Playboy Enterprises Reports First Quarter 2006 Results

Playboy Enterprises Reports First Quarter 2006 Results

CHICAGO, May 4 /PRNewswire-FirstCall/ -- Playboy Enterprises, Inc. (PEI) (NYSE:PLA)(NYSE:PLAA) today reported net income for the first quarter ended March 31, 2006, of $0.8 million, or $0.02 per basic and diluted share. This compares to a net loss in the prior year quarter of $13.1 million, or $0.39 per basic and diluted share, which included a debt extinguishment charge of $19.3 million, or $0.58 per basic and diluted share. First quarter 2006 operating income totaled $3.5 million, including $0.7 million for the expensing of stock options, compared to $10.9 million last year on a 2% decline in revenues to $82.1 million.

Playboy Chairman and Chief Executive Officer Christie Hefner said: "The continued strong performance of the Licensing Group and growth of the newer digital media businesses of international TV, online and mobile validate not only the appeal of the brand but of our multi-platform business model. However, these promising and fast-growing businesses cannot yet offset the negative trends in our larger domestic TV business.

"Given the changing dynamics of the domestic TV business combined with the challenges in the publishing industry, it is clear that we need to realign our cost structure to perform satisfactorily in this new environment," Hefner said. "We are confident that we can make the changes necessary to improve our performance and position ourselves not just for the second half but for 2007 and beyond.

"We expect the weakness in publishing and domestic TV results to continue. These trends, together with the expense of reducing our cost structure, will likely result in a substantial second quarter loss, making it clear that we will not meet our initial earnings projection of $0.67 to $0.70 per share for the year. However, we expect a number of positive developments in the second half including VOD product launches, the opening of Playboy at the Palms and improved advertising sales. With these initiatives and a realigned cost structure, we believe that we can deliver a 50% improvement in second half 2006 earnings per share compared to the $0.24 EPS we reported in the second half of last year," Hefner said.

Entertainment

The Entertainment Group reported first quarter 2006 segment income of $7.9 million compared to $11.9 million last year, primarily reflecting weaker performance in domestic TV. Increases in online, international and other business revenues were nearly offset by lower domestic TV revenues, resulting in a 1% increase in the Group's first quarter 2006 revenue to $51.2 million.

Lower cable pay-per-view revenues for both Playboy TV and the movie networks reflected the continued migration of programming from linear networks to VOD platforms where the company is not yet fully represented and its programming faces more competition. The company said that it also expects future domestic TV revenues to be unfavorably affected by the reduction of channel space on the DirecTV platform. In the international businesses, expansion of the company's UK package of TV networks was primarily responsible for the revenue growth. Online benefited from the acquisition made last fall, which was responsible for the increase in first quarter subscription revenues.

Publishing

For the first quarter, the Publishing Group reported a segment loss of $2.3 million in 2006, versus a loss of $0.4 million in the prior year. Lower advertising and newsstand revenues for Playboy magazine were primarily responsible for the 13% decline in first quarter 2006 revenues to $23.5 million from $27.0 million last year. The company said that it expects to report a 16% decline in advertising revenues for the second quarter as compared to the year earlier period.

Licensing

First quarter 2006 segment income for the Licensing Group rose 18% to $4.3 million from $3.6 million in 2005 on a 25% increase in revenues from $6.0 million to $7.4 million. Increased royalty income from European licensees was the primary contributor to the revenue and profit growth.

Corporate Administration and Other

Corporate Administration and Promotion expense increased to $6.4 million from $4.2 million largely due to the elimination of intra-company agreements related to trademark, content and administrative services as a result of the company's repurchase of minority interest in Playboy.com.

Net interest expense in this year's first quarter declined by $1.6 million to $0.8 million, as a result of the sale of 3% convertible notes in March 2005 and repurchase of 11% notes. The refinancing also resulted in the $19.3 million debt extinguishment charge recorded in last year's first quarter.

Additional information regarding first quarter 2006 earnings will be available on the earnings release conference call, which is being held today, May 4, at 10:00 a.m. Eastern / 9:00 a.m. Central. The call may be accessed by dialing 800-795-1259 (for domestic callers) or 1-785-832-1523 (for international callers) and using the password: Playboy. In addition, the call will be webcast. To listen to the call, please visit http://www.peiinvestor.com/ and select the Investor Relations section.

Playboy Enterprises is a brand-driven, international multimedia entertainment company that publishes editions of Playboy magazine around the world; operates Playboy and Spice television networks and distributes programming globally via DVD and a network of websites including Playboy.com, a leading men's lifestyle and entertainment website; and licenses the Playboy and Spice trademarks internationally for a range of consumer products and services.

FORWARD-LOOKING STATEMENTS

This release contains "forward-looking statements," including statements in Business and Management's Discussion and Analysis of Financial Condition and Results of Operations, as to expectations, beliefs, plans, objectives and future financial performance, and assumptions underlying or concerning the foregoing. We use words such as "may," "will," "would," "could," "should," "believes," "estimates," "projects," "potential," "expects," "plans," "anticipates," "intends," "continues" and other similar terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which could cause our actual results, performance or outcomes to differ materially from those expressed or implied in the forward-looking statements. The following are some of the important factors that could cause our actual results, performance or outcomes to differ materially from those discussed in the forward-looking statements:

1) Foreign, national, state and local government regulation, actions or
initiatives, including:
a) attempts to limit or otherwise regulate the sale, distribution or
transmission of adult-oriented materials, including print,
television, video, and online materials,
b) limitations on the advertisement of tobacco, alcohol and other
products which are important sources of advertising revenue for us,
or
c) substantive changes in postal regulations or rates which could
increase our postage and distribution costs;

2) Risks associated with our foreign operations, including market
acceptance and demand for our products and the products of our
licensees;

3) Our ability to manage the risk associated with our exposure to foreign
currency exchange rate fluctuations;

4) Changes in general economic conditions, consumer spending habits,
viewing patterns, fashion trends or the retail sales environment
which, in each case, could reduce demand for our programming and
products and impact our advertising revenues;

5) Our ability to protect our trademarks, copyrights and other
intellectual property;

6) Risks as a distributor of media content, including our becoming
subject to claims for defamation, invasion of privacy, negligence,
copyright, patent or trademark infringement, and other claims based on
the nature and content of the materials we distribute;

7) The risk our outstanding litigation could result in settlements or
judgments which are material to us;

8) Dilution from any potential issuance of common or convertible
preferred stock or convertible debt in connection with financings or
acquisition activities;

9) Competition for advertisers from other publications, media or online
providers or any decrease in spending by advertisers, either generally
or with respect to the adult male market;

10) Competition in the television, men's magazine, Internet and product
licensing markets;

11) Attempts by consumers or private advocacy groups to exclude our
programming or other products from distribution;

12) Our television, Internet and wireless businesses' reliance on third
parties for technology and distribution, and any changes in that
technology and/or unforeseen delays in its implementation which might
affect our plans and assumptions;

13) Risks associated with losing access to transponders and competition
for transponders and channel space;

14) Failure to maintain our agreements with MSOs and 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 or
pressure on splits with operators of these systems;

15) Risks that we may not realize the expected increased sales and profits
and other benefits from acquisitions;

16) Any charges or costs we incur in connection with restructuring
measures we may take in the future;

17) Risks associated with the financial condition of Claxson Interactive
Group, Inc., our Playboy TV-Latin America, LLC, joint venture
partner;

18) Increases in paper, printing or postage costs;

19) Risks associated with revenue guarantees under our cable distribution
agreements;

20) Effects of the national consolidation of the single-copy magazine
distribution system; and

21) Risks associated with the viability of our primarily subscription- and
e-commerce-based Internet model.

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

Quarters Ended
March 31,
2006 2005
Net revenues
Entertainment:
Domestic TV $22.3 $25.2
International 13.8 13.4
Online subscriptions and e-commerce 13.2 11.0
Other 1.9 0.9
Total Entertainment 51.2 50.5
Publishing:
Playboy magazine
Subscription 11.9 12.6
Newsstand 2.6 3.3
Advertising 4.7 7.0
Total Playboy magazine 19.2 22.9
Special editions and other 2.6 2.3
International 1.7 1.8
Total Publishing 23.5 27.0
Licensing:
International licensing 5.5 4.5
Domestic licensing 1.3 1.3
Marketing events 0.2 0.2
Other 0.4 -
Total Licensing 7.4 6.0

Total net revenues $82.1 $83.5

Net income (loss)
Entertainment $7.9 $11.9
Publishing (2.3) (0.4)
Licensing 4.3 3.6
Corporate Administration and Promotion (6.4) (4.2)

Operating income 3.5 10.9

Investment income 0.6 0.2
Interest expense (1.4) (2.6)
Amortization of deferred financing fees (0.1) (0.2)
Minority interest - (0.4)
Debt extinguishment expense - (19.3)
Other, net (0.2) (0.5)

Income (loss) before income taxes 2.4 (11.9)

Income tax expense (1.6) (1.2)

Net income (loss) $0.8 $(13.1)

Weighted average number of common
shares outstanding
Basic 33,141 33,354
Diluted 33,453 33,354

Basic and diluted earnings (loss) per
common share $0.02 $(0.39)

Note: Certain reclassifications have been made to conform to the current
presentation.

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

First Quarter Ended March 31,

EBITDA and Adjusted EBITDA 2006 2005 % Better/(Worse)

Reconciliation to GAAP Financial
Measure:
Net Income (Loss) $0.8 $(13.1) ---
Adjusted for:
Income Tax Expense 1.6 1.2 (33.3)
Interest Expense 1.4 2.6 46.2
Amortization of Deferred
Financing Fees 0.1 0.2 50.0
Equity in Operations of
Investments 0.1 0.2 50.0
Depreciation and Amortization 9.7 10.8 10.2
EBITDA (1) 13.7 1.9 621.1
Adjusted for:
Cash Investments in
Television Content (9.3) (8.7) (6.9)
Adjusted EBITDA (2) $4.4 $(6.8) ---

First Quarter Ended March 31,

Financial and Operating Data 2006 2005 % Inc/(Dec)

Entertainment
Cash Investments in Entertainment
Content $9.3 $8.7 6.9
Content Amortization and Expense $9.4 $9.8 (4.1)

International TV Households at
End of Period (in millions) (3) 46.0 40.9 12.5

Domestic TV Household Units at
End of Period (in millions) (3):

Playboy TV:
Satellite 26.6 25.1 6.0
Cable 21.3 20.8 2.4

Movie Networks:
Satellite 53.1 49.5 7.3
Cable 41.3 45.5 (9.2)

On Demand Households:
VOD 8.6 6.4 34.4
SVOD 1.9 1.6 18.8

Publishing
Magazine Advertising Pages 86.0 121.2 (29.0)

At March 31
Cash, Cash Equivalents,
Marketable Securities and
Short-Term Investments $52.0 $63.7 (18.4)
Long-Term Financing
Obligations $115.0 $115.0 ---

PLAYBOY ENTERPRISES, INC.

Notes to Reconciliation of Non-GAAP Financial Information and Financial and

Operating Data

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

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

3) Each household unit is defined as one household carrying one given
network per carriage platform. A single household can represent
multiple household units if two or more of our networks and/or multiple
distribution platforms (i.e. digital and analog) are available to that
household.

Source: Playboy Enterprises, Inc.

CONTACT: Investor - Martha Lindeman, +1-312-373-2430, or Media - Linda
Marsicano, +1-312-373-2447, both of Playboy Enterprises

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

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