UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from _____________ to _______________

Commission file number 1-6813

                            Playboy Enterprises, Inc.
             (Exact name of registrant as specified in its charter)

                  Delaware                              36-4249478
       (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)

                                 (312) 751-8000
              (Registrant's telephone number, including area code)

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes |X| No |_|

      As of July 31, 2001, there were 4,864,102 shares of Class A common stock,
par value $0.01 per share, and 19,636,521 shares of Class B common stock, par
value $0.01 per share, outstanding.

<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                                    FORM 10-Q
                                TABLE OF CONTENTS

                                     PART I
                              FINANCIAL INFORMATION

                                                                            Page
                                                                            ----
Item 1. Financial Statements

          Condensed Consolidated Statements of Operations and
          Comprehensive Loss for the Quarters Ended June 30,
          2001 and 2000 (Unaudited)                                           3

          Condensed Consolidated Statements of Operations and
          Comprehensive Loss for the Six Months Ended June 30,
          2001 and 2000 (Unaudited)                                           4

          Condensed Consolidated Balance Sheets at June 30,
          2001 (Unaudited) and December 31, 2000                              5

          Condensed Consolidated Statements of Cash Flows for the
          Six Months Ended June 30, 2001 and 2000 (Unaudited)                 6

          Notes to Condensed Consolidated Financial Statements                7

Item 2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations                                  11

                                     PART II
                                OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders                  18

Item 6. Exhibits and Reports on Form 8-K                                     18


                                       2
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS
                   for the Quarters Ended June 30 (Unaudited)
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                  2001           2000
-------------------------------------------------------------------------------------
<S>                                                           <C>            <C>
Net revenues                                                  $ 72,819       $ 77,182
-------------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                               (63,696)       (69,562)
   Selling and administrative expenses                         (13,859)       (13,428)
-------------------------------------------------------------------------------------
      Total costs and expenses                                 (77,555)       (82,990)
-------------------------------------------------------------------------------------
Operating loss                                                  (4,736)        (5,808)
-------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                               336            274
   Interest expense                                             (2,737)        (2,231)
   Equity in operations of Playboy TV International, LLC           (38)          (205)
   Other, net                                                     (455)          (318)
-------------------------------------------------------------------------------------
      Total nonoperating expense                                (2,894)        (2,480)
-------------------------------------------------------------------------------------
Loss before income taxes                                        (7,630)        (8,288)
Income tax benefit (expense)                                      (340)         2,405
-------------------------------------------------------------------------------------
Net loss                                                        (7,970)        (5,883)
-------------------------------------------------------------------------------------

Other comprehensive income (loss) (net of tax)
   Unrealized gain (loss) on marketable securities                 149           (125)
   Derivative loss                                                (225)            --
   Foreign currency translation adjustment                          14            (25)
-------------------------------------------------------------------------------------
      Total other comprehensive loss                               (62)          (150)
-------------------------------------------------------------------------------------
Comprehensive loss                                            $ (8,032)      $ (6,033)
=====================================================================================

Basic and diluted weighted average number
   of common shares outstanding                                 24,339         24,239
=====================================================================================

Basic and diluted net loss per common share                   $  (0.32)      $  (0.24)
=====================================================================================
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.


                                       3
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS
                  for the Six Months Ended June 30 (Unaudited)
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                   2001            2000
---------------------------------------------------------------------------------------
<S>                                                           <C>             <C>
Net revenues                                                  $ 139,138       $ 150,285
---------------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                               (122,567)       (135,949)
   Selling and administrative expenses                          (26,197)        (26,201)
   Restructuring expenses                                            --            (257)
---------------------------------------------------------------------------------------
      Total costs and expenses                                 (148,764)       (162,407)
---------------------------------------------------------------------------------------
Operating loss                                                   (9,626)        (12,122)
---------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                620             689
   Interest expense                                              (5,370)         (4,119)
   Equity in operations of Playboy TV International, LLC            421            (808)
   Loss on disposal                                                (100)             --
   Other, net                                                      (837)           (635)
---------------------------------------------------------------------------------------
      Total nonoperating expense                                 (5,266)         (4,873)
---------------------------------------------------------------------------------------
Loss before income taxes and cumulative effect
   of change in accounting principle                            (14,892)        (16,995)
Income tax benefit (expense)                                       (654)          4,877
---------------------------------------------------------------------------------------
Loss before cumulative effect of change
   in accounting principle                                      (15,546)        (12,118)
Cumulative effect of change in
   accounting principle                                          (4,218)             --
---------------------------------------------------------------------------------------
Net loss                                                        (19,764)        (12,118)
---------------------------------------------------------------------------------------

Other comprehensive income (loss) (net of tax)
   Unrealized gain (loss) on marketable securities                 (143)             26
   Derivative loss                                                  (97)             --
   Foreign currency translation adjustment                           64             (12)
---------------------------------------------------------------------------------------
      Total other comprehensive income (loss)                      (176)             14
---------------------------------------------------------------------------------------
Comprehensive loss                                            $ (19,940)      $ (12,104)
=======================================================================================

Basic and diluted weighted average number
   of common shares outstanding                                  24,310          24,220
=======================================================================================

Basic and diluted loss per common share
Loss before cumulative effect of change
   in accounting principle                                    $   (0.64)      $   (0.50)
Cumulative effect of change in
   accounting principle                                           (0.17)             --
---------------------------------------------------------------------------------------
Net loss                                                      $   (0.81)      $   (0.50)
=======================================================================================
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.


                                       4
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                        (Unaudited)
                                                                           June 30,        Dec. 31,
                                                                               2001            2000
---------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>
Assets
Cash and cash equivalents                                                 $   1,658       $   2,534
Marketable securities                                                         3,322           3,443
Receivables, net of allowance for doubtful accounts of
   $6,342 and $5,994, respectively                                           36,360          45,075
Receivables from related parties                                              6,974           7,575
Inventories, net                                                             19,262          20,700
Programming costs                                                                --          51,939
Deferred subscription acquisition costs                                      10,849          12,514
Other current assets                                                         10,898          11,554
---------------------------------------------------------------------------------------------------
   Total current assets                                                      89,323         155,334
---------------------------------------------------------------------------------------------------
Receivables from related parties                                             57,500          57,500
Property and equipment, net                                                  10,316          10,689
Programming costs                                                            56,192           3,515
Goodwill, net of amortization of $6,138 and $4,761, respectively             85,898          87,260
Trademarks, net of amortization of $16,263 and $14,701, respectively         51,728          52,585
Other noncurrent assets                                                      21,672          21,605
---------------------------------------------------------------------------------------------------
Total assets                                                              $ 372,629       $ 388,488
===================================================================================================

Liabilities
Financing obligations                                                     $  14,524       $   3,922
Financing obligations to related parties                                      5,000           5,000
Accounts payable                                                             18,389          25,295
Accounts payable to related parties                                           1,045             718
Accrued salaries, wages and employee benefits                                 3,373           8,915
Deferred revenues                                                            45,058          41,898
Deferred revenues from related parties                                        4,854           4,397
Other liabilities and accrued expenses                                       16,593          16,861
---------------------------------------------------------------------------------------------------
   Total current liabilities                                                108,836         107,006
---------------------------------------------------------------------------------------------------
Financing obligations                                                        91,886          89,328
Financing obligations to related parties                                      5,000           5,000
Deferred revenues from related parties                                       50,025          50,875
Net deferred tax liabilities                                                  4,679           4,679
Other noncurrent liabilities                                                 16,116          17,415
---------------------------------------------------------------------------------------------------
   Total liabilities                                                        276,542         274,303
---------------------------------------------------------------------------------------------------

Shareholders' equity
Common stock, $0.01 par value
    Class A voting - 7,500,000 shares authorized; 4,864,102
     and 4,859,102 issued, respectively                                          49              49
    Class B nonvoting - 30,000,000 shares authorized; 19,866,472
     and 19,647,048 issued, respectively                                        199             196
Capital in excess of par value                                              122,334         120,519
Accumulated deficit                                                         (23,148)         (3,384)
Unearned compensation restricted stock                                       (2,689)         (2,713)
Accumulated other comprehensive loss                                           (658)           (482)
---------------------------------------------------------------------------------------------------
   Total shareholders' equity                                                96,087         114,185
---------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                $ 372,629       $ 388,488
===================================================================================================
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.


                                       5
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                  for the Six Months Ended June 30 (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                     2001           2000
----------------------------------------------------------------------------------------
<S>                                                              <C>            <C>
Cash flows from operating activities
Net loss                                                         $(19,764)      $(12,118)
Adjustments to reconcile net loss to net cash
  used for operating activities:
   Depreciation of property and equipment                           1,944          1,515
   Amortization of intangible assets                                4,184          3,904
   Equity in operations of Playboy TV International, LLC             (421)           808
   Loss on disposal                                                   100             --
   Cumulative effect of change in accounting principle              4,218             --
   Amortization of investments in entertainment programming        19,291         16,392
   Investments in entertainment programming                       (19,129)       (17,144)
   Net change in operating assets and liabilities                  (3,838)        (8,500)
   Other, net                                                         (13)           417
----------------------------------------------------------------------------------------
Net cash used for operating activities                            (13,428)       (14,726)
----------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from (payments on) disposal                                  186            (18)
Additions to property and equipment                                (1,551)        (3,358)
Acquisition of Rouze Media, Inc.                                       --         (1,125)
Funding of equity interests                                          (538)          (880)
Purchase of marketable securities                                     (22)          (532)
Other, net                                                              3             --
----------------------------------------------------------------------------------------
Net cash used for investing activities                             (1,922)        (5,913)
----------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from financing obligations                                10,000             --
Repayment of financing obligations                                 (1,840)       (15,000)
Net proceeds from revolving credit facility                         5,000         11,500
Deferred financing fees                                              (284)          (582)
Proceeds from stock plans                                           1,805          1,193
Other, net                                                           (207)            --
----------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities               14,474         (2,889)
----------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                            (876)       (23,528)
Cash and cash equivalents at beginning of period                    2,534         23,528
----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                       $  1,658       $     --
========================================================================================
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.


                                       6
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(A)   BASIS OF PREPARATION

      The financial information included in these financial statements is
unaudited but, in the opinion of management, reflects all normal recurring
adjustments necessary for a fair presentation of the results for the interim
periods. The interim results of operations and cash flows are not necessarily
indicative of those results and cash flows for the entire year. These financial
statements should be read in conjunction with the financial statements and notes
to the financial statements contained in the Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 of Playboy Enterprises, Inc. and its
subsidiaries (the "Company"). Certain amounts reported for prior periods have
been reclassified to conform to the current year's presentation.

(B)   RESTRUCTURING EXPENSES

      In fiscal year 1999, the Company began a cost reduction effort that led to
a work force reduction of 49 employees, or approximately 6%, through
Company-wide layoffs and attrition. This resulted in a $0.2 million
restructuring charge related to the termination of eight employees in the first
quarter of fiscal year 2000. All charges related to this restructuring were
recorded and paid by December 31, 2000.

      In the fourth quarter of fiscal year 2000, realignment of senior
management coupled with staff reductions led to an additional restructuring
charge of $3.7 million related to the termination of 19 employees, or
approximately 3% of the work force. A total of $3.4 million related to this
restructuring was paid by June 30, 2001, resulting in a remaining liability of
$0.3 million, most of which will be paid by the end of fiscal year 2001.

(C)   CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

      During the first quarter of fiscal year 2001, the Company adopted
Statement of Financial Accounting Standards No. 139, Rescission of FASB
Statement No. 53 and Amendments to FASB Statements No. 63, 89, and 121
("Statement 139") and Statement of Position 00-2, Accounting by Producers or
Distributors of Films ("SOP 00-2"). Statement 139 rescinds FASB Statement No.
53, Financial Reporting by Producers and Distributors of Motion Picture Films.
SOP 00-2 establishes new film accounting and reporting standards for producers
or distributors of films, including changes in revenue recognition and
accounting for marketing, development and overhead costs. SOP 00-2 also requires
all programming costs to be classified on the balance sheet as noncurrent
assets. As a result of the adoption of SOP 00-2, the Company recorded a noncash,
one-time charge of $4.2 million, or $0.17 per basic and diluted common share, in
the first quarter of fiscal year 2001, representing a cumulative effect of
change in accounting principle. The charge primarily relates to reversals of
previously recognized revenues which under the new rules were not yet considered
earned, combined with a write-off of marketing costs that were previously
capitalized and are no longer capitalizable under the new rules.

(D)   OTHER COMPREHENSIVE INCOME (LOSS)

The following sets forth the components of other comprehensive income (loss),
and any related income tax expense or benefit allocated to each item (in
thousands):

<TABLE>
<CAPTION>
                                                             (Unaudited)           (Unaudited)
                                                           Quarters Ended        Six Months Ended
                                                              June 30,               June 30,
                                                         -------------------     ----------------
                                                          2001        2000        2001       2000
-------------------------------------------------------------------------------------------------
<S>                                             <C>      <C>         <C>         <C>         <C>
Unrealized gain (loss) on marketable securities (1)      $ 149       $(125)      $(143)      $ 26
Derivative loss                                           (225)         --         (97)        --
Foreign currency translation adjustment (2)              $  14       $ (25)      $  64       $(12)
-------------------------------------------------------------------------------------------------
</TABLE>

(1)   Net of a related tax benefit of $67 and expense of $15 for the quarter and
      six months ended June 30, 2000, respectively.
(2)   Net of a related tax benefit of $13 and $6 for the quarter and six months
      ended June 30, 2000, respectively.


                                       7
<PAGE>

(E)   DERIVATIVE INSTRUMENTS

      Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by Statement of Financial Accounting Standards No. 138,
which require all derivative instruments to be recognized as either assets or
liabilities on the balance sheet at fair value. The accounting for changes in
the fair value of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and further, on the
type of relationship. The adoption of these statements did not have a material
impact on the Company's financial statements.

(F)   LOSS PER COMMON SHARE

      For the quarter and six months ended June 30, 2001, options to purchase
approximately 2,330,000 and 2,345,000 shares, respectively, of the Company's
Class B common stock and approximately 240,000 shares of Class B restricted
stock awards were outstanding but were not included in the computation of
diluted earnings per common share as the inclusion of these shares would have
been antidilutive. As a result, the weighted average number of basic and diluted
common shares outstanding for the quarter and six-month period were equivalent.

(G)   INVENTORIES, NET

      Inventories, net, which are stated at the lower of cost (specific cost and
average cost) or fair value, consisted of the following (in thousands):

                                                      (Unaudited)
                                                         June 30,      Dec. 31,
                                                             2001          2000
-------------------------------------------------------------------------------
Paper                                                    $  4,670     $   6,432
Editorial and other prepublication costs                    7,684         6,987
Merchandise finished goods                                  6,908         7,281
-------------------------------------------------------------------------------
Total inventories, net                                   $ 19,262     $  20,700
===============================================================================

(H)   PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consisted of the following (in thousands):

                                                      (Unaudited)
                                                         June 30,      Dec. 31,
                                                             2001          2000
-------------------------------------------------------------------------------
Land                                                     $    292     $     292
Buildings and improvements                                  8,538         8,512
Furniture and equipment                                    15,804        15,420
Leasehold improvements                                      9,984         9,950
Software                                                    4,376         3,232
-------------------------------------------------------------------------------
Total property and equipment                               38,994        37,406
Accumulated depreciation                                  (28,678)      (26,717)
-------------------------------------------------------------------------------
Total property and equipment, net                        $ 10,316     $  10,689
===============================================================================


                                       8
<PAGE>

(I)   SEGMENT INFORMATION

The following tables represent financial information by reportable segment (in
thousands):

<TABLE>
<CAPTION>
                                                                 (Unaudited)                    (Unaudited)
                                                               Quarters Ended                Six Months Ended
                                                                  June 30,                        June 30,
                                                           -----------------------       -------------------------
                                                               2001           2000            2001            2000
------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>            <C>             <C>
Net revenues
Entertainment                                              $ 26,021       $ 25,913       $  50,713       $  48,517
Publishing                                                   33,509         31,844          63,336          63,936
Playboy Online                                                6,275          6,420          13,067          12,201
Catalog                                                       2,797          9,425           5,777          20,249
Other Businesses                                              4,217          3,580           6,245           5,382
------------------------------------------------------------------------------------------------------------------
Total                                                      $ 72,819       $ 77,182       $ 139,138       $ 150,285
==================================================================================================================
Loss before income taxes and cumulative effect
  of change in accounting principle
Entertainment                                              $  5,055       $  5,730       $  10,290       $   9,409
Publishing                                                      483           (564)           (531)          1,051
Playboy Online                                               (6,032)        (6,056)        (11,467)        (11,769)
Catalog                                                         (21)            31            (166)           (369)
Other Businesses                                                591            278           1,103             496
Corporate Administration and Promotion                       (4,812)        (5,227)         (8,855)        (10,683)
Restructuring expenses                                           --             --              --            (257)
Investment income                                               336            274             620             689
Interest expense                                             (2,737)        (2,231)         (5,370)         (4,119)
Equity in operations of Playboy TV International, LLC           (38)          (205)            421            (808)
Loss on disposal                                                 --             --            (100)             --
Other, net                                                     (455)          (318)           (837)           (635)
------------------------------------------------------------------------------------------------------------------
Total                                                      $ (7,630)      $ (8,288)      $ (14,892)      $ (16,995)
==================================================================================================================
EBITDA (1)
Entertainment                                              $ 16,409       $ 15,602       $  32,481       $  28,654
Publishing                                                      656           (409)           (188)          1,343
Playboy Online                                               (5,595)        (5,640)        (10,580)        (11,096)
Catalog                                                         (15)            75            (153)           (282)
Other Businesses                                                645            325           1,210             590
Corporate Administration and Promotion                       (3,765)        (4,350)         (6,862)         (8,796)
Restructuring expenses                                           --             --              --            (257)
------------------------------------------------------------------------------------------------------------------
Total                                                      $  8,335       $  5,603       $  15,908       $  10,156
==================================================================================================================
</TABLE>

(1)   EBITDA represents earnings before interest expense, income taxes,
      cumulative effect of change in accounting principle, depreciation of
      property and equipment, amortization of intangible assets, amortization of
      investments in entertainment programming, amortization of deferred
      financing fees and equity in operations of Playboy TV International, LLC
      ("PTVI"). EBITDA should not be considered an alternative to any measure of
      performance or liquidity under generally accepted accounting principles.
      Similarly, it should not be inferred that EBITDA is more meaningful than
      any of those measures.

(J)   FINANCING OBLIGATIONS

      At June 30, 2001, the Company had a $108.2 million credit facility, which
was comprised of $73.2 million of term loans and a $35.0 million revolving
credit facility. At June 30, 2001, $23.3 million was outstanding under the
revolving facility. The credit agreement contains financial covenants requiring
the Company to maintain certain leverage, interest coverage and fixed charge
coverage ratios. During the quarter ended June 30, 2001, the Company and its
lenders amended the credit agreement, which approved the terms of the
acquisition of television networks from Califa Entertainment Group, Inc.
("Califa") and V.O.D., Inc. ("VODI"), revised the financial covenant levels and
increased the interest rate margin by 0.25%. See Note (L) Subsequent Event.


                                       9
<PAGE>

      Playboy.com, Inc. ("Playboy.com") has been in active discussions with
strategic partners and other potential investors in connection with a private
placement of its preferred stock. On each of March 7, 2001 and April 2, 2001,
Playboy.com issued a convertible promissory note in the aggregate principal
amount of $5.0 million to two strategic investors. On July 30, 2001, Playboy.com
issued a third convertible promissory note in the aggregate principal amount of
$5.0 million to another investor. On August 13, 2001, each of the three
aforementioned convertible promissory notes, together with accrued and unpaid
interest thereon, were converted into shares of Playboy.com's Series A Preferred
Stock. Playboy.com's Series A Preferred Stock is convertible into Playboy.com
common stock (initially on a one-for-one basis) and is redeemable by Playboy.com
after the fifth anniversary of the date of its issuance at the option of the
holder. In addition, in the event that a holder elects to redeem Playboy.com's
Series A Preferred Stock at any time after the fifth anniversary of the date of
its issuance and before the 180th day thereafter, and Playboy.com is not able
to, or does not, satisfy such obligation, the Company has agreed that it shall
redeem all or part of the shares in lieu of redemption by Playboy.com, either in
cash, shares of the Company's Class B common stock or any combination thereof.

(K)   NEW ACCOUNTING PRONOUNCEMENTS

      In June 2001, the Financial Accounting Standards Board (the "FASB") issued
Statements of Financial Accounting Standards No. 141, Business Combinations and
No. 142, Goodwill and Other Intangible Assets (collectively, the "Statements"),
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets with indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives.

      The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal year 2002. For fiscal
year 2001, the amortization of goodwill and intangible assets is expected to be
approximately $8.0 million, or $0.32 per basic and diluted common share. The
Company is evaluating the impact that application of the nonamortization
provisions of the Statements will have on the Company's financial statements.
During fiscal year 2002, the Company will perform the first of the required
impairment tests of goodwill and indefinite-lived intangible assets as of
January 1, 2002 and has not yet determined what the effect of these tests will
be on the financial statements of the Company.

(L)   SUBSEQUENT EVENT

      On July 6, 2001, the Company acquired two networks and the related
television assets of Califa, as well as a third network and the related
television assets of VODI, a separate entity owned by Califa's principals. These
television networks will be transitioned into the Company's Spice-branded
television networks portfolio, enabling the Company to offer more
adult-programming choices. Consideration for the Califa transaction was $28.3
million, excluding an outstanding note and non-compete agreement, and $41.7
million for VODI. These amounts will be paid over ten years, and a majority of
the payments may be made in cash or Class B common stock at the Company's
option. The consideration for both transactions could potentially increase up to
$12.0 million should the acquired assets achieve certain financial performance
targets.


                                       10
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following is a summary of the results of operations of the Company for the
periods indicated below (in millions, except per share amounts):

<TABLE>
<CAPTION>
                                                      Quarters Ended               Six Months Ended
                                                         June 30,                       June 30,
                                                 -----------------------       -----------------------
                                                     2001           2000           2001           2000
------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>            <C>            <C>
Net revenues                                     $   72.8       $   77.2       $  139.1       $  150.3
======================================================================================================
Segment loss                                     $   (4.7)      $   (5.8)      $   (9.6)      $  (11.9)
Restructuring expenses                                 --             --             --           (0.2)
------------------------------------------------------------------------------------------------------
Operating loss                                   $   (4.7)      $   (5.8)      $   (9.6)      $  (12.1)
======================================================================================================
Net loss                                         $   (8.0)      $   (5.9)      $  (19.8)      $  (12.1)
======================================================================================================
Basic and diluted net loss per common share      $  (0.32)      $  (0.24)      $  (0.81)      $  (0.50)
======================================================================================================
</TABLE>

      The Company's revenues decreased 6% to $72.8 million for the quarter ended
June 30, 2001 compared to the prior year quarter. Revenues for the six-month
period decreased 7% to $139.1 million. These decreases were primarily due to the
sale of the Critics' Choice Video businesses in October 2000.

      For the quarter, operating performance improved $1.1 million, primarily
due to better performance from Playboy magazine. For the six-month period, the
improvement in operating performance of $2.5 million was primarily due to lower
Corporate Administration and Promotion expenses.

      The higher net losses for the current year quarter and six-month period
reflected income tax expense, compared to income tax benefits recorded in the
prior year periods due to the Company's decision to increase the valuation
allowance for its deferred tax assets at the end of fiscal year 2000. The
current year six-month period also included a $4.2 million noncash, one-time
charge for a cumulative effect of change in accounting principle related to the
adoption of SOP 00-2, Accounting by Producers or Distributors of Films.

      Several of the Company's businesses can experience variations in quarterly
performance. As a result, the Company's performance in any quarter is not
necessarily reflective of full-year or longer-term trends. Playboy magazine
newsstand revenues vary from issue to issue, with revenues generally higher for
holiday issues and any issues including editorial or pictorial features that
generate unusual public interest. Advertising revenues also vary from quarter to
quarter, depending on product introductions by advertising customers, changes in
advertising buying patterns and economic conditions. E-commerce revenues are
typically impacted by the year-end holiday buying season and decreased Internet
traffic during the summer months. Additionally, international TV revenues vary
due to the timing of recognizing library license fees from PTVI.


                                       11
<PAGE>

ENTERTAINMENT GROUP

The revenues and segment income of the Entertainment Group were as follows for
the periods indicated below (in millions):

<TABLE>
<CAPTION>
                                                           Quarters Ended            Six Months Ended
                                                              June 30,                   June 30,
                                                       ----------------------     ----------------------
                                                            2001         2000         2001          2000
--------------------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>          <C>          <C>
Revenues
Domestic TV networks                                   $    18.0     $   19.7     $   37.1     $    38.7
International TV                                             3.9          3.1          6.7           5.2
Worldwide home video                                         4.0          2.9          6.8           4.2
Movies and other                                             0.1          0.2          0.1           0.4
--------------------------------------------------------------------------------------------------------
Total revenues                                         $    26.0     $   25.9     $   50.7     $    48.5
========================================================================================================
Segment income
Before programming expense                             $    15.0     $   14.1     $   29.6     $    25.8
Programming expense                                         (9.9)        (8.4)       (19.3)        (16.4)
--------------------------------------------------------------------------------------------------------
Total segment income                                   $     5.1     $    5.7     $   10.3     $     9.4
========================================================================================================
</TABLE>

      The following discussion focuses on the profit contribution of each
business before programming expense.

Domestic TV Networks

      For the quarter and six-month period, revenues from domestic TV networks
decreased $1.7 million and $1.6 million, respectively. These decreases were
primarily due to lower analog cable revenues combined with lower sales to other
networks and outlets, partially offset by higher digital revenues. For the
quarter and six-month period, profit contribution decreased $0.6 million and
increased $0.5 million, respectively, reflecting the lower revenues and lower
costs for both the Playboy TV and Spice networks.

      On July 6, 2001, the Company acquired two networks and the related
television assets of Califa, as well as a third network and the related
television assets of VODI, a separate entity owned by Califa's principals. These
television networks will be transitioned into the Company's Spice-branded
television networks portfolio, enabling the Company to offer more
adult-programming choices.

The following is the approximate number of the Company's households for the
periods indicated below (in millions):

<TABLE>
<CAPTION>
                                                       June 30,     Dec. 31,      June 30,
                                                           2001         2000          2000
------------------------------------------------------------------------------------------
<S>                                                         <C>         <C>           <C>
Playboy TV (1):
    Cable analog addressable                                9.8         11.0          12.4
    Cable digital                                           5.7          3.2           1.9
    DTH                                                    16.7         15.4          13.9
Spice (1):
    Cable analog addressable                               10.3         12.0          13.2
    Cable digital                                           5.4          4.5           3.4
------------------------------------------------------------------------------------------
</TABLE>

(1)   There is an overlap of cable analog addressable and digital households due
      to some cable operators offering both analog and digital platforms to the
      same households.

International TV

      For the quarter and six-month period, profit contribution from the
international TV business increased $0.8 million and $1.5 million, respectively,
on revenue increases of the same.


                                       12
<PAGE>

Worldwide Home Video

      For the quarter and six-month period, profit contribution increased $0.7
million and $2.1 million, respectively, on revenue increases of $1.1 million, or
35%, and $2.6 million, or 62%, respectively. These increases were primarily due
to revenues recorded in the current year periods in accordance with SOP 00-2,
Accounting by Producers or Distributors of Films. These revenues related to
guarantees from a backlist distribution agreement that were recorded in prior
year periods. Under the new rules of SOP 00-2, these previously recognized
revenues were not yet considered earned and were reversed and reported as part
of a cumulative effect of change in accounting principle in the first quarter of
the current year. Additionally, the six-month comparison was favorably impacted
by higher domestic DVD sales. Increased worldwide sales of The Eros Collection
movies, of which the international sales were through a one-time multi-territory
deal, also favorably impacted the six-month comparison.

      The Company is in final negotiations to replace a contract that expired in
June 2001 with its domestic home video distributor.

Movies and Other

      For the quarter, both revenues and profit contribution from movies and
other businesses decreased $0.1 million. For the six-month period, profit
contribution decreased $0.2 million on a $0.3 million decrease in revenues. The
Entertainment Group's administrative expenses remained basically flat for both
periods.

Programming Expense

      Programming amortization expense increased $1.5 million and $2.9 million
for the quarter and six-month period, respectively, primarily due to domestic TV
networks, international TV and worldwide home video.

PUBLISHING GROUP

The revenues and segment performance of the Publishing Group were as follows for
the periods indicated below (in millions):

<TABLE>
<CAPTION>
                                                    Quarters Ended            Six Months Ended
                                                       June 30,                   June 30,
                                                ----------------------     ----------------------
                                                     2001         2000         2001          2000
-------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>          <C>          <C>
Revenues
Playboy magazine                                $    26.6     $   25.2     $   49.8     $    50.6
Other domestic publishing                             3.5          3.6          7.4           7.6
International publishing                              3.4          3.0          6.1           5.7
-------------------------------------------------------------------------------------------------
Total revenues                                  $    33.5     $   31.8     $   63.3     $    63.9
=================================================================================================
Segment income (loss)                           $     0.5     $   (0.6)    $   (0.5)    $     1.1
=================================================================================================
</TABLE>

      For the quarter, Playboy magazine revenues increased $1.4 million, or 6%,
compared to the prior year quarter. Circulation revenues increased $0.8 million,
or 5%, primarily due to higher newsstand sales for the July 2001 issue featuring
Pamela Anderson, which also carried a higher cover price. Advertising revenues
increased $0.6 million, or 7%, primarily due to higher ad pages.

      For the six-month period, Playboy magazine revenues decreased $0.8
million, or 2%, compared to the prior year. Circulation revenues decreased $1.0
million, or 3%, primarily due to a $0.6 million, or 2%, decrease in subscription
revenues due in part to lower revenues from the rental of the magazine's
subscriber list. Newsstand revenues decreased $0.4 million, or 5%, principally
as the result of an unfavorable variance related to newsstand sales adjustments
for prior years' issues. Advertising revenues increased $0.2 million, or 1%,
primarily due to higher average net revenue per page. Advertising sales for the
third quarter magazine issues are closed and the Company expects to report 2%
lower ad revenues and 3% fewer ad pages compared to the quarter ended September
30, 2000.


                                       13
<PAGE>

      Other domestic publishing revenues remained relatively flat for both the
quarter and six-month period.

      For both the quarter and six-month period, international publishing
revenues increased $0.4 million primarily due to higher revenues from the
Company's majority-owned Polish publishing joint venture. In July 2001, the
Company sold 75% of its shares in this joint venture and thus it will no longer
be consolidated. Lower royalties from the Brazilian edition due to unfavorable
economic conditions in that country partially offset the increase for the
six-month period.

      For the quarter, Publishing Group segment performance increased $1.1
million compared to the prior year quarter primarily due to the higher Playboy
magazine newsstand and advertising revenues, partially offset by higher
editorial costs associated with the feature on Pamela Anderson. For the
six-month period, segment performance decreased $1.6 million primarily due to
the lower Playboy magazine circulation revenues and international publishing
royalties combined with generally higher costs, partially offset by generally
lower operating expenses.

PLAYBOY ONLINE GROUP

The revenues and segment losses of the Playboy Online Group were as follows for
the periods indicated below (in millions):

                                   Quarters Ended             Six Months Ended
                                      June 30,                    June 30,
                               ----------------------     ---------------------
                                    2001         2000         2001         2000
-------------------------------------------------------------------------------
Revenues                       $     6.3     $    6.4     $   13.1     $   12.2
===============================================================================
Segment loss                   $    (6.0)    $   (6.1)    $  (11.5)    $  (11.8)
===============================================================================

      For the quarter, Playboy Online Group revenues remained relatively flat.
The group's revenues increased $0.9 million, or 7%, for the six-month period.
Both periods included higher subscription and e-commerce revenues, excluding the
absence of e-commerce revenues from CCVideo.com, which was sold in October 2000.
Both comparisons also reflected weaker advertising and sponsorships revenues, an
ongoing industry-wide trend. For the quarter and six-month period, the segment
loss remained relatively flat and decreased $0.3 million, or 3%, respectively,
in spite of higher administrative expenses principally due to trademark, content
and administrative fees to the parent company, most of which were charged to
Playboy.com beginning in the fourth quarter of fiscal year 2000. The Company is
taking actions to enhance the group's performance by focusing on converting
visitors to purchasers and reducing expenses.

CATALOG GROUP

The revenues and segment losses of the Catalog Group were as follows for the
periods indicated below (in millions):

<TABLE>
<CAPTION>
                                             Quarters Ended            Six Months Ended
                                                June 30,                   June 30,
                                         ----------------------     ---------------------
                                              2001         2000         2001         2000
-----------------------------------------------------------------------------------------
<S>                                      <C>           <C>          <C>          <C>
Revenues                                 $     2.8     $    9.4     $    5.8     $   20.2
=========================================================================================
Segment loss                             $      --     $     --     $   (0.2)    $   (0.4)
=========================================================================================
</TABLE>

      For the quarter and six-month period, revenues decreased $6.6 million, or
70%, and $14.4 million, or 71%, respectively, and segment performance remained
flat and increased $0.2 million, or 55%, respectively, compared to the prior
year periods. These changes were the result of management's decision to divest
this non-branded, non-core business. In October 2000, the Company completed the
sale of its Critics' Choice Video businesses and fulfillment and customer
service operations to Infinity Resources, Inc.

      The Company expects to effect a sale of its Collectors' Choice Music
catalog and related Internet business in fiscal year 2001, at which time the
Company's presence in the non-branded print catalog business will end.


                                       14
<PAGE>

OTHER BUSINESSES GROUP

The revenues and segment income of the Other Businesses Group were as follows
for the periods indicated below (in millions):

<TABLE>
<CAPTION>
                                         Quarters Ended            Six Months Ended
                                            June 30,                   June 30,
                                     ----------------------     ----------------------
                                          2001         2000         2001          2000
--------------------------------------------------------------------------------------
<S>                                  <C>           <C>          <C>          <C>
Revenues                             $     4.2     $    3.6     $    6.2     $     5.4
======================================================================================
Segment income                       $     0.6     $    0.3     $    1.1     $     0.5
======================================================================================
</TABLE>

      For the quarter and six-month period, segment income from the Other
Businesses Group increased $0.3 million and $0.6 million, respectively, on
revenue increases of $0.6 million, or 18%, and $0.8 million, or 16%,
respectively, primarily due to growth in the Company's domestic licensed branded
products business.

CORPORATE ADMINISTRATION AND PROMOTION

      Corporate Administration and Promotion expenses for the quarter of $4.8
million decreased $0.4 million, or 8%, and expenses for the six-month period of
$8.9 million decreased $1.8 million, or 17%, reflecting a reduction of expenses
related to the trademark, content and administrative fees from Playboy.com.

RESTRUCTURING EXPENSES

      For the six months ended June 30, 2000, a $0.2 million restructuring
charge was recorded in the first quarter related to the termination of eight
employees.

LIQUIDITY AND CAPITAL RESOURCES

      At June 30, 2001, the Company had $1.7 million in cash and cash
equivalents and $116.4 million in total financing obligations compared to $2.5
million in cash and cash equivalents and $103.3 million in total financing
obligations at December 31, 2000. The financing obligations at June 30, 2001 and
December 31, 2000 included $20.0 million and $10.0 million, respectively, in
loans made directly to Playboy.com. Historically, the Company has financed its
working capital and capital expenditure requirements primarily from cash
generated from operations, short- and long-term borrowings and sales of equity.
The Company's current liquidity requirements are being provided by a $108.2
million credit facility, which is comprised of $73.2 million of term loans and a
$35.0 million revolving credit facility. At June 30, 2001, $23.3 million was
outstanding under the revolving facility.

      The credit agreement contains financial covenants requiring the Company to
maintain certain leverage, interest coverage and fixed charge coverage ratios.
During the quarter ended June 30, 2001, the Company and its lenders amended the
credit agreement, which approved the terms of the acquisition of television
networks from Califa and VODI, revised the financial covenant levels and
increased the interest rate margin by 0.25%.

      Consideration for the previously discussed Califa transaction was $28.3
million, excluding an outstanding note and non-compete agreement, and $41.7
million for VODI. These amounts will be paid over ten years, and a majority of
the payments may be made in cash or Class B common stock at the Company's
option. The consideration for both transactions could potentially increase up to
$12.0 million should the acquired assets achieve certain financial performance
targets.


                                       15
<PAGE>

      Playboy.com has been in active discussions with strategic partners and
other potential investors in connection with a private placement of its
preferred stock. On each of March 7, 2001 and April 2, 2001, Playboy.com issued
a convertible promissory note in the aggregate principal amount of $5.0 million
to two strategic investors. On July 30, 2001, Playboy.com issued a third
convertible promissory note in the aggregate principal amount of $5.0 million to
another investor. On August 13, 2001, each of the three aforementioned
convertible promissory notes, together with accrued and unpaid interest thereon,
were converted into shares of Playboy.com's Series A Preferred Stock.
Playboy.com's Series A Preferred Stock is convertible into Playboy.com common
stock (initially on a one-for-one basis) and is redeemable by Playboy.com after
the fifth anniversary of the date of its issuance at the option of the holder.
In addition, in the event that a holder elects to redeem Playboy.com's Series A
Preferred Stock at any time after the fifth anniversary of the date of its
issuance and before the 180th day thereafter, and Playboy.com is not able to, or
does not, satisfy such obligation, the Company has agreed that it shall redeem
all or part of the shares in lieu of redemption by Playboy.com, either in cash,
shares of the Company's Class B common stock or any combination thereof.

CASH FLOWS FROM OPERATING ACTIVITIES

      Net cash used for operating activities was $13.4 million for the six
months ended June 30, 2001, which reflected $19.1 million of investments in
Company-produced and licensed entertainment programming.

CASH FLOWS FROM INVESTING ACTIVITIES

      Net cash used for investing activities was $1.9 million for the six-month
period primarily due to $1.6 million of additions to property and equipment.

CASH FLOWS FROM FINANCING ACTIVITIES

      Net cash provided by financing activities was $14.5 million for the
six-month period principally due to the $10.0 million in loans from the two
strategic investors and $5.0 million in borrowings from the Company's revolving
credit facility.

OTHER

      In June 2001, the FASB issued the Statements, Business Combinations and
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets with
indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.

      The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal year 2002. For fiscal
year 2001, the amortization of goodwill and intangible assets is expected to be
approximately $8.0 million, or $0.32 per basic and diluted common share. The
Company is evaluating the impact that application of the nonamortization
provisions of the Statements will have on the Company's financial statements.
During fiscal year 2002, the Company will perform the first of the required
impairment tests of goodwill and indefinite-lived intangible assets as of
January 1, 2002 and has not yet determined what the effect of these tests will
be on the financial statements of the Company.


                                       16
<PAGE>

FORWARD-LOOKING STATEMENTS

      This Form 10-Q Quarterly Report contains "forward-looking statements,"
including statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," as to expectations, beliefs, plans,
objectives and future financial performance, and assumptions underlying or
concerning the foregoing. These forward-looking statements involve risks and
uncertainties, which could cause actual results or outcomes to differ materially
from those expressed in the forward-looking statements. The following are some
of the important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements: (1) foreign,
national, state and local government regulation, actions or initiatives,
including (a) attempts to limit or otherwise regulate the sale, distribution or
transmission of adult-oriented materials, including print, video and online
materials, (b) changes in or increased regulation of gaming businesses, which
could limit the Company's ability to obtain licenses, and the impact of federal
and state laws on gaming businesses generally, (c) limitations on the
advertisement of tobacco, alcohol and other products which are important sources
of advertising revenue, or (d) substantive changes in postal regulations or
rates which could increase the Company's postage and distribution costs; (2)
increases in paper or printing costs; (3) changes in distribution technology
and/or unforeseen delays in the implementation of that technology by the cable
and DTH industries, which might affect the Company's plans and assumptions
regarding carriage of its networks; (4) increased competition for transponders
and channel space and any decline in the Company's access to, and acceptance by,
cable and DTH systems or any deterioration in the terms of fee arrangements with
operators of these systems; (5) increased competition for advertisers from other
publications, media or online providers or any decrease in spending by
advertisers, either generally or with respect to the adult male market; (6)
effects of the national consolidation of the single-copy magazine distribution
system; (7) increasing competition in the cable, DTH and Internet markets; (8)
changes in consumer purchasing habits, viewing patterns or fashion trends or
changes in the retail sales environment which could reduce demand for the
Company's products and impact its advertising revenues; (9) uncertainty of the
viability of the Internet gaming, e-commerce, advertising and subscription
businesses; (10) the Company's ability to obtain adequate third-party financing,
including equity investments, to fund the Company's Internet business, and the
timing and terms of such financing; (11) reliance on third parties for
technology and distribution for the television video-on-demand and Internet
businesses; (12) risks associated with foreign operations, including market
acceptance and demand for the Company's products and the products of its
licensees, the Company's ability to protect its trademarks and other
intellectual property and the Company's ability to manage the risk associated
with its exposure to foreign currency exchange rate fluctuations; (13) changes
in interest rates; (14) general economic conditions which can negatively impact
advertising and consumer spending habits; and (15) attempts by consumers or
citizens groups to exclude the Company's programming from pay television
distribution.


                                       17
<PAGE>

               SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's annual meeting of shareholders was held on May 9, 2001. At the
meeting, the following director nominees were elected:

                                                           Votes           Votes
Nominee                                                      For        Withheld
--------------------------------------------------------------------------------
Dennis S. Bookshester                                  4,381,047          32,306

David I. Chemerow                                      4,381,068          32,285

Donald G. Drapkin                                      4,381,060          32,293

Christie A. Hefner                                     4,402,836          10,517

Sol Rosenthal                                          4,381,106          32,247

Richard S. Rosenzweig                                  4,381,056          32,297

Sir Brian Wolfson                                      4,381,109          32,244
--------------------------------------------------------------------------------

Also at the meeting, the shareholders approved, with voting as set forth below,
ratification of Ernst & Young LLP as independent auditors ("Auditors"):

                                Votes         Votes        Votes
Matter                            For       Against     Withheld        Non-Vote
--------------------------------------------------------------------------------
Auditors                    4,404,291         3,373          N/A           5,689
--------------------------------------------------------------------------------

                        EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

Exhibit
Number                              Description
------                              -----------

10.1          Fourth Amendment to February 26, 1999 Credit Agreement dated as of
              June 1, 2001

10.2          Third Amendment to December 29, 2000 Promissory Note dated May 7,
              2001

10.3          Amendment to July 25, 1991 Lease between Playboy Enterprises, Inc.
              and Star Property Fund, L.P. dated March 16, 2001

(b)   Reports on Form 8-K

      No reports on Form 8-K were filed during the quarter ended June 30, 2001.


                                       18
<PAGE>

                                   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.
                                          -------------------------
                                                 (Registrant)

Date August 14, 2001                      By  s/ Linda Havard
     ----------------                         ----------------------------------
                                                 Linda G. Havard
                                                 Executive Vice President,
                                                 Finance and Operations,
                                                 and Chief Financial Officer
                                                 (Authorized Officer and
                                                 Principal Financial and
                                                 Accounting Officer)


                                       19