Document/Exhibit Description Pages Size
1: 10-K Annual Report 31 178K
2: EX-3.1 Restated Cert. of Incorp. 18 36K
7: EX-10.10 02/22/94 Drct Mrktng Agmt 38 194K
8: EX-10.11 02/22/94 Drct Mrktng Agmt 32 153K
9: EX-10.12A 02/10/95 Credit Agreement 65 279K
10: EX-10.12B 02/10/95 Am.To Credit Agreement 22 66K
11: EX-10.15B 10/26/89 Am. to 4/7/88 L 8 34K
12: EX-10.15D 08/30/93 Am. to 4/7/88 Le 16 49K
13: EX-10.18A 07/11/93 Exec. Car Lease 2 14K
14: EX-10.18C 03/01/90 Exec. Protection 2 13K
15: EX-10.19A A Lewis V Playboy Indemif 1 9K
16: EX-10.19C 1989 Stock Option Agreem. 9 33K
17: EX-10.19D 07/18/90 Letter Re. 7/7/9 1 10K
18: EX-10.19J 09/12/94 Am. to Employment 1 12K
19: EX-10.19K 07/18/95 Am. to Employment 2± 13K
3: EX-10.3A 05/15/95 Print Agmt. 31 68K
4: EX-10.3B 04/11/90 Letter Agmt. 2 15K
5: EX-10.8 03/24/95 Dist Agmt. 13 58K
6: EX-10.9 01/12/95 Agreement 237 618K
20: EX-11 Net Income/Share Coumpta 2 16K
21: EX-13 Annual Report 42± 200K
22: EX-21 Parent & Subsidiaries 1 12K
23: EX-23 Coopers & Lybrand Consel 1 9K
24: EX-27 Financial Data Schedule 2 10K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from .................... to ....................
COMMISSION FILE NUMBER 1-6813
PLAYBOY ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2258830
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Class A Common Stock, par value $.01 per share ... New York Stock Exchange
Pacific Stock Exchange
Class B Common Stock, par value $.01 per share ... New York Stock Exchange
Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 and (2) has been subject to such filing requirements for
the past 90 days. YES [X] NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Class A Common Stock, par value $.01 per share,
held by nonaffiliates (based upon the closing sale price on the New York Stock
Exchange) on August 31, 1995 was $12,787,003.
As of August 31, 1995, there were 4,713,954 shares of Class A Common Stock, par
value $.01 per share and 15,275,849 shares of Class B Common Stock, par value
$.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Documents Form 10-K Reference
--------- -------------------
Annual Report to Shareholders for the Part I, Item 1, to the extent indicated
fiscal year ended June 30, 1995 under such item
Part II, Item 5, to the extent
indicated under such item, and Items 6-8
Notice of Annual Meeting of Stockholders and Part III, Items 10-13, to the extent
Proxy Statement dated September 28, 1995 described therein
PLAYBOY ENTERPRISES, INC.
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Page
----
Item 1. Business..................................................... 3
Item 2. Properties................................................... 17
Item 3. Legal Proceedings............................................ 18
Item 4. Submission of Matters to a Vote of Security Holders.......... 18
PART II
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Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters......................................... 21
Item 6. Selected Financial Data...................................... 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 21
Item 8. Financial Statements and Supplementary Data.................. 21
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 21
PART III
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Item 10. Directors and Executive Officers of the Registrant........... 22
Item 11. Executive Compensation....................................... 22
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 22
Item 13. Certain Relationships and Related Transactions............... 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................... 22
2
PART I
Item 1. Business
Playboy Enterprises, Inc. was organized in 1953 to publish Playboy
magazine. The term "Company" means Playboy Enterprises, Inc., together with its
subsidiaries, unless the context otherwise requires. Since its inception, the
Company has expanded its publishing operations and has engaged in entertainment
businesses that are related to the content and style of Playboy magazine.
Additionally, the Company operates a direct marketing business and licenses its
trademarks for use on various consumer products.
The Company's businesses are classified into four industry segments:
Publishing, Catalog, Entertainment and Product Marketing. The net revenues,
income (loss) from continuing operations before income taxes and cumulative
effect of change in accounting principle, and identifiable assets of each
industry segment are set forth in the section "Financial Information Relating to
Industry Segments" on page 24 of the Company's fiscal 1995 Annual Report to
Shareholders ("fiscal 1995 Annual Report") and are incorporated herein by
reference.
The Company's trademarks are vital to the success and future growth of all
of the Company's businesses. The trademarks, which are renewable indefinitely,
include Playboy, Playmate, Rabbit Head Design, Sarah Coventry, Critics' Choice
Video and Collectors' Choice Music.
PUBLISHING GROUP
The Company's Publishing Group operations currently include the publication
of Playboy magazine; Playboy-related businesses, including newsstand specials
and calendars, foreign editions of Playboy magazine and ancillary businesses
which includes the Company's new media efforts; and the production of the
Playboy Jazz Festival.
The revenues and operating income of the Publishing Group were as follows
for the periods indicated in the following table (in millions):
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Revenues Operating Income
--------------------- -------------------------
Years Ended June 30, Years Ended June 30,
---------------------- --------------------------
1995 1994 1993 1995 1994 1993
------ ------ ------ ------ -------- --------
Playboy Magazine.................. $104.4 $104.0 $102.9 $ 7.1 $ 3.5 $ 7.6
Playboy-related Businesses........ 22.9 19.4 22.0 7.6 5.2 8.4
------ ------ ------ ----- ----- -----
SUBTOTAL........................ 127.3 123.4 124.9 14.7 8.7 16.0
Administrative Expenses, New
Magazine Development and Other.. - - 0.2 (4.0) (5.0) (5.6)
------ ------ ------ ----- ----- -----
TOTAL........................... $127.3 $123.4 $125.1 $10.7 $ 3.7 $10.4
====== ====== ====== ===== ===== =====
Playboy Magazine
Founded by Hugh M. Hefner in 1953, Playboy magazine today is the world's
best-selling magazine aimed at the adult male audience. Worldwide monthly
circulation, which includes licensed foreign editions, is approximately 4.5
million copies; approximately 3.4 million copies of the U.S. edition are sold
monthly.
Playboy magazine is a general-interest magazine for men and offers a
balanced variety of features. It has gained a loyal customer base and a
reputation for excellence by providing quality entertainment and informative
articles on current issues and trends. Each issue of Playboy magazine includes
an in-depth, candid interview with a well-known, thought-provoking personality.
Over the magazine's 42-year history, exclusive interviews have included
prominent public figures, business leaders, entertainers, authors and sports
figures. The magazine also regularly publishes the works of leading
journalists, authors and other prominent individuals. It has long been known
for its graphic excellence and features, and publishes the works of top artists
and photographers. Playboy magazine also features lifestyle and service
articles on consumer products, fashion, automobiles and consumer electronics and
covers the worlds of sports and entertainment. It is renowned for its
pictorials of beautiful women and frequently features celebrities on its cover
and in exclusive pictorials.
3
According to recent data published by Mediamark Research, Inc. ("MRI"), in
the United States Playboy magazine is read by approximately one in every six men
aged 18 to 34.
The net circulation revenues of the U.S. edition of Playboy magazine for
the years ended June 30, 1995, 1994 and 1993 were $73.4 million, $72.3 million
and $68.4 million, respectively. Net circulation revenues are gross revenues
less provisions for newsstand returns and unpaid subscriptions and subscription
agency commissions. Circulation revenue comparisons may be materially impacted
with respect to any fiscal year which includes one or more issues of unusually
high public interest.
For the six months ended June 30, 1995, as reported by the Audit Bureau of
Circulations ("ABC"), an independent audit agency, Playboy magazine was the 12th
largest major consumer publication, in terms of circulation per issue. Also
according to ABC, Playboy magazine's monthly circulation rate base (the total
newsstand and subscription circulation guaranteed to advertisers) for the six
months ended June 30, 1995 was larger than People, Sports Illustrated, and
Newsweek, and also greater than the combined circulation rate bases of Rolling
Stone, GQ and Esquire, which have substantial adult male audiences.
For the last nine years, the U.S. edition of Playboy magazine has
maintained its monthly circulation rate base of 3.40 million, which is averaged
over the first and second six months of each fiscal year, except for the six-
month period ended December 31, 1993, which averaged 3.34 million. Effective
with the January 1996 issue, the Company is reducing the rate base 7% to 3.15
million. This change will enable the Company to focus its subscription efforts
and to manage circulation more profitably. While the Company does not plan to
raise newsstand or subscription prices in fiscal 1996, a two percent advertising
page rate increase will be implemented with the January 1996 issue. This rate
base maintains the magazine's circulation leadership, tied as the best-selling
men's magazine with Sports Illustrated.
Playboy magazine currently generates over two-thirds of its revenues from
subscription and newsstand circulation, with the remainder primarily from
advertising. Set forth below is certain information related to subscription and
newsstand circulation of the U.S. edition of Playboy magazine.
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(In thousands, except newsstand cover prices)
Years Ended June 30,
---------------------------------------------
1995 1994 1993
-------------- -------------- -------------
Subscription Revenues............. $48,500 $46,400 $44,900
Average Monthly Subscribers....... 2,806 2,795 2,816
Newsstand Revenues................ $24,900 $25,900 $23,500
Average Monthly Newsstand Copies.. 583 653 565
Average Newsstand Cover Price..... $ 5.10 $ 5.11 $ 5.04
Subscription copies as a percentage of total copies sold were approximately
79% for the year ended June 30, 1995. The Company believes that managing
Playboy's circulation to be primarily subscription driven, like most major
magazines, provides a stable and desirable circulation base, which is also
attractive to advertisers. According to the MRI data previously mentioned, the
median age of male Playboy subscribers is 33, with a median annual household
income of $40,900.
The price of a one-year subscription ranges from $19.97 to $34.96,
depending on the source of the subscription and the length of time the
subscription has been held. The Company from time to time tests a variety of
subscription pricing strategies. The Company attracts new subscribers to the
magazine through its own direct mail and television advertising campaigns and
through agent-operated direct mail campaigns.
The Company recognizes revenues from magazine subscriptions over the terms
of the subscriptions. Subscription copies of the magazine are delivered through
the U.S. Postal Service as second class mail. The Company attempts to contain
these costs through presorting and other methods. The Company experienced a
postal rate increase of 14% during the second half of fiscal 1995 and has
implemented programs to reduce other expenses to offset such increase.
4
Distribution of the magazine to newsstands and other retail outlets is
accomplished through Warner Publisher Services, a national distributor that
maintains a network of approximately 350 wholesale distributors. Copies of the
magazine are shipped in bulk to the wholesalers, who are responsible for local
retail distribution. The Company receives a substantial cash advance from its
national distributor at the time each issue goes on sale. The Company
recognizes revenues from newsstand sales based on estimated copy sales at the
time each issue goes on sale, and adjusts for actual sales upon settlement with
its national distributor. These revenue adjustments generally are not material.
Retailers return unsold copies to the wholesalers who count and then shred the
returned magazines and report the returns via affidavit. The Company then
settles with its national distributor based on the number of magazines that
actually were sold compared to the number that initially were projected to sell.
The number of issues sold on newsstands varies from month to month, depending in
part on the cover, the pictorials and the editorial features.
In fiscal 1991, the Company began to roll out a $1.00 increase in the basic
newsstand cover price to $4.95 ($5.95 for holiday issues), which was completed
by September 30, 1992. No price increases are planned for copies sold in the
U.S. in fiscal 1996. Based on test results, the Company increased the Canadian
cover price to $5.95 in fiscal 1995 ($6.95 for holiday issues).
Advertising by category for fiscal 1995 was as follows:
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Advertising Category % of Ad Pages
-------------------- -------------
Retail/Direct Mail............ 31%
Tobacco....................... 20
Beer/Wine/Liquor.............. 18
Toiletries/Cosmetics.......... 9
Automotive.................... 4
Apparel/Footwear/Accessories.. 4
Drugs/Remedies................ 4
Home Electronics.............. 4
Jewelry/Optical/Photo......... 3
All Other..................... 3
---
100%
===
Playboy magazine has been aggressively targeting a wide range of
advertisers and continues to focus on securing new advertisers from
underdeveloped categories. In fiscal 1995, the Company utilized information
from its database of approximately 12 million names, including Playboy magazine
subscribers, catalog customers and pay television viewers, to create a Playboy
marketing system, which offered advertisers new ways to reach Playboy readers.
In fiscal 1993, Playboy's advertising pages increased by 2% from the prior
year to 660 pages, while advertising revenues remained stable as a result of a
2% decline in average net revenue per page. Average net revenue per page
declined in fiscal 1993 despite the impact of a 5% cost per thousand ("CPM")
increase in advertising rates effective with the January 1993 issue due to more
supplied inserts, which resulted in lower revenues but also reduced
manufacturing costs.
In fiscal 1994, Playboy's advertising pages decreased by 10% from the prior
year to 595 pages, while advertising revenues declined by only 8%, reflecting
the effect of a 5% CPM increase in advertising rates effective with the January
1994 issue.
In fiscal 1995, Playboy's advertising pages remained stable compared to the
prior year at 595 pages, advertising revenues declined by 1% based on the net
effect of a 5% CPM increase in advertising rates effective with the January 1995
issue plus higher frequency discounts, special pricing and a change in the mix
of advertising pages sold, and net advertising income increased by 8%.
Advertising sales for the first quarter fiscal 1996 issues of the magazine are
closed, and the Company will report a 4% increase in advertising pages over the
fiscal 1995 first quarter.
5
The Company publishes the U.S. edition of Playboy magazine in 15
advertising editions: eight regional, two state, four metro and one upper income
zip-coded edition. All contain the same editorial material but provide
targeting opportunities for advertisers. The net advertising revenues of the
U.S. edition of Playboy magazine for the years ended June 30, 1995, 1994 and
1993 were $27.6 million, $28.0 million and $30.4 million, respectively. Net
advertising revenues are gross revenues less advertising agency commissions,
frequency and cash discounts and rebates. Levels of advertising revenues may be
affected by, among other things, general economic activity and governmental
regulation of advertising content, if any.
In fiscal 1995, the Playboy Jazz Festival continued to offer advertisers
sponsorship and advertising opportunities through the festival program, free
community concerts, and a national public radio broadcast. The Company has
produced this music event on an annual basis in Los Angeles at the Hollywood
Bowl since 1979.
The Company also derives meaningful income from the rental of Playboy
magazine's subscriber list, which consists of the subscriber's name, address and
other information maintained by the Company.
Playboy magazine and newsstand specials are printed at Quad/Graphics, Inc.,
located in Wisconsin. The actual print run varies each month and is determined
with input from the Company's national distributor. Paper is the principal raw
material used in the production of Playboy magazine. The Company uses a variety
of types of high-quality coated paper that is purchased from a number of
suppliers. Manufacturing costs for the year ended June 30, 1995 decreased 5%
compared to the prior year principally due to the increased size of the January
1994 40th anniversary issue of the magazine in the prior year, partially offset
by 1% higher paper prices in the current year. These higher paper prices began
impacting the Company in the second half of fiscal 1995, though most
dramatically in the fourth quarter as average paper prices increased 18%
compared to the fourth quarter of the prior year. In fiscal 1996, paper prices
are expected to increase approximately 50% compared to fiscal 1995. The Company
plans to offset some of this increase via reduced spending and lowering the
advertising rate base as previously discussed.
Magazine publishing companies face intense competition for both readers and
advertising. Magazines primarily aimed at men are Playboy magazine's principal
competitors. In addition, other types of media that carry advertising, such as
newspapers, radio and television, compete for advertising revenues with Playboy
magazine.
From time to time, Playboy magazine, and certain of its distribution
outlets and advertisers, have been the target of certain groups who seek to
limit its availability because of its content. In its 42-year history, the
Company has never sold a product that has been judged to be obscene or illegal
in any jurisdiction.
Playboy-related Businesses
The Publishing Group has also created media extensions, taking advantage of
the magazine's reputation for quality and its libraries of art, photography and
editorial text. These products include photo newsstand specials and calendars,
which are primarily sold in newsstand outlets, bookstores and through direct
mail. Specials are thematic presentations that use both original photographs
and photographs from the Company's library of approximately eight million
images. In fiscal 1993 and 1994, 16 specials were published. The group
increased the number of specials published to 18 in fiscal 1995, including the
introduction of a digest-sized book of Playmate pictorials called Playboy's
Pocket Playmates, and expects to publish 21 specials in fiscal 1996, of which
three will be Playboy's Pocket Playmates. The Company began implementing
programs in fiscal 1995 to help to offset some of the previously mentioned
higher paper prices, including reducing the number of pages in each special, and
increasing the newsstand cover price to $6.95 in most of the country.
6
The Company licenses the right to publish 15 foreign editions of Playboy
magazine in the following countries: Argentina, Australia, Brazil, the Czech
Republic, France, Germany, Greece, Italy, Japan, Mexico, the Netherlands,
Poland, Russia, South Africa and Spain. In June 1995, the Company launched an
edition of the magazine in Russia with Independent Media Magazines Publishing
B.V., and as a result of the implementation of more stringent financial
performance and quality criteria, in fiscal 1995 the Company suspended
publication of the foreign edition in Turkey. The Company will relaunch this
and other previously suspended editions if conditions warrant and appropriate
licensees are secured. The Polish and Czech editions, which started publication
in November 1992 and May 1991, respectively, were the first Western general-
interest consumer titles to be published in these countries after the fall of
communism in Eastern Europe. The Polish edition is the first in which the
Company has an equity interest. Combined circulation of the 15 foreign editions
is approximately 1.1 million copies monthly. Local publishing licensees tailor
their foreign editions by mixing the work of their national writers and artists
with editorial and pictorial material from the U.S. edition. The Company
oversees the content of the foreign editions so that they retain the distinctive
style, look and quality of the U.S. edition, while meeting the needs of their
respective markets. The terms of the license agreements for Playboy magazine's
foreign editions vary, but in general are for a term of at least five years and
carry a guaranteed minimum royalty as well as a formula for computing earned
royalties in excess of the minimum. Royalty computations are generally based on
both circulation and advertising revenues. In fiscal 1995, the three largest-
selling editions -- Brazil, Germany and Japan -- accounted for approximately 55%
of the total licensing revenues from foreign editions.
In fiscal 1990, the Publishing Group introduced 900-number Playboy-related
audiotext services. These services use 900-number technologies to profitably
expand upon features from the magazine.
In fiscal 1992, the Company introduced Playboy Collectible Trading Cards,
and during fiscal 1993 signed an agreement with a new distributor to market a
second set of trading cards, featuring famous Playboy magazine covers and
Playmates. In fiscal 1994, the Company signed an agreement with a third
distributor to continue the roll out of the Collectors Centerfold Series of
trading cards and to issue a series featuring images from Playboy magazine
covers, and in fiscal 1995 introduced a series of chromium cover cards.
In February 1992, the Company signed an agreement with Sarah Lazin Books to
act as its agent in marketing a series of books, including anthologies and
compilations that relate to Playboy magazine, which will capitalize on existing
resources. Under this agreement, Alex Haley: The Playboy Interviews, which
consists of a collection of works by Alex Haley that have appeared in Playboy,
including famous interviews and personal essays, was published in fiscal 1993,
and Playboy Stories, a compendium of some of the best works of fiction ever to
appear in Playboy magazine, was published in fiscal 1994.
During fiscal 1994, the Company entered into an agreement with General
Publishing Group, Inc. ("GPG"), whereby The Playboy Book: Forty Years, a
pictorial history that documents the birth of the world's most celebrated men's
magazine and its influence on American culture, was published. In fiscal 1995,
nearly 140,000 copies of the book were sold in the United States and in selected
European and Asian markets. Also in conjunction with GPG, the Company released
Fore Play: The Very Best of Playboy's Classic Golf Humor, a softcover book that
includes Playboy golf cartoons, Party Jokes, humorous interviews and stories
from our editorial archives in fiscal 1995.
In fiscal 1994, the Publishing Group released two new multimedia products
that utilize photographs, artwork and text from the Company's library as source
material. The first product, The Playboy Electronic Datebook, is a daily
planner on PC diskette that features high-resolution graphics of Playmates,
celebrities and classic illustrations by artists commissioned by Playboy. The
second product, The Playboy Interview: Three Decades, was produced by IBM's
Multimedia Publishing Studio. This CD-ROM title contains the complete text of
more than 350 in-depth Playboy Interviews, as well as select audio clips from
archived recordings and photographs of the interview subjects.
7
The Company released one CD-ROM title in fiscal 1995, The Women of Playboy
Multimedia Screen Saver. Produced in conjunction with Sony Imagesoft, the
utility software allows users to develop customized screen savers by mixing
Playboy images and video with special effects and audio files. Also in fiscal
1995, the Company launched a home page on the World Wide Web which became one of
the Internet's top-visited sites, currently averaging more than one million
"hits" per day. Taking full advantage of the technological capabilities of the
medium, the Web page contains popular editorial features from Playboy magazine,
such as excerpts of Playboy Interviews, articles and Playboy Advisor columns,
and select photos from Playmate pictorials. The Company also uses the site to
promote new products, advertise Playboy Television's monthly programming
schedule and sell Playboy subscriptions and other branded merchandise.
In fiscal 1996, the Company will issue two new titles, PlanIt Playboy, a
state-of-the-art personal information manager developed with Anamoly
Corporation, and a new Playboy Interview CD-ROM with IBM Multimedia Studio that
will include Playboy Interviews through July 1995.
Other Publications
In fiscal 1989, the Company purchased a 20% interest in duPont Publishing,
Inc. ("duPont"), publisher of duPont Registry, A Buyers Gallery of Fine
Automobiles and, beginning in July 1995, duPont Registry, A Buyers Gallery of
Fine Homes. During fiscal 1993, the Company renegotiated certain provisions of
the purchase agreement, under which it now has an option to acquire the
remaining 80% interest in duPont at a price based on fair market value as of
December 31, 1999. This investment is accounted for on the equity method and
the Company's proportionate share of duPont's net income or loss is included in
nonoperating income or expense and is not reflected in the results of the
Publishing Group.
CATALOG GROUP
The revenues and operating income of the Catalog Group, formerly included
in the Publishing Group, were as follows for the periods indicated in the
following table (in millions):
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Years Ended June 30,
--------------------
1995 1994 1993
------ ----- -----
REVENUES $61.4 $48.5 $39.4
===== ===== =====
OPERATING INCOME $ 5.2 $ 4.1 $ 4.1
===== ===== =====
In fiscal 1989, the Company acquired an 80% interest in Critics' Choice
Video, Inc. ("Critics' Choice Video"), a national direct marketer of
theatrically released motion pictures and special-interest videos. The Critics'
Choice Video catalog, one of the largest-circulation catalogs of prerecorded
videocassettes, is published quarterly and features more than 2,000 video
titles, including movies from all of the major film studios and hundreds of
special-interest videos. Critics' Choice Video's rapid growth has been aided by
the overall growth in the video sell-through market and the Company's emphasis
on superior customer service. Under the terms of its purchase agreement, the
Company paid $125,000 for its 80% interest and purchased the remaining 20%
interest in Critics' Choice Video effective July 1, 1993, for $3.0 million,
which consisted of $1.5 million in cash and one-year promissory notes totaling
$1.5 million, which were paid July 1, 1994.
In fiscal 1992, the Company acquired the inventories, customer lists,
licensing agreements and related assets of two competing videocassette catalogs,
Blackhawk Films and Postings (previously titled Publishers Central Bureau) for a
combined purchase price of $4.2 million.
Playboy catalog products include Playboy-brand fashions, watches and gifts,
Playboy's home video line, Playboy collectibles, such as calendars, back issues
and newsstand specials, and CD-ROM products. The Playboy catalog is published
three times annually.
In fiscal 1994, the Company launched a new catalog, Collectors' Choice
Music. It offers more than 1,300 titles from all music genres on CDs and
cassettes. In fiscal 1995, the Company successfully increased the circulation
and product offerings of the catalog. The Collectors' Choice Music catalog is
published three times annually.
8
In fiscal 1995, all three of the Company's catalogs were impacted by paper
price and postage rate increases. The Company will attempt to mitigate the
higher paper prices in fiscal 1996 by testing a lower-weight grade of paper in
the fall mailings. Despite these expected higher costs, the Company plans to
increase the circulation for all of the catalogs in fiscal 1996 in order to
maintain sales growth and profitably expand market share.
During fiscal 1993, the Catalog Group operations facility was relocated to
a larger office and warehouse facility to meet additional space requirements
resulting from growth in the business. The facility houses fulfillment,
customer service and administrative operations.
The catalog business is subject to competition from other catalogs and
distributors and retail outlets selling similar merchandise. The Company is
interested in reviewing other potential catalog acquisitions and joint ventures
to publish catalogs that would offer products, especially entertainment
software, that would appeal to customers who buy the Company's other
merchandise.
ENTERTAINMENT GROUP
The revenues and operating income (loss) of the Entertainment Group were as
follows for the periods indicated in the following table (in millions):
[Download Table]
Years Ended June 30,
-------------------------
1995 1994 1993
------- ------- -------
REVENUES
Playboy Television:
Pay-Per-View................................. $ 11.9 $ 9.0 $ 8.0
Monthly Subscription......................... 7.0 7.4 8.6
Satellite Direct-to-Home and Other........... 10.0 6.5 4.7
------ ------ ------
Total Playboy Television................... 28.9 22.9 21.3
Domestic Home Video............................. 9.5 7.0 10.1
International Television and Home Video......... 11.2 9.9 9.8
Movies and Other................................ 2.1 0.3 1.4
------ ------ ------
Total Revenues............................. $ 51.7 $ 40.1 $ 42.6
====== ====== ======
OPERATING INCOME (LOSS)
Profit Contribution Before Programming Expense.. $ 21.1 $ 10.9 $ 15.9
Programming Expense............................. (20.1) (18.2) (14.1)
------ ------ ------
Total Operating Income (Loss).............. $ 1.0 $ (7.3) $ 1.8
====== ====== ======
Programming
The Entertainment Group develops, produces and distributes programming for
the domestic pay television, international television and worldwide home video
markets. Its productions include feature-length films, magazine-format shows,
dramatic series, game shows, a hosted series with reenactments of erotic
situations, and anthologies of sexy short stories and erotic vignettes as well
as music and other specials.
The Company is investing aggressively in Playboy-style, quality programming
to support the planned expansion of its domestic pay television, international
television and worldwide home video businesses. The Company invested $21.3
million, $17.2 million and $23.0 million in entertainment programming in fiscal
1995, 1994 and 1993, respectively. These amounts, which also include
expenditures for licensed programming, resulted in 86, 71 and 91 hours of
original programming being produced in fiscal 1995, 1994 and 1993, respectively.
In fiscal 1996, the Company expects to invest approximately $27.0 million in
Company-produced and licensed programming, which would result in approximately
136 hours of original programming being produced. The increase in investments
in entertainment programming in fiscal 1995 and planned for fiscal 1996 are
primarily due to the production of more movies, which, because of the strong
demand for this genre of programming, the Company is able to presell
distribution rights and earn a faster rate of return.
9
The following tables list the series, each containing 26 episodes, and
movies produced by the Company (except one of the Playboy Films which was
produced in association with Motion Picture Corporation of America ("MPCA")) and
certain information related to each:
[Enlarge/Download Table]
FISCAL YEAR
TITLE OF SERIES FIRST SOLD LENGTH OF EPISODES GENRE
--------------- ----------- ------------------ -----
Playboy Late Night
Series I.................................. 1990 60 minutes magazine-format
Series II................................. 1991 30 minutes magazine-format
Series III................................ 1992 30 minutes magazine-format
Series IV................................. 1995 30 minutes magazine-format
Inside Out.................................. 1991 30 minutes anthology
Eden........................................ 1993 30 minutes dramatic series
Playboy's Secret Confessions and Fantasies.. 1993 30 minutes hosted series
Playboy's Love & Sex Test................... 1992 30 minutes game show
Erotic Fantasies............................ 1994 30 minutes anthology
FISCAL YEAR NUMBER
MOVIES FIRST SOLD OF RELEASES
------ ----------- -----------
Playboy Films............................... 1995 Three
The Eros Collection......................... 1995 Six
In fiscal 1990, the Company introduced Playboy Late Night, a weekly
magazine-format program that used footage from the Company's library and was
produced in a modular format for use in programs of up to 60 minutes. In fiscal
1991, the Company began selling a second series of 26 30-minute episodes of
Playboy Late Night, which also used substantial amounts of library material.
Additionally, a third and fourth series of 26 30-minute episodes, composed
primarily of original programming, became available in fiscal 1992 and fiscal
1995, respectively. Also in fiscal 1991, the Company introduced Inside Out, an
anthology of sexy short stories.
In fiscal 1992, the Company began production of three new series: Eden, a
30-minute dramatic series filmed on location in Mexico; Playboy's Secret
Confessions and Fantasies, a 30-minute hosted show in which real people describe
their most erotic experiences and fantasies that are recreated on film; and
Playboy's Love & Sex Test, a 30-minute variety game show combining
entertainment, information and celebrity guests. In fiscal 1994, the Company
completed production of another series, Erotic Fantasies, a 30-minute anthology
of erotic vignettes. These productions are being marketed internationally and
air domestically on the Company's pay television service, Playboy Television.
Additionally, some episodes have been released as Playboy Home Video titles. In
fiscal 1994, the Company licensed its anthology of short stories, Inside Out, to
Viewer's Choice, and in fiscal 1993 licensed an edited version of Eden to USA
Network.
In fiscal 1995, the Company, under a production and distribution agreement
with MPCA, released three made-for-TV movies in the $1 million to $2 million
range. Two of these movies, Temptress and Playback, were produced by the
Company and one, Cover Me, was produced by MPCA. The Company and MPCA are equal
profit participants in all of the movies. The distribution rights of the films
were sold to Paramount Home Video to distribute in the rental segment of the
domestic home video market. Certain of the international television rights have
been sold and are continuing to be sold in additional markets. These films will
also air on Playboy Television in fiscal 1996.
In fiscal 1995, the Company created and began marketing a new line of
small-budget non-Playboy branded movies under the label The Eros Collection,
which were distributed domestically through home video and aired on Playboy
Television in fiscal 1995, and will be released internationally in fiscal 1996
through home video and television.
The Company's programming is available in the United States through Playboy
Television, on both a monthly subscription and a pay-per-view basis, and
internationally through foreign broadcasters and pay television services. In
the fourth quarter of fiscal 1995, the first overseas Playboy Television channel
was launched in the United Kingdom, and the Company plans to launch a second
overseas channel in Japan in early fiscal 1996. Additionally, the Company
distributes programming on videocassettes, primarily through its Playboy Home
Video line, which are sold or rented through retail outlets and sold through
direct mail in domestic and foreign markets. The Company also licenses footage
from its extensive film library, for which it receives royalty payments.
10
The Company's programming for television and home video features stylized
eroticism in a variety of entertaining formats for men and women, with an
increased emphasis on programming for couples. The programming does not contain
depictions of explicit sex or scenes that link sexuality with violence, and is
consistent with the level of taste and quality established by Playboy magazine
over its 42-year history.
Domestic Pay Television
In May 1994, the Company expanded its national pay cable network, Playboy
Television, from a ten-hour per night schedule to 24-hour availability. This
change has enabled the Company to increase revenues through maximum utilization
of its transponder on Hughes Communications' Galaxy V satellite by offering more
blocks of programming to the consumer. As a result of the 24-hour rollout, the
incremental pay television revenues generated in fiscal 1995 were sufficient to
offset the loss of approximately $0.1 million in monthly sublease income that it
had been receiving for unused capacity on its satellite transponder.
When the Company introduced its pay cable service in 1982, it was available
only through monthly subscriptions. In December 1989, the Company began to
focus on the then-emerging pay-per-view market by promoting the pay-per-view
option in addition to the monthly subscription option. Pay-per-view services
are available in cable systems that are equipped with addressable hardware that
allows cable subscribers to order specific programs.
The following table illustrates certain information regarding cable
households in general, and Playboy Television (in thousands):
[Enlarge/Download Table]
CABLE HOUSEHOLDS(A) PLAYBOY TELEVISION
------------------------------- ---------------------------------
TOTAL CABLE ADDRESSABLE PAY-PER-VIEW MONTHLY
HOUSEHOLDS CABLE HOUSEHOLDS HOMES(B) SUBSCRIBERS(C)
------------ ----------------- ------------ --------------
June 30, 1993 56,200 19,950 9,100 232
June 30, 1994 58,450 21,700 9,600 205
June 30, 1995 60,350 23,450 10,600 201
Compound Annual Growth
Rate (1993-1995) 3.6% 8.4% 7.9% (6.9)%
--------
(a) Source: Estimated by the Company based on information reported in 1995 by
Paul Kagan Associates, Inc. for December 31 of each respective year. Kagan
projects 1% and 12% average annual increases in total cable households and
addressable cable households, respectively, through calendar 1998.
(b) Represents the number of addressable homes to which Playboy Television was
available as of the end of the fiscal year.
(c) Represents the number of monthly subscribers to Playboy Television in the
last month of the fiscal year.
Most cable service in the United States is distributed through large
multiple system operators ("MSOs"). At June 30, 1995, the Company had
arrangements with 18 of the nation's 20 largest MSOs. These 18 MSOs, through
affiliated cable systems ("Cable Affiliates"), controlled access to (i)
approximately 47.3 million, or 78%, of the 60.4 million total cable households,
and (ii) approximately 15.7 million, or 67%, of the 23.5 million addressable
cable households. Once arrangements are made with an MSO, the Company is able
to negotiate channel space for Playboy Television with the Cable Affiliates
controlled by that MSO, and acceptance by Cable Affiliates provides the basis
for expanding the Company's access to individual cable households. The Cable
Affiliates of these 18 MSOs that are not yet carrying Playboy Television provide
the Company with potential access to an estimated 6.1 million additional
addressable homes. Three of these 18 MSOs served approximately 5.7 million, or
54%, of the 10.6 million addressable households to which Playboy Television was
available on June 30, 1995.
At June 30, 1995, the cable systems in which Playboy Television was offered
included approximately 20.8 million cable households. Of these households, 11.7
million could purchase Playboy Television on a monthly basis, 4.1 million could
purchase only on a pay-per-view basis and 6.5 million could purchase the
programming both ways.
11
Beginning in the fourth quarter of fiscal 1993, growth of the Company's
domestic pay television business slowed, management believes, due to the effects
of cable reregulation by the Federal Communications Commission ("FCC"), which
has resulted in a slowdown in the industry's rollout of addressability.
Additionally, competition for channel space has contributed to the slower growth
as cable operators have utilized available channel space for new cable networks
in connection with mandated retransmission consent agreements and for other new
services, including adult movie pay television services. Management believes
that growth will continue to be affected in the near term as the cable
television industry responds to the FCC's initial rules and to subsequent
modifications, including the "going-forward rules" announced in fiscal 1995.
Over the coming months, management expects to continue to be impacted by the
slower growth of addressable homes related to these "going-forward rules," as a
result of cable operators being provided with incentives to add basic services.
Nevertheless, management believes that ultimately reregulation should benefit
pay-per-view services as cable operators seek unregulated sources of revenue,
such as pay-per-view.
Growth in the pay-per-view market is expected to result in part from cable
systems upgrades, utilizing fiber-optic, compression technologies or other
bandwidth expansion methods that provide cable operators additional channel
capacity. When implemented, compression technology, where employed, will
dramatically increase channel capacity to as many as 500 channels. Industry
analysts expect a large percentage of this additional channel capacity to be
dedicated to pay-per-view programming. The timing and extent of these
developments and their impact on the Company cannot yet be determined.
Pay-per-view permits customers to purchase only as much of the Company's
programming as they wish and only when they are in the mood to watch the
programming. Pay-per-view also permits customers to control the viewing of the
programming within their households. In addition, the relatively low price of
an evening of pay-per-view programming is very competitive with many other forms
of entertainment. Individual cable system operators determine the retail price
of the pay-per-view service, although most range from $3.95 to $6.95 for an
evening of programming. Fee structures vary, but generally the Company receives
approximately 40% of the retail price.
The number of monthly subscribers has declined as the Company's marketing
focus has shifted to systems that have pay-per-view technology. As of June 30,
1995, Playboy Television had approximately 201,000 monthly subscribing
households, down from 205,000 at June 30, 1994 and 232,000 at June 30, 1993.
The Company has used its pay-per-view service to gain access to additional MSOs
and Cable Affiliates, some of which were unwilling to carry Playboy Television
on a subscription basis. Management believes that, to the extent these MSOs and
Cable Affiliates develop successful experience with Playboy Television on a pay-
per-view basis, they will also be willing to market Playboy Television on a
monthly subscription basis.
The performance of Playboy Television in individual cable systems varies
based principally on the ordering technology and the quantity and quality of
marketing done by the Cable Affiliates. Individual Cable Affiliates determine
the retail price of the monthly subscription service, although most range from
$5 to $13, largely dependent on the number of premium services to which a
household subscribes. Fee structures vary, but generally the Company receives
approximately 30% of the retail price.
The Company also provides Playboy Television via encrypted signal, on both
a pay-per-view and subscription basis, to home satellite dish viewers. As of
June 30, 1995, 1994 and 1993, Playboy Television was available on a monthly
subscription and pay-per-view basis to approximately 3,282,000, 1,926,000 and
197,000 viewers, respectively. At the end of fiscal 1994, Playboy Television
became one of the first networks to be launched on DirecTV, the first commercial
digital broadcast satellite service. This service provides exceptional
improvements in program delivery and consumer interface to households equipped
with Digital Satellite System receiving units, consisting of an 18-inch
satellite antenna, a digital receiver box and a remote control. At the end of
fiscal 1995, Playboy Television was added to a second digital broadcast
satellite service, PrimeStar. These small satellite dishes became one of the
fastest new product launches in the history of the electronics industry. Growth
in selling directly to home satellite dish viewers, distribution by commercial
retailers of satellite programming and increased emphasis on consumer marketing
have also improved Playboy Television's market share in the home satellite dish
industry.
12
Playboy Television's programming is delivered primarily through a
communications satellite transponder. The Company's current transponder lease,
effective January 1, 1993, contains protections typical in the industry against
transponder failure, including access to spare transponders on the same
satellite as well as transponders on another satellite currently in operation.
Access to the transponder may be denied under certain narrowly defined
circumstances relating to violations of law or threats to revoke the license of
the satellite owner to operate the satellite based on programming content.
However, the Company has the right to challenge any such denial and believes
that the transponder will continue to be available to it through the end of the
expected life of the satellite (currently estimated to be in 2004).
Effective April 1, 1986, the Company terminated its agreement with the
former distributor of its pay television service. The termination agreement
provided for the assignment to the Company of all distribution contracts with
cable system operators and others that carried the Company's pay television
service. On April 30, 1996, the Company will no longer be obligated to make
monthly royalty payments, equal to 5% of North American pay television revenues
(including subscription, pay-per-view and satellite direct-to-home), that the
Company has paid under the termination agreement since 1986. Profit
contribution of the domestic pay television business and operating performance
of the Entertainment Group will be favorably impacted by the termination of such
royalty payments.
While the Company's television programming is unique, its pay television
products compete with other services, including those offering adult-oriented
programming, for cable channel space and viewer spending. Competition among pay
cable services involves pricing to both consumers and Cable Affiliates, viewer
perceived value and effectiveness of programming distribution.
In July 1995, the Company launched a second domestic pay television
channel, AdulTVision, to complement the Playboy Television service and to
protect the Company against competitive pressures from other adult channels.
AdulTVision is being offered on a pay-per-view basis and is sold in combination
with Playboy Television through cable operators, and to the direct-to-home
market. The channel is expected to be at least break even in fiscal 1996, its
first year of operation.
The Company's ability to operate profitably and expand its pay television
business is dependent in part on continued access to and continued acceptance by
cable systems in the United States. From time to time, certain groups have
sought to exclude Playboy programming from local pay television distribution
because of the adult-oriented content of the programming. Management does not
believe that any such attempts will materially affect the Company's access to
cable systems, but the nature and impact of any such limitations in the future
cannot be determined.
Domestic Home Video
The Company also distributes its original programming domestically via
videocassettes that are sold or rented in video stores, record and other retail
outlets and through direct mail, including two of the Company's catalogs. The
Company sells its product primarily to the sell-through market, which is growing
more rapidly than the rental market. Playboy Home Video is one of the largest-
selling brands of nontheatrically released special-interest videos in the U.S.
The format of Playboy Home Videos is consistent with the style, quality and
focus of Playboy magazine.
During fiscal 1993, the Company released 25 core Playboy Home Video titles,
including the first celebrity video centerfold, which featured Jessica Hahn.
Also released in fiscal 1993 were Hugh Hefner: Once Upon a Time, a documentary
on the life of the Company's founder Hugh M. Hefner, and three titles that
previously had been released exclusively through The Sharper Image. Management
believed that the cost of releasing 25 new core titles, as in fiscal 1993, was
too high compared to total revenues generated, and as a result reduced the
number of new core titles released in fiscal 1994 to 14. The Company also
released three titles in fiscal 1994 that previously had been released
exclusively through The Sharper Image. The Company also released 14 new core
titles in fiscal 1995, as management believes that this level of releases,
combined with planned efforts to increase distribution outlets, is the
appropriate strategy to optimize performance. Included in the fiscal 1995 core
titles was the release of The Best of Pamela Anderson in June 1995, which became
the first Playboy Home Video title ever to reach the number one spot on
Billboard magazine's weekly Top Video Sales Chart ("Sales Chart") on August 5,
1995, a position that it has maintained for the last eight weeks ending
September 23, 1995.
13
Additionally, three other fiscal 1995 releases were in the top five on the
Sales Chart. Also released in fiscal 1995 were Bix, a documentary following the
career of jazz great Bix Beiderbecke, and two titles that had been previously
released exclusively through The Sharper Image. Lastly, the Company also
released in fiscal 1995 a workout video O.J. Simpson: Minimum Maintenance
Fitness for Men ("Minimum Maintenance"). In December 1994, the distribution
rights and the remaining inventory of Minimum Maintenance were sold, which
resulted in an immaterial profit contribution. The Company plans to release 12
new core titles in fiscal 1996.
In 1990, the Company entered into a strategic alliance with The Sharper
Image to sell a "For Couples Only" video series. With the success of the first
production, Playboy's Art of Sensual Massage, 12 additional productions have
been completed through June 30, 1995, including in fiscal 1995, Making Love
Series with Dr. Ruth Westheimer Arousal, Foreplay & Orgasm and Making Love
Series with Dr. Barbara Keesling Volume II: Tantric Lovemaking. In fiscal
1996, the Company plans to release two additional titles through The Sharper
Image. The tapes will then roll out to retail distribution in fiscal 1997. The
Sharper Image guarantees a certain level of sales through its catalog and retail
outlets in exchange for an exclusive distribution window. During that window,
the Company may also sell the videocassettes through the Critics' Choice Video
and Playboy catalogs. Following that period, the "For Couples Only" videos may
be distributed by the Company through other distribution channels, including
national retail outlets and other catalogs.
In fiscal 1995, two new product lines were launched, a direct-response
continuity series with Warner Music Enterprises, Inc. to attract new customers
and encourage regular purchases of Playboy titles, and The Eros Collection, a
small-budget Playboy-produced line of movies.
The Company's Playboy Home Video products have been distributed in the U.S.
and Canada by Uni Distribution Corp. ("Uni"), an MCA Entertainment Group
company, whereby, until the fourth quarter of fiscal 1995, the Company was
responsible for manufacturing the video product and for certain marketing and
sales functions. The Company's new release titles are still distributed in this
manner, however, in the fourth quarter the Company entered into a three-year
licensing agreement with Uni related to catalog titles (titles in release for
longer than a year). The Company now receives an annual guarantee for the
catalog titles, subject to certain earn-out provisions in the final year, and
the manufacturing and marketing is the responsibility of Uni.
The Company also distributes its video programming via laser discs. In May
1992, the Company entered into an agreement with Image Entertainment, Inc.
("Image") under which Image will release all of the Company's videocassettes on
laser discs. This agreement replaces an earlier agreement under which the
Company's former videocassette distributor also distributed the Company's
programming on laser discs. The current agreement gives the Company more
control over the selling and marketing of its laser discs.
International Television and Home Video
The Company also markets its programming to foreign broadcasters and pay
television services. As appropriate, the licensees then customize, dub or
subtitle the programming to meet the needs of individual markets. At the end of
fiscal 1995, the Company's programming was available in 105 countries. While
continuing to sell individual series, the Company has expanded its existing
foreign network relationships by entering into exclusive multiyear multiproduct
output agreements with overseas pay television distributors. These agreements
enable the Company to have an ongoing branded presence in international markets
and are expected to generate higher and more consistent revenues than selling
programs on a show-by-show basis. As previously mentioned, in the fourth
quarter of fiscal 1995 the Company launched the first international Playboy
Television channel in the United Kingdom in partnership with Flextech plc, an
entertainment company that is majority owned by a subsidiary of TCI, and British
Sky Broadcasting Ltd. The Company will own 19% of the new channel, retaining an
option to acquire additional equity, and will receive license fees for
programming and the use of the Playboy brand name. A second international
channel is planned to launch in Japan in early fiscal 1996, in which the Company
will have a 20% interest.
Through separate distribution agreements, the Company also distributes its
U.S. home video products to countries in Latin America, Europe, Australia, Asia
and Africa. These products are based on the videos produced for the U.S.
market, with dubbing or subtitling into the local language where necessary.
14
PRODUCT MARKETING GROUP
The revenues and operating income of the Product Marketing Group were as
follows for the periods indicated in the following table (in millions):
Years Ended June 30,
-----------------------
1995 1994 1993
----- ----- -----
REVENUES $ 6.8 $ 7.0 $ 7.8
===== ===== =====
OPERATING INCOME $ 3.4 $ 2.5 $ 1.7
===== ===== =====
The Product Marketing Group is primarily responsible for the management of
agreements for the worldwide manufacture, marketing and distribution of consumer
products bearing one or more of the Company's trademarks and/or images. These
include the Playboy, Playmate, Rabbit Head Design and Sarah Coventry trademarks,
and images from the Company's extensive art collection.
Product Marketing
The Company's licensed product lines consist primarily of men's and women's
clothing, accessories, watches, jewelry, fragrances, small leather goods,
stationery, eyewear and home fashions. These products are marketed in North
America, Europe, Asia, Australia and Africa, primarily through retail outlets,
including department and specialty stores and through retail mail order catalogs
by licensees under exclusive license agreements that authorize the manufacture,
sale and distribution of products in a designated territory.
Royalties are based on a fixed or variable percentage of the licensee's
total net sales, in many cases against a guaranteed minimum. In fiscal 1995,
approximately 74% of the royalties earned from licensing the Company's
trademarks was derived from licensees in the Far East, 13% from licensees in the
United States, and the remainder from Europe, Australia, Canada and other
territories.
To capitalize on its international name recognition, the Company is
increasing its overseas product marketing activities and is focusing on the
rapidly developing consumer markets in China and other Far East countries.
During fiscal 1995, the Company's Hong Kong-based apparel licensee continued to
expand by increasing the number of freestanding Playboy shops and Playboy
boutiques within department stores in China. During fiscal 1993, the licensee
opened an apparel factory in the Peoples Republic of China and, in fiscal 1994
expanded the factory. In fiscal 1995, this licensee began building a larger
factory to manufacture Playboy apparel.
In fiscal 1993, the Company signed a licensing agreement with a
multinational Malaysian-based conglomerate to produce and market a line of
Playboy-branded condoms for initial sale in the Far East and, as a result,
Playboy condoms were successfully introduced in Taiwan in fiscal 1994. The
Company and its licensee continued to expand distribution in fiscal 1995 to Hong
Kong, Singapore, Pakistan, Mexico, Peru and Venezuela, and expects to further
penetrate Latin America and enter Russia, Spain and Portugal during fiscal 1996.
The Company maintains control of the design and quality specifications of
its licensed products to ensure that products are consistent with the quality of
the Playboy image. To project a consistent image for Playboy-brand products
throughout the world, the Company discontinued certain domestic products and
low-end distribution in fiscal 1994, and, in fiscal 1995, launched a global
advertising campaign and brand strategy to integrate all of the marketing
efforts of the product licensees and to control the brand more effectively.
On October 30, 1987, a subsidiary of the Company acquired substantially all
of the assets of Sarah Coventry, Inc. The assets acquired were product license
agreements with licensees in the United States and Canada and all of the
trademarks and service marks of Sarah Coventry, Inc.
15
To protect the success and potential future growth of the Company's product
marketing and other businesses, the Company actively defends its trademarks
throughout the world and monitors the marketplace for counterfeit products.
Consequently, it initiates legal proceedings from time to time to prevent
unauthorized use of the trademarks. In fiscal 1995, the Company developed and
commenced use of a hologram on Playboy packaging as a mark of authenticity.
While the trademarks differentiate the Company's products, the marketing of
apparel and jewelry is an intensely competitive business that is extremely
sensitive to shifts in consumer buying habits and fashion trends, as well as
changes in the retail sales environment.
Art Products
Through its wholly owned subsidiary, Special Editions, Ltd. ("Special
Editions"), the Company develops and oversees the manufacture and distribution
of art-related products based on the Company's extensive collection of artworks,
many of which were commissioned as illustrations for Playboy magazine and for
use in the Company's other businesses. These include posters, limited-edition
prints, art watches, art ties, clocks and collectibles. Prominent artists
represented have included Salvador Dali, Keith Haring, Leroy Neiman, Patrick
Nagel, Alberto Vargas, Ed Paschke, Andy Warhol, Bas Van Reek, Karl Wirsum and
Roger Brown. In an effort to increase product distribution and improve
profitability of the art-related products, Special Editions is shifting its
marketing approach from direct sales to licensing.
GAMING
The Company is exploring opportunities to re-enter the gaming business.
The Company's image, international appeal and successful history in gaming makes
this a logical extension into a fast growing field of adult entertainment. The
Company, with a consortium of Greek investors, bid in June 1995 for an exclusive
gaming license on the island of Rhodes, Greece. The Company expects to be
notified whether its consortium won the competitive bid for this license by the
end of September 1995. If a license is awarded to the consortium it is
anticipated that the casino will open next summer. The Company is also
exploring other gaming ventures. The Company's strategy will be to enter into
joint-venture agreements with strong local partners in which it would consider
taking equity positions as well as receiving license fees for the use of the
Playboy name and trademarks.
SEASONALITY
The Company's businesses are generally not seasonal in nature. However,
second quarter revenues and operating income are typically impacted by higher
newsstand cover prices of holiday issues. This, coupled with higher sales of
subscriptions of Playboy magazine, also results in an increase in accounts
receivable.
PROMOTIONAL AND OTHER ACTIVITIES
The Company believes that its sales of products and services are enhanced
by the public recognition of Playboy as a lifestyle. To establish such public
recognition, the Company, among other activities, acquired in 1971, a mansion in
Holmby Hills, California known as the "Playboy Mansion" where the Company's
founder, Hugh M. Hefner, lives. The Playboy Mansion is used for various
corporate activities, including serving as a valuable location for video
production and magazine photography, business meetings, enhancing the Company's
image, charitable functions and a wide variety of promotional and marketing
purposes. The Playboy Mansion generates substantial publicity and recognition
which increase public awareness of the Company and its products and services.
As indicated in Item 13, Mr. Hefner pays rent to the Company for that portion of
the Playboy Mansion used exclusively for his and his family's residence as well
as the value of meals and other benefits received by him, his family and
personal guests. The total Playboy Mansion operating expenses (including
depreciation, taxes and security), net of rent received from Mr. Hefner,
attributable to the above-mentioned activities were approximately $3,865,000,
$3,950,000 and $3,996,000 for the years ended June 30, 1995, 1994 and 1993,
respectively.
16
Through the Playboy Foundation, the Company supports not-for-profit
organizations and projects concerned with issues historically of importance to
Playboy magazine and its readers, including anti-censorship efforts, civil
rights, AIDS education, prevention and research, and reproductive freedom. The
Playboy Foundation provides financial support to many of these organizations and
also donates public service advertising space in Playboy magazine and in-kind
printing and design services.
EMPLOYEES
At August 31, 1995, the Company employed 593 full-time employees compared
to 583 at August 31, 1994. While there are employment disputes occurring from
time to time, including actions before state and federal agencies, no material
interruptions of services or activities have occurred due to individual
employment disputes.
Item 2. Properties
The Company leases office space at the following locations:
The Company is lessee under a fifteen-year lease effective September 1,
1989 of approximately 100,000 square feet of corporate headquarters space
located at 680 North Lake Shore Drive, Chicago, Illinois. The Company's initial
base rental was approximately $900,000 per year. This rate is to be increased
two percent per year until the tenth year of the term, after which the rent will
be further adjusted to reflect the then-existing market conditions. The
Company was granted a rent abatement for the first two years of the lease.
However, rent expense is being charged to operations on a straight-line basis
over the term of the lease. Additionally, the lease requires the Company to pay
its proportionate share of the building's real estate taxes and operating
expenses. The majority of this space is used by all of the Company's operating
groups, primarily Publishing.
In fiscal 1993, the Company relocated its Publishing Group headquarters in
New York City to approximately 50,000 square feet of space in the Crown
Building, 730 Fifth Avenue, Manhattan. The Crown Building lease expires in
2004, has an average annual base rental expense of approximately $1,379,000, and
is subject to periodic increases to reflect rising real estate taxes and
operating expenses. The Company was granted a rent abatement under this lease;
however, rent expense is being charged to operations on a straight-line basis
over the term of the lease. Additionally, a limited amount of space is utilized
by the Entertainment and Product Marketing Groups and executive and
administrative personnel.
The Company's principal Entertainment Group offices are located at 9242
Beverly Boulevard, Beverly Hills, California ("Beverly Building"). The Company
holds a lease for approximately 40,000 square feet in the Beverly Building
through March 2002, with an average annual base rental expense of approximately
$1,551,000 per year, which is subject to annual increases calculated on a
formula involving tax and operating expense increases. The Company was granted
a partial rent abatement for the first two years of the lease. However, rent
expense is being charged to operations on a straight-line basis over the term of
the lease. Additionally, a limited amount of space is utilized by the
Publishing Group and executive and administrative personnel.
The Company leases space for its operations facilities at the following
locations:
In fiscal 1993, the Company entered into a five-year lease, which includes
a purchase option, for a 64,000 square foot warehouse facility in Itasca,
Illinois, which is used by its Catalog Group for order fulfillment and related
activities for its operations. The warehouse also houses a portion of the
Company's data processing operation and serves as a storage facility for the
entire Company. The average annual base rental expense under this lease is
approximately $300,000. The Company previously housed these operations in a
warehouse it owned in Elk Grove Village, Illinois, that was sold in fiscal 1993.
The Company's West Coast photography studio was relocated in March 1994 to
Santa Monica, California, under terms of a ten-year lease, which commenced
January 1, 1994. The lease is for approximately 9,800 square feet of space,
with an average annual base rental expense of approximately $182,000. The
Company was granted a rent abatement under this lease; however, rent expense is
being charged to operations on a straight-line basis over the term of the lease.
Additionally, the lease requires the Company to pay its proportionate share of
the building's real estate taxes and operating expenses.
17
In June 1995, the Company entered into a two-year lease effective July 1,
1995 for a motion picture production facility to be used by its Entertainment
Group located in Los Angeles, California. The lease is for 11,600 square feet,
with an annual base rental expense of approximately $104,000.
The Company owns a Holmby Hills, California mansion property comprised of 5-1/2
acres. See also "Promotional and Other Activities" under Item 1.
Item 3. Legal Proceedings
The Company is from time to time a defendant in suits for defamation and
violation of rights of privacy, many of which allege substantial or unspecified
damages, which are vigorously defended by the Company. The Company is presently
engaged in other litigation, most of which is generally incidental to the normal
conduct of its business and which is either immaterial in amount, expected to be
covered by the Company's insurance carriers, reserved against, or which
management believes to be without merit. Management believes that its reserves
are adequate and that no such action will have a material adverse impact on the
Company's financial condition. However, there can be no assurance that the
Company's ultimate liability will not exceed its reserves. See Note U of Notes
to Consolidated Financial Statements.
On August 14, 1990, a purported class action for unspecified damages was
filed by a stockholder in the Circuit Court of Cook County, Illinois, on behalf
of an alleged class composed of those persons who are owners of shares of the
common stock of the Company. The suit names as defendants the Company and the
following present and former directors: Christie Hefner, Hugh M. Hefner,
William A. Emerson, John R. Purcell, Robert Kamerschen, Mark H. McCormack,
Richard S. Rosenzweig and Sol Rosenthal. During the third quarter of fiscal
1991, the plaintiffs agreed to dismiss the action against one of the Company's
former directors, Mark H. McCormack. The suit alleges that the individual
defendants violated their fiduciary duty to the class by approving the Company's
stock recapitalization plan, which became effective on June 7, 1990. The suit
also requests that the recapitalization plan be reversed. The Company and most
of the individual defendants have been served and have filed an answer denying
all substantive complaint allegations. In February 1995, the Court granted the
Company's motion for summary judgment and the case was dismissed. Plaintiffs
have filed an appeal. Management believes that the action is without merit and
will continue to defend such action vigorously. In accordance with the
Company's bylaws and Delaware law, the Company has agreed with all individual
defendants to advance the fees and costs they might incur prior to the final
disposition of the case, on the condition that such individuals shall repay the
amounts advanced if it is finally determined that any respective individual is
not entitled under Delaware law to be indemnified by the Company for such
expenses.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1995.
18
EXECUTIVE OFFICERS
The following table sets forth information with respect to the Company's
executive officers:
Name, Age and Position Business Experience During Past 5 Years
---------------------- ---------------------------------------
Hugh M. Hefner, 69 Founded the Company in 1953. Has been Chairman
Chairman Emeritus and Emeritus and Editor-in-Chief since November
Editor-in-Chief 1988. From October 1976 to November 1988 served
as Chairman of the Board and Chief Executive
Officer, and before that served as Chairman,
President and Chief Executive Officer.
Christie Hefner, 42 Appointed to present position in November 1988.
Chairman of the Board From September 1986 to November 1988 served as
and Chief Executive Officer Vice Chairman of the Board, President and Chief
Operating Officer. From February 1984 to
September 1986 served as President and Chief
Operating Officer; had been President since
April 1982. From January 1978 to April 1982 was
a Corporate Vice President. She joined the
Company in 1975 as Special Assistant to the
Chairman of the Board.
David I. Chemerow, 44 Appointed to present position in October 1990.
Executive Vice President, From 1988 to 1990 served as President of
Finance and Operations, Beechwood Capital Corporation, an investment
and Chief Financial Officer company involved in acquiring and operating
businesses. From 1975 to 1988 held various
executive positions at Primerica Corporation,
including Senior Vice President and Corporate
Controller and Senior Vice President of
Operations.
Richard S. Rosenzweig, 60 Appointed to present position in November 1988.
Executive Vice President From May 1982 to November 1988 served as
Executive Vice President, Office of the
Chairman. From July 1980 to May 1982 served as
Executive Vice President, Corporate Affairs.
From January 1977 to June 1980 he was Executive
Vice President for West Coast Operations. His
other positions with the Company have included
Executive Vice President, Publications Group,
and Associate Publisher, Playboy magazine. He
has been with the Company since 1958.
Howard Shapiro, 48 Appointed to present position in September
Executive Vice President, 1989. From May 1985 to September 1989 served as
Law and Administration and Senior Vice President, Law and Administration
General Counsel and General Counsel. From July 1984 to May 1985
served as Senior Vice President and General
Counsel. From September 1983 to July 1984
served as Vice President and General Counsel.
From May 1981 to September 1983 served as
Corporate Counsel. From June 1978 to May 1981
served as Division Counsel. From November 1973
to June 1978 served as Staff Counsel.
19
Name, Age and Position Business Experience During Past 5 Years
---------------------- ---------------------------------------
Anthony J. Lynn, 43 Appointed to present position in June 1992.
Executive Vice President and From 1991 to 1992 served as President of
President, Entertainment Group international television distribution and
worldwide pay television at MGM-Pathe
Communications Co., where he was Executive Vice
President since 1987.
Robert B. Beleson, 44 Appointed to present position in May 1991. From
Senior Vice President and 1989 to 1991 served as President of RB
Chief Marketing Officer International Ltd., a marketing consulting
company that specialized in niche marketing and
image development. From 1982 to 1989 served as
President of Remy Martin Amerique, a domestic
and international distributor of alcoholic
beverages.
Rebecca S. Maskey, 47 Appointed to present position in April 1993.
Senior Vice President, From April 1993 to June 1995 also served as
Finance Treasurer. From January 1990 to April 1993
served as Vice President, Financial Services
and Treasurer. From August 1988 to January 1990
served as Vice President and Treasurer. From
January 1987 to August 1988 served as
Treasurer. From January 1985 to January 1987
served as Assistant Treasurer.
Martha O. Lindeman, 44 Appointed to present position in March 1992.
Vice President, Corporate From 1986 to 1992 served as Manager of
Communications and Communications at the Tribune Company, a
Investor Relations leading information and entertainment company.
20
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The stock price information, as reported in the New York Stock Exchange
Composite Listing, set forth in Note V of Notes to Consolidated Financial
Statements in the fiscal 1995 Annual Report is incorporated herein by reference.
The registrant's securities are traded on the exchanges listed on the cover page
of this Form 10-K Report. As of August 31, 1995, there were 8,563 and 9,045
record holders of Class A Common Stock and Class B Common Stock, respectively.
There were no cash dividends declared during either of the two fiscal years in
the period ended June 30, 1995.
Item 6. Selected Financial Data
The net revenues, income (loss) from continuing operations before
extraordinary item and cumulative effect of change in accounting principle,
total assets, long-term financing obligations, income (loss) from continuing
operations before extraordinary item and cumulative effect of change in
accounting principle per common share and cash dividends declared per common
share for each of the five fiscal years in the period ended June 30, 1995, set
forth under the caption "Selected Financial and Operating Data" on page 23 of
the fiscal 1995 Annual Report are incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 25 - 31
of the fiscal 1995 Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the registrant and
report of independent accountants set forth on pages 32 - 43 of the fiscal 1995
Annual Report are incorporated herein by reference:
Consolidated Statements of Operations - Years ended June 30, 1995, 1994 and
1993.
Consolidated Balance Sheets - June 30, 1995 and 1994.
Consolidated Statements of Shareholders' Equity - Years ended June 30,
1995, 1994 and 1993.
Consolidated Statements of Cash Flows - Years ended June 30, 1995, 1994 and
1993.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
Report of Management.
The supplementary data regarding quarterly results of operations set forth
in Note V of Notes to Consolidated Financial Statements on pages 41 and 42 of
the fiscal 1995 Annual Report is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
21
PART III
Information required by Items 10, 11, 12 and 13 is contained in the
registrant's Notice of Annual Meeting of Stockholders and Proxy Statement dated
September 28, 1995, which will be filed within 120 days after the close of the
registrant's fiscal year ended June 30, 1995, and is incorporated herein by
reference. Information regarding executive officers is contained on pages 19
and 20 of this Form 10-K Report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Certain Documents Filed as Part of the Form 10-K
Financial Statements of the registrant and report of independent
accountants following as set forth under Item 8 of this Form 10-K Report
and which have been incorporated by reference from pages 32-43 of the
fiscal 1995 Annual Report:
Consolidated Statements of Operations - Years ended June 30, 1995,
1994 and 1993
Consolidated Balance Sheets - June 30, 1995 and 1994
Consolidated Statements of Shareholders' Equity - Years ended June 30,
1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years ended June 30, 1995,
1994 and 1993
Notes to Consolidated Financial Statements
Report of Independent Accountants*
Report of Management
The supplementary data regarding quarterly results of operations as
set forth in Note V of Notes to Consolidated Financial Statements on
pages 41 and 42 of the fiscal 1995 Annual Report and which have been
incorporated by reference.
Financial Statement Schedule of the registrant not included in the fiscal
1995 Annual Report but filed herewith:
Page
----
Schedule II - Valuation and Qualifying Accounts 31
* The report of the registrant's independent accountants with respect to
the Financial Statement Schedule appears on page 30 of this Form 10-K
Report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the fourth
quarter of fiscal 1995
(c) Exhibits
(1) Restated Certificate of Incorporation of the Company
(2) Restated bylaws of the Company (incorporated by reference to Exhibit
3.2 from the Company's annual report on Form 10-K for the year ended
June 30, 1994 (the "1994 Form 10-K"))
(3) Stock Incentive Plan
a Playboy Enterprises, Inc. 1995 Stock Incentive Plan
b Form of Non-Qualified Stock Option Agreement for Non-Qualified
Stock Options which may be granted under the Plan
c Form of Incentive Stock Option Agreement for Incentive Stock
Option granted under the Plan
d Form of Restricted Stock Agreement for Restricted Stock issued
under the Plan
22
(incorporated by reference to Exhibits 4.2, 4.3, 4.4 and 4.5 from the
Registration Statement No. 33-58145 on Form S-8 dated March 20, 1995)
(4) Playboy Channel Cable Distribution Agreement dated as of March 14,
1986 between Playboy Enterprises, Inc. and Rainbow Programming
Services Company (incorporated by reference to Exhibit 10.8 from the
Company's annual report on Form 10-K for the year ended June 30, 1991
(the "1991 Form 10-K"))
(5) Playboy Magazine Printing and Binding Agreements
a May 15, 1990 agreement between Playboy Enterprises, Inc. and
Quad/Graphics, Inc. regarding printing of Playboy Magazine
b Letter agreement dated April 11, 1990 between Playboy
Enterprises, Inc. and Quad/Graphics, Inc.
(6) Playboy Magazine Distribution Agreement dated as of June 6, 1994
between Playboy Enterprises, Inc. and Warner Publisher Services, Inc.
(incorporated by reference to Exhibit 10.9 from the 1994 Form 10-K)
(7) Playboy Magazine Subscription Fulfillment Agreement
a July 1, 1987 agreement between Communication Data Services, Inc.
and Playboy Enterprises, Inc. (incorporated by reference to
Exhibit 10.12(a) from the Company's annual report on Form 10-K
for the year ended June 30, 1992 (the "1992 Form 10-K"))
b Amendments to said Fulfillment Agreement dated as of September 1,
1987 and June 1, 1988 (incorporated by reference to Exhibit
10.12(b) from the Company's annual report on Form 10-K for the
year ended June 30, 1993 (the "1993 Form 10-K"))
c Amendment dated as of July 1, 1990 to said Fulfillment Agreement
(incorporated by reference to Exhibit 10.12(c) from the 1991 Form
10-K)
d Amendment dated as of November 21, 1994 to said Fulfillment
Agreement
(8) Distribution License to Exploit Home Video Rights effective October 1,
1991 between Playboy Video Enterprises, Inc. and Uni Distribution
Corp. (incorporated by reference to Exhibit 10.16 from the 1991 Form
10-K)
(9) Transponder Lease Agreement dated as of December 31, 1992 between
Playboy Entertainment Group, Inc. and General Electric Capital
Corporation (incorporated by reference to Exhibit 10.3 from the
Company's quarterly report on Form 10-Q for the quarter ended December
31, 1992 (the "Second Quarter 1993 Form 10-Q"))
(10) Distribution Agreement dated as of March 24, 1995 between Playboy
Entertainment Group, Inc. and Uni Distribution Corp. regarding
licensing and sale of domestic home video product
(11) Agreement effective January 12, 1995 between Playboy Entertainment
Group, Inc., Continental Shelf 16 Limited and Playboy TV UK/Benelux
Limited regarding the establishment of a Playboy TV pay television
service in the United Kingdom
(12) Warner Home Video/Critics' Choice Direct Marketing License Agreement
dated February 22, 1994 regarding purchase of Turner product
(13) Warner Home Video/Critics' Choice Direct Marketing License Agreement
dated February 22, 1994 regarding purchase of non-Turner product
(14) Revolving Line of Credit
a Credit Agreement dated as of February 10, 1995 by and among
Playboy Enterprises, Inc., Harris Trust and Savings Bank and
LaSalle National Bank
b Amendment to February 10, 1995 Credit Agreement dated March 31,
1995
(15) Playboy Mansion West Lease Agreement, as amended, between Playboy
Enterprises, Inc. and Hugh M. Hefner
a Letter of Interpretation of Lease (incorporated by reference to
Exhibit 10.3(a) from the 1991 Form 10-K)
b Agreement of lease (incorporated by reference to Exhibit 10.3(b)
from the 1991 Form 10-K)
(16) Los Angeles Office Lease dated as of July 25, 1991 between Playboy
Enterprises, Inc. and Beverly Mercedes Place, Ltd. (incorporated by
reference to Exhibit 10.6(c) from the 1991 Form 10-K)
(17) Chicago Office Lease Documents
a Office Lease dated April 7, 1988 by and between Playboy
Enterprises, Inc. and LaSalle National Bank as Trustee under
Trust No. 112912 (incorporated by reference to Exhibit 10.7(a)
from the 1993 Form 10-K)
b Amendment to April 7, 1988 lease dated October 26, 1989
c Amendment to April 7, 1988 lease dated June 1, 1992
(incorporated by reference to Exhibit 10.1 from the Second
Quarter 1993 Form 10-Q)
d Amendment to April 7, 1988 lease dated August 30, 1993
23
(18) New York Office Lease Agreement dated August 11, 1992 between Playboy
Enterprises, Inc. and Lexington Building Co. (incorporated by
reference to Exhibit 10.9(b) from the 1992 Form-K)
(19) Itasca Warehouse Lease Agreement dated as of October 20, 1992 between
Teachers' Retirement System of the State of Illinois and Playboy
Enterprises, Inc. (incorporated by reference to Exhibit 10.4 from the
Second Quarter 1993 Form 10-Q)
(20) Selected Company Remunerative Plans
a Executive Car Lease Program dated June 11, 1993
b Administrative Statement for the Executive Car Lease Program
dated March 1, 1992 (incorporated by reference to Exhibit 10.2(b)
from the 1992 Form 10-K)
c Executive Protection Program dated March 1, 1990
d Deferred Compensation Plan for Employees
e Deferred Compensation Plan for Nonemployee Directors
(items (d) and (e) incorporated by reference to Exhibits 10.2(g) and
(h), respectively, from the 1992 Form 10-K)
f First Amendment to Deferred Compensation Plan for Employees
(incorporated by reference to Exhibit 10.1(f) from the 1994 Form
10-K)
(21) Selected Employment, Termination and Other Agreements
a Undertaking regarding indemnification in Lewis v. Playboy
Enterprises, Inc. civil action
b Playboy Enterprises, Inc. 1989 Stock Option Plan, as amended, For
Key Employees (the "1989 Option Plan")(incorporated by reference
to Exhibit 10.4 (mm) from the 1991 Form 10-K)
c Playboy Enterprises, Inc. 1989 Stock Option Agreement
d Letter dated July 18, 1990 pursuant to the June 7, 1990
recapitalization regarding adjustment of options
e Consent and Amendment dated March 19, 1991 regarding the 1989
Option Plan
f Playboy Enterprises, Inc. 1991 Non-Qualified Stock Option Plan
for Non-Employee Directors
g Employment Agreement dated October 15, 1990 between Playboy
Enterprises, Inc. and David Chemerow
(items (e), (f) and (g) incorporated by reference to Exhibits
10.4(aa), (nn) and (ss), respectively, from the 1991 Form 10-K)
h Playboy Enterprises, Inc. Severance Agreement dated March 1, 1991
(incorporated by reference to Exhibit 10.4(vv) from the 1991 Form
10-K)
i Employment Agreement dated May 21, 1992 between Playboy
Enterprises, Inc. and Anthony J. Lynn (incorporated by reference
to Exhibit 10.4(bbb) from the 1992 Form 10-K)
j Amendment dated September 12, 1994 regarding the Employment
Agreement dated May 21, 1992 between Playboy Enterprises, Inc.
and Anthony J. Lynn
k Amendment dated June 28, 1995 regarding the Employment Agreement
dated May 21, 1992 between Playboy Enterprises, Inc. and Anthony
J. Lynn
l Memorandum regarding reimbursement to Hugh M. Hefner of expenses
incurred in connection with the Company's secondary offering
(incorporated by reference to Exhibit 10.4(ggg) from the 1992
Form 10-K)
(22) Computation of Net Income (Loss) Per Share
(23) Annual Report to Security Holders
Herewith filed as an exhibit only with respect to the parts
incorporated by reference in this Form 10-K. The report, except for
portions expressly incorporated by reference, is furnished for the
information of the Commission only and is not to be deemed "filed" as
part of the filing.
(24) Parent and Subsidiaries
(25) Consent of Independent Public Accountants
(26) Financial Data Schedule
(d) Financial Statement Schedules
Not applicable
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
September 22, 1995 By s/David I. Chemerow
-------------------------
David I. Chemerow
Executive Vice President,
Finance and Operations,
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
s/Christie Hefner September 19, 1995
---------------------------------------
Christie Hefner
Chairman of the Board,
Chief Executive Officer and Director
s/Richard S. Rosenzweig September 20, 1995
---------------------------------------
Richard S. Rosenzweig
Executive Vice President and Director
s/Dennis S. Bookshester September 20, 1995
---------------------------------------
Dennis S. Bookshester
Director
s/Robert Kamerschen September 20, 1995
---------------------------------------
Robert Kamerschen
Director
s/John R. Purcell September 20, 1995
---------------------------------------
John R. Purcell
Director
s/Sol Rosenthal September 20, 1995
---------------------------------------
Sol Rosenthal
Director
s/David I. Chemerow September 22, 1995
---------------------------------------
David I. Chemerow
Executive Vice President,
Finance and Operations,
and Chief Financial Officer
s/Rebecca S. Maskey September 19, 1995
---------------------------------------
Rebecca S. Maskey
Senior Vice President,
Finance
25
All agreements listed below may have additional exhibits which are not attached.
All such exhibits are available upon request, provided the requesting party
shall pay a fee for copies of such exhibits, which fee shall be limited to the
Company's reasonable expenses incurred in furnishing these documents.
Exhibit
Number Description
------ -----------
* 3.1 Restated Certificate of Incorporation of the Company
3.2 Restated bylaws of the Company (incorporated by
reference to Exhibit 3.2 from the 1994 Form 10-K)
10.1 Stock Incentive Plan
a Playboy Enterprises, Inc. 1995 Stock Incentive Plan
b Form of Non-Qualified Stock Option Agreement for Non-
Qualified Stock Options which may be granted under
the Plan
c Form of Incentive Stock Option Agreement for
Incentive Stock Option granted under the Plan
d Form of Restricted Stock Agreement for Restricted
Stock issued under the Plan
(incorporated by reference to Exhibits 4.2, 4.3, 4.4
and 4.5 from the Registration Statement No. 33-58145
on Form S-8 dated March 20, 1995)
10.2 Playboy Channel Cable Distribution Agreement dated
as of March 14, 1986 between Playboy Enterprises,
Inc. and Rainbow Programming Services Company
(incorporated by reference to Exhibit 10.8 from the
1991 Form 10-K)
*10.3 Playboy Magazine Printing and Binding Agreements
a May 15, 1990 agreement between Playboy Enterprises,
Inc. and Quad/Graphics, Inc. regarding printing of
Playboy Magazine
b Letter agreement dated April 11, 1990 between Playboy
Enterprises, Inc. and Quad/Graphics, Inc.
10.4 Playboy Magazine Distribution Agreement dated as of
June 6, 1994 between Playboy Enterprises, Inc. and
Warner Publisher Services, Inc. (incorporated by
reference to Exhibit 10.9 from the 1994 Form 10-K)
10.5 Playboy Magazine Subscription Fulfillment Agreement
a July 1, 1987 agreement between Communication
Data Services, Inc. and Playboy Enterprises, Inc.
(incorporated by reference to Exhibit 10.12(a) from
the 1992 Form 10-K)
b Amendments to said Fulfillment Agreement dated as of
September 1, 1987 and June 1, 1988 (incorporated by
reference to Exhibit 10.12(b) from the 1993 Form 10-K)
c Amendment dated as of July 1, 1990 to said Fulfillment
Agreement (incorporated by reference to Exhibit
10.12(c) from the 1991 Form 10-K)
*d Amendment dated as of November 21, 1994 to said
Fulfillment Agreement
10.6 Distribution License to Exploit Home Video Rights
effective October 1, 1991 between Playboy Video
Enterprises, Inc. and Uni Distribution Corp.
(incorporated by reference to Exhibit 10.16 from the
1991 Form 10-K)
26
10.7 Transponder Lease Agreement dated as of December 31,
1992 between Playboy Entertainment Group, Inc. and
General Electric Capital Corporation (incorporated by
reference to Exhibit 10.3 from the Second Quarter
1993 Form 10-Q)
*10.8 Distribution Agreement dated as of March 24, 1995
between Playboy Entertainment Group, Inc. and Uni
Distribution Corp. regarding licensing and sale of
domestic home video product
*10.9 Agreement effective January 12, 1995 between Playboy
Entertainment Group, Inc., Continental Shelf 16
Limited and Playboy TV UK/Benelux Limited regarding
the establishment of a Playboy TV pay television
service in the United Kingdom
*10.10 Warner Home Video/Critics' Choice Direct Marketing
License Agreement dated February 22, 1994 regarding
purchase of Turner product
*10.11 Warner Home Video/Critics' Choice Direct Marketing
License Agreement dated February 22, 1994 regarding
purchase of non-Turner product
*10.12 Revolving Line of Credit
a Credit Agreement dated as of February 10, 1995 by
and among Playboy Enterprises, Inc., Harris Trust
and Savings Bank and LaSalle National Bank
b Amendment to February 10, 1995 Credit Agreement
dated March 31, 1995
10.13 Playboy Mansion West Lease Agreement, as amended,
between Playboy Enterprises, Inc. and Hugh M. Hefner
a Letter of Interpretation of Lease (incorporated by
reference to Exhibit 10.3(a) from the 1991 Form 10-K)
b Agreement of lease (incorporated by reference to
Exhibit 10.3(b) from the 1991 Form 10-K)
10.14 Los Angeles Office Lease dated as of July 25, 1991
between Playboy Enterprises, Inc. and Beverly Mercedes
Place, Ltd. (incorporated by reference to Exhibit
10.6(c) from the 1991 Form 10-K)
10.15 Chicago Office Lease Documents
a Office Lease dated April 7, 1988 by and between
Playboy Enterprises, Inc. and LaSalle National Bank
as Trustee under Trust No. 112912 (incorporated by
reference to Exhibit 10.7(a) from the 1993 Form 10-K)
*b Amendment to April 7, 1988 lease dated October 26, 1989
c Amendment to April 7, 1988 lease dated June 1, 1992
(incorporated by reference to Exhibit 10.1 from the
Second Quarter 1993 Form 10-Q)
*d Amendment to April 7, 1988 lease dated August 30, 1993
27
10.16 New York Office Lease Agreement dated August 11, 1992
between Playboy Enterprises, Inc. and Lexington
Building Co. (incorporated by reference to Exhibit 10.9(b)
from the 1992 Form 10-K)
10.17 Itasca Warehouse Lease Agreement dated as of October 20,
1992 between Teachers' Retirement System of the State of
Illinois and Playboy Enterprises, Inc. (incorporated by
reference to Exhibit 10.4 from the Second Quarter 1993
Form 10-Q)
10.18 Selected Company Remunerative Plans
*a Executive Car Lease Program dated June 11, 1993
b Administrative Statement for the Executive Car Lease
Program dated March 1, 1992 (incorporated by reference
to Exhibit 10.2(b) from the 1992 Form 10-K)
*c Executive Protection Program dated March 1, 1990
d Deferred Compensation Plan for Employees
e Deferred Compensation Plan for Nonemployee Directors
(items (d) and (e) incorporated by reference to Exhibits
10.2(g) and (h), respectively, from the 1992 Form 10-K)
f First Amendment to Deferred Compensation Plan for
Employees (incorporated by reference to Exhibit 10.1(f)
from the 1994 Form 10-K)
10.19 Selected Employment, Termination and Other Agreements
*a Undertaking regarding indemnification in Lewis v. Playboy
Enterprises, Inc. civil action
b Playboy Enterprises, Inc. 1989 Stock Option Plan, as
amended, For Key Employees (the "1989 Option Plan")
(incorporated by reference to Exhibit 10.4(mm) from
the 1991 Form 10-K)
*c Playboy Enterprises, Inc. 1989 Stock Option Agreement
*d Letter dated July 18, 1990 pursuant to the June 7,
1990 recapitalization regarding adjustment of options
e Consent and Amendment dated March 19, 1991 regarding
the 1989 Option Plan
f Playboy Enterprises, Inc. 1991 Non-Qualified Stock
Option Plan for Non-Employee Directors
g Employment Agreement dated October 15, 1990
between Playboy Enterprises, Inc. and David Chemerow
(items (e), (f) and (g) incorporated by reference to
Exhibits 10.4(aa), (nn) and (ss), respectively, from the
1991 Form 10-K)
h Playboy Enterprises, Inc. Severance Agreement
dated March 1, 1991 (incorporated by reference to
Exhibit 10.4(vv) from the 1991 Form 10-K)
i Employment Agreement dated May 21, 1992 between
Playboy Enterprises, Inc. and Anthony J. Lynn
(incorporated by reference to Exhibit 10.4(bbb) from
the 1992 Form 10-K)
*j Amendment dated September 12, 1994 regarding the
Employment Agreement dated May 21, 1992 between
Playboy Enterprises, Inc. and Anthony J. Lynn
*k Amendment dated June 28, 1995 regarding the
Employment Agreement dated May 21, 1992 between
Playboy Enterprises, Inc. and Anthony J. Lynn
28
l Memorandum regarding reimbursement to Hugh M. Hefner
of expenses incurred in connection with the Company's
secondary offering (incorporated by reference to
Exhibit 10.4(ggg) from the 1992 Form 10-K)
*11. Computation of Net Income (Loss) Per Share
*13. Annual Report to Security Holders
Herewith filed as an exhibit only with respect to
the parts incorporated by reference in this Form
10-K. The report, except for portions expressly
incorporated by reference, is furnished for the
information of the Commission only and is not to be
deemed "filed" as part of the filing.
*21. Parent and Subsidiaries
*23. Consent of Independent Public Accountants
*27. Financial Data Schedule
--------------
* Filed herewith
29
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
ON FINANCIAL STATEMENT SCHEDULES
--------------------------------
To the Shareholders and Board of Directors
Playboy Enterprises, Inc.
Our report on the consolidated financial statements of Playboy Enterprises,
Inc. and its Subsidiaries has been incorporated by reference in this Form 10-K
from page 43 of the fiscal 1995 Annual Report to Shareholders of Playboy
Enterprises, Inc. and its Subsidiaries. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index on page 22 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Chicago, Illinois
August 2, 1995
30
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS)
[Enlarge/Download Table]
=======================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
----------------------------------------- ---------- ---------------------- ------------ -----------
Additions
-----------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Net End
Description of Period Expenses Revenues Deductions of Period
----------------------------------------- ---------- ---------- ----------- ---------- ---------
Allowance deducted in the balance sheet
from the asset to which it applies:
Year ended June 30, 1995:
Allowance for doubtful accounts $ 3,155 $3,751 $ - $ 2,069(a) $ 4,837
======= ====== ======== ======= =======
Allowance for returns $18,612 $ - $57,057(b) $54,717(c) $20,952
======= ====== ======= ======= =======
Year ended June 30, 1994:
Allowance for doubtful accounts $ 2,843 $3,210 $ - $ 2,898(a) $ 3,155
======= ====== ======= ======= =======
Allowance for returns $21,631 $ - $53,486(b) $56,505(c) $18,612
======= ====== ======= ======= =======
Year ended June 30, 1993:
Allowance for doubtful accounts $ 1,903 $2,891 $ - $ 1,951(a) $ 2,843
======= ====== ======= ======= =======
Allowance for returns $19,375 $ - $57,381(b) $55,125(c) $21,631
======= ====== ======= ======= =======
Notes:
(a) Represents uncollectible accounts less recoveries. Also included in fiscal
1994 amount was $66 related to a discount for early payment of a
receivable.
(b) Represents provisions for estimated returns of Playboy magazine, other
Playboy publications and domestic home video.
(c) Represents settlements on provisions previously recorded.
31
Dates Referenced Herein and Documents Incorporated by Reference
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