJN Toys in 1985, said it will sell its toy unit and take a $30-million charge against 1989 earnings for the sale. MCA also said it would take a $23-million write-off for discontinued operations. The company has not yet reported full-year results for last year, but in 1988 it posted net income of $164.9 million on revenue of $3 billion.

MCA has been plagued by the performance of its LJN unit since 1987, when a faulty toy gun manufactured by LJN shot down MCA’s profit, which plunged 79.5% to $8.1 million in the second quarter of 1987. Net income was hurt, in part, by a $35-million charge that MCA took to write down the value of LJN’s inventory of paint-shooting “Gotcha!” toy guns.

LJN stopped making the guns but never recovered from the episode.

In the wake of MCA’s experience with LJN, many analysts believe that studios have soured on trying to retain all of the profits from their merchandising activities. Most studios will probably stick with licensing agreements, analysts say.