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 September 30, 2008
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 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, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |_| Accelerated filer |X| Non-accelerated filer |_| Smaller reporting company |_|
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes |_| No |X|
At October 31, 2008, there were 4,864,102 shares of Class A common stock and
28,471,855 shares of Class B common stock outstanding.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements,"
including statements in Part I, Item 2. "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. We want to caution you not to place undue reliance on any
forward-looking statements. We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
The following are some of the important factors that could cause our
actual results, performance or outcomes to differ materially from those
discussed in the forward-looking statements:
(1) Foreign, national, state and local government regulations, actions or
initiatives, including:
(a) attempts to limit or otherwise regulate the sale, distribution or
transmission of adult-oriented materials, including print,
television, video, Internet and wireless 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 which could increase our
postage and distribution costs;
(2) Risks associated with our foreign sales and operations, including market
acceptance and demand for our products and the products of our licensees
and partners;
(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 and licensing revenues;
(5) Our ability to protect our trademarks, copyrights and other intellectual
property;
(6) Risks as a distributor of media content, including our becoming subject to
claims for defamation, invasion of privacy, negligence, copyright, patent
or trademark infringement and other claims based on the nature and content
of the materials we distribute;
(7) The risk our outstanding litigation could result in settlements or
judgments which are material to us;
(8) Dilution from any potential issuance of common stock or convertible debt
in connection with financings or acquisition activities;
(9) 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, wireless, new
electronic media and product licensing markets;
(11) Attempts by consumers, distributors, merchants or private advocacy groups
to exclude our programming or other products from distribution;
(12) Our television, Internet and wireless businesses' reliance on third
parties for technology and distribution, and any changes in that
technology, distribution and/or unforeseen delays in implementation which
might affect our financial results, plans and assumptions;
(13) Risks associated with losing access to transponders or technical failure
of transponders or other transmitting or playback equipment that is beyond
our control;
(14) Competition for channel space on linear television or video-on-demand
platforms;
(15) Failure to maintain our agreements with multiple system operators, or
MSOs, and direct-to-home, or DTH, operators on favorable terms, as well as
any decline in our access to, and acceptance by, DTH and/or cable systems
and the possible resulting deterioration in the terms, cancellation of fee
arrangements, pressure on splits or adverse changes in certain minimum
revenue amounts with operators of these systems;
(16) Risks that we may not realize the expected increased sales and profits and
other benefits from acquisitions;
(17) Any charges or costs we incur in connection with restructuring measures we
may undertake in the future;
(18) Risks associated with the financial condition of Claxson Interactive
Group, Inc., our Playboy TV-Latin America, LLC, joint venture partner;
(19) Increases in paper, printing or postage costs;
2
(20) Effects of the national consolidation of the single-copy magazine
distribution system and risks associated with the financial stability of
major magazine wholesalers;
(21) Effects of the national consolidation of television distribution companies
(e.g., cable MSOs, satellite platforms and telecommunications companies);
(22) Risks associated with the viability of our subscription, on-demand,
e-commerce and ad-supported Internet models; and
(23) Risks that adverse market and economic conditions may result in a decrease
in the value of our investments in marketable securities and risks that
adverse market conditions in the securities and credit markets may
significantly affect our ability to access the capital and credit markets.
For a detailed discussion of these and other factors that may affect our
performance, see Part I, Item 1A. "Risk Factors" in our Annual Report on Form
10-K for the fiscal year ended December 31, 2007, as updated by Part II, Item
1A. "Risk Factors" of this report.
3
PLAYBOY ENTERPRISES, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the Quarters Ended September 30, 2008 and 2007
(Unaudited) 5
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the Nine Months Ended September 30, 2008 and 2007
(Unaudited) 6
Consolidated Balance Sheets at September 30, 2008 (Unaudited) and
December 31, 2007 7
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2008 and 2007 (Unaudited) 8
Notes to Condensed Consolidated Financial Statements (Unaudited) 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
Item 4. Controls and Procedures 24
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 1A. Risk Factors 26
Item 6. Exhibits 27
4
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLAYBOY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
for the Quarters Ended September 30 (Unaudited)
(In thousands, except per share amounts)
2008 2007
- -------------------------------------------------------------------------------------------------------------
Net revenues $ 70,342 $ 82,858
- -------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of sales (56,153) (62,550
Selling and administrative expenses (10,649) (16,171
Restructuring expense (2,203) -
Impairment charge on assets held for sale 45 -
Provisions for reserves (4,121) -
- -------------------------------------------------------------------------------------------------------------
Total costs and expenses (73,081) (78,721)
- -------------------------------------------------------------------------------------------------------------
Operating income (loss) (2,739) 4,137
- -------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
Investment income 201 568
Interest expense (1,103) (1,170)
Amortization of deferred financing fees (89) (134)
Other, net (90) 163
- -------------------------------------------------------------------------------------------------------------
Total nonoperating expense (1,081) (573)
- --------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (3,820) 3,564
Income tax expense (1,330) (969)
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $ (5,150) $ 2,595
=============================================================================================================
Other comprehensive income (loss)
Unrealized gain (loss) on marketable securities (586) 148
Unrealized loss on derivatives - (131)
Foreign currency translation gain (loss) (1,100) 83
- -------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) (1,686) 100
- -------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ (6,836) $ 2,695
=============================================================================================================
Weighted average number of common shares outstanding
Basic 33,317 33,251
=============================================================================================================
Diluted 33,317 33,301
=============================================================================================================
Basic and diluted earnings (loss) per common share $ (0.15) $ 0.08
=============================================================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
5
PLAYBOY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
for the Nine Months Ended September 30 (Unaudited)
(In thousands, except per share amounts)
2008 2007
- -----------------------------------------------------------------------------------------------------------
Net revenues $ 222,256 $ 253,925
- -----------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of sales (180,034) (198,010)
Selling and administrative expenses (38,876) (43,930)
Restructuring expense (2,761) (110)
Impairment charge on assets held for sale (58) -
Provisions for reserves (4,121) -
- -----------------------------------------------------------------------------------------------------------
Total costs and expenses (225,850) (242,050)
- -----------------------------------------------------------------------------------------------------------
Operating income (loss) (3,594) 11,875
- -----------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
Investment income 857 1,666
Interest expense (3,359) (3,736)
Amortization of deferred financing fees (267) (402)
Other, net (432) (144)
- -----------------------------------------------------------------------------------------------------------
Total nonoperating expense (3,201) (2,616)
- -----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (6,795) 9,259
Income tax expense (3,598) (3,279)
- -----------------------------------------------------------------------------------------------------------
Net income (loss) $ (10,393) $ 5,980
===========================================================================================================
Other comprehensive income (loss)
Unrealized gain (loss) on marketable securities (1,128) 301
Unrealized gain (loss) on derivatives 78 (95)
Foreign currency translation loss (918) (202)
- -----------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) (1,968) 4
- -----------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ (12,361) $ 5,984
===========================================================================================================
Weighted average number of common shares outstanding
Basic 33,297 33,241
===========================================================================================================
Diluted 33,297 33,281
===========================================================================================================
Basic and diluted earnings (loss) per common share $ (0.31) $ 0.18
===========================================================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
6
PLAYBOY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
Sept. 30, Dec. 31,
2008 2007
- --------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 25,449 $ 20,603
Marketable securities and short-term investments 2,467 12,952
Receivables, net of allowance for doubtful accounts of
$3,992 and $3,627, respectively 45,302 51,139
Receivables from related parties 3,034 1,704
Inventories 9,236 11,363
Deferred subscription acquisition costs 8,683 8,686
Deferred tax asset 1,320 1,320
Assets held for sale - 4,706
Prepaid expenses and other current assets 8,509 13,402
- --------------------------------------------------------------------------------------------------------------
Total current assets 104,000 125,875
- --------------------------------------------------------------------------------------------------------------
Long-term investments 5,948 6,556
Property and equipment, net 18,697 14,665
Long-term receivables, net of allowance for doubtful accounts of
$2,795 and $0, respectively - 2,795
Programming costs, net 54,573 54,926
Goodwill 133,595 133,570
Trademarks 66,314 65,437
Distribution agreements, net of accumulated amortization
of $5,795 and $4,803, respectively 27,345 28,337
Deferred tax asset 1,206 1,206
Other noncurrent assets 9,801 11,789
- --------------------------------------------------------------------------------------------------------------
Total assets $ 421,479 $ 445,156
==============================================================================================================
Liabilities
Acquisition liabilities $ 2,728 $ 2,134
Accounts payable 28,610 37,842
Accrued salaries, wages and employee benefits 7,616 8,304
Deferred revenues 42,471 43,955
Deferred tax liability 1,490 1,490
Other liabilities and accrued expenses 13,189 14,269
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 96,104 107,994
- --------------------------------------------------------------------------------------------------------------
Financing obligations 115,000 115,000
Acquisition liabilities 5,540 7,936
Deferred tax liability 19,898 18,604
Other noncurrent liabilities 24,716 24,305
- --------------------------------------------------------------------------------------------------------------
Total liabilities 261,258 273,839
- --------------------------------------------------------------------------------------------------------------
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;
28,842,988 and 28,784,079 issued, respectively 288 288
Capital in excess of par value 231,098 229,833
Accumulated deficit (63,159) (52,766)
Treasury stock, at cost - 381,971 shares (5,000) (5,000)
Accumulated other comprehensive loss (3,055) (1,087)
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 160,221 171,317
- --------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 421,479 $ 445,156
==============================================================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
7
PLAYBOY ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Nine Months Ended September 30 (Unaudited)
(In thousands)
2008 2007
- ------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income (loss) $ (10,393) $ 5,980
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation of property and equipment 3,407 3,501
Amortization of intangible assets 1,693 1,746
Amortization of investments in entertainment programming 24,339 25,462
Amortization of deferred financing fees 267 402
Stock-based compensation 1,031 1,103
Impairment charge on assets held for sale 103 -
Provisions for reserves 4,121 -
Deferred income taxes 1,294 1,257
Net change in operating assets and liabilities (1,498) 12,605
Investments in entertainment programming (21,201) (26,671)
Litigation settlement - (1,800)
Other, net (2,390) (69)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 773 23,516
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Payments for acquisitions (60) (105)
Purchases of investments (723) (9,828)
Proceeds from sales of investments 10,589 -
Additions to assets held for sale (6,920) -
Proceeds from assets held for sale 12,000 -
Additions to property and equipment (7,801) (6,643)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 7,085 (16,576)
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Payments of deferred financing fees - (123)
Payments of acquisition liabilities (2,450) (7,919)
Proceeds from stock-based compensation 95 121
- ------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (2,355) (7,921)
- ------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (657) 436
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,846 (545)
Cash and cash equivalents at beginning of period 20,603 26,748
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 25,449 $ 26,203
============================================================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
8
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, 2007. Certain amounts
reported for the prior periods have been reclassified to conform to the current
year's presentation.
(B) RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2008, the Financial Accounting Standards Board, or the FASB, issued
Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally
Accepted Accounting Principles, or Statement 162. Statement 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements that are presented in
conformity with generally accepted accounting principles. Statement 162 becomes
effective 60 days following the Securities and Exchange Commission's approval of
the Public Company Accounting Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. We do not expect the adoption of Statement 162 to impact our future
results of operations or financial condition.
In May 2008, the FASB issued Staff Position No. APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement), or FSP APB 14-1. FSP APB 14-1 specifies
that issuers of convertible debt instruments that may be settled in cash upon
conversion should separately account for the liability and equity components in
a manner that will reflect the entity's nonconvertible debt borrowing rate when
interest cost is recognized in subsequent periods. We are required to adopt FSP
APB 14-1 at the beginning of 2009 and apply FSP APB 14-1 retrospectively to all
periods presented. We are currently evaluating the impact of adopting FSP APB
14-1 on our results of operations and financial condition.
In April 2008, the FASB issued Staff Position No. FAS 142-3, Determination
of the Useful Life of Intangible Assets, or FSP FAS 142-3. FSP FAS 142-3 amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets. We are required to adopt FSP FAS 142-3 prospectively for
intangible assets acquired on or after January 1, 2009. Intangible assets
acquired prior to January 1, 2009 are not affected by the adoption of FSP FAS
142-3.
In March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161, Disclosures about Derivative Instruments and Hedging Activities-an
amendment of FASB Statement No. 133, or Statement 161. Statement 161 requires
enhanced disclosures about how and why an entity uses derivative instruments,
how derivative instruments and related hedged items are accounted for under
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, and its related interpretations, and how
derivative instruments and related hedged items affect an entity's financial
position, financial performance and cash flows. We are required to adopt
Statement 161 at the beginning of 2009. Since Statement 161 impacts our
disclosure but not our accounting treatment for derivative instruments and
related hedged items, our adoption of Statement 161 will not impact our results
of operations or financial condition.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160, Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51, or Statement 160. Statement 160 clarifies
that a noncontrolling interest (previously referred to as minority interest) in
a subsidiary is an ownership interest in a consolidated entity that should be
reported as a component of equity in the consolidated financial statements. It
also requires consolidated net income to include the amounts attributable to
both the parent and the noncontrolling interest. We are required to adopt
Statement 160 at the beginning of 2009. We are currently evaluating the impact,
if any, of adopting Statement 160 on our future results of operations and
financial condition.
9
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141 (revised 2007), Business Combinations, or Statement 141(R).
Statement 141(R) retains the fundamental requirements of the original
pronouncement requiring that the purchase method be used for all business
combinations. Statement 141(R) defines the acquirer as the entity that obtains
control of one or more businesses in the business combination, establishes the
acquisition date as the date that the acquirer achieves control and requires the
acquirer to recognize the assets acquired, liabilities assumed and any
noncontrolling interest at their fair values as of the acquisition date.
Statement 141(R) also requires, among other things, that acquisition-related
costs be recognized separately from the acquisition. We are required to adopt
Statement 141(R) prospectively for business combinations on or after January 1,
2009. Assets and liabilities that arose from business combinations prior to
January 1, 2009 are not affected by the adoption of Statement 141(R).
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and
132(R), or Statement 158. Statement 158 requires an entity to (a) recognize in
its statement of financial position an asset or an obligation for a defined
benefit postretirement plan's funded status, (b) measure a defined benefit
postretirement plan's assets and obligations that determine its funded status as
of the end of the employer's fiscal year and (c) recognize changes in the funded
status of a defined benefit postretirement plan in comprehensive income in the
years in which the changes occur. We adopted the recognition and related
disclosure provisions of Statement 158 effective December 31, 2006. The
measurement date provision of Statement 158 is effective at the end of 2008.
Since we use a December 31 measurement date, this provision of Statement 158
will not have an impact on our future results of operations or financial
condition.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, Fair Value Measurements, or Statement 157, which provides
enhanced guidance for using fair value to measure assets and liabilities. We
adopted Statement 157 on January 1, 2008, as required for our financial assets
and liabilities. However, FASB Staff Position FAS 157-2, Effective Date of FASB
Statement No. 157, delayed the effective date of Statement 157 to the beginning
of 2009 for all nonfinancial assets and liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). We do not expect the adoption of Statement 157 for
our nonfinancial assets and liabilities to have a significant impact on our
future results of operations or financial condition.
(C) SALE OF ASSETS
In April 2008, we completed the sale of assets related to our Los Angeles
production facility to Broadcast Facilities, Inc., or BFI, for $12.0 million.
Our use of the facility for productions had significantly decreased since its
inception, and we believe that linear networks and our need for their
transmission capacity will decrease over the next several years. We recorded a
$0.1 million unfavorable adjustment in the nine-month period ended September 30,
2008, related to the $1.5 million charge on assets held for sale recorded in the
prior year.
In connection with the sale of these assets, we entered into an agreement
to sublet the entirety of the leased production facility to BFI for a period
equal to the remaining term of our lease. BFI assumed all of our liabilities and
obligations under the existing facility lease as a part of the sublease and
provided a letter of credit in the amount of $5.0 million to secure the
performance of its obligations under the sublease.
Also in connection with the sale of these assets, we assigned our rights
and obligations under our domestic transponder agreements to BFI and entered
into a services agreement under which BFI is providing us with certain satellite
transmission and other related services (including compression, uplink and
playback) for our standard definition cable channels. If we launch high
definition cable channels during the term of the services agreement, BFI will
also provide such services for these channels. We also have a dedicated radio
studio and office space at the BFI facility. The agreement includes other terms
and conditions which are standard for an agreement of this nature and continues
for an initial term of five years, after which we may renew the agreement for an
additional three years on substantially the same terms and conditions.
(D) RESTRUCTURING EXPENSE
In the third quarter of 2008, we developed a restructuring plan that is
expected to result in lower overhead costs. As a result of this plan, we
recorded a charge of $2.3 million related to costs associated with a workforce
10
reduction of 55 employees, most of whose jobs will be eliminated in the fourth
quarter of 2008. We also eliminated approximately 25 open positions. Payments
under this plan will begin in the fourth quarter of 2008 and will be
substantially completed by the end of 2009 with some payments continuing into
2010.
In 2007, we implemented a plan to outsource our e-commerce and catalog
businesses, to sell the assets related to our Los Angeles production facility
and to eliminate office space obtained in the acquisition of Club Jenna, Inc.
and related companies, or Club Jenna. As a result of this restructuring plan, we
recorded a reserve of $0.4 million for costs associated with a workforce
reduction of 28 employees. During the nine-month period ended September 30,
2008, as part of this restructuring plan, we recorded an additional reserve of
$0.6 million for contract termination fees and expenses.
Total costs of approximately $13.5 million for our prior years'
restructuring plans were paid through September 30, 2008, $1.0 million of which
was paid during the nine-month period ended September 30, 2008.
The following table sets forth the activity and balances of our
restructuring reserves, which are included in "Accrued salaries, wages and
employee benefits" and "Other liabilities and accrued expenses" on our
Consolidated Balance Sheets (in thousands):
Consolidation
of Facilities
Workforce and
Reduction Operations Total
- -------------------------------------------------------------------------------
Balance at December 31, 2006 $ 430 $ 268 $ 698
Reserve recorded 429 - 429
Adjustments to previous estimates 43 (27) 16
Cash payments (473) (127) (600)
- -------------------------------------------------------------------------------
Balance at December 31, 2007 429 114 543
Reserve recorded 2,255 - 2,255
Additional reserve recorded 150 445 595
Adjustments to previous estimates (48) (41) (89)
Cash payments (506) (518) (1,024)
- -------------------------------------------------------------------------------
Balance at September 30, 2008 $ 2,280 $ - $ 2,280
===============================================================================
(E) PROVISIONS FOR RESERVES
In the third quarter of 2008, we recorded provisions of $2.9 million for a
receivable and $1.2 million for archival material.
11
(F) EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computations of basic and diluted
earnings (loss) per share, or EPS (in thousands, except per share amounts):
Quarters Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2008 2007 2008 2007
- -----------------------------------------------------------------------------------------------------------
Numerator:
For basic and diluted EPS - net income (loss) $ (5,150) $ 2,595 $ (10,393) $ 5,980
===========================================================================================================
Denominator:
For basic EPS - weighted average shares 33,317 33,251 33,297 33,241
Effect of dilutive potential common shares:
Employee stock options and other - 50 - 40
- -----------------------------------------------------------------------------------------------------------
Dilutive potential common shares - 50 - 40
- -----------------------------------------------------------------------------------------------------------
For diluted EPS - weighted average shares 33,317 33,301 33,297 33,281
===========================================================================================================
Basic and diluted earnings (loss) per common share $ (0.15) $ 0.08 $ (0.31) $ 0.18
===========================================================================================================
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 number of shares of Class B stock contingently issuable under our
3.00% convertible senior subordinated notes due 2025, or convertible notes.
These shares were not included in the computations of diluted EPS for the
quarters and nine-month periods ended September 30, 2008 and 2007, as their
inclusion would have been antidilutive (in thousands):
Quarters Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2008 2007 2008 2007
- --------------------------------------------------------------------------------
Stock options 3,638 3,058 3,629 3,163
Convertible notes 6,758 6,758 6,758 6,758
- --------------------------------------------------------------------------------
Total 10,396 9,816 10,387 9,921
================================================================================
(G) INVENTORIES
In January 2008, we signed an agreement to outsource our Playboy and
BUNNYshop e-commerce and catalog businesses to eFashion Solutions, LLC, or
eFashion. As part of this agreement, we sold all remaining inventory related to
these businesses to eFashion.
The following table sets forth inventories, which are stated at the lower
of cost (specific cost and average cost) or fair value (in thousands):
Sept. 30, Dec. 31,
2008 2007
- --------------------------------------------------------------------------------
Paper $ 3,504 $ 2,948
Editorial and other prepublication costs 5,626 5,518
Merchandise finished goods 106 2,897
- --------------------------------------------------------------------------------
Total $ 9,236 $ 11,363
================================================================================
(H) INCOME TAXES
Our income tax provision consists primarily of foreign income tax, which
relates to our international television networks and withholding tax on
licensing income, for which we do not receive a current U.S. income tax benefit
due to our net operating loss, or NOL, position in the U.S. Our income tax
provision also includes deferred federal and state income taxes related to the
amortization of goodwill for tax and other indefinite-lived intangibles,
12
which cannot be offset against deferred tax assets due to the indefinite
reversal period of the related deferred tax liabilities.
We utilize the liability method of accounting for income taxes as set
forth in FASB Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. We record net deferred tax assets to the extent we believe
these assets will more likely than not be realized. In making such
determination, we consider all available positive and negative evidence,
including scheduled reversals of deferred tax liabilities, projected future
taxable income, tax planning strategies and recent financial performance. As a
result of our cumulative losses in the U.S. and certain foreign jurisdictions,
we have concluded that a full valuation allowance should be recorded for such
jurisdictions.
At September 30, 2008 and December 31, 2007, we had unrecognized tax
benefits of $8.0 million and do not expect this amount to change significantly
over the next 12 months. Due to the impact of deferred income tax accounting,
the disallowance of these benefits would not affect our effective income tax
rate nor would it accelerate the payment of cash to the taxing authority to an
earlier period.
Our continuing practice is to recognize interest and/or penalties related
to income tax matters in income tax expense.
We file U.S., state and foreign income tax returns in jurisdictions with
varying statutes of limitations. The 2004 through 2007 tax years generally
remain subject to examination by federal and most state tax authorities. In
addition, for all tax years prior to 2004 generating an NOL, tax authorities can
adjust the NOL amount. In our international tax jurisdictions, numerous tax
years remain subject to examination by tax authorities, including tax returns
for 2002 and subsequent years.
(I) FAIR VALUE MEASUREMENT
As discussed in Note (B), Recently Issued Accounting Standards, we adopted
Statement 157 on January 1, 2008 for our financial assets and liabilities. Our
financial assets primarily relate to marketable securities and investments,
while financial liabilities primarily relate to derivative instruments to hedge
the variability of forecasted cash receipts related to royalty payments
denominated in yen and euro.
We utilize the market approach to measure fair value for our financial
assets and liabilities. The market approach uses prices and other relevant
information generated by market transactions involving identical or comparable
assets or liabilities.
Statement 157 includes a fair value hierarchy that is intended to increase
consistency and comparability in fair value measurements and related
disclosures. The fair value hierarchy is based on observable or unobservable
inputs to valuation techniques that are used to measure fair value. Observable
inputs reflect assumptions market participants would use in pricing an asset or
liability based on market data obtained from independent sources while
unobservable inputs reflect a reporting entity's pricing based upon its own
market assumptions. The fair value hierarchy consists of three levels: Level 1 -
Inputs are quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs are quoted prices for similar assets or liabilities in an
active market, quoted prices for identical or similar assets or liabilities in
markets that are not active, inputs other than quoted prices that are observable
and market-corroborated inputs, which are derived principally from or
corroborated by observable market data; and Level 3 - Inputs that are derived
from valuation techniques in which one or more significant inputs or value
drivers are unobservable.
13
The following table sets forth our financial assets and liabilities
measured at fair value on a recurring basis and the basis of measurement at
September 30, 2008 (in thousands):
Quoted Prices in Significant
Active Markets for Significant Other Unobservable
Total Fair Value Identical Assets Observable Inputs Inputs
Measurement (Level 1) (Level 2) (Level 3)
- ---------------------------------------------------------------------------------------------------------------------
Marketable securities and investments $ 8,415 $ 5,948 $ 2,467(1) $ -
Derivative assets 5 - 5 -
Derivative liabilities $ (44) $ - $ (44) $ -
- ---------------------------------------------------------------------------------------------------------------------
(1) At December 31, 2007, we had $6.9 million in an enhanced cash portfolio
included in "Marketable securities and short-term investments" on our
Consolidated Balance Sheet. Due to adverse market conditions, we
determined that the market value of this investment was
other-than-temporarily impaired, and during the fiscal year ended December
31, 2007, we recorded a charge of $0.1 million in "Other, net" on our
Consolidated Statements of Operations. Through September 30, 2008, we have
received eight distributions from the investment, which is being
liquidated, at an average net asset value of 97.85%, resulting in a
cumulative realized loss of $0.1 million. At September 30, 2008, our
remaining balance in this investment was $2.5 million.
(J) CONTINGENCIES
We acquired Club Jenna in 2006, for which we paid $7.7 million at closing,
$1.6 million in 2007 and $1.7 million in 2008 with additional purchase price
payments of $2.3 million and $4.3 million due in 2009 and 2010, respectively.
Pursuant to the acquisition agreement, we are also obligated to make future
contingent earnout payments based primarily on sales of existing content of the
acquired business over a 10-year period and on content produced by the acquired
business during the five-year period after the closing of the acquisition. If
the required performance benchmarks are achieved, any contingent earnout
payments will be recorded as additional purchase price. No earnout payments have
been made through September 30, 2008.
In 2005, we acquired an affiliate network of websites. We paid $8.0
million at closing and $2.0 million in each of 2006 and 2007. Pursuant to the
acquisition agreement, we are also obligated to make future contingent earnout
payments over the five-year period commencing January 1, 2005, 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 additional purchase price and/or compensation expense. During each
nine-month period ended September 30, 2008 and 2007, earnout payments of $0.1
million were made and recorded as additional purchase price.
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 us under the license agreement. We posted a bond in the amount of
approximately $9.4 million, which represented the amount of the judgment, costs
and estimated pre- and post-judgment interest. We appealed and the Texas State
Appellate Court reversed the judgment by the trial court, rendered judgment for
us on the majority of plaintiffs' claims and remanded the remaining claims for a
new trial. We filed a petition for review with the Texas Supreme Court. On
January 25, 2008, the Texas Supreme Court denied our petition for review. On
February 8, 2008, we filed a petition for rehearing with the Texas Supreme
Court. On May 16, 2008, the Texas Supreme Court denied our motion for rehearing.
The posted bond has been canceled and the remaining claims will be retried. We,
on advice of legal counsel, believe that it is not probable that a material
judgment against us will be obtained and have not recorded a liability for this
case in accordance with FASB Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies.
(K) BENEFIT PLANS
We maintain a practice of paying a separation allowance, which is not
funded, 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. We made cash payments under this policy of $0.2 million
and $0.5 million during the
14
quarter and nine-month period ended September 30, 2008, respectively, and $0.2
million and $0.4 million during the quarter and nine-month period ended
September 30, 2007, respectively.
(L) STOCK-BASED COMPENSATION
The following table sets forth stock-based compensation expense related to
stock options, restricted stock units, other equity awards and our employee
stock purchase plan, or ESPP (in thousands):
Quarters Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2008 2007 2008 2007
- --------------------------------------------------------------------------------
Stock options $ 413 $ 481 $ 1,257 $ 646
Restricted stock units 117 208 (385) 295
Other equity awards 46 49 142 141
ESPP 5 6 17 21
- --------------------------------------------------------------------------------
Total $ 581 $ 744 $ 1,031 $ 1,103
================================================================================
FASB Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment, or Statement 123(R), requires that the total amount of
compensation expense recognized reflect the number of stock-based awards that
actually vest as of the completion of their respective vesting periods. Upon the
vesting of certain stock-based awards, we adjust our stock-based compensation
expense to reflect actual versus estimated forfeitures. During the nine-month
periods ended September 30, 2008 and 2007, we recorded an unfavorable adjustment
of $0.2 million and a favorable adjustment of $1.0 million, respectively, to
reflect actual forfeitures for vested stock option grants.
Stock Options
Upon adoption of Statement 123(R), we began estimating the value of
options on the date of grant using the Lattice Binomial model, or the Lattice
model. The Lattice model requires extensive analysis of actual exercise and
cancellation data and includes a number of complex assumptions related to
expected volatility, risk-free interest rate, expected dividends and option
exercises and cancellations.
The following table sets forth the assumptions used for the Lattice model:
Quarters Ended Nine Months Ended
September 30, September 30,
------------------------------- --------------------------------
2008 2007 2008 2007
- -----------------------------------------------------------------------------------------------------------
Expected volatility N/A N/A 31% - 41% 25% - 41%
Weighted average volatility N/A N/A 35% 34%
Risk-free interest rate N/A N/A 1.95% - 5.10% 4.67% - 5.04%
Expected dividends N/A N/A - -
- -----------------------------------------------------------------------------------------------------------
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 contractual term,
vesting schedule and the extent to which the option's intrinsic value exceeds
the exercise price.
No stock options were granted during the quarters ended September 30, 2008
and 2007. During the nine-month period ended September 30, 2008, we granted
171,000 stock options, exercisable for shares of our Class B stock, which vest
over a three-year period from the grant date and expire 10 years from the grant
date. During the nine-month period ended September 30, 2007, we granted 160,000
stock options. The weighted average expected life for options granted was 6.7
years during the current year nine-month period and 6.3 years during the prior
year nine-month period. The weighted average fair value per share for options
granted was $2.45 during the current year nine-month period and $4.64 during the
prior year nine-month period.
15
The following table sets forth the activity and balances of our stock
options for the nine-month period ended September 30, 2008:
Weighted
Average
Number of Exercise
Shares Price
- -------------------------------------------------------------------------------
Outstanding at December 31, 2007 3,546,250 $ 15.60
Granted 171,000 5.72
Canceled (86,500) 14.06
- -----------------------------------------------------------------
Outstanding at September 30, 2008 3,630,750 $ 15.17
===============================================================================
Restricted Stock Units
No restricted stock units were granted during the quarters ended September
30, 2008 and 2007. In May 2008, we awarded 270,625 restricted stock units, which
provide for the issuance of our Class B stock if certain performance goals are
met. Pursuant to the requirements of Statement 123(R), we have measured the fair
value expense to be recognized through the third quarter of 2008 based upon the
September 30, 2008 closing price of our Class B stock, resulting in expense of
$0.1 million. During the nine-month period ended September 30, 2007, we granted
250,625 restricted stock units, which provide for the issuance of our Class B
stock if two-year cumulative operating income target thresholds are met. During
the prior year nine-month period, the weighted average grant-date fair value for
restricted stock units was $10.61. In the nine-month period ended September 30,
2008, we determined that it was unlikely that the minimum threshold associated
with the 2007 grant would be met. Therefore, in the nine-month period ended
September 30, 2008, we reversed $0.5 million of stock-based compensation expense
that was recorded in 2007 related to this restricted stock unit grant.
The following table sets forth the activity and balances of our restricted
stock units for the nine-month period ended September 30, 2008:
Weighted
Average
Number of Grant-Date
Shares Fair Value
- --------------------------------------------------------------------------------
Outstanding at December 31, 2007 433,875 $ 11.73
Granted 270,625 3.94
Canceled (17,000) 11.64
- --------------------------------------------------------------
Outstanding at September 30, 2008 687,500 $ 8.67
================================================================================
16
(M) SEGMENT INFORMATION
The following table sets forth financial information by reportable segment
(in thousands):
Quarters Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
2008 2007 2008 2007
- -------------------------------------------------------------------------------------------------------
Net revenues
Entertainment $ 38,256 $ 49,579 $ 127,312 $ 152,275
Publishing 21,725 23,115 62,445 69,118
Licensing 10,361 10,164 32,499 32,532
- -------------------------------------------------------------------------------------------------------
Total $ 70,342 $ 82,858 $ 222,256 $ 253,925
=======================================================================================================
Income (loss) before income taxes
Entertainment $ 2,781 $ 7,188 $ 7,290 $ 18,793
Publishing (1,289) (1,490) (6,411) (6,159)
Licensing 6,635 6,340 19,359 19,540
Corporate Administration and Promotion (4,587) (7,901) (16,892) (20,189)
Restructuring expense (2,203) - (2,761) (110)
Impairment charge on assets held for sale 45 - (58) -
Provisions for reserves (4,121) - (4,121) -
Investment income 201 568 857 1,666
Interest expense (1,103) (1,170) (3,359) (3,736)
Amortization of deferred financing fees (89) (134) (267) (402)
Other, net (90) 163 (432) (144)
- -------------------------------------------------------------------------------------------------------
Total $ (3,820) $ 3,564 $ (6,795) $ 9,259
=======================================================================================================
Sept.30, Dec. 31,
2008 2007
- -------------------------------------------------------------------------------------------------------
Identifiable assets
Entertainment $ 281,774 $ 287,940
Publishing 31,420 35,320
Licensing 9,294 11,560
Corporate Administration and Promotion 98,991 110,336
- -------------------------------------------------------------------------------------------------------
Total $ 421,479 $ 445,156
=======================================================================================================
17
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 in Item 1 of this
Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the
fiscal year ended December 31, 2007.
RESULTS OF OPERATIONS (1)
The following table sets forth our results of operations (in millions,
except per share amounts):
Quarters Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2008 2007 2008 2007
- -------------------------------------------------------------------------------------------------------------------
Net revenues
Entertainment
Domestic TV $ 14.6 $ 17.6 $ 45.9 $ 58.9
International TV 11.8 14.3 39.9 41.8
Online/mobile 10.9 15.4 37.7 45.9
Other 0.9 2.3 3.8 5.7
- -------------------------------------------------------------------------------------------------------------------
Total Entertainment 38.2 49.6 127.3 152.3
- -------------------------------------------------------------------------------------------------------------------
Publishing
Domestic magazine 16.9 18.3 49.8 56.4
International magazine 2.0 1.9 6.0 5.6
Special editions and other 2.9 2.9 6.7 7.1
- -------------------------------------------------------------------------------------------------------------------
Total Publishing 21.8 23.1 62.5 69.1
- -------------------------------------------------------------------------------------------------------------------
Licensing
Consumer products 9.4 8.7 26.6 24.9
Location-based entertainment 0.7 0.9 2.9 2.7
Marketing events 0.2 0.4 2.7 3.0
Other 0.1 0.1 0.3 1.9
- -------------------------------------------------------------------------------------------------------------------
Total Licensing 10.4 10.1 32.5 32.5
- -------------------------------------------------------------------------------------------------------------------
Total net revenues $ 70.4 $ 82.8 $ 222.3 $ 253.9
===================================================================================================================
Net income (loss)
Entertainment
Before programming amortization and online content expenses $ 12.6 $ 16.4 $ 36.8 $ 48.3
Programming amortization and online content expenses (9.8) (9.2) (29.5) (29.5)
- -------------------------------------------------------------------------------------------------------------------
Total Entertainment 2.8 7.2 7.3 18.8
- -------------------------------------------------------------------------------------------------------------------
Publishing (1.3) (1.4) (6.4) (6.1)
- -------------------------------------------------------------------------------------------------------------------
Licensing 6.7 6.3 19.4 19.5
- -------------------------------------------------------------------------------------------------------------------
Corporate Administration and Promotion (4.6) (7.9) (16.9) (20.2)
- -------------------------------------------------------------------------------------------------------------------
Segment income 3.6 4.2 3.4 12.0
Restructuring expense (2.2) - (2.8) (0.1)
Impairment charge on assets held for sale - - (0.1) -
Provisions for reserves (4.1) - (4.1) -
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) (2.7) 4.2 (3.6) 11.9
- -------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
Investment income 0.2 0.6 0.9 1.7
Interest expense (1.1) (1.2) (3.4) (3.7)
Amortization of deferred financing fees (0.1) (0.1) (0.3) (0.4)
Other, net (0.1) 0.1 (0.4) (0.2)
- -------------------------------------------------------------------------------------------------------------------
Total nonoperating expense (1.1) (0.6) (3.2) (2.6)
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (3.8) 3.6 (6.8) 9.3
Income tax expense (1.4) (1.0) (3.6) (3.3)
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (5.2) $ 2.6 $ (10.4) $ 6.0
===================================================================================================================
(1) Certain amounts reported for the prior periods have been reclassified to
conform to the current year's presentation.
18
CURRENT ECONOMIC CONDITIONS
We have previously reported on the challenges facing the media industry
and us, including increased competition for consumers' attention, the migration
of advertisers to other platforms and the higher costs of paper, ink and other
expenses. Since that time, we also have seen a steady weakening of the economy,
which has greatly exacerbated the existing challenges. The current global
economic conditions resulting from the recent disruption in credit markets pose
a risk to the overall economy that could continue to impact demand for our
products and services. It is unclear the extent to which these conditions will
persist and what overall impact they will have on future spending by consumers
and advertisers as compared to our expectations. Throughout the past several
quarters we have adjusted our business activities to address the changing
economic environment and industry challenges by developing a restructuring plan
to reduce overhead costs, outsourcing our e-commerce and catalog businesses,
exiting the DVD market in phases and focusing our distribution strategies on
digital.
In accordance with Financial Accounting Standards Board, or FASB,
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, or Statement 142, we conduct annual impairment testing of
goodwill in October of each year, or in between annual tests if events occur or
circumstances change that would indicate our goodwill is impaired. The recent
adverse market and business conditions noted above are not interim impairment
indicators of our goodwill. However, further declines in our operating results
and prolonged deterioration of economic conditions could result in future
impairments of our long-lived assets including goodwill.
OVERVIEW
Revenues decreased $12.4 million, or 15%, for the quarter and $31.6
million, or 12%, for the nine-month period due to lower revenues from our
Entertainment and Publishing Groups.
Segment income decreased $0.6 million for the quarter and $8.6 million for
the nine-month period primarily due to lower income from our Entertainment
Group, partially offset by lower Corporate Administration and Promotion expense.
Operating results decreased $6.9 million for the quarter and $15.5 million
for the nine-month period. This was due to the lower segment income, provisions
of $2.9 million for a receivable and $1.2 million for archival material during
the current year quarter and nine-month period and restructuring expenses of
$2.2 million for the current year quarter and $2.8 million for the current year
nine-month period.
Net losses were $5.2 million and $10.4 million for the current year
quarter and nine-month period, respectively, compared to net income of $2.6
million and $6.0 million in the respective prior year periods. The changes in
results were primarily due to the lower operating results previously discussed
and lower investment income.
ENTERTAINMENT GROUP
The following discussion focuses on the revenues and profit contribution
before programming amortization and online content expenses of each of our
Entertainment Group businesses.
Revenues from our domestic TV networks decreased $3.0 million, or 18%, for
the quarter and $13.0 million, or 22%, for the nine-month period, and profit
contribution decreased $0.7 million for the quarter and $8.3 million for the
nine-month period. Playboy TV monthly subscription revenues increased for the
quarter and nine-month period. Pay-per-view revenues were lower for the quarter
and nine-month period, reflecting the continued migration from linear networks
to the more competitive video-on-demand platform. Results for the current year
quarter and the prior year nine-month period reflected unfavorable variances
related to previously estimated revenues. The sale of our Los Angeles production
facility assets in the prior quarter resulted, as expected, in lower revenues
but increased profit contribution for the quarter and nine-month period.
International TV revenues decreased $2.5 million, or 17%, for the quarter
and $1.9 million, or 4%, for the nine-month period. Profit contribution
decreased $2.2 million for the quarter and $1.1 million for the nine-month
period. The quarter and nine-month period reflected lower revenues from our U.K.
networks and unfavorable
19
foreign currency exchange rate fluctuations, partially offset by lower costs
coupled with growth in our other European networks.
Online/mobile revenues decreased $4.5 million, or 29%, for the quarter and
$8.2 million, or 18%, for the nine-month period, and profit contribution
decreased $1.3 million for the quarter and $3.2 million for the nine-month
period. Our online websites are in the midst of a major infrastructure overhaul
and redesign effort, which we anticipate to be substantially completed in early
2009. We believe that this will increase traffic, resulting in higher revenues
and profit contribution from the online business. During this transition, we
expect lower revenues and profit contribution. Additionally, our Playboy and
BUNNYshop e-commerce and catalog businesses were outsourced to eFashion
Solutions, LLC, resulting as planned with lower revenues but higher profit
contribution for the quarter and nine-month period.
Revenues from other businesses decreased $1.4 million, or 58%, for the
quarter and $1.9 million, or 33%, for the nine-month period, and profit
contribution decreased $1.1 million for the quarter and was flat for the
nine-month period. This resulted primarily from the receipt of a license fee in
the prior year quarter related to our production company, Alta Loma
Entertainment, and lower DVD sales, offset by lower costs for these businesses.
In response to declines in the worldwide DVD market, we plan to exit this
business in phases and focus our distribution strategies on digital.
The group's administrative expenses decreased $1.5 million, or 33%, for
the quarter and $1.1 million, or 8%, for the nine-month period due in part to
lower legal expenses.
Programming amortization and online content expenses increased $0.6
million, or 6%, for the quarter and were flat for the nine-month period.
Segment income for the group decreased $4.4 million, or 61%, for the
quarter and $11.5 million, or 61%, for the nine-month period due to the results
previously discussed.
PUBLISHING GROUP
Domestic magazine revenues decreased $1.4 million, or 8%, for the quarter
and $6.6 million, or 12%, for the nine-month period, reflecting weak industry
dynamics. Subscription revenues decreased $0.4 million, or 4%, for the quarter
and $1.8 million, or 6%, for the nine-month period primarily due to 3% and 5%
fewer copies served, respectively. Newsstand revenues were flat for the quarter
and decreased $1.3 million, or 22%, for the nine-month period on 23% fewer
copies sold. Advertising revenues decreased $1.0 million, or 16%, for the
quarter and $3.5 million, or 19%, for the nine-month period. The quarter and
nine-month period reflected 11% and 9% fewer advertising pages compared to the
respective prior year periods due in part to the loss of a major advertiser,
coupled with 5% and 11% decreases in average net revenue per page, respectively,
largely due to lowering our rate base effective with the January 2008 issue.
Advertising sales for the 2008 fourth quarter magazine issues are closed, and we
expect to report approximately 17% lower advertising revenues and 3% fewer
advertising pages compared to the 2007 fourth quarter.
On a combined basis, Playboy print and online advertising revenues
decreased $0.7 million, or 9%, for the quarter and $2.5 million, or 12%, for the
nine-month period.
International magazine revenues were flat for the quarter and increased
$0.4 million, or 7%, for the nine-month period. The increase was primarily due
to the Russian and German editions.
Special editions and other revenues were flat for the quarter and
decreased $0.4 million, or 5%, for the nine-month period. The decrease was due
mainly to 15% fewer special editions newsstand copies sold, partially offset by
a $1.00 cover price increase effective with the July 2007 issues.
Segment loss for the group was flat for the quarter and increased $0.3
million, or 4%, for the nine-month period as the previously discussed revenue
declines for the quarter were offset by lower manufacturing, subscription
collection and editorial costs, while the revenue declines for the nine-month
period were mostly offset by lower manufacturing, editorial, post-employment
benefit and subscription collection costs.
20
LICENSING GROUP
Licensing Group revenues increased $0.3 million, or 2%, for the quarter
and were flat for the nine-month period. The current year quarter and nine-month
period reflected higher consumer products royalties, principally from Southeast
Asia and Latin America. The nine-month period reflected $1.6 million of lower
sales of original art compared to the prior year period. Revenues for the group
increased 5% for the nine-month period excluding the original art sales.
The group's segment income increased $0.4 million, or 5%, for the quarter
and was flat for the nine-month period due to the changes in revenues discussed
above.
CORPORATE ADMINISTRATION AND PROMOTION
Corporate Administration and Promotion expenses decreased $3.3 million, or
42%, for the quarter and $3.3 million, or 16%, for the nine-month period,
largely due to lower compensation-related and other benefits, trademark defense
and marketing expenses.
RESTRUCTURING EXPENSE
In the third quarter of 2008, we developed a restructuring plan that is
expected to result in lower overhead costs. As a result of this plan, we
recorded a charge of $2.3 million related to costs associated with a workforce
reduction of 55 employees, most of whose jobs will be eliminated in the fourth
quarter of 2008. We also eliminated approximately 25 open positions. Payments
under this plan will begin in the fourth quarter of 2008 and will be
substantially completed by the end of 2009 with some payments continuing into
2010.
In 2007, we implemented a plan to outsource our e-commerce and catalog
businesses, to sell the assets related to our Los Angeles production facility
and to eliminate office space obtained in the acquisition of Club Jenna, Inc.
and related companies. As a result of this restructuring plan, we recorded a
reserve of $0.4 million for costs associated with a workforce reduction of 28
employees. During the nine-month period ended September 30, 2008, as part of
this restructuring plan, we recorded an additional reserve of $0.6 million for
contract termination fees and expenses.
Total costs of approximately $13.5 million for our prior years'
restructuring plans were paid through September 30, 2008, $1.0 million of which
was paid during the nine-month period ended September 30, 2008.
NONOPERATING EXPENSE
Nonoperating expense increased $0.5 million, or 89%, for the quarter and
$0.6 million, or 22%, for the nine-month period primarily due to the loss of
investment income from investments sold in the current year.
INCOME TAX EXPENSE
Income tax expense of $1.4 million for the current year quarter and $3.6
million for the nine-month period increased from $1.0 million and $3.3 million
in the respective prior year periods due to higher foreign withholding tax and
prior period refunds.
Our effective income tax rate differs from the U.S. statutory rate. Our
income tax provision consists of foreign income tax, which relates to our
international television networks and withholding tax on licensing income, for
which we do not receive a current U.S. income tax benefit due to 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 September 30, 2008, we had $25.4 million in cash and cash equivalents
compared to $20.6 million in cash and cash equivalents at December 31, 2007.
During the nine-month period ended September 30, 2008, we sold at par
21
all of our $6.0 million of auction rate securities, or ARS, which were included
in marketable securities and short-term investments at December 31, 2007.
Financing obligations were $115.0 million at both September 30, 2008 and
December 31, 2007.
At September 30, 2008, cash generated from our operating activities,
existing cash and cash equivalents and marketable securities and short-term
investments were fulfilling our liquidity requirements. We also have a $50.0
million credit facility, which can be used for revolving borrowings, issuing
letters of credit or a combination of both. At September 30, 2008, there were no
borrowings under this facility and $1.1 million in letters of credit
outstanding, resulting in $48.9 million of available borrowings. If the global
economic weakness that resulted from recent disruptions in the broad financial
markets were to deteriorate or be prolonged for an extended period, it could
impact our profitability and related cash generation capability. See Part II,
Item 1A. "Risk Factors" for more information.
DERIVATIVE INSTRUMENTS
We hedge the variability of forecasted cash receipts related to royalty
payments denominated in yen and euro with derivative instruments. These
royalties are hedged with forward contracts for periods not exceeding 12 months.
The fair value and carrying value of our forward contracts are not material. For
the nine-month period ended September 30, 2008, hedges deemed to be ineffective
due to us not being able to exactly match the settlement date of the hedges to
the receipt of these royalty payments resulted in immaterial losses.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities for the nine-month period ended
September 30, 2008 was $0.8 million, compared to $23.5 million in the prior year
period. This decrease was primarily due to the operating results discussed
earlier combined with decreases in accounts payable, partially offset by
decreases in prepaid expenses and other current assets and investments in
entertainment programming.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided by investing activities for the nine-month period ended
September 30, 2008 was $7.1 million, compared to net cash used for investing
activities of $16.6 million in the prior year period. This change reflected net
proceeds of $5.1 million related to the April 2008 sale of our Los Angeles
production facility assets. The net cash provided during the current year period
also reflected $9.9 million of proceeds primarily reflecting the sale of our ARS
and the liquidation of a portion of our investment in an enhanced cash
portfolio, compared to net purchases of investments of $9.8 million in the prior
year period.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used for financing activities for the nine-month period ended
September 30, 2008 was $2.4 million, a decrease of $5.6 million compared to the
prior year period. The decrease reflected $2.5 million of acquisition
liabilities payments during the current year period compared to $7.9 million of
acquisition liabilities payments in the prior year period.
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
The negative effect of foreign currency exchange rates on our cash and
cash equivalents during the nine-month period ended September 30, 2008 of $0.7
million was due to the strengthening of the U.S. dollar against the pound
sterling and euro; the positive effect of foreign currency exchange rates on our
cash and cash equivalents during the nine-month period ended September 30, 2007
of $0.4 million was a result of the weakening of the U.S. dollar against the
pound sterling and euro.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2008, the FASB issued Statement of Financial Accounting Standards
No. 162, The Hierarchy of Generally Accepted Accounting Principles, or Statement
162. Statement 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of
financial statements that are presented in conformity with generally accepted
accounting principles. Statement 162 becomes effective 60 days
22
following the Securities and Exchange Commission's approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles. We
do not expect the adoption of Statement 162 to impact our future results of
operations or financial condition.
In May 2008, the FASB issued Staff Position No. APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement), or FSP APB 14-1. FSP APB 14-1 specifies
that issuers of convertible debt instruments that may be settled in cash upon
conversion should separately account for the liability and equity components in
a manner that will reflect the entity's nonconvertible debt borrowing rate when
interest cost is recognized in subsequent periods. We are required to adopt FSP
APB 14-1 at the beginning of 2009 and apply FSP APB 14-1 retrospectively to all
periods presented. We are currently evaluating the impact of adopting FSP APB
14-1 on our results of operations and financial condition.
In April 2008, the FASB issued Staff Position No. FAS 142-3, Determination
of the Useful Life of Intangible Assets, or FSP FAS 142-3. FSP FAS 142-3 amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under Statement 142. We are required to adopt FSP FAS 142-3 prospectively for
intangible assets acquired on or after January 1, 2009. Intangible assets
acquired prior to January 1, 2009 are not affected by the adoption of FSP FAS
142-3.
In March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161, Disclosures about Derivative Instruments and Hedging Activities-an
amendment of FASB Statement No. 133, or Statement 161. Statement 161 requires
enhanced disclosures about how and why an entity uses derivative instruments,
how derivative instruments and related hedged items are accounted for under
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, and its related interpretations, and how
derivative instruments and related hedged items affect an entity's financial
position, financial performance and cash flows. We are required to adopt
Statement 161 at the beginning of 2009. Since Statement 161 impacts our
disclosure but not our accounting treatment for derivative instruments and
related hedged items, our adoption of Statement 161 will not impact our results
of operations or financial condition.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160, Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51, or Statement 160. Statement 160 clarifies
that a noncontrolling interest (previously referred to as minority interest) in
a subsidiary is an ownership interest in a consolidated entity that should be
reported as a component of equity in the consolidated financial statements. It
also requires consolidated net income to include the amounts attributable to
both the parent and the noncontrolling interest. We are required to adopt
Statement 160 at the beginning of 2009. We are currently evaluating the impact,
if any, of adopting Statement 160 on our future results of operations and
financial condition.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141 (revised 2007), Business Combinations, or Statement 141(R).
Statement 141(R) retains the fundamental requirements of the original
pronouncement requiring that the purchase method be used for all business
combinations. Statement 141(R) defines the acquirer as the entity that obtains
control of one or more businesses in the business combination, establishes the
acquisition date as the date that the acquirer achieves control and requires the
acquirer to recognize the assets acquired, liabilities assumed and any
noncontrolling interest at their fair values as of the acquisition date.
Statement 141(R) also requires, among other things, that acquisition-related
costs be recognized separately from the acquisition. We are required to adopt
Statement 141(R) prospectively for business combinations on or after January 1,
2009. Assets and liabilities that arose from business combinations prior to
January 1, 2009 are not affected by the adoption of Statement 141(R).
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and
132(R), or Statement 158. Statement 158 requires an entity to (a) recognize in
its statement of financial position an asset or an obligation for a defined
benefit postretirement plan's funded status, (b) measure a defined benefit
postretirement plan's assets and obligations that determine its funded status as
of the end of the employer's fiscal year and (c) recognize changes in the funded
status of a defined benefit postretirement plan in comprehensive income in the
years in which the changes occur. We adopted the recognition and related
disclosure provisions of Statement 158 effective December 31, 2006. The
measurement date provision of Statement 158 is effective at the
23
end of 2008. Since we use a December 31 measurement date, this provision of
Statement 158 will not have an impact on our future results of operations or
financial condition.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, Fair Value Measurements, or Statement 157, which provides
enhanced guidance for using fair value to measure assets and liabilities. We
adopted Statement 157 on January 1, 2008, as required for our financial assets
and liabilities. However, FASB Staff Position FAS 157-2, Effective Date of FASB
Statement No. 157, delayed the effective date of Statement 157 to the beginning
of 2009 for all nonfinancial assets and liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). We do not expect the adoption of Statement 157 for
our nonfinancial assets and liabilities to have a significant impact on our
future results of operations or financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks, including changes in foreign
currency exchange rates. There was no material change in our exposure to such
fluctuations during the nine-month period ended September 30, 2008. Information
regarding market risks as of December 31, 2007 is contained in Item 7A.
"Quantitative And Qualitative Disclosures About Market Risk" in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2007.
At September 30, 2008, we did not have any floating interest rate
exposure. As of that date, all of our outstanding debt consisted of 3.00%
convertible senior subordinated notes due 2025, or convertible notes, which are
fixed-rate obligations. The fair value of the $115.0 million aggregate principal
amount of the convertible notes is influenced by changes in market interest
rates, the share price of our Class B common stock and our credit quality. At
September 30, 2008, the convertible notes had an implied fair value of $79.4
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 13a-15(e) and
15d-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 13a-15(f) and 15d-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.
24
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 17, 1998, Eduardo Gongora, or Gongora, filed suit in state
court in Hidalgo County, Texas, against Editorial Caballero SA de CV, or EC,
Grupo Siete International, Inc., or GSI, collectively the Editorial Defendants,
and us. In the complaint, Gongora alleged that he was injured as a result of the
termination of a publishing license agreement, or the License Agreement, between
us and EC for the publication of a Mexican edition of Playboy magazine, or the
Mexican Edition. We terminated the License Agreement on or about January 29,
1998, due to EC's failure to pay royalties and other amounts due us under the
License Agreement. On February 18, 1998, the Editorial Defendants filed a
cross-claim against us. Gongora alleged that in December 1996 he entered into an
oral agreement with the Editorial Defendants to solicit advertising for the
Mexican Edition to be distributed in the United States. The basis of GSI's
cross-claim was that it was the assignee of EC's right to distribute the Mexican
Edition in the United States and other Spanish-speaking Latin American countries
outside of Mexico. On May 31, 2002, a jury returned a verdict against us in the
amount of $4.4 million. Under the verdict, Gongora was awarded no damages. GSI
and EC were awarded $4.1 million in out-of-pocket expenses and approximately
$0.3 million for lost profits, even though the jury found that EC had failed to
comply with the terms of the License Agreement. On October 24, 2002, the trial
court signed a judgment against us for $4.4 million plus pre- and post-judgment
interest and costs. On November 22, 2002, we filed post-judgment motions
challenging the judgment in the trial court. The trial court overruled those
motions and we vigorously pursued an appeal with the State Appellate Court
sitting in Corpus Christi challenging the verdict. We posted a bond in the
amount of approximately $9.4 million, which represented the amount of the
judgment, costs and estimated pre- and post-judgment interest, in connection
with the appeal. On May 25, 2006, the State Appellate Court reversed the
judgment by the trial court, rendered judgment for us on the majority of the
plaintiffs' claims and remanded the remaining claims for a new trial. On July
14, 2006, the plaintiffs filed a motion for rehearing and en banc
reconsideration, which we opposed. On October 12, 2006, the State Appellate
Court denied plaintiffs' motion. On December 27, 2006, we filed a petition for
review with the Texas Supreme Court. On January 25, 2008, the Texas Supreme
Court denied our petition for review. On February 8, 2008, we filed a petition
for rehearing with the Texas Supreme Court. On May 16, 2008, the Texas Supreme
Court denied our motion for rehearing. The posted bond has been canceled and the
remaining claims will be retried. We, on advice of legal counsel, believe that
it is not probable that a material judgment against us will be obtained. In
accordance with Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies, or Statement 5, no
liability has been accrued.
On April 12, 2004, J. Roger Faherty, or Faherty, filed suit in the United
States District Court for the Southern District of New York against Spice
Entertainment Companies, or Spice, Playboy Enterprises, Inc., or Playboy,
Playboy Enterprises International, Inc., or PEII, D. Keith Howington, Anne
Howington and Logix Development Corporation, or Logix. The complaint alleges
that Faherty is entitled to statutory and contractual indemnification from
Playboy, PEII and Spice with respect to defense costs and liabilities incurred
by Faherty in the litigation described in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2007, or the Logix litigation. The complaint
further alleges that Playboy, PEII, Spice, D. Keith Howington, Anne Howington
and Logix conspired to deprive Faherty of his alleged right to indemnification
by excluding him from the settlement of the Logix litigation. On June 18, 2004,
a jury entered a special verdict finding Faherty personally liable for $22.5
million in damages to the plaintiffs in the Logix litigation. A judgment was
entered on the verdict on or around August 2, 2004. Faherty filed post-trial
motions for a judgment notwithstanding the verdict and a new trial, but these
motions were both denied on or about September 21, 2004. On October 20, 2004,
Faherty filed a notice of appeal from the verdict. As a result of rulings by the
California Court of Appeal and the California Supreme Court as recently as
February 13, 2008, Logix's recovery against Faherty has been reduced
significantly, although certain portions of the case have been set for a
retrial. In light of these rulings, however, when coupled with any offset as a
result of the settlement of the Logix litigation, any ultimate net recovery by
Logix against Faherty will be severely reduced and might be entirely eliminated.
In consideration of this appeal, Faherty and Playboy have agreed to continue a
temporary stay of the indemnification action filed in the United States District
Court for the Southern District of New York through the end of December 2008. In
late June 2008, plaintiffs in the Logix litigation filed a motion in the trial
court seeking to amend a $40.0 million judgment previously entered on consent
against defendant Emerald Media Inc., or EMI, seeking to add Faherty as a
judgment debtor. In the event Faherty's indemnification and conspiracy claims go
forward against us, we believe they are without merit and that we have good
defenses against
25
them. As such, based on the information known to us to date, we do not believe
that it is probable that a material judgment against us will result. In
accordance with Statement 5, no liability has been accrued.
ITEM 1A. RISK FACTORS
For a detailed discussion of factors that may affect our performance, see
Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2007. Except as set forth below, there have been no
material changes to the risk factors disclosed in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2007.
Changes in economic conditions could adversely affect the profitability of
our business.
The global economy is currently experiencing a significant contraction,
with an almost unprecedented lack of availability of commercial and consumer
credit. This current decrease and any future decrease in economic activity in
the U.S. or in other regions of the world in which we do business could
significantly and adversely affect our results of operations and financial
condition. This contraction could cause a decline in spending by consumers and
advertisers and reduce demand for our products, thereby reducing our revenues
and earnings. In addition, we currently fulfill a portion of our liquidity
requirements from operating cash flows. Our ability to generate cash flows to
meet these requirements could be adversely affected by a continued decline in
economic conditions.
Adverse securities and credit market conditions may significantly affect
our ability to access the capital and credit markets and could harm our
financial position.
The securities and credit markets have been experiencing extreme
volatility and disruption. In some cases, the markets have limited the
availability of funds and increased the costs associated with issuing debt
instruments. Our access to additional financing will depend on a variety of
factors, such as these market conditions, the general availability of credit,
the volume of trading activities, the overall availability of credit to our
industry and our credit ratings. If any of these events were to occur, our
internal sources of liquidity may prove to be insufficient, and, in such case,
we may not be able to obtain additional financing on favorable terms, which
could have an impact on our ability to refinance credit facilities or maturing
debt or to react to changing economic and business conditions.
26
ITEM 6. EXHIBITS
Exhibit Number Description
- -------------- -----------
10.1 First Amendment to the Playboy Enterprises, Inc. Deferred Compensation
Plan as amended and restated January 1, 2005
10.2 First Amendment to the Playboy Enterprises, Inc. Board of Directors'
Deferred Compensation Plan as amended and restated January 1, 2005
10.3 First Amended and Restated Playboy Enterprises, Inc. 1991 Non-Qualified
Stock Option Plan for Non-Employee Directors effective as of September 17,
2008
10.4 Third Amended and Restated Playboy Enterprises, Inc. 1995 Stock Incentive
Plan as amended and restated as of September 17, 2008
10.5 Second Amended and Restated 1997 Equity Plan for Non-Employee Directors of
Playboy Enterprises, Inc. as amended and restated as of September 17, 2008
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
27
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: November 7, 2008 By /s/ Linda Havard
---------------- ----------------
Linda G. Havard
Executive Vice President
and Chief Financial Officer
(Authorized Officer and
Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.1 First Amendment to the Playboy Enterprises, Inc. Deferred Compensation
Plan as amended and restated January 1, 2005
10.2 First Amendment to the Playboy Enterprises, Inc. Board of Directors'
Deferred Compensation Plan as amended and restated January 1, 2005
10.3 First Amended and Restated Playboy Enterprises, Inc. 1991 Non-Qualified
Stock Option Plan for Non-Employee Directors effective as of September 17,
2008
10.4 Third Amended and Restated Playboy Enterprises, Inc. 1995 Stock Incentive
Plan as amended and restated as of September 17, 2008
10.5 Second Amended and Restated 1997 Equity Plan for Non-Employee Directors of
Playboy Enterprises, Inc. as amended and restated as of September 17, 2008
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
29