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Two analysts and top management from seven sector firms examine the leisure & entertainment sector in this special 46-page Leisure & Entertainment issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info466.htm.

TWST: We talked earlier about Mattel (NYSE:MAT) and Hasbro (NYSE:HAS) in terms of where they fit into the Harry Potter industry. What else do these companies have that will be on the most wanted lists for this Christmas?

Ms. Krutick: We think Mattel and Hasbro will be the primary beneficiaries of a wealth of offerings this holiday season with lots of staple-type product offerings by both. Mattel’s Barbie Nutcracker will be very high on the list, helped by a home video release and CBS TV special.

TWST: What is the outlook for pricing? Will we see a lot of discounting?

Ms. Krutick: For most toy makers, raising prices has never been a key mechanism for driving revenues. In an effort to maintain the value appeal of their products, toy makers tend to work harder to manage costs and drive margins, because pricing power is really quite limited. Nevertheless, in terms of general retail discounting, that’s certainly a possibility, particularly for the higher priced items. Holiday Barbie and other higher priced collectibles fall in this camp. So far, while it appears that consumers are heading back to the malls, they are also bargain shopping and this cost-conscious consumer dovetails nicely with Mattel and Hasbro’s product profiles.

TWST: How would you differentiate between Mattel and Hasbro in terms of their investment attractiveness at this point?

Ms. Krutick: Right now we have an outperform stance on Mattel and a neutral rating on Hasbro; we carry a $20 price target on Mattel and a mid- to high teens price target on Hasbro. We would say that both of these companies are focused on very similar things right now: improving their cost structure, getting back to peak operating margin profiles, improving their cash flow generation — before they would ever consider going back into the acquisition game. Mattel has new management that came a year ago last May, and this team has put Mattel on a turnaround path. We think Chairman and CEO Bob Eckert is doing a terrific job, and he remains very focused on achieving company goals. Seasonally these stocks do tend to let up in December. That often is the weakest month of the year for them, as the pre-holiday anxiety builds.

TWST: What do you think it’s going to take to upgrade those ratings?

Ms. Krutick: Right now I’d say it’s more a function of valuation and seeing some top-line momentum. Mattel’s revenues have decelerated, as pressure from weakening demand for higher-priced products surfaced along with a generally anemic retail climate. To get more aggressive on the stocks, we look for healthy holiday sell-through to keep inventories lean, continued margin expansion, and a pickup in revenue growth. Of course a seasonal pullback in the shares could also create a buying opportunity.

TWST: What is your overall message to investors looking at leisure and entertainment for 2002 and wondering where they should put their dollars?

Ms. Krutick: Our overall message here is these groups should outperform the market in the coming year. We feel that the underpinning of a turning economy, an improving advertising market materializing in the second half of 2002 and a resilient consumer should all play into the hands of these companies. Many of them are operating at levels quite depressed from earlier high levels of performance, so substantial improvement should be easily attainable.

1) Leisure & Entertainment Stocks - In an in-depth (4,200 words) Analyst Interview, Jill S. Krutick, Managing Director at Salomon Smith Barney, examines the outlook for the sector and shares specific stock recommendations.

2) Interactive Entertainment - In an in-depth (4,000 words) Analyst Interview, Miguel Iribarren, Research Analyst at Wedbush Morgan Securities, examines the outlook for the sector and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of seven sector firms examine the outlook for their firm and the sector.