PLAYBOY ENTERPRISES, INC. reports fourth-quarter and full-year results
Fourth Quarter Segment Income Up Over Prior Year
Restructuring and Impairment Charges Reflected in Net Loss
CHICAGO, Wednesday.- Playboy Enterprises, Inc. (PEI) (NYSE: PLA, PLAA) today reported a net loss for the 2008 fourth quarter ended Dec. 31 of $145.7 million, or $4.37 per basic and diluted share, which included impairment, restructuring and other charges totaling $157.2 million. This compares to a net loss in the 2007 fourth quarter of $1.1 million, or $0.03 per share, which included a $1.9 million charge primarily related to the sale of the company?s television studio and a $2.6 million tax benefit.
Fourth quarter 2008 segment income was $1.1 million versus $0.0 million in the prior year quarter. The improvement reflected higher Entertainment profits and reduced Corporate Administration and Promotion expense, partially offset by lower Licensing profits resulting from weak consumer demand globally. Revenues declined to $69.8 million from $85.9 million in the 2007 fourth quarter, in part related to the television studio sale and the outsourcing of the company’s e-commerce business.
PEI Interim Chairman and Chief Executive Officer Jerome Kern said: “Playboy continues to enjoy a unique, globally popular brand. However, our financial performance is not reflective of its potential. Over the past several months, the company has accelerated the pace of expense reductions designed to bring our cost structure in line with current market realities and the positioning of our businesses going forward. The results of our efforts to date should be meaningful, but in the face of current economic conditions, it is clear that our streamlining initiatives need to continue.”
“At the same time, we are focused on profitable revenue growth,” Kern said. “We believe that our licensing business will continue to be a long-term growth engine for the company, in spite of the pressure on consumer spending that affected fourth quarter results. We also have signed two entertainment venue deals, one of which could open even before Playboy Mansion Macau is completed next year. The difficult economic environment makes growing media revenues even more challenging, but we are committed to implementing global business models that effectively monetize our content.”
“With a disciplined operating approach and the worldwide appeal of the brand, we believe we can exit the downturn in a position of renewed strength and return this company to profitability,” Kern said.
Fourth quarter 2008 Entertainment Group segment income doubled to $5.0 million compared to the prior year period, due in part to improved profitability in the company’s domestic TV business. Revenues in the same time periods declined 21% to $39.9 million.
Strong fourth quarter growth in Playboy TV and video-on-demand revenues partially offset the continuing decline in linear networks’ buy rates and the loss of revenues resulting from the sale of the company’s television studio in the 2008 second quarter. Although domestic TV revenues were $16.7 million, essentially flat compared to the 2007 fourth quarter, profitability increased.
International TV recorded fourth quarter 2008 revenues of $9.9 million, down from $14.1 million in the prior year period, primarily due to unfavorable foreign exchange rates and increased competition, primarily in the U.K. Online/mobile revenues were off 41% year over year to $10.7 million in the 2008 fourth quarter, reflecting the outsourcing of e-commerce as well as reduced pay-site traffic and lower advertising sales.
Other revenues rose in the quarter as licensing fees from “The Girls Next Door” and a Fox Searchlight movie project were partially offset by lower revenues from DVDs, a business the company recently announced that it is exiting.
The Publishing Group reported a $1.2 million segment loss in the 2008 fourth quarter, a 17% improvement compared with the prior year’s fourth quarter loss of $1.5 million. Revenues were down 11% to $22.0 million year over year, primarily due to lower advertising and circulation revenues at Playboy magazine. Ongoing efforts to reduce the magazine’s cost structure resulted in lower sales and marketing expense in the 2008 fourth quarter versus the prior year and helped offset the revenue decline.
The company said that it expects to report an approximately 27% decline in advertising revenues in the first quarter 2009 compared to first quarter 2008.
Segment income for the Licensing Group was $4.3 million in the 2008 fourth quarter, down from $6.9 million in the 2007 fourth quarter. Fourth quarter revenues also were down by $2.6 million, declining to $7.9 million in 2008 from $10.5 million in 2007. The downturn in fourth quarter 2008 revenues and income reflected the global weakness in spending on apparel and accessories and the resulting reduction in royalty payments from licensees.
Corporate Administration and Other
Corporate Administration and Promotion expense improved by $0.9 million in the 2008 fourth quarter to $7.0 million from $7.9 million in the prior year period primarily due to lower compensation-related and other benefits expense.
As previously announced, the company recorded a $4.0 million restructuring charge in the 2008 fourth quarter as well as non-cash impairment charges on goodwill and other intangible assets of $146.4 million, which were primarily related to television acquisitions the company made in the late 1990s. The company also reported a $4.8 million deferred subscription cost write-off. Primarily as a result of these charges, the company recorded a fourth quarter 2008 tax benefit of $13.4 million.
PEI also said that it expects to take additional charges in 2009, including a non-cash impairment charge of approximately $5.0 million in the first quarter. In addition, in the first half of 2009, the company expects to record an approximately $9.0 million charge relating to the close of the New York office, roughly half of which will be non-cash, and an additional restructuring charge of at least $2.0 million.
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