UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 001-14790
Playboy Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-4249478
(State of incorporation) (I.R.S. Employer Identification Number)
680 North Lake Shore Drive
Chicago, IL 60611
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 751-8000
- --------------------------------------------------------------------------------
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer |_| Accelerated filer |X| Non-accelerated filer |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
Yes |_| No |X|
At April 30, 2006, there were 4,864,102 shares of Class A common stock and
28,293,671 shares of Class B common stock outstanding.
PLAYBOY ENTERPRISES, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss) for the Quarters Ended March 31,
2006 and 2005 (Unaudited) 3
Condensed Consolidated Balance Sheets at March 31, 2006 (Unaudited)
and December 31, 2005 4
Condensed Consolidated Statements of Cash Flows for the
Quarters Ended March 31, 2006 and 2005 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 19
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 6. Exhibits 20
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLAYBOY ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
for the Quarters Ended March 31 (Unaudited)
(In thousands, except per share amounts)
2006 2005
- -------------------------------------------------------------------------------------------------------------------
Net revenues $ 82,120 $ 83,451
- -------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of sales (63,252) (59,276)
Selling and administrative expenses (15,337) (13,267)
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses (78,589) (72,543)
- -------------------------------------------------------------------------------------------------------------------
Operating income 3,531 10,908
- -------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
Investment income 607 187
Interest expense (1,428) (2,648)
Amortization of deferred financing fees (134) (233)
Minority interest -- (370)
Debt extinguishment expenses -- (19,280)
Other, net (196) (476)
- -------------------------------------------------------------------------------------------------------------------
Total nonoperating expense (1,151) (22,820)
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 2,380 (11,912)
Income tax expense (1,591) (1,207)
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) 789 (13,119)
- -------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss)
Unrealized gain (loss) on marketable securities 120 (25)
Unrealized gain (loss) on derivatives (2) 211
Foreign currency translation gain 85 276
- -------------------------------------------------------------------------------------------------------------------
Total other comprehensive income 203 462
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 992 $ (12,657)
===================================================================================================================
Weighted average number of common shares outstanding
Basic 33,141 33,354
===================================================================================================================
Diluted 33,453 33,354
===================================================================================================================
Basic and diluted earnings (loss) per common share $ 0.02 $ (0.39)
==================================================================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
3
PLAYBOY ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
Mar. 31, Dec. 31,
2006 2005
- -------------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 25,647 $ 26,089
Marketable securities and short-term investments 26,307 25,963
Receivables, net of allowance for doubtful accounts of
$4,238 and $3,883, respectively 41,054 46,296
Receivables from related parties 1,754 1,928
Inventories, net 12,360 12,846
Deferred subscription acquisition costs 10,731 10,452
Other current assets 9,365 8,761
- -------------------------------------------------------------------------------------------------------------------
Total current assets 127,218 132,335
- -------------------------------------------------------------------------------------------------------------------
Property and equipment, net 13,971 13,771
Long-term receivables 2,673 2,628
Programming costs, net 52,819 52,683
Goodwill 122,510 122,448
Trademarks 61,220 61,139
Distribution agreements, net of accumulated amortization
of $2,862 and $2,779, respectively 30,279 30,362
Other noncurrent assets 13,217 13,603
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 423,907 $ 428,969
===================================================================================================================
Liabilities
Acquisition liabilities $ 10,651 $ 11,782
Accounts payable 22,894 25,429
Accrued salaries, wages and employee benefits 5,506 10,068
Deferred revenues 46,302 45,987
Accrued litigation settlement -- 1,000
Other liabilities and accrued expenses 15,831 16,396
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 101,184 110,662
- -------------------------------------------------------------------------------------------------------------------
Financing obligations 115,000 115,000
Acquisition liabilities 11,788 11,792
Net deferred tax liabilities 18,460 17,555
Other noncurrent liabilities 17,007 16,713
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 263,439 271,722
- -------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common stock, $0.01 par value
Class A voting - 7,500,000 shares authorized; 4,864,102 issued 49 49
Class B nonvoting - 75,000,000 shares authorized;
28,673,175 and 28,643,443 issued, respectively 287 286
Capital in excess of par value 225,934 223,537
Accumulated deficit (59,187) (59,976)
Treasury stock, at cost, 381,971 shares (5,000) (5,000)
Accumulated other comprehensive loss (1,615) (1,649)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 160,468 157,247
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 423,907 $ 428,969
===================================================================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
4
PLAYBOY ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Quarters Ended March 31 (Unaudited)
(In thousands)
2006 2005
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income (loss) $ 789 $ (13,119)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depreciation of property and equipment 885 769
Amortization of intangible assets 285 413
Amortization of investments in entertainment programming 8,498 9,253
Amortization of deferred financing fees 134 233
Debt extinguishment expenses -- 19,280
Deferred income taxes 905 614
Net change in operating assets and liabilities 113 (3,481)
Investments in entertainment programming (9,331) (8,653)
Litigation settlement (1,000) (1,875)
Stock-based compensation 978 31
Other, net 97 641
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,353 4,106
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of investments (185) (26,750)
Proceeds from sales of investments -- 10,000
Additions to property and equipment (1,099) (1,041)
Other, net (54) --
- -------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (1,338) (17,791)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from financing obligations -- 115,000
Repayment of financing obligations -- (80,000)
Payment of debt extinguishment expenses -- (15,197)
Payment of acquisition liabilities (1,457) (1,880)
Purchase of treasury stock -- (5,000)
Payment of deferred financing fees -- (3,463)
Proceeds from stock plans -- 525
Other, net -- (39)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (1,457) 9,946
- -------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (442) (3,739)
Cash and cash equivalents at beginning of period 26,089 26,668
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 25,647 $ 22,929
===================================================================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(A) BASIS OF PREPARATION
The financial information included in these financial statements is
unaudited but, in the opinion of management, reflects all normal recurring and
other adjustments necessary for a fair presentation of the results for the
interim periods. The interim results of operations and cash flows are not
necessarily indicative of those results and cash flows for the entire year.
These financial statements should be read in conjunction with the financial
statements and notes to the financial statements contained in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2005. Certain amounts
reported for the prior period have been reclassified to conform to the current
year's presentation.
(B) RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2006, the Financial Accounting Standards Board, or the FASB,
issued Statement of Financial Accounting Standards No. 156, Accounting for
Servicing of Financial Assets, or Statement 156. Statement 156 permits an entity
to choose either the amortization method or fair value method for each class of
separately recognized servicing assets and servicing liabilities. At March 31,
2006, we did not have any financial assets and liabilities relating to servicing
rights subject to Statement 156. We are required to adopt Statement 156
effective at the beginning of 2007. We do not expect the adoption of Statement
156 to have a significant impact on our future results of operations or
financial condition.
In February 2006, the FASB issued Statement of Financial Accounting
Standards No. 155, Accounting for Certain Hybrid Financial Instruments, or
Statement 155. Statement 155 resolves issues addressed in FASB Statement 133
Implementation Issue No. D1, "Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets." Amongst other things, it permits
fair value remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation. At March 31, 2006,
we did not have any hybrid financial instruments subject to the fair value
election under Statement 155. We are required to adopt Statement 155 effective
at the beginning of 2007. We do not expect the adoption of Statement 155 to have
a significant impact on our future results of operations or financial condition.
(C) RESTRUCTURING EXPENSES
During the quarter ended March 31, 2006, we made cash payments of $0.1
million related to our 2002 restructuring plan. Of the total costs related to
our restructuring plans, approximately $10.1 million was paid by March 31, 2006,
with the remaining $1.1 million to be paid through 2007.
In 2005, we recorded an additional charge of $0.1 million related to our
2002 restructuring plan as a result of changes in plan assumptions primarily
related to leased space. There were no additional charges related to our 2001
restructuring plan.
The following table displays the activity and balances of our
restructuring reserve account for the quarter ended March 31, 2006 and for the
year ended December 31, 2005 (in thousands):
Consolidation
Workforce of Facilities and
Reduction Operations Total
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 2004 $ 179 $ 1,827 $ 2,006
Adjustment to previous estimate 17 132 149
Cash payments (196) (749) (945)
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 2005 -- 1,210 1,210
Cash payments -- (117) (117)
- -----------------------------------------------------------------------------------------------------
Balance at March 31, 2006 $ -- $ 1,093 $ 1,093
=====================================================================================================
6
(D) EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per share, or EPS (in thousands, except per share amounts):
(Unaudited)
Quarters Ended
March 31,
----------------------------
2006 2005
- -------------------------------------------------------------------------------------------------------------------
Numerator:
For basic and diluted EPS - net income (loss) $ 789 $ (13,119)
===================================================================================================================
Denominator:
For basic EPS - weighted average shares 33,141 33,354
Effect of dilutive potential common shares:
Employee stock options and other 312 --
- -------------------------------------------------------------------------------------------------------------------
Dilutive potential common shares 312 --
- -------------------------------------------------------------------------------------------------------------------
For diluted EPS - weighted average shares 33,453 33,354
===================================================================================================================
Basic and diluted EPS $ 0.02 $ (0.39)
===================================================================================================================
The following table sets forth the number of shares related to outstanding
options to purchase our Class B common stock, or Class B stock, and the
potential shares of Class B stock contingently issuable under our 3.00%
convertible senior subordinated notes due 2025; these shares were not included
in the computation of diluted EPS, for the quarters presented, as their
inclusion would have been antidilutive (in thousands):
(Unaudited)
Quarters Ended
March 31,
-----------------------
2006 2005
- -------------------------------------------------------------------------------------------------------------------
Stock options 2,409 3,746
Convertible senior subordinated notes, interest of 3.00% 6,758 6,758
- -------------------------------------------------------------------------------------------------------------------
Total 9,167 10,504
===================================================================================================================
(E) INVENTORIES, NET
Inventories, net, which are stated at the lower of cost (specific cost and
average cost) or fair value, consisted of the following (in thousands):
(Unaudited)
Mar. 31, Dec. 31,
2006 2005
- -------------------------------------------------------------------------------------------------------------------
Paper $ 3,167 $ 3,939
Editorial and other prepublication costs 6,258 6,529
Merchandise finished goods 2,935 2,378
- -------------------------------------------------------------------------------------------------------------------
Total inventories, net $ 12,360 $ 12,846
===================================================================================================================
7
(F) INCOME TAXES
Our income tax provision consists of foreign income tax related to our
international networks and withholding tax on licensing income for which we do
not receive a current U.S. income tax benefit because of our net operating loss
position. Our income tax provision also includes deferred federal and state
income taxes related to the amortization of goodwill and other indefinite-lived
intangibles, which cannot be offset against deferred tax assets due to the
indefinite reversal period of the deferred tax liabilities.
(G) CONTINGENCIES
In 2002, a $4.4 million verdict was entered against us by a state trial
court in Texas in a lawsuit with a former publishing licensee. We terminated the
license in 1998 due to the licensee's failure to pay royalties and other amounts
due to us under the license agreement. We are currently pursuing an appeal. We
have posted a bond in the amount of approximately $9.4 million, which represents
the amount of the judgment, costs and estimated pre- and post-judgment interest.
We, on advice of legal counsel, believe that it is not probable that a material
judgment against us will be sustained and have not recorded a liability for this
case in accordance with Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies.
In 2003, we recorded $8.5 million for the settlement of the Logix
litigation, which related to events prior to our 1999 acquisition of Spice. We
made payments of $1.0 million, $1.0 million and $6.5 million in 2006, 2005 and
2004, respectively.
In the third quarter of 2005, we acquired an affiliate network of websites
to complement our existing online business. We paid $8.3 million at closing,
which included $8.0 million for the initial purchase price and $0.3 million of
acquisition-related costs. Additional payments of $2.0 million are required in
each of 2006 and 2007. Pursuant to the asset purchase agreement, we are also
obligated to make future contingent earnout payments over a five-year period
based primarily on the financial performance of the acquired business. If the
required performance benchmarks are achieved, any contingent earnout payments
will be recorded as a combination of additional purchase price and compensation
expense. No additional earnout payments have been made through March 31, 2006.
(H) STOCK-BASED COMPENSATION
On January 1, 2006, we adopted the provisions of Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment, or Statement
123(R), which is a revision of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation, or Statement 123. Statement 123(R)
supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and amends Statement of Financial Accounting Standards No.
95, Statement of Cash Flows. Statement 123(R) requires that all stock-based
compensation to employees, including grants of employee stock options, be
recognized in the income statement based on its fair value.
We have stock plans for key employees and nonemployee directors, which
provide for the grant of nonqualified and incentive stock options and/or shares
of restricted stock units, deferred stock and other performance-based equity
awards. The exercise price of options granted equals or exceeds the fair value
at the grant date. In general, options vest over a two- to four-year period from
the grant date and expire ten years from the grant date. Restricted stock units
have been granted to key employees and provide for the issuance of Class B stock
if three-year cumulative operating income target thresholds are met. In
addition, one of the plans pertaining to nonemployee directors also allows for
the issuance of Class B stock as awards and payments for annual retainer,
committee and meeting fees.
Valuation Information
Upon adoption of Statement 123(R), we began estimating the value of stock
options on the date of grant using a Lattice Binomial model, or Lattice model,
under the modified prospective method. Prior to the adoption of Statement
123(R), the value of each employee stock option was estimated on the date of
grant using the Black-Scholes model for the purpose of pro forma financial
information, in accordance with Statement 123. The Lattice model requires
extensive analysis of actual exercise behavior data and a number of complex
assumptions including
8
expected volatility, risk-free interest rate, expected dividends, and option
cancellations. Results for prior periods have not been restated.
The following assumptions were used for the Lattice model in 2006 and the
Black-Scholes model in 2005:
Quarters Ended
March 31,
------------------------------
2006 2005
- ------------------------------------------------------------------------------
Expected volatility 38% 46%
Risk-free interest rate 4.32% - 4.51% 3.85% - 4.18%
Expected dividends -- --
- ------------------------------------------------------------------------------
The expected life of stock options represents the weighted average period
the stock options are expected to remain outstanding and is a derived output of
the Lattice model. The expected life of stock options is impacted by all of the
underlying assumptions and calibration of the Lattice model. The Lattice model
assumes that exercise behavior is a function of the option's remaining vested
life and the extent to which the option's fair value exceeds the exercise price.
The Lattice model estimates the probability of exercise as a function of these
two variables based on the entire history of exercises and cancellations on all
past option grants.
The weighted average expected life for options granted during the current
quarter using the Lattice model was 5.8 years, and the weighted average expected
life for options granted during the prior year quarter using the Black-Scholes
model was 6.0 years. The weighted average fair value per share for stock options
granted during the current quarter was $6.40 using the Lattice model, and the
weighted average fair value per share for stock options granted during the prior
year quarter was $5.84 using the Black-Scholes model.
Stock-based compensation expense recognized in the Condensed Consolidated
Statements of Operations and Comprehensive Income (Loss) for the current quarter
is based on awards ultimately expected to vest, reduced for estimated
forfeitures. Statement 123(R) requires forfeitures to be estimated at the time
of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Forfeitures were estimated based on historical
experience. In our pro forma information required under Statement 123 for the
periods prior to fiscal 2006, we accounted for forfeitures as they occurred.
Under the fair value recognition provisions of Statement 123(R), we measure
stock-based compensation cost at the grant date based on the value of the award
and recognize the expense over the vesting period. Compensation expense for all
stock-based payment awards granted prior to and subsequent to January 1, 2006,
is recognized using the straight-line attribution method.
Stock Option Activity
At March 31, 2006, 297,107 shares of Class B stock were available for
future grants under our various stock plans on a combined basis. Stock option
transactions during the quarter ended March 31, 2006, are summarized as follows:
Weighted Average
Shares Exercise Price
- ------------------------------------------------------------------ --------------------------
Class A Class B Class A Class B
- ------------------------------------------------------------------ --------------------------
Outstanding at December 31, 2005 -- 3,374,135 $ -- $ 15.85
Granted -- 670,500 -- 14.50
Exercised -- (13,666) -- 10.84
Canceled -- (55,999) -- 13.27
- ------------------------------------------------------------------
Outstanding at March 31, 2006 -- 3,974,970 $ -- $ 15.67
================================================================== ---------------------------
There was no aggregate intrinsic value for options granted in the current
quarter since the average fair value at March 31, 2006, was less than the
exercise price on the date of grant. The aggregate intrinsic value for options
exercised during the current quarter was approximately $0.1 million. The
aggregate intrinsic value for options granted and exercised during the prior
year quarter were $0.7 million and $0.3 million, respectively. The aggregate
intrinsic value of options outstanding and exercisable at March 31, 2006, were
$4.5 million and $3.7 million, respectively.
9
The following table summarizes information regarding stock options at
March 31, 2006:
Options Outstanding Options Exercisable
------------------------------------------ ------------------------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Range of Number Remaining Exercise Number Remaining Exercise
Exercise Prices Outstanding Life In Years Price Exercisable Life In Years Price
- ------------------------------------------------------------------ ------------------------------------------
Class B
$9.90-$16.72 3,049,470 7.13 $ 13.01 1,917,804 5.84 $ 12.66
$21.00-$24.13 583,500 3.07 21.84 583,500 3.07 21.84
$26.25-$31.50 342,000 2.81 28.89 342,000 2.81 28.89
- ------------------------------------ -----------
Total Class B 3,974,970 6.16 $ 15.67 2,843,304 4.91 $ 16.50
====================================------------------------------ ===========-------------------------------
Stock-based compensation expense is included in our various segments'
selling and administrative expenses.
The following table represents stock-based compensation expense for the
current quarter and pro forma amounts for the prior year quarter (in thousands,
except per share amounts):
(Unaudited)
Quarters Ended
March 31,
----------------------------
2006 2005
- -------------------------------------------------------------------------------------------------------------------
Stock-based compensation
Stock options $ 709 $ 704
Employee stock purchase plan 6 -
- -------------------------------------------------------------------------------------------------------------------
Total stock-based compensation $ 715 $ 704
===================================================================================================================
Net income (loss)
As reported $ 789 $ (13,119)
Fair value of stock-based compensation excluded from net income, gross (704)
----------
Pro forma $ (13,823)
==========
Basic and diluted EPS
As reported $ 0.02 $ (0.39)
Pro forma $ (0.41)
- -------------------------------------------------------------------------------------------------------------------
The following table summarizes our non-vested stock options at March 31,
2006:
Non-Vested Shares
- -------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2005 980,651
Granted 670,500
Vested (449,820)
Exercised/Canceled (69,665)
- -------------------------------------------------------------------------------------------------------------------
Outstanding at March 31, 2006 1,131,666
===================================================================================================================
The intrinsic value of our non-vested stock options, for both employees
and nonemployee directors, was $0.8 million, which was based upon our Class B
stock closing price of $14.20 per share on March 31, 2006. As of March 31, 2006,
there was $6.0 million of unrecognized stock-based compensation expense related
to non-vested stock options, which will be recognized over a weighted average
period of 1.8 years.
10
Restricted Stock Unit Activity
At March 31, 2006, we had 488,000 restricted stock units outstanding, all
of which were performance-based restricted stock awards contingent upon meeting
certain performance goals.
Number of Shares
----------------------
2006 2005
- --------------------------------------------------------------------------
Outstanding at beginning of period 319,000 164,000
Granted 188,500 182,000
Canceled (19,500) (27,000)
- --------------------------------------------------------------------------
Outstanding at end of period 488,000 319,000
==========================================================================
For the quarters ended March 31, 2006 and 2005, stock-based compensation
expense related to restricted stock units was $35 thousand and $0.3 million,
respectively.
Employee Stock Purchase Plan
We have an Employee Stock Purchase Plan to provide substantially all
regular full- and part-time employees an opportunity to purchase shares of our
Class B stock through payroll deductions. The funds are withheld and then used
to acquire stock on the last trading day of each quarter, based on that day's
closing price less a 15% discount. The Employee Stock Purchase Plan had minimal
impact on our expenses as a result of the adoption of Statement 123(R).
Income Taxes
On November 10, 2005, the FASB issued Staff Position No. 123(R)-3,
Transition Election Related to Accounting for Tax Effects of Share-Based Payment
Awards, or Staff Position 123(R)-3. We have elected to adopt the alternative
transition method provided in Staff Position 123(R)-3 for calculating the tax
effects of stock-based compensation pursuant to Statement 123(R). The
alternative transition method simplifies the calculation of the beginning
balance of the additional paid-in-capital pool, or APIC pool, related to the tax
effect of employee stock-based compensation. This method also has subsequent
impact on the APIC pool and Condensed Consolidated Statements of Cash Flows
relating to the tax effects of employee stock-based compensation awards that are
outstanding upon adoption of Statement 123(R).
(I) BENEFIT PLANS
We currently maintain a practice of paying a separation allowance under
our salary continuation policy to employees with at least five years of
continuous service who voluntarily terminate employment with us and are at age
60 or thereafter. For the quarter ended March 31, 2006, payments made under this
policy were $0.2 million.
11
(J) SEGMENT INFORMATION (1)
The following table represents financial information by reportable segment
(in thousands):
(Unaudited)
Quarters Ended
March 31,
---------------------------
2006 2005
- -------------------------------------------------------------------------------
Net revenues
Entertainment $ 51,177 $ 50,482
Publishing 23,495 27,004
Licensing 7,448 5,965
- -------------------------------------------------------------------------------
Total $ 82,120 $ 83,451
===============================================================================
Income (loss) before income taxes
Entertainment $ 7,873 $ 11,820
Publishing (2,297) (384)
Licensing 4,346 3,678
Corporate Administration and Promotion (6,391) (4,206)
Investment income 607 187
Interest expense (1,428) (2,648)
Amortization of deferred financing fees (134) (233)
Minority interest -- (370)
Debt extinguishment expenses -- (19,280)
Other, net (196) (476)
- -------------------------------------------------------------------------------
Total $ 2,380 $ (11,912)
===============================================================================
(Unaudited)
Mar. 31, Dec. 31,
2006 2005
- -------------------------------------------------------------------------------
Identifiable assets
Entertainment $ 271,697 $ 274,473
Publishing 35,580 38,833
Licensing 8,275 7,539
Corporate Administration and Promotion 108,355 108,124
- -------------------------------------------------------------------------------
Total $ 423,907 $ 428,969
===============================================================================
(1) Certain amounts reported for the prior period have been reclassified to
conform to the current year's presentation.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and accompanying notes and with our Annual
Report on Form 10-K for the year ended December 31, 2005. All period references
are to our fiscal periods unless otherwise indicated.
RESULTS OF OPERATIONS (1)
The following table represents our results of operations (in millions,
except per share amounts):
Quarters Ended
March 31,
---------------------------
2006 2005
- ------------------------------------------------------------------------------------------------------------------
Net revenues
Entertainment
Domestic TV $ 22.3 $ 25.2
International 13.8 13.4
Online subscriptions and e-commerce 13.2 11.0
Other 1.9 0.9
- ------------------------------------------------------------------------------------------------------------------
Total Entertainment 51.2 50.5
- ------------------------------------------------------------------------------------------------------------------
Publishing
Playboy magazine 19.2 22.9
Special editions and other 2.6 2.3
International publishing 1.7 1.8
- ------------------------------------------------------------------------------------------------------------------
Total Publishing 23.5 27.0
- ------------------------------------------------------------------------------------------------------------------
Licensing
International licensing 5.5 4.5
Domestic licensing 1.3 1.3
Marketing events 0.2 0.2
Other 0.4 -
- ------------------------------------------------------------------------------------------------------------------
Total Licensing 7.4 6.0
- ------------------------------------------------------------------------------------------------------------------
Total net revenues $ 82.1 $ 83.5
==================================================================================================================
Net income (loss)
Entertainment
Before programming amortization and online content expenses $ 17.3 $ 21.7
Programming amortization and online content expenses (9.4) (9.8)
- ------------------------------------------------------------------------------------------------------------------
Total Entertainment 7.9 11.9
- ------------------------------------------------------------------------------------------------------------------
Publishing (2.3) (0.4)
- ------------------------------------------------------------------------------------------------------------------
Licensing 4.3 3.6
- ------------------------------------------------------------------------------------------------------------------
Corporate Administration and Promotion (6.4) (4.2)
- ------------------------------------------------------------------------------------------------------------------
Operating income 3.5 10.9
- ------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
Investment income 0.6 0.2
Interest expense (1.4) (2.6)
Amortization of deferred financing fees (0.1) (0.2)
Minority interest -- (0.4)
Debt extinguishment expenses -- (19.3)
Other, net (0.2) (0.5)
- ------------------------------------------------------------------------------------------------------------------
Total nonoperating expense (1.1) (22.8)
- ------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 2.4 (11.9)
Income tax expense (1.6) (1.2)
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.8 $ (13.1)
==================================================================================================================
Basic and diluted earnings (loss) per common share $ 0.02 $ (0.39)
==================================================================================================================
(1) Certain amounts reported for the prior period have been reclassified to
conform to the current year's presentation.
13
Our revenues decreased $1.4 million, or 2%, for the quarter primarily due
to expected lower revenues from our Publishing Group, partially offset by higher
revenues from our Licensing and Entertainment Groups.
Operating income decreased $7.4 million, or 68%, for the quarter primarily
due to lower results from our Entertainment and Publishing Groups. Operating
results for our segments were impacted on a combined basis by $0.7 million of
stock option expense as a result of the implementation of Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment.
Net income of $0.8 million was $13.9 million higher than the prior year
quarter due to debt extinguishment expense of $19.3 million in the prior year
quarter and a $1.2 million decrease in interest expense in the current quarter,
partially offset by the lower operating results mentioned above.
Several of our businesses may experience variations in quarterly
performance. As a result, our performance in any quarter is not necessarily
reflective of full-year or longer-term trends. Playboy magazine newsstand
revenues vary from issue to issue, with revenues generally higher for holiday
issues and any issues including editorial or pictorial features that generate
additional public interest. Advertising revenues also vary from quarter to
quarter depending on economic conditions, holiday issues and changes in
advertising buying patterns. Online subscription revenues and operating results
are impacted by decreased Internet traffic during the summer months, and
e-commerce revenues and operating results are typically strongest in the fourth
quarter due to the holiday buying season.
ENTERTAINMENT GROUP
The following discussion focuses on the revenue and profit contribution
before programming amortization and online content expenses of each of our
Entertainment Group businesses.
Revenues from our domestic TV business decreased $2.9 million, or 12%, for
the quarter. Playboy TV and Movie network revenues decreased $0.9 million, or
7%, and $1.7 million, or 18%, respectively, primarily due to decreased
pay-per-view, or PPV, buys. These decreases were principally the result of
consumers migrating from linear channels to video-on-demand, or VOD. We expect
this trend to negatively impact our Movie networks as the VOD market is more
competitive and we have less shelf space with the system operators in the VOD
environment than in the linear network environment. We expect Playboy TV to be
favorably impacted by our monthly subscription service with a VOD component,
which should more than offset the unfavorable impact of Playboy TV's PPV to VOD
migration. Revenues from VOD decreased $0.4 million, or 24%, primarily due to
revenue adjustments. Direct-to-home, or DTH, revenues and revenues associated
with our studio facility were relatively flat for the quarter.
Profit contribution from our domestic TV business decreased $4.7 million,
or 27%, for the quarter as a result of the lower revenues described above
combined with increases in areas such as revenue sharing, marketing and salary
and related expenses.
DirecTV, the operator that currently generates the largest portion of our
domestic TV revenues, recently reduced the number of our channels it carries. A
new contract with DirecTV is still under negotiation, but we expect to hold a
majority of the shelf space with that distributor. Nonetheless, we also expect
the loss of carriage will unfavorably impact domestic TV revenues and
profitability.
International revenues increased $0.4 million, or 3%, for the quarter.
International television revenues increased $0.9 million, or 8%, for the quarter
primarily due to increased DTH revenues from our networks in the U.K. and
throughout Europe, partially offset by the impact of currency rate fluctuations
and decreased revenues from several third party network licensees. International
online and wireless revenues decreased $0.5 million, or 24%, primarily due to
lower Hutchison royalties as a result of technology issues in Italy as it
transitions through an upgrade that began in the fourth quarter of 2005 and is
expected to be completed in this year's second quarter. This decline was
partially offset by royalties from new wireless partners. International profit
contribution increased $0.4 million, or 6%, from the prior year quarter,
principally due to the higher revenues previously mentioned.
Online subscriptions and e-commerce revenues increased $2.2 million, or
19%, for the quarter primarily as a result of our acquisition of an affiliate
network of websites, partially offset by a decrease in revenues from our
14
existing sites. Revenues were also offset by costs for our new websites and
investments in technology and marketing initiatives.
Other businesses revenues and profit contribution increased $1.0 million
and $0.5 million, respectively, primarily due to higher worldwide DVD revenues,
which were a result of our recent acquisition, and to the launch of Playboy
Radio on SIRIUS Satellite Radio in the current quarter.
The group's administrative expenses decreased $0.6 million, or 11%, for
the quarter due to the elimination of our intra-company agreements related to
trademark, content and administrative fees that had been paid by Playboy.com,
Inc., or Playboy.com, to us as a result of our October 2005 repurchase of the
remaining minority interest of Playboy.com. This offset increases in various
other administrative expenses.
Programming amortization and online content expenses decreased $0.4
million, or 3%, despite new programming costs associated with Playboy Radio and
our affiliate network of websites, due to the mix of programming.
Segment income for the group decreased $4.0 million, or 33%, due to the
previously discussed operating results.
PUBLISHING GROUP
Playboy magazine revenues decreased $3.7 million, or 16%, for the quarter.
Advertising revenues decreased $2.3 million primarily due to 29% fewer
advertising pages. Newsstand revenues were $0.7 million lower principally due to
32% fewer copies sold, partially mitigated by the impact of a $1.00 and CAN$1.00
cover price increase effective with the February 2006 issue. Subscription
revenues decreased $0.7 million primarily due to lower average revenue per copy,
partially offset by a lower provision for unpaid copies as a result of improved
payment experience and revenues from our new digital edition in the current
quarter. Advertising sales for the 2006 second quarter magazine issues are
closed, and we expect to report approximately 16% lower advertising revenues and
19% fewer advertising pages compared to the 2005 second quarter as a result of
continued softness in the market.
Revenues from special editions and other increased $0.3 million, or 10%,
for the quarter. Special editions revenues increased $0.1 million primarily due
to the impact of a $1.00 and CAN$1.00 cover price increase effective with the
November 2005 issues, lower display costs and revenues from our new digital
edition in the current quarter, mostly offset by a 19% decline in the number of
newsstand copies sold. The current quarter also included higher book royalties
of $0.1 million.
International publishing revenues decreased $0.1 million, or 7%, for the
quarter.
The group's segment loss increased $1.9 million for the quarter primarily
as a result of the lower revenues discussed above, partially offset by lower
subscription acquisition amortization, editorial content and marketing expenses.
Given the industry trends and their impact on our Publishing Group, we
expect the second quarter loss to be larger than that of the first quarter, but
our goal this year is to maintain a loss that is consistent with that of the
prior year.
LICENSING GROUP
Licensing Group revenues increased $1.4 million, or 25%, for the quarter
principally due to higher international royalties from Europe and the sale of
prints from our art collection. The group's segment income increased $0.7
million, or 18%, primarily due to the revenue increase, partially offset by
higher costs related to the group's growth.
15
CORPORATE ADMINISTRATION AND PROMOTION
Corporate Administration and Promotion expenses increased $2.2 million, or
52%, for the quarter largely due to the elimination of our intra-company
agreements related to trademark, content and administrative fees as a result of
the previously mentioned Playboy.com minority interest repurchase.
INCOME TAX EXPENSE
Our effective income tax rate differs from U.S. statutory rates. Our
income tax provision consists of foreign income tax related to our international
networks and withholding tax on licensing income for which we do not receive a
current U.S. income tax benefit because of our net operating loss position. Our
income tax provision also includes deferred federal and state income taxes
related to the amortization of goodwill and other indefinite-lived intangibles,
which cannot be offset against deferred tax assets due to the indefinite
reversal period of the deferred tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2006, we had $25.6 million in cash and cash equivalents
compared to $26.1 million in cash and cash equivalents at December 31, 2005. We
had $21.0 million of auction rate securities, or ARS, included in marketable
securities and short-term investments at both March 31, 2006 and December 31,
2005. ARS generally have long-term maturities; however, these investments have
characteristics similar to short-term investments because there is a new auction
process at predetermined intervals, typically every 28 days. Total financing
obligations were $115.0 million at both March 31, 2006 and December 31, 2005.
At March 31, 2006, cash generated from our operating activities, existing
cash and cash equivalents and short-term investments were fulfilling our
liquidity requirements. At March 31, 2006, we had a $50.0 million credit
facility, which can be used for revolving borrowings, issuing letters of credit
or a combination of both. At March 31, 2006, there were no borrowings and $9.8
million in letters of credit outstanding under this facility, permitting $40.2
million of available borrowings under this facility.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $2.4 million, a decrease of
$1.7 million from the prior year quarter.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used for investing activities decreased $16.5 million due to
$26.8 million in investments made in ARS, partially offset by $10.0 million in
proceeds from the sale of ARS in the prior year quarter. We did not have any ARS
investment activity in the current quarter.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used for financing activities was $1.5 million for the current
quarter compared to $9.9 million in cash provided by financing activities in the
prior year quarter. The current year activity reflects payment of an acquisition
liability, while the prior year quarter primarily reflects the issuance of
$115.0 million of convertible notes and the use of the proceeds to pay $95.2
million in connection with the purchase and retirement of all of the $80.0
million outstanding principal amount of senior secured notes issued by one of
our subsidiaries and $3.5 million of related financing fees. Proceeds from the
convertible note offering were also used to purchase 381,971 shares of our Class
B stock for $5.0 million.
16
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2006, the Financial Accounting Standards Board, or the FASB,
issued Statement of Financial Accounting Standards No. 156, Accounting for
Servicing of Financial Assets, or Statement 156. Statement 156 permits an entity
to choose either the amortization method or fair value method for each class of
separately recognized servicing assets and servicing liabilities. At March 31,
2006, we did not have any financial assets and liabilities relating to servicing
rights subject to Statement 156. We are required to adopt Statement 156
effective at the beginning of 2007. We do not expect the adoption of Statement
156 to have a significant impact on our future results of operations or
financial condition.
In February 2006, the FASB issued Statement of Financial Accounting
Standards No. 155, Accounting for Certain Hybrid Financial Instruments, or
Statement 155. Statement 155 resolves issues addressed in FASB Statement 133
Implementation Issue No. D1, "Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets." Amongst other things, it permits
fair value remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation. At March 31, 2006,
we did not have any hybrid financial instruments subject to the fair value
election under Statement 155. We are required to adopt Statement 155 effective
at the beginning of 2007. We do not expect the adoption of Statement 155 to have
a significant impact on our future results of operations or financial condition.
17
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements,"
including statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations, 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. 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 regulation, actions or
initiatives, including:
(a) attempts to limit or otherwise regulate the sale, distribution or
transmission of adult-oriented materials, including print,
television, video, and online materials,
(b) limitations on the advertisement of tobacco, alcohol and other
products which are important sources of advertising revenue for us,
or
(c) substantive changes in postal regulations or rates which could
increase our postage and distribution costs;
(2) Risks associated with our foreign operations, including market acceptance
and demand for our products and the products of our licensees;
(3) Our ability to manage the risk associated with our exposure to foreign
currency exchange rate fluctuations;
(4) 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 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 or convertible preferred
stock or convertible debt in connection with financings or acquisition
activities;
(9) Competition for advertisers from other publications, media or online
providers or any decrease in spending by advertisers, either generally or
with respect to the adult male market;
(10) Competition in the television, men's magazine, Internet and product
licensing markets;
(11) Attempts by consumers or private advocacy groups to exclude our
programming or other products from distribution;
(12) Our television, Internet and wireless businesses' reliance on third
parties for technology and distribution, and any changes in that
technology and/or unforeseen delays in its implementation which might
affect our plans and assumptions;
(13) Risks associated with losing access to transponders and competition for
transponders and channel space;
(14) Failure to maintain our agreements with multiple system operators and
direct-to-home operators on favorable terms, as well as any decline in our
access to, and acceptance by, direct-to-home and/or cable systems and the
possible resulting deterioration in the terms, cancellation of fee
arrangements or pressure on splits with operators of these systems;
(15) Risks that we may not realize the expected increased sales and profits and
other benefits from acquisitions;
(16) Any charges or costs we incur in connection with restructuring measures we
may take in the future;
(17) Risks associated with the financial condition of Claxson Interactive
Group, Inc., our Playboy TV-Latin America, LLC, joint venture partner;
(18) Increases in paper, printing or postage costs;
(19) Risks associated with revenue guarantees under our cable distribution
agreements;
(20) Effects of the national consolidation of the single-copy magazine
distribution system; and
(21) Risks associated with the viability of our primarily subscription- and
e-commerce-based Internet model.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 2006, we did not have any floating interest rate exposure.
All of our outstanding debt as of that date consisted of the convertible notes,
which are fixed-rate obligations. The fair value of the $115.0 million aggregate
principal amount of the notes will be influenced by changes in market interest
rates, the share price of our Class B stock and our credit quality. As of March
31, 2006, the convertible notes had an implied fair value of $117.7 million.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13(a)-15(e) and
15(d)-15(e) under the Securities Exchange Act of 1934, as amended, or the
Exchange Act) as of the end of the period covered by this quarterly report.
Based on such evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, our disclosure
controls and procedures are effective in recording, processing, summarizing and
reporting, on a timely basis, information required to be disclosed by us in the
reports that we file or submit under the Exchange Act.
Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13(a)-15(f) and 15(d)-15(f) under
the Exchange Act) during the fiscal quarter to which this report relates that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
19
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material changes since December 31, 2005.
ITEM 1A. RISK FACTORS
No material changes since December 31, 2005.
ITEM 6. EXHIBITS
Exhibit Number Description
- -------------- -----------
10.1 Transfer of Service Agreement (related to Contract Number
T79903021), dated as of October 25, 2004, among Spice Hot
Entertainment, Inc., Andrita Studios, Inc., and Loral Skynet
10.2 Transponder 15
10.2.1* Transfer of Service Agreement (related to Contract Number
T70102100), dated February 4, 2004, among Playboy
Entertainment Group, Inc., Andrita Studios, Inc., and Loral
Skynet
10.2.2 Amendment No 1 to Contract Number T70102100 (IA7-C15) dated as
of May 7, 2004, between Intelsat USA Sales Corp. and Andrita
Studios, Inc.
10.3 Transponder 9
10.3.1* Agreement Concerning Skynet Space Segment Service (Contract
Number T70309257), dated as of November 20, 2003, between
Andrita Studios, Inc. and Loral Skynet
10.3.2* Amendment No 1 to Contract Number T70309257 (IA7-C9) dated as
of May 7, 2004, between Intelsat USA Sales Corp. and Andrita
Studios, Inc.
10.4 Transponder 23
10.4.1* Digital Channel Platform Agreement (Contract Number
GSS0210100) dated as of February 4, 2003, between Loral Skynet
and Playboy Entertainment Group, Inc.
10.4.2 Amendment No 1 to Contract Number GSS0210100 (Digital Channel
Platform) dated as of May 7, 2004, between Intelsat USA Sales
Corp. and Playboy Entertainment Group, Inc.
10.5* Omnibus Amendment to Agreements between Playboy Entertainment
Group, Inc., Andrita Studios, Inc. and Intelsat USA Sales Corp.,
dated as of December 22, 2005
10.6 Playboy TV UK
10.6.1* Contract for a Combined Compressed Uplink and Eurobird Space
Segment Service, dated as of May 12, 2003, between British
Telecommunications plc and Playboy TV UK Limited
10.6.2 Contract Amendment Agreement (Number 1) dated as of May 12,
2003, between British Telecommunications plc and Playboy TV UK
Limited
20
10.7 Playboy TV UK/BENELUX
10.7.1* Contract for a Combined Compressed Uplink and Eurobird Space
Segment Service, dated as of May 12, 2004, between British
Telecommunications plc and Playboy TV UK/BENELUX Limited
10.7.2* Contract Amendment Agreement (Number 1) dated as of November
30, 2004, between British Telecommunications plc and Playboy
TV UK/BENELUX Limited
10.8* Amended and Restated Full-Time Satellite and Terrestrial Services
Agreement, dated as of September 30, 2003 between T-Systems
Canada, Inc. and STV International B.V.
10.9* Seventh Amendment (related to Subscription Fulfillment Agreement
dated July 1, 1987, as amended), dated March 7, 2006, by and
between Communications Data Services, Inc. and Playboy Enterprises
International, Inc.
10.10* Agreement dated as of January 1, 2006, between Time/Warner Retail
Sales & Marketing Inc. (f/k/a Warner Publisher Services, Inc.) and
Playboy Enterprises, Inc.
10.11 Reaffirmation of Loan Documents (relating to Credit Agreement,
dated as of March 11, 2003), dated as of April 1, 2005, among PEI
Holdings, Inc. and Bank of America, N.A.
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* A portion of this exhibit has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request
for confidential treatment pursuant to Rule 24b-2 of the
Securities and Exchange Act of 1934.
21
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: May 10, 2006 By /s/ Linda Havard
------------ ----------------
Linda G. Havard
Executive Vice President,
Finance and Operations,
and Chief Financial Officer
(Authorized Officer and
Principal Financial and
Accounting Officer)
22
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.1 Transfer of Service Agreement (related to Contract Number
T79903021), dated as of October 25, 2004, among Spice Hot
Entertainment, Inc., Andrita Studios, Inc., and Loral Skynet
10.2 Transponder 15
10.2.1* Transfer of Service Agreement (related to Contract Number
T70102100), dated February 4, 2004, among Playboy
Entertainment Group, Inc., Andrita Studios, Inc., and Loral
Skynet
10.2.2 Amendment No 1 to Contract Number T70102100 (IA7-C15) dated as
of May 7, 2004, between Intelsat USA Sales Corp. and Andrita
Studios, Inc.
10.3 Transponder 9
10.3.1* Agreement Concerning Skynet Space Segment Service (Contract
Number T70309257), dated as of November 20, 2003, between
Andrita Studios, Inc. and Loral Skynet
10.3.2* Amendment No 1 to Contract Number T70309257 (IA7-C9) dated as
of May 7, 2004, between Intelsat USA Sales Corp. and Andrita
Studios, Inc.
10.4 Transponder 23
10.4.1* Digital Channel Platform Agreement (Contract Number
GSS0210100) dated as of February 4, 2003, between Loral Skynet
and Playboy Entertainment Group, Inc.
10.4.2 Amendment No 1 to Contract Number GSS0210100 (Digital Channel
Platform) dated as of May 7, 2004, between Intelsat USA Sales
Corp. and Playboy Entertainment Group, Inc.
10.5* Omnibus Amendment to Agreements between Playboy Entertainment
Group, Inc., Andrita Studios, Inc. and Intelsat USA Sales Corp.,
dated as of December 22, 2005
10.6 Playboy TV UK
10.6.1* Contract for a Combined Compressed Uplink and Eurobird Space
Segment Service, dated as of May 12, 2003, between British
Telecommunications plc and Playboy TV UK Limited
10.6.2 Contract Amendment Agreement (Number 1) dated as of May 12,
2003, between British Telecommunications plc and Playboy TV UK
Limited
10.7 Playboy TV UK/BENELUX
10.7.1* Contract for a Combined Compressed Uplink and Eurobird Space
Segment Service, dated as of May 12, 2004, between British
Telecommunications plc and Playboy TV UK/BENELUX Limited
10.7.2* Contract Amendment Agreement (Number 1) dated as of November
30, 2004, between British Telecommunications plc and Playboy
TV UK/BENELUX Limited
10.8* Amended and Restated Full-Time Satellite and Terrestrial Services
Agreement, dated as of September 30, 2003 between T-Systems
Canada, Inc. and STV International B.V.
10.9* Seventh Amendment (related to Subscription Fulfillment Agreement
dated July 1, 1987, as amended), dated March 7, 2006, by and
between Communications Data Services, Inc. and Playboy Enterprises
International, Inc.
23
10.10* Agreement dated as of January 1, 2006, between Time/Warner Retail
Sales & Marketing Inc. (f/k/a Warner Publisher Services, Inc.) and
Playboy Enterprises, Inc.
10.11 Reaffirmation of Loan Documents (relating to Credit Agreement,
dated as of March 11, 2003), dated as of April 1, 2005, among PEI
Holdings, Inc. and Bank of America, N.A.
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* A portion of this exhibit has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request
for confidential treatment pursuant to Rule 24b-2 of the
Securities and Exchange Act of 1934.
24