Playboy Enterprises Reports Third Quarter Results

Playboy Enterprises Reports Third Quarter Results

CHICAGO, Nov. 7 /PRNewswire-FirstCall/ -- Playboy Enterprises, Inc. (PEI) (NYSE:PLA)(NYSE:PLAA) today reported net income of $1.1 million, or $0.03 per basic and diluted share, for the third quarter ended September 30, 2006, better than the loss the company had projected. The results compare to net income of $3.2 million, or $0.10 per basic and diluted share in the prior year period. Revenues in the quarter rose 2% to $82.3 million from $80.9 million last year.

Third quarter 2006 operating income was $3.7 million, down 31% from $5.4 million in last year's third quarter. While Licensing results were up more than 40%, the gain was more than offset by lower Entertainment profits and increased Corporate Administration expense.

Playboy Chairman and Chief Executive Officer Christie Hefner said: "The quarter's results reflected the continued strength of our growth businesses of global licensing and new digital media, both of which reported double-digit profit gains. The fourth quarter marks the opening of our venues at the Palms, and we expect that the related high-margin revenues will further accelerate the growth of our Licensing business.

"The domestic TV business remains in transition and publishing challenging. Our goal is to maintain our leadership position. To that end, in TV, we just launched new movie networks, which offer consumers better programming, packaging and scheduling. In addition, we continue to encourage operators to offer and market Playboy TV as a subscription-on-demand package, which we believe is a compelling new product. However, because of the recent introduction of these products and the lag in reporting by our distribution partners, we do not yet have enough data to determine how well we are performing, which makes it difficult to make near-term projections. Rather than lower guidance, however, at this time we are maintaining our estimate of $0.05 to $0.10 EPS for the year that we had previously announced," Hefner said.

Entertainment

Entertainment Group 2006 third quarter segment income was $5.8 million, down 18% from $7.1 million in last year's quarter. Revenues in the same period rose 5% to $50.2 million from $47.8 million.

In domestic TV, increased revenues from Playboy TV as a subscription service and from video-on-demand distribution of the movie services were more than offset by lower cable and satellite pay-per-view revenues for both Playboy TV and the movie networks, resulting in a 19% decline in revenues in the quarter compared to last year.

Third quarter international revenues rose 17% versus last year, reflecting improved performance of the UK networks, favorable currency exchange rates and increased royalties from mobile agreements. Recent acquisitions were primarily responsible for the 41% growth in online revenues year-over-year and for the increase in DVD sales, which led to a more-than-doubling of other revenues. As a result of these top-line increases, the international, online and other businesses reported significant profit gains, offsetting the reduced contribution from domestic TV.

Planned increases in online spending were responsible for the 12% increase in 2006 third quarter programming and content expense.

Publishing

The Publishing Group reported a segment loss of $0.8 million for the 2006 third quarter, comparable to the prior year quarter. Reduced editorial and operating expenses for Playboy Magazine offset the $2.7 million decline in third quarter revenues to $24.6 million this year from $27.3 million last year, which were a result of weak market conditions in domestic newsstand and advertising sales.

The company said that it expects advertising revenues to be up approximately 10% in the 2006 fourth quarter compared to last year.

Licensing

Third quarter 2006 Licensing Group segment income rose 41% to $4.6 million compared to the prior year on a 28% increase in revenues to $7.5 million. The improved results were driven by increased international royalties, especially from Europe.

Other

Third quarter 2006 Corporate Administration and Promotion expense was $5.8 million, up 31% from $4.3 million from the 2005 third quarter, primarily due to the elimination of intra-company agreements related to trademark, content and administrative services as a result of the company's repurchase of the minority interest in Playboy.com in late 2005.

Income tax expense in the 2006 quarter was $1.4 million compared to $0.5 million in last year's third quarter when the company recorded a tax refund related to its European television operations.

Additional information regarding third quarter 2006 earnings will be available on the earnings release conference call, which is being held today, November 7, at 11:00 a.m. Eastern /10:00 a.m. Central. The call may be accessed by dialing 800-862-9098 (for domestic callers) or 1-785-424-1051 (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 television networks and distributes programming globally; owns Playboy.com, a leading men's lifestyle and entertainment web site; and licenses the Playboy trademark internationally for a range of consumer products and services.

FORWARD-LOOKING STATEMENTS

This release contains "forward-looking statements," including statements 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 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 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 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 stock or convertible
debt in connection with financings or acquisition activities;
(9) Competition for advertisers from other publications, media or online
providers or any decrease in spending by advertisers, either generally
or with respect to the adult male market;
(10) Competition in the television, men's magazine, Internet and product
licensing markets;
(11) Attempts by consumers or private advocacy groups to exclude our
programming or other products from distribution;
(12) Our television, Internet and wireless businesses' reliance on third
parties for technology and distribution, and any changes in that
technology and/or unforeseen delays in its implementation which might
affect our plans and assumptions;
(13) Risks associated with losing access to transponders and competition
for transponders and channel space;
(14) Failure to maintain our agreements with multiple system operators and
direct-to-home operators on favorable terms, as well as any decline
in our access to, and acceptance by, direct-to-home and/or cable
systems and the possible resulting deterioration in the terms,
cancellation of fee arrangements or pressure on splits with operators
of these systems;
(15) Risks that we may not realize the expected increased sales and
profits and other benefits from acquisitions;
(16) Any charges or costs we incur in connection with restructuring
measures we may take in the future;
(17) Risks associated with the financial condition of Claxson Interactive
Group, Inc., our Playboy TV-Latin America, LLC, joint venture
partner;
(18) Increases in paper, printing or postage costs;
(19) Risks associated with certain minimum revenue amounts 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.

More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, which are available at www.sec.gov or in the Investor Relations section of our website. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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

Quarters Ended
September 30,
2006 2005
Net revenues
Entertainment:
Domestic TV $20.5 $25.4
International 14.3 12.2
Online subscriptions and e-commerce 12.6 9.0
Other 2.8 1.2
Total Entertainment 50.2 47.8
Publishing:
Playboy magazine
Subscription 11.2 12.3
Newsstand 2.3 2.6
Advertising 6.2 7.6
Total Playboy magazine 19.7 22.5
Special editions and other 3.2 3.2
International 1.7 1.6
Total Publishing 24.6 27.3
Licensing:
International licensing 5.5 4.3
Domestic licensing 1.3 1.2
Marketing events 0.3 0.1
Other 0.4 0.2
Total Licensing 7.5 5.8

Total net revenues $82.3 $80.9

Net income
Entertainment $5.8 $7.1
Publishing (0.8) (0.7)
Licensing 4.6 3.3
Corporate Administration and Promotion (5.8) (4.3)

Segment income 3.8 5.4

Restructuring expenses (0.1) -

Operating income 3.7 5.4

Investment income 0.6 0.6
Interest expense (1.5) (1.4)
Amortization of deferred financing
fees (0.1) (0.1)
Minority interest - (0.4)
Other, net (0.2) (0.4)

Income before income taxes 2.5 3.7

Income tax expense (1.4) (0.5)

Net income $1.1 $3.2

Weighted average number of common
shares outstanding
Basic 33,169 33,102
Diluted 33,173 33,366

Basic and diluted earnings per common
share $0.03 $0.10

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

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

Nine Months Ended
September 30,
2006 2005
Net revenues
Entertainment:
Domestic TV $63.7 $75.5
International 41.3 37.5
Online subscriptions and e-commerce 37.2 30.8
Other 6.7 3.4
Total Entertainment 148.9 147.2
Publishing:
Playboy magazine
Subscription 34.4 37.3
Newsstand 7.4 8.0
Advertising 17.3 22.2
Total Playboy magazine 59.1 67.5
Special editions and other 7.8 7.4
International 5.0 4.9
Total Publishing 71.9 79.8
Licensing:
International licensing 16.6 13.5
Domestic licensing 3.9 3.7
Marketing events 2.8 2.7
Other 0.8 0.3
Total Licensing 24.1 20.2

Total net revenues $244.9 $247.2

Net Loss
Entertainment $18.6 $28.8
Publishing (4.9) (3.4)
Licensing 13.0 10.9
Corporate Administration and Promotion (18.7) (12.7)

Segment income 8.0 23.6

Restructuring expenses (2.0) -

Operating income 6.0 23.6

Investment income 1.8 1.4
Interest expense (4.2) (5.5)
Amortization of deferred financing
fees (0.4) (0.5)
Minority interest - (1.1)
Debt extinguishment expenses - (19.3)
Other, net (0.3) (1.1)

Income (loss) before income taxes 2.9 (2.5)

Income tax expense (4.3) (2.8)

Net Loss $(1.4) $(5.3)

Weighted average number of common
shares outstanding
Basic and diluted 33,156 33,178

Basic and diluted loss per common
share $(0.04) $(0.16)

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)

Third Quarter Ended Nine Months Ended
September 30, September 30,

% %
EBITDA and Adjusted Better/ Better/
EBITDA 2006 2005 (Worse) 2006 2005 (Worse)
Net Income (Loss) $1.1 $3.2 (65.6) $(1.4) $(5.3) 73.6
Adjusted for:
Income Tax Expense 1.4 0.5 (180.0) 4.3 2.8 (53.6)
Interest Expense 1.5 1.4 (7.1) 4.2 5.5 23.6
Amortization of
Deferred Financing
Fees 0.1 0.1 --- 0.4 0.5 20.0
Equity in Operations
of Investments (0.1) 0.1 --- (0.1) 0.3 ---
Depreciation and
Amortization 11.7 10.9 (7.3) 33.4 32.9 (1.5)
EBITDA (1) 15.7 16.2 (3.1) 40.8 36.7 11.2
Adjusted for:
Cash Investments in
Television
Programming (8.8) (8.3) (6.0) (28.3) (24.3) (16.5)
Adjusted EBITDA (2) $6.9 $7.9 (12.7) $12.5 $12.4 0.8

Third Quarter Ended Nine Months Ended
September 30, September 30,

% %
Financial and Operating Inc/ Inc/
Data 2006 2005 (Dec) 2006 2005 (Dec)
Entertainment
Cash Investments in
Television
Programming $8.8 $8.3 6.0 $28.3 $24.3 16.5
Programming
Amortization and
Online Content
Expenses $10.9 $9.7 12.4 $30.6 $29.7 3.0

International TV
Household Units at
End of Period (in
millions) (3) 48.0 43.7 9.8 48.0 43.7 9.8

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

Playboy TV:
Satellite 28.2 26.4 6.8 28.2 26.4 6.8
Cable 22.4 23.6 (5.1) 22.4 23.6 (5.1)

Movie Networks:
Satellite 40.1 52.0 (22.9) 40.1 52.0 (22.9)
Cable 45.6 48.7 (6.4) 45.6 48.7 (6.4)

On Demand Households:
VOD 17.9 7.7 132.5 17.9 7.7 132.5
SVOD 10.8 1.8 500.0 10.8 1.8 500.0

Publishing
Magazine Advertising
Pages 102.2 110.1 (7.2) 291.7 359.6 (18.9)

At September 30
Cash, Cash
Equivalents,
Marketable
Securities and
Short-Term
Investments $37.3 $64.4 (42.1) $37.3 $64.4 (42.1)
Long-Term Financing
Obligations $115.0 $115.0 --- $115.0 $115.0 ---

See notes on accompanying page.

PLAYBOY ENTERPRISES, INC.
Notes to Reconciliation of Non-GAAP Financial Information and Financial
and Operating Data

1) In order to fully assess our financial results, management believes
that EBITDA is an appropriate measure for evaluating our operating
performance and liquidity, because it reflects the resources available
for, among other things, investments in 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 generally accepted accounting
principles in the United States, or GAAP.

2) In order to fully assess our financial results, management believes
that Adjusted EBITDA is an appropriate measure for evaluating our
operating performance and liquidity, because it reflects the resources
available for strategic opportunities including, among 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 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.

FCMN Contact: eburton@playboy.com

Source: Playboy Enterprises, Inc.

CONTACT: Investor: Martha Lindeman, +1-312-373-2430, Media: Linda
Marsicano, +1-312-373-2447

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

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