UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
to
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from .................... to .......................
Commission file number 001-14790
Playboy Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-4249478
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
680 North Lake Shore Drive, Chicago, Illinois 60611
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 751-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Class A Common Stock, par value $0.01 per share....... New York Stock Exchange
Pacific Exchange
Class B Common Stock, par value $0.01 per share....... New York Stock Exchange
Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of Class A Common Stock, par value $0.01 per
share, held by nonaffiliates on February 28, 2001 (based upon the closing
sale price on the New York Stock Exchange) was $15,938,762. The aggregate
market value of Class B Common Stock, par value $0.01 per share, held by
nonaffiliates on February 28, 2001 (based upon the closing sale price on
the New York Stock Exchange) was $165,403,220.
As of February 28, 2001, there were 4,859,102 shares of Class A Common
Stock, par value $0.01 per share, and 19,418,234 shares of Class B Common
Stock, par value $0.01 per share, outstanding.
EXPLANATORY NOTE
This Annual Report on Form 10-K/A for the annual period ended
December 31, 2000 is being filed solely to re-file a new version of Exhibit
99. The Form 10-K/A constitutes Amendment No. 1 to Playboy Enterprises,
Inc.'s Annual Report on Form 10-K for the annual period ended December 31,
2000.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Exhibit Index
Exhibit No.
----------
23.2 Consent of Deloitte & Touche LLP
99 Playboy TV International, LLC Joint Venture
financial statements for the period ended December
31, 2000
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
PLAYBOY ENTERPRISES, INC.
September 20, 2001 By: /s/ Linda Havard
---------------------------------------
Name: Linda G. Havard
Title: Executive Vice President, Finance
and Operations, and Chief Financial
Officer (Authorized Officer)
EXHIBIT INDEX
All agreements listed below may have additional exhibits which are
not attached. All such exhibits are available upon request, provided the
requesting party shall pay a fee for copies of such exhibits, which fee
shall be limited to the Company's reasonable expenses incurred in
furnishing these documents.
Exhibit
-------
23.2 Consent of Deloitte & Touche LLP
99 Playboy TV International, LLC Joint Venture
financial statements for the period ended December
31, 2000
PLAYBOY TV INTERNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and 2000
(In thousands of U.S. dollars)
December 31, December 31,
1999 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................... $ 2,436 $ 5,549
Accounts receivable, net ............................ 5,331 4,860
Due from related parties ............................ 2,358 3,791
Programming rights, net ............................. 11,232 13,334
Other current assets ................................ 252 1,179
------- -------
Total current assets ............................. 21,609 28,713
PROPERTY AND EQUIPMENT, NET ............................ 1,258 1,399
PROGRAMMING RIGHTS, NET ................................ 41,471 37,724
INVESTMENT IN UNCONSOLIDATED AFFILIATE ................. 3,306 3,306
TRADEMARKS, net ........................................ 11,595 10,396
GOODWILL, net .......................................... 9,673 8,939
OTHER .................................................. 158 138
------- -------
TOTAL ASSETS............................................ $89,070 $90,615
======= =======
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................... $ 1,400 $ 1,258
Accrued expenses and other current liabilities ...... 3,080 2,940
Accrued compensation ................................ 16 334
Due to related parties .............................. 2,852 2,789
Current portion of rights acquisition fee payable ... 7,500 5,000
Unearned revenues ................................... 138 588
------- -------
Total current liabilities ........................ 14,986 12,909
RIGHTS ACQUISITION FEE PAYABLE, net of current portion.. 45,717 45,039
COMMITMENTS AND CONTINGENCIES (Note 7)
OWNERS' EQUITY ......................................... 28,367 32,667
------- -------
TOTAL LIABILITIES
AND OWNERS' EQUITY.................................... $89,070 $90,615
======= =======
See notes to consolidated financial statements.
- 2 -
PLAYBOY TV INTERNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Period from August 31, 1999 (Date of Commencement) through December 31, 1999
and Year Ended December 31, 2000
(In thousands of U.S. dollars)
Period
from August 31, 1999
(Date of Commencement) Year
Through Ended
December 31, 1999 December 31, 2000
---------------------- -----------------
REVENUES:
Subscriber-based fees .......................... $ 6,741 $ 24,584
Advertising .................................... 113 459
Programming rights ............................. 2,328 2,516
Other .......................................... 186 741
-------- --------
Total revenues ................................ 9,368 28,300
-------- --------
OPERATING EXPENSES:
Product, content and technology ................ 4,950 18,534
Marketing and sales ............................ 805 3,323
Corporate and administration ................... 4,746 9,813
Depreciation and amortization .................. 646 2,148
-------- --------
Total operating expenses ...................... 11,147 33,818
-------- --------
OPERATING LOSS ................................... (1,779) (5,518)
-------- --------
OTHER INCOME (EXPENSE):
Interest expense ............................... (1,285) (4,322)
Interest income ................................ 35 213
Other .......................................... -- (308)
-------- --------
Other income (expense), net ................... (1,250) (4,417)
-------- --------
NET LOSS ......................................... (3,029) (9,935)
OTHER COMPREHENSIVE INCOME - Foreign currency
translation .................................... 189 32
-------- --------
COMPREHENSIVE LOSS ............................... $ (2,840) $ (9,903)
======== ========
See notes to consolidated financial statements.
- 3 -
PLAYBOY TV INTERNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OWNERS' EQUITY
Period from August 31, 1999 (Date of Commencement) through December 31, 1999
and Year Ended December 31, 2000
(In thousands of U.S. dollars)
Accumulated
Cisneros Playboy Other
Group Entertainment Comprehensive
Affiliate Group, Inc. Income Total
--------- ------------- ------------- -----
INITIAL CASH CAPITAL CONTRIBUTIONS ......... $ 33,996 $ 8,446 $ -- $ 42,442
Adjustment for historical carryover basis
(see Note 1) .......................... -- (11,235) -- (11,235)
Foreign currency translation ............ -- -- 189 189
Net loss ................................ (2,426) (603) -- (3,029)
-------- -------- -------- --------
BALANCE, DECEMBER 31, 1999 ................. 31,570 (3,392) 189 28,367
Capital contributions ................... 11,377 2,826 -- 14,203
Foreign currency translation ............ -- -- 32 32
Net loss ................................ (7,958) (1,977) -- (9,935)
-------- -------- -------- --------
BALANCE, DECEMBER 31 2000 .................. $ 34,989 $ (2,543) $ 221 $ 32,667
======== ======== ======== ========
See notes to consolidated financial statements.
- 4 -
PLAYBOY TV INTERNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from August 31, 1999 (Date of Commencement) through December 31, 1999
and Year Ended December 31, 2000
(In thousands of U.S. dollars)
Period from
August 31, 1999
(Date of Commencement) Year
through Ended
December 31, 1999 December 31, 2000
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................... $ (3,029) $ (9,935)
Adjustments to reconcile net loss to net cash used in operating
activities:
Amortization of programming rights ......................... 3,909 14,293
Depreciation and amortization .............................. 646 2,148
Accretion of interest expense .............................. 1,285 4,322
Changes in operating assets and liabilities:
Accounts receivable, net ................................... (2,085) 471
Due from related parties ................................... (2,358) (1,433)
Acquisition of programming rights .......................... (9,097) (12,648)
Other assets ............................................... (342) (907)
Accounts payable ........................................... 410 (142)
Accrued expenses and other current liabilities ............. 1,184 (140)
Accrued compensation ....................................... 16 318
Due to related parties ..................................... (1,018) (63)
Unearned revenue ........................................... 138 450
-------- --------
Net cash used in operating activities ......................... (10,341) (3,266)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ...................... (1,164) (634)
Net cash acquired in acquisition ........................... 1,310 --
-------- --------
Net cash provided by (used in) investing activities ........... 146 (634)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions ...................................... 42,442 14,203
Payment of rights acquisition fee payable .................. (30,000) (7,500)
-------- --------
Net cash provided by financing activities ..................... 12,442 6,703
-------- --------
EFFECT OF FOREIGN CURRENCY TRANSLATION ........................ 189 310
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ..................... 2,436 3,113
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................ -- 2,436
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 2,436 $ 5,549
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of certain net assets as described in Note 1
See notes to consolidated financial statements.
- 5 -
PLAYBOY TV INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from August 31, 1999 (Date of Commencement) through December 31, 1999
and Year Ended December 31, 2000
(In thousands of U.S. dollars)
1. GENERAL AND ORGANIZATION
General -- Playboy TV International, LLC and subsidiaries (collectively,
"Playboy TV International"), a Delaware limited liability company, were
created to own and operate on an exclusive basis adult-oriented
television services worldwide outside of North America and Latin America
under the Playboy TV and Spice brand names. Playboy TV International
presently owns and operates an adult-oriented television service in the
United Kingdom. Playboy TV International also owns a minority interest
(19.9%) in an adult-oriented television service in Japan. Playboy TV
International generates a significant portion of its revenues from
subscriber-based fees charged to cable system and direct-to-home
operators that distribute Playboy TV International's branded television
channels. Playboy TV International also derives revenues from the
licensing of programming rights.
Playboy TV International's business plan provides for operating losses
in the initial years, requires further capital contributions, and is
ultimately expected to result in positive cash flow. The funding of the
capital requirements of Playboy TV International is established annually
in connection with the approval of the business plan and annual budget.
There can be no assurance, however, that Playboy TV International's
business plan and cash flow projections will be met.
Organization -- Playboy TV International was formed in June 1999 by a
member of the Cisneros Group and Playboy Entertainment Group, Inc.
("PEGI") with initial cash capital contributions of $33,996 and $8,446,
respectively. The "Cisneros Group" is a name used to describe a group of
investments, joint ventures, strategic alliances and companies that are
engaged in diversified consumer businesses, including broadcast and pay
television, direct-to-home satellite television, content production and
other entertainment, media and communication enterprises, and that are
associated with Ricardo J. and Gustavo A. Cisneros and trusts
established by them for the benefit of themselves and members of their
families. A member of the Cisneros Group acquired an 80.1% interest in
Playboy TV International and PEGI acquired a 19.9% interest. The net
income or loss of Playboy TV International is allocated to the owners in
accordance with their respective ownership interests. PEGI has
substantive participating rights, including the approval of the annual
budget, and has the option to increase its equity interest in Playboy TV
International up to 50% by purchasing a portion of the member of the
Cisneros Group's interest in Playboy TV International at a price
governed by the terms of the operating agreement. This option may be
exercised on the earlier of the last day of the tenth year following the
formation of Playboy TV International and 30 days after the date on
which Playboy TV International has had positive cash EBITDA for two
consecutive fiscal quarters. Until August 2003, the exercise price for
this "buy-up" right increases over time and is based on the price of the
initial investment in Playboy TV International plus interest. From
August 2003 through August 2009, the exercise price is based on the fair
market value of Playboy TV International at the time of exercise. The
exercise price may be paid in cash or shares of PEGI's parent company.
On August 31, 1999 (date of commencement), Playboy TV International
entered into several agreements in which, among other things, Playboy TV
International acquired certain assets, subject to certain liabilities,
from PEGI and PEGI's parent company, including the right to use certain
trademarks for a specified number of years and a 100% ownership interest
in a subsidiary in the United Kingdom ("U.K. Subsidiary"). The following
is a summary of the assets acquired, liabilities assumed and
consideration paid:
- 6 -
PLAYBOY TV INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from August 31, 1999 (Date of Commencement) through December 31, 1999
and Year Ended December 31, 2000
(In thousands of U.S. dollars)
Current assets, other than programming rights ........... $ 4,556
Programming rights ...................................... 47,515
Investment in unconsolidated affiliate .................. 3,306
Intangible and other assets ............................. 12,237
--------
Total assets acquired ........................ 67,614
--------
Current liabilities, other than current portion of rights
acquisition fee payable .............................. 6,756
Rights acquisition fee payable .......................... 81,932
--------
Total consideration .......................... 88,688
--------
Excess of consideration ................................. 21,074
Adjustment for historical carryover basis ............... (11,235)
--------
Excess cost over net assets
acquired (goodwill)
$ 9,839
========
The above transaction was recorded in the accompanying consolidated
financial statements by carrying over PEGI's historical basis in the net
assets sold to the extent that PEGI continues to have an interest in
those assets (i.e., 19.9%). The net assets attributable to the Cisneros
Group were recorded at their estimated fair value.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements of
Playboy TV International include the accounts of Playboy TV
International, LLC and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments -- The fair value of financial
instruments held by Playboy TV International is based on a number of
factors and assumptions and may not necessarily be representative of the
actual gains or losses that may be realized upon settlement. The
carrying amount of cash equivalents, accounts receivable and payable,
accrued expenses, due to related parties and other current liabilities
approximates their fair value due to their short-term nature. The
carrying amount of the rights acquisition fee payable approximates fair
value as determined based on rates estimated by Playboy TV International
to be currently available from other lenders.
Foreign Currency Translation-- The accounts of the U.K. Subsidiary are
translated into U.S. dollars in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 52, Foreign
Currency Translation. Management has determined that the pound is the
functional currency of the U.K. Subsidiary. Certain assets and liabilities
of the U.K. Subsidiary are denominated in currencies other than the
functional currency. Transaction gains and losses on these assets and
liabilities are included in the results of operations for the relevant
period.
- 7 -
PLAYBOY TV INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from August 31, 1999 (Date of Commencement) through December 31, 1999
and Year Ended December 31, 2000
(In thousands of U.S. dollars)
Risk Management -- Playboy TV International has international
operations. As a result, Playboy TV International's revenues may be
adversely affected by changes in international market conditions.
Playboy TV International does not have significant foreign currency
risk because the majority of its assets are non-monetary in nature
and the majority of its liabilities are denominated in U.S. dollars.
In addition, Playboy TV International does not have interest rate
risk exposure. Accordingly, Playboy TV International does not enter
into derivative transactions to hedge against these potential risks.
As a result, the January 1, 2001 implementation of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as
amended by SFAS No. 138, did not have a material impact on Playboy TV
International's consolidated financial position, results of
operations or cash flows.
Cash and Cash Equivalents -- Cash and cash equivalents include cash and
interest-bearing deposits held in banks with an original maturity date
of three months or less when acquired.
Allowance for Doubtful Accounts Receivable -- Playboy TV International
carries accounts receivable at the amount it deems to be collectible.
Accordingly, Playboy TV International provides allowances for accounts
receivable deemed to be uncollectible based on management's best
estimates. Recoveries are recognized in the period they are received.
The ultimate amount of accounts receivable that become uncollectible
could differ from the estimated amount. The activity for the allowance
for doubtful accounts receivable is as follows:
Period from
August 31, 1999
(Date of Commencement) Year Ended
through December 31,
December 31, 1999 2000
--------------------- ------------
Beginning balance ........... $ -- $ 144
Provision ................... 144 205
Write-offs, net of recoveries -- (163)
----------- -----------
Ending balance .............. $ 144 $ 186
=========== ===========
Programming Rights -- Programming rights consist of the right to
broadcast and distribute acquired or licensed television content and
related rights. Programming rights and the related obligations are
recorded at gross contract prices. The costs are amortized on varying
bases related to the license periods, anticipated usage of the programs
and the expected revenues to be derived from the licensing of rights to
third parties. In the event that an acquired program is replaced and no
longer used or otherwise deemed to be impaired, Playboy TV International
reduces the carrying value of the related programming rights
accordingly. Programming rights are segregated on the balance sheet
between current and non-current based on management's estimate of usage.
Playboy TV International believes that these policies conform to
Statement of Position No. 00-2, Accounting by Producers or Distributors
of Films.
Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation and amortization. Property and equipment, other
than leasehold improvements, is depreciated using the straight-line
method over the estimated useful lives of the respective assets, which
range from 3 to 5 years. Leasehold improvements are amortized over the
lesser of the term of the lease or the useful life of the respective
improvement (from 4 to 5 years).
Investment in Unconsolidated Affiliate -- Investment in unconsolidated
affiliate consists of a 19.9% minority interest in an adult-oriented
television service in Japan. Playboy TV International accounts for this
investment under the cost method of accounting.
- 8 -
PLAYBOY TV INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from August 31, 1999 (Date of Commencement) through December 31, 1999
and Year Ended December 31, 2000
(In thousands of U.S. dollars)
Trademarks and Goodwill-- Trademarks are amortized on a straight-line
basis over their contractual life of 10 years. As of December 31, 1999
and 2000, accumulated amortization of trademarks amounted to $400 and
$1,599, respectively. Goodwill is amortized on a straight-line basis
over an estimated life of 20 years. As of December 31, 1999 and 2000,
accumulated amortization of goodwill amounted to $166 and $622,
respectively. The carrying value of intangible assets is periodically
reviewed by management and impairments, if any, are recognized when the
expected future undiscounted cash flows related to such intangible
assets are less than their carrying value. Measurement of any impairment
loss is based on discounted operating cash flows, which represents
management's estimate of fair value.
Revenue Recognition -- Playboy TV International enters into network
license agreements with cable and direct-to-home distributors pursuant
to which it receives subscriber-based fees. Revenues from
subscriber-based fees are recorded as Playboy TV International provides
the television signal to the distributor or when the license period
begins and a contractual obligation exists. Advertising revenue is
recognized at the time the advertisement is aired. Revenues from
programming rights are recognized when the license period begins and a
contractual obligation exists. Playboy TV International believes that
its revenue recognition policies conform with Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements.
Revenues attributable to any one customer that exceeded 10% amounted to
$4,955 or 53% (representing three customers with 22%, 15% and 16%) and
$6,580 or 23% (representing one customer) for the period from August 31,
1999 (date of commencement) through December 31, 1999 and for the year
ended December 31, 2000, respectively.
Advertising Expenses -- Playboy TV International records advertising
expenses as incurred. Advertising expenses amounted to $792 and $3,156
for the period from August 31, 1999 (date of commencement) through
December 31, 1999 and for the year ended December 31, 2000,
respectively.
Income Taxes -- Playboy TV International's subsidiaries that are subject
to income taxes account for income taxes in accordance with the
provisions of SFAS No. 109, Accounting for Income Taxes. SFAS No. 109
requires an asset and liability approach for differences in financial
accounting and income tax purposes. Under this method, a deferred tax
asset or liability is recognized with respect to all temporary
differences between the carrying amounts and the tax bases of assets and
liabilities, and the benefit from utilizing tax loss carryforwards and
asset tax credits is recognized in the year in which the loss or credit
arises (subject to a valuation allowance with respect to any tax
benefits not expected to be realized). As of December 31, 1999 and 2000,
Playboy TV International did not have any significant deferred tax
assets or liabilities.
New Accounting Pronouncements - On June 29, 2001, the Financial
Accounting Standards Board adopted new standards, SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 is effective for all business combinations
initiated after June 30, 2001. SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001. These standards, among other
things, eliminate the amortization of goodwill and require that
goodwill be tested for impairment, that the excess of acquired net
assets over cost (which is sometimes referred to as "negative
goodwill") be allocated as a pro rata reduction of certain long-term
assets, and that any unallocated excess resulting from business
combinations initiated after June 30, 2001 must be recognized as an
extraordinary gain. Any unallocated excess resulting from business
combinations initiated before July 1, 2001 is to be written off and
recognized as the effect of a change in accounting principle.
As of December 31, 2000, Playboy TV International had $8,939 in net
goodwill. Amortization of goodwill for the period from August 31,
1999 (Date of Commencement) through December 31, 1999 amounted to
$166. Amortization for the year ended December 31, 2000 amounted to
$456.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31, December 31,
1999 2000
------------ ------------
Furniture and equipment ...................... $ 536 $ 1,188
Leasehold improvements ....................... 802 784
------- -------
Total ...................................... 1,338 1,972
Less accumulated depreciation and amortization (80) (573)
------- -------
Property and equipment, net .................. $ 1,258 $ 1,399
======= =======
- 9 -
PLAYBOY TV INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from August 31, 1999 (Date of Commencement) through December 31, 1999
and Year Ended December 31, 2000
(In thousands of U.S. dollars)
4. RIGHTS ACQUISITION FEE PAYABLE
The rights acquisition fee payable arose in connection with the net
assets acquired as described in Note 1. The rights acquisition fee is
non-interest bearing and has been recorded at its present value using an
imputed interest rate of 8.25%. For the period from August 31, 1999
(date of commencement) through December 31, 1999 and for the year ended
December 31, 2000, imputed interest expense amounted to $1,285 and
$4,322, respectively. The rights acquisition fee matures as follows:
2001............................................. $ 5,000
2002............................................. 7,500
2003............................................. 25,000
2004............................................. 25,000
------------
Total gross payments............................. 62,500
Less amounts representing interest............... (12,461)
-------------
Present value of rights acquisition fee payments. 50,039
Less current portion of rights acquisition fee... (5,000)
------------
Rights acquisition fee, net of current portion... $ 45,039
============
5. RELATED PARTY TRANSACTIONS
Program Supply Agreement -- On August 31, 1999 (date of commencement),
Playboy TV International and PEGI entered into a program supply
agreement pursuant to which Playboy TV International was granted a
license to all new programs produced by PEGI as well as other programs
for which PEGI acquires international rights. In exchange for these
rights, Playboy TV International agreed to pay to PEGI a license fee
that is generally determined as a percentage of PEGI's annual
programming costs. For the period from August 31, 1999 (date of
commencement) through December 31, 1999 and for the year ended December
31, 2000, Playboy TV International acquired $8,644 and $10,154,
respectively, of programming pursuant to this agreement.
Trademark License Agreement -- Playboy TV International entered into a
trademark license agreement with PEGI's parent company ("Licensor")
under which Playboy TV International received the exclusive right to use
the Playboy marks outside the United States, Canada and Latin America in
connection with the operation, distribution and promotion of the Playboy
TV channels and for the licensing of Playboy programming to third
parties. The license fee for the trademark license granted for years one
through ten was included in the purchase price as discussed in Note 1.
Beginning on the eleventh anniversary of the agreement and for each
fiscal year through the end of the 50-year term of the agreement,
Playboy TV International agreed to pay Licensor a license fee based on a
percentage of Playboy TV International's total revenues for that year.
Management Services -- A subsidiary of Ibero-American Media Partners II,
Ltd. ("Ibero-American Media Partners") performs certain "back office"
management services for Playboy TV International. The fees for these
services are determined based on the estimated value of the services
provided and are agreed upon by the owners annually in connection with
the approval of the business plan and annual budget. Management of
Playboy TV International believes that the fees charged for these
services are reasonable. Included in corporate and administration
expense for the period from August 31, 1999 (date of commencement)
through December 31, 1999 and for the year ended December 31, 2000 is
$30 and $295, respectively, for management services provided by
Ibero-American Media Partners.
Revenues -- For the period from August 31, 1999 (date of commencement)
through December 31, 1999 and for the year ended December 31, 2000,
Playboy TV International recognized subscriber-based fees totaling
$2,623 and $8,187, respectively, from two affiliates. Included in due
from related parties as of December 31, 1999 and as of December 31, 2000
is $2,358 and $3,791 due from these affiliates.
- 10 -
PLAYBOY TV INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from August 31, 1999 (Date of Commencement) through December 31, 1999
and Year Ended December 31, 2000
(In thousands of U.S. dollars)
6. SUPPLEMENTAL REVENUE INFORMATION
The following presents, on a supplemental basis, Playboy TV
International's revenues based on revenue sources by country/region:
Period from August 31, 1999 (Date of Commencement) Through
December 31, 1999:
Subscriber- Programming Advertising
Based Fees Rights and Other Total
---------- ----------- ----------- -----
United Kingdom ...... $2,222 $ 95 $ 213 $2,530
Germany ............. -- 1,455 -- 1,455
Latin America ....... 1,573 -- -- 1,573
Iberia .............. 530 -- -- 530
Turkey .............. 425 -- -- 425
Japan ............... 520 -- -- 520
Israel .............. 250 90 -- 340
Scandinavia ......... 267 100 -- 367
Poland .............. -- 210 -- 210
Other ............... 954 378 86 1,418
------ ------ ------ ------
Total ........... $6,741 $2,328 $ 299 $9,368
====== ====== ====== ======
Year Ended December 31, 2000:
Subscriber- Programming Advertising
Based Fees Rights and Other Total
---------- ----------- ----------- -----
United Kingdom ...... $11,292 $ 1,069 $ 459 $12,820
Latin America ....... 4,628 -- -- 4,628
Iberia .............. 2,960 -- -- 2,960
Japan ............... 1,607 -- -- 1,607
Turkey .............. 1,163 -- -- 1,163
Scandinavia ......... 1,516 100 -- 1,616
Taiwan ....... ...... 750 -- -- 750
Poland .............. -- 426 -- 426
Israel .............. 410 -- -- 410
Netherlands ......... 93 355 -- 448
Other ............... 165 566 741 1,472
------- ------- ------- -------
Total ........... $24,584 $ 2,516 $ 1,200 $28,300
======= ======= ======= =======
7. COMMITMENTS AND CONTINGENCIES
Leases -- Playboy TV International's headquarter offices are leased
through a subsidiary of Ibero-American Media Partners. In addition,
Playboy TV International leases transponders and office space in the
United Kingdom. Future minimum lease payments under these noncancellable
operating lease agreements are as follows:
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PLAYBOY TV INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from August 31, 1999 (Date of Commencement) through December 31, 1999
and Year Ended December 31, 2000
(In thousands of U.S. dollars)
Year Ended December 31,
2001.......................... $ 538
2002.......................... 538
2003.......................... 522
2004.......................... 346
----------
Total...................... $ 1,944
==========
Contingent Acquisition Payment -- As part of the acquisition of the U.K.
Subsidiary, Playboy TV International assumed a contingent liability in
the amount of approximately $10,000 payable to the previous shareholders
(prior to PEGI) of the U.K. Subsidiary. This amount is payable from
future profits of the U.K. Subsidiary and is therefore contingent upon
the ability of the U.K. Subsidiary to make profits as defined in the
applicable agreement. As of December 31, 2000, this contingency had not
been resolved and, accordingly, a liability had not been recorded.
8. PROPOSED TRANSACTION
Claxson Interactive Group Inc. ("Claxson") was incorporated as an
international business company under British Virgin Islands Law on
October 16, 2000. In connection with a combination agreement executed
by a shareholder of Playboy TV International on October 30, 2000,
certain subsidiaries of the shareholder, including the subsidiaries
that hold the interest in Playboy TV International, will be
transferred to Claxson in exchange for Class A common shares of
Claxson. As part of this transaction, it is contemplated that the
operations of three affiliates, Playboy TV Latin America, LLC,
Playboy TV B.V. and PTVLA U.S., LLC, will be integrated with the
operations of Playboy TV International.
9. SUBSEQUENT EVENT
The combination agreement referred to in Note 8 was amended as of
June 26, 2001. This amendment, among other things, reallocated the
number of Claxson Class A common shares to be issued to the parties
to the transaction. The transaction is expected to be completed in
the third quarter of 2001.
* * * * * *
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