Playboy Enterprises, Inc. Announces Third Quarter 2010 Results

(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; 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 impairments of our long-lived assets, including intangible assets.

Playboy Enterprises, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(In millions, except per share amounts)

Quarters Ended

September 30,

2010

2009

Net revenues

Entertainment:

Domestic TV

$    9.8

$  12.5

International TV

9.0

10.7

Other

0.7

1.2

Total Entertainment

19.5

24.4

Print/Digital:

Domestic magazine

10.0

9.4

International magazine

1.2

1.5

Special editions and other

2.0

2.4

Digital

8.5

9.6

Total Print/Digital

21.7

22.9

Licensing:

Consumer products

9.8

7.2

Location-based entertainment

0.9

1.2

Marketing events

0.2

0.2

Other

-

0.1

Total Licensing

10.9

8.7

Total net revenues

$  52.1

$  56.0

Net loss

Entertainment

$    0.8

$    2.3

Print/Digital

1.3

0.4

Licensing

6.2

5.5

Corporate

(7.6)

(5.5)

Segment income

0.7

2.7

Restructuring expense

(0.4)

(0.5)

Impairment charges

(25.4)

-

Operating income (loss)

(25.1)

2.2

Interest expense

(2.1)

(2.2)

Amortization of deferred financing fees

(0.2)

(0.1)

Other, net

1.1

0.2

Income (loss) before income taxes

(26.3)

0.1

Income tax expense

(1.1)

(1.2)

Net loss

$ (27.4)

$   (1.1)

Weighted average number of common shares outstanding

  Basic and diluted

33,696

33,468

Basic and diluted loss per common share

$ (0.81)

$ (0.03)

Playboy Enterprises, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(In millions, except per share amounts)

Nine Months Ended

September 30,

2010

2009

Net revenues

Entertainment:

Domestic TV

$   35.5

$   38.5

International TV

28.4

32.4

Other

2.3

3.5

Total Entertainment

66.2

74.4

Print/Digital:

Domestic magazine

27.3

39.3

International magazine

4.1

4.8

Special editions and other

4.4

5.4

Digital

25.0

27.8

Total Print/Digital

60.8

77.3

Licensing:

Consumer products

27.7

21.9

Location-based entertainment

2.7

3.5

Marketing events

2.2

2.3

Other

0.6

0.4

Total Licensing

33.2

28.1

Total net revenues

$ 160.2

$ 179.8

Net loss

Entertainment

$     6.0

$     7.3

Print/Digital

(1.0)

(0.9)

Licensing

19.1

15.9

Corporate

(19.8)

(17.3)

Segment income

4.3

5.0

Restructuring expense

(2.7)

(12.8)

Impairment charges

(25.8)

(5.5)

Operating loss

(24.2)

(13.3)

Investment income

-

0.7

Interest expense

(6.5)

(6.5)

Amortization of deferred financing fees

(0.5)

(0.5)

Other, net

0.1

(0.3)

Loss before income taxes

(31.1)

(19.9)

Income tax expense

(2.7)

(3.6)

Net loss

$ (33.8)

$ (23.5)

Weighted average number of common shares outstanding

  Basic and diluted

33,623

33,433

Basic and diluted loss per common share

$ (1.01)

$ (0.70)

PLAYBOY ENTERPRISES, INC. 

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

Third Quarter Ended September 30,

Nine Months Ended September 30,

EBITDA and Adjusted EBITDA

2010

2009

% Inc/(Dec)

2010

2009

% Inc/(Dec)

Net Loss

$                 (27.4)

$                   (1.1)

2,390.9

$                 (33.8)

$                 (23.5)

43.8

Adjusted for:

Income Tax Expense

1.1

1.2

(8.3)

2.7

3.6

(25.0)

Interest Expense

2.1

2.2

(4.5)

6.5

6.5

-

Amortization of Deferred Financing Fees

0.2

0.1

100.0

0.5

0.5

-

Depreciation and Amortization

5.4

8.8

(38.6)

22.3

27.5

(18.9)

EBITDA (1)

(18.6)

11.2

-

(1.8)

14.6

-

Adjusted for:

Restructuring Expense

0.4

0.5

(20.0)

2.7

12.8

(78.9)

Stock Options and Restricted Stock Awards

0.4

0.4

-

1.0

0.6

66.7

Equity in Operations of Investments

(0.3)

(0.2)

50.0

(0.2)

-

-

Impairment Charges

25.4

-

-

25.8

5.5

369.1

Cash Investments in Entertainment Programming

(7.2)

(5.1)

41.2

(18.2)

(18.4)

(1.1)

Adjusted EBITDA (2)

$                     0.1

$                     6.8

(98.5)

$                     9.3

$                   15.1

(38.4)

Net Loss Before Restructuring and

Third Quarter Ended September 30,

Nine Months Ended September 30,

Impairment Charges (3)

2010

2009

% Better/(Worse)

2010

2009

% Better/(Worse)

Net Loss

$                 (27.4)

$                   (1.1)

(2,390.9)

$                 (33.8)

$                 (23.5)

(43.8)

Adjusted for:

Restructuring Expense

0.4

0.5

20.0

2.7

12.8

78.9

Impairment Charges

25.4

-

-

25.8

5.5

(369.1)

Net Loss Before Restructuring and Impairment

Charges

$                   (1.6)

$                   (0.6)

(166.7)

$                   (5.3)

$                   (5.2)

(1.9)

Basic and Diluted Loss Before Restructuring and

Impairment Charges Per Common Share

$                 (0.05)

$                 (0.02)

(150.0)

$                 (0.16)

$                 (0.16)

-

Third Quarter Ended September 30,

Nine Months Ended September 30,

Financial and Operating Data

2010

2009

% Inc/(Dec)

2010

2009

% Inc/(Dec)

Entertainment

Cash Investments in Entertainment Programming

$                     7.2

$                     5.1

41.2

$                   18.2

$                   18.4

(1.1)

Programming Amortization Expense

$                     3.9

$                     7.2

(45.8)

$                   17.6

$                   22.4

(21.4)

Print/Digital

Advertising Sales (Playboy-Branded)

$                     2.9

$                     4.2

(31.0)

$                     7.9

$                   11.7

(32.5)

Digital Content Expense

$                     1.5

$                     1.5

-

$                     4.5

$                     4.9

(8.2)

Domestic Magazine Advertising Pages

85.2

65.2

30.7

248.9

191.1

30.2

At September 30

Cash, Cash Equivalents, Marketable Securities and

Short-Term Investments

$                   27.6

$                   26.9

2.6

$                   27.6

$                   26.9

2.6

Long-Term Financing Obligations

$                 107.6

$                 103.0

4.5

$                 107.6

$                 103.0

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 entertainment 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 Loss Before Restructuring and Impairment Charges is an appropriate measure for evaluating our operating performance and liquidity. Investors should recognize that Net Loss Before Restructuring and Impairment Charges might not be comparable to similarly titled measures of other companies. Net 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.