Playboy Enterprises, Inc. Reports Significant Improvement in First Quarter 2010 Results

Playboy Enterprises, Inc. Reports Significant Improvement in First Quarter 2010 Results

Cost-Cutting Initiatives Have Across-the-Board Benefits; Results Improve in All Business Segments

CHICAGO, May 6 /PRNewswire-FirstCall/ -- Playboy Enterprises, Inc. (PEI) (NYSE:PLA)(NYSE:PLAA) today announced a net loss for the first quarter ended March 31, 2010, of $1.0 million, or $0.03 per basic and diluted share, which compares to a net loss of $13.7 million, or $0.41 per basic and diluted share, in the same period last year. The 2010 first quarter included restructuring and impairment charges of $1.1 million, or $0.03 per basic and diluted share, versus restructuring and impairment charges that totaled $8.7 million, or $0.26 per basic and diluted share, in the same period last year.

First quarter segment income was $3.2 million, a $4.5 million improvement from the $1.3 million segment loss reported in the 2009 first quarter. Improved results in all three business groups as well as lower Corporate expense contributed to the year-over-year improvement. Revenues declined to $52.1 million from the $61.6 million in the same time periods, as anticipated, primarily reflecting changes implemented to improve the profitability of Playboy magazine.

PEI Chief Executive Officer Scott Flanders said: "We are clearly making progress in our efforts to more effectively monetize the Playboy brand and return the company to sustained profitability. The extensive cost-reduction initiatives implemented over the last 18 months were responsible for the improved first quarter results and contributed to the significant narrowing of losses in our domestic magazine, the increase in Entertainment Group operating margins and the Licensing Group returning to its highest level of profitability since mid-2008. All of these improvements occurred against a backdrop of lingering economic weakness globally and continuing secular challenges, particularly in the print and TV industries.

"With expenses better under control, we are focusing our energies on effectively executing our business strategy," Flanders said. "Our goal is to transition Playboy to a brand management company, and our first priority is to outsource, partner or license those of our operations that can be more efficiently handled by other companies. Already we have completed two major deals, and we are pleased with what we are seeing from our partners thus far. The outsourcing model not only streamlines our organization, it also allows us to reduce our focus to strengthening our core competencies and to growing the high-margin, high-potential businesses that we will continue to operate.

"We believe that 2010 will be a transitional year and that the true benefits of our strategy will be more fully evident next year. Revenues are expected to decline this year, primarily due to changes at Playboy magazine, but segment income and operating margins should improve. We believe that Licensing, our most profitable business, will record solid revenue and profit growth, although the media businesses will remain challenged, showing only marginal improvement over last year," Flanders said.

Entertainment

First quarter Entertainment Group segment income was $3.6 million in 2010, up 21% from $3.0 million last year on an 8% decline in revenues to $24.0 million from $26.2 million. Cost-reduction efforts and lower programming amortization expense were responsible for the profit growth in the quarter.

Domestic TV revenues were essentially flat at $13.4 million in the 2010 first quarter compared to the 2009 first quarter, as gains in Playboy TV monthly subscription sales offset declines in video-on-demand buys. International TV revenues were $10.0 million in the first quarter, down 12% from $11.3 million last year, reflecting increased competition in Europe. Revenues from other entertainment businesses also declined in the 2010 first quarter compared to the prior year in part due to lower licensing fees for third-party productions.

Print/Digital

A significant improvement in results from the U.S. edition of Playboy magazine was responsible for the narrowing of the Print/Digital Group's first quarter segment loss to $1.1 million this year from $3.6 million last year. The Group's revenues were down 30% in the same time periods to $18.2 million from $26.1 million, reflecting the company's decisions to lower Playboy magazine's rate base and to combine the first issue of 2010 with the last issue of 2009 into one editorial package, which was recorded in the 2009 fourth quarter. Although domestic magazine revenues in the 2010 first quarter declined 48% to $7.1 million from $13.5 million in last year's first quarter as a result of these measures, the magazine's first quarter results improved due to the resulting reduction in manufacturing and shipping costs, as well as lower subscription promotion costs and the implementation of other expense-control measures.

The company said that it has returned to publishing 12 separate issues annually and will record revenues for three issues in the 2010 second quarter compared to four last year, when two issues were combined into a summer bonus package. As a result of that unfavorable comparison as well as the lower rate base, the company said that it expects to report a 26% decline in second quarter 2010 advertising revenues versus the same period last year.

First quarter digital revenues decreased $1.0 million to $8.3 million in 2010, largely reflecting reduced pay site sales. Cost-reduction initiatives offset the revenue decline.

Licensing

Licensing Group segment income rose 17% to $6.5 million in the 2010 first quarter compared to the prior year on a 6% increase in revenues to $9.9 million. Royalties from two global licensing agreements and increased sales in Asia were largely responsible for the top- and bottom-line improvement.

Corporate and Other

Corporate expense declined 7% to $5.8 million in the 2010 first quarter versus $6.3 million last year due to a range of cost-savings initiatives.

The company recorded $1.1 million in restructuring and impairment charges in the 2010 first quarter, which primarily was related to real estate lease obligations. This compares to the first quarter of 2009 when the company reported a total of $8.7 million in restructuring and impairment charges.

Additional information regarding first quarter 2010 earnings will be available on the earnings release conference call, which is being held today, May 6, 2010, at 11:00 a.m. Eastern /10:00 a.m. Central. The call may be accessed by dialing (800) 895-0198 (for domestic callers) or (785) 424-1053 (for international callers) and using the password: Playboy. In addition, the call will be webcast. To listen to the call, please visit http://www.peiinvestor.com/ and select the Investor Relations section.

Playboy is one of the most recognized and popular consumer brands in the world. Playboy Enterprises, Inc. is a media and lifestyle company that markets the brand through a wide range of media properties and licensing initiatives. The company publishes Playboy magazine in the United States and abroad and creates content for distribution via television networks, websites, mobile platforms and radio. Through licensing agreements, the Playboy brand appears on a wide range of consumer products in more than 150 countries as well as retail stores and entertainment venues.

FORWARD-LOOKING STATEMENTS

This release contains "forward-looking statements," as to expectations, beliefs, plans, objectives and future financial performance, and assumptions underlying or concerning the foregoing. We use words such as "may," "will," "would," "could," "should," "believes," "estimates," "projects," "potential," "expects," "plans," "anticipates," "intends," "continues" and other similar terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which could cause our actual results, performance or outcomes to differ materially from those expressed or implied in the forward-looking statements. We want to caution you not to place undue reliance on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

The following are some of the important factors that could cause our actual results, performance or outcomes to differ materially from those discussed in the forward-looking statements:

1. Foreign, national, state and local government regulations, actions or
initiatives, including:
a. attempts to limit or otherwise regulate the sale, distribution or
transmission of adult-oriented materials, including print,
television, video, Internet and mobile materials;
b. attempts to limit or otherwise regulate the sale or distribution of
certain consumer products sold by our licensees, including
nutraceuticals and energy drinks; or
c. limitations on the advertisement of tobacco, alcohol and other
products which are important sources of advertising revenue for us;
2. Risks associated with our foreign operations, including market
acceptance and demand for our products and the products of our
licensees and other business partners;
3. Our ability to effectively manage our exposure to foreign currency
exchange rate fluctuations;
4. Further changes in general economic conditions, consumer spending
habits, viewing patterns, fashion trends or the retail sales
environment, which, in each case, could reduce demand for our
programming and products and impact our advertising and licensing
revenues;
5. Our ability to protect our trademarks, copyrights and other
intellectual property;
6. Risks as a distributor of media content, including our becoming subject
to claims for defamation, invasion of privacy, negligence, copyright,
patent or trademark infringement and other claims based on the nature
and content of the materials we distribute;
7. The risk our outstanding litigation could result in settlements or
judgments which are material to us;
8. Dilution from any potential issuance of common stock or convertible
debt in connection with financings or acquisition activities;
9. Further competition for advertisers from other publications, media or
online providers or decreases in spending by advertisers, either
generally or with respect to the men's market;
10. Competition in the television, men's magazine, Internet, mobile and
product licensing markets;
11. Attempts by consumers, distributors, merchants or private advocacy
groups to exclude our programming or other products from distribution;
12. Our television, Internet and mobile businesses' reliance on third
parties for technology and distribution, and any changes in that
technology, distribution and/or delays in implementation which might
affect our plans, assumptions and financial results;
13. Risks associated with losing access to transponders or technical
failure of transponders or other transmitting or playback equipment
that is beyond our control;
14. Competition for channel space on linear or video-on-demand television
platforms;
15. Failure to maintain our agreements with multiple system operators and
direct-to-home, or DTH, operators on favorable terms, as well as any
decline in our access to households or acceptance by DTH, cable and/or
telephone company systems and the possible resulting cancellation of
fee arrangements, pressure on splits or other deterioration of
contract terms with operators of these systems;
16. Risks that we may not realize the expected sales and profits and other
benefits from acquisitions;
17. Any charges or costs we incur in connection with restructuring
measures we have taken or may take in the future;
18. Increases in paper, printing, postage or other manufacturing costs;
19. Effects of the consolidation of the single-copy magazine distribution
system in the U.S. and risks associated with the financial stability
of major magazine wholesalers;
20. Effects of the consolidation and/or bankruptcies of television
distribution companies;
21. Risks associated with the viability of our subscription, ad-supported
and e-commerce Internet models;
22. Our ability to sublet our excess space may be negatively impacted by
the market for commercial rental real estate as well as by the global
economy generally;
23. The risk that our common stock could be delisted from the New York
Stock Exchange, or NYSE, if we fail to meet the NYSE's continued
listing requirements;
24. Risks that adverse market conditions in the securities and credit
markets may significantly affect our ability to access the capital
markets;
25. The risk that we will be unable to refinance our 3.00% convertible
senior subordinated notes due 2025, or convertible notes, or the risk
that we will need to refinance our convertible notes, prior to the
first put date of March 15, 2012, at significantly higher interest
rates;
26. The risk that we are unable to either extend the maturity date of our
existing credit facility beyond the current expiration date of January
31, 2011 or establish a new facility with a later maturity date and
acceptable terms; and
27. Further downward pressure on our operating results and/or further
deterioration of economic conditions could result in further
impairments of our long-lived assets, including our other intangible
assets.

More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, which are available at http://www.sec.gov/ or at http://www.peiinvestor.com/ in the Investor Relations section of our website.

Playboy Enterprises, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In millions, except per share amounts)

Quarters Ended
March 31,
---------
2010 2009
---- ----
Net revenues
------------
Entertainment:
Domestic TV $13.4 $13.3
International TV 10.0 11.3
Other 0.6 1.6
--- ---
Total Entertainment 24.0 26.2
Print/Digital:
Domestic magazine 7.1 13.5
International magazine 1.5 1.7
Special editions and other 1.3 1.6
Digital 8.3 9.3
Total Print/Digital 18.2 26.1
Licensing:
Consumer products 8.5 7.8
Location-based entertainment 0.9 1.1
Marketing events 0.1 0.1
Other 0.4 0.3
--- ---
Total Licensing 9.9 9.3
--- ---

Total net revenues $52.1 $61.6
===== =====

Net loss
--------
Entertainment $3.6 $3.0
Print/Digital (1.1) (3.6)
Licensing 6.5 5.6
Corporate (5.8) (6.3)
---- ----

Segment income (loss) 3.2 (1.3)

Restructuring expense (0.7) (3.2)
Impairment charges (0.4) (5.5)

Operating income (loss) 2.1 (10.0)

Interest expense (2.2) (2.1)
Amortization of deferred financing fees (0.2) (0.3)
Other, net - (0.1)
--- ----

Loss before income taxes (0.3) (12.5)

Income tax expense (0.7) (1.2)
---- ----

Net loss $(1.0) $(13.7)
===== ======

Weighted average number of common shares
outstanding
Basic and diluted 33,540 33,388
====== ======

Basic and diluted loss per common share $(0.03) $(0.41)
====== ======

PLAYBOY ENTERPRISES, INC.
Reconciliation of Non-GAAP Financial Information (dollars in
millions, except per share amounts)

First Quarter Ended March 31,
-----------------------------
EBITDA and Adjusted EBITDA 2010 2009
-------------------------- ---- ----
Net Loss $(1.0) $(13.7)
Adjusted for:
Income Tax Expense 0.7 1.2
Interest Expense 2.2 2.1
Amortization of Deferred
Financing Fees 0.2 0.3
Depreciation and Amortization 8.1 9.7
----------------------------- --- ---
EBITDA (1) 10.2 (0.4)
Adjusted for:
Restructuring Expense 0.7 3.2
Stock Options and Restricted
Stock Awards 0.3 0.2
Equity in Operations of
Investments 0.1 -
Impairment Charges 0.4 5.5
Cash Investments in
Entertainment (5.1) (7.2)
------------------- ---- ----
Programming
-----------
Adjusted EBITDA (2) $6.6 $1.3
------------------- ---- ----

Net Income (Loss) Before
Restructuring and First Quarter Ended March 31,
-----------------------------
Impairment Charges (3) 2010 2009
---------------------- ---- ----
Net Loss $(1.0) $(13.7)
Adjusted for:
Restructuring Expense 0.7 3.2
Impairment Charges 0.4 5.5
------------------ --- ---
Net Income (Loss) Before
Restructuring and $0.1 $(5.0)
Impairment Charges
Basic and Diluted Loss Before
Restructuring and $- $(0.15)
----------------------------- --- ------
Impairment Charges Per Common
Share
-----------------------------

First Quarter Ended March 31,
-----------------------------
Financial and Operating Data 2010 2009
---------------------------- ---- ----
Entertainment
Cash Investments in
Entertainment Programming $5.1 $7.2
Programming Amortization
Expense $6.6 $8.0

Print/Digital
Advertising Sales (Playboy-
Branded) $1.9 $3.4
Digital Content Expense $1.6 $1.7
Domestic Magazine Advertising
Pages 58.9 59.0

At March 31
Cash, Cash Equivalents,
Marketable Securities and
Short-Term Investments $25.4 $26.5
Long-Term Financing
Obligations $105.3 $100.8
------------------- ------ ------

See notes on accompanying page.

First Quarter Ended March 31,
-----------------------------
EBITDA and Adjusted EBITDA % Inc/(Dec)
-------------------------- -----------
Net Loss (92.7)
Adjusted for:
Income Tax Expense (41.7)
Interest Expense 4.8
Amortization of Deferred Financing
Fees (33.3)
Depreciation and Amortization (16.5)
-----------------------------
EBITDA (1) -
Adjusted for:
Restructuring Expense (78.1)
Stock Options and Restricted Stock
Awards 50.0
Equity in Operations of Investments -
Impairment Charges (92.7)
Cash Investments in Entertainment (29.2)
---------------------------------
Programming
-----------
Adjusted EBITDA (2) 407.7
-------------------

Net Income (Loss) Before
Restructuring and First Quarter Ended March 31,
-----------------------------
% Better/
Impairment Charges (3) (Worse)
---------------------- ----------
Net Loss 92.7
Adjusted for:
Restructuring Expense 78.1
Impairment Charges 92.7
------------------
Net Income (Loss) Before
Restructuring and -
Impairment Charges
Basic and Diluted Loss Before
Restructuring and 100.0
-----------------------------
Impairment Charges Per Common Share
-----------------------------------

First Quarter Ended March 31,
-----------------------------
Financial and Operating Data % Inc/(Dec)
---------------------------- -----------
Entertainment
Cash Investments in Entertainment
Programming (29.2)
Programming Amortization Expense (17.5)

Print/Digital
Advertising Sales (Playboy-Branded) (44.1)
Digital Content Expense (5.9)
Domestic Magazine Advertising Pages (0.2)

At March 31
Cash, Cash Equivalents, Marketable
Securities and
Short-Term Investments (4.2)
Long-Term Financing Obligations 4.5
-------------------------------

See notes on accompanying page.

PLAYBOY ENTERPRISES, INC.
Notes to Reconciliation of Non-GAAP Financial Information and
Financial and Operating Data

(1) In order to fully assess our financial results, management
believes that EBITDA is an appropriate measure for evaluating our
operating performance and liquidity, because it reflects the
resources available for, among other things, investments in
television programming. The resources reflected in EBITDA are not
necessarily available for our discretionary use because of legal or
functional requirements to conserve funds for capital replacement
and expansion, debt service and other commitments and uncertainties.
Investors should recognize that EBITDA might not be comparable to
similarly titled measures of other companies. EBITDA should be
considered in addition to, and not as a substitute for or superior
to, any measure of performance, cash flows or liquidity prepared in
accordance with generally accepted accounting principles in the
United States, or GAAP.

(2) In order to fully assess our financial results, management
believes that Adjusted EBITDA is an appropriate measure for
evaluating our operating performance and liquidity, because it
reflects the resources available for strategic opportunities
including, among other things, to invest in the business, make
strategic acquisitions and strengthen the balance sheet. In
addition, a comparable measure of Adjusted EBITDA is used in our
credit facility to, among other things, determine the interest rate
that we are charged on borrowings under the credit facility.
Investors should recognize that Adjusted EBITDA might not be
comparable to similarly titled measures of other companies. Adjusted
EBITDA should be considered in addition to, and not as a substitute
for or superior to, any measure of performance, cash flows or
liquidity prepared in accordance with GAAP.

(3) In order to fully assess our financial results, management
believes that Net Income (Loss) Before Restructuring and Impairment
Charges is an appropriate measure for evaluating our operating
performance and liquidity. Investors should recognize that Net
Income (Loss) Before Restructuring and Impairment Charges might not
be comparable to similarly titled measures of other companies. Net
Income (Loss) Before Restructuring and Impairment Charges should be
considered in addition to, and not as a substitute for or superior
to, any measure of performance, cash flows or liquidity prepared in
accordance with GAAP.

Source: Playboy Enterprises, Inc.

CONTACT: Investors, Martha Lindeman, +1-312-373-2430, or Media, Matthew
Pakula, +1-312-373-2435, both for Playboy Enterprises, Inc.

Web Site: http://www.peiinvestor.com/

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