<PAGE>
 
               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
For the fiscal year ended June 30, 1997

                                      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                                               36-2258830
    (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:

<TABLE> 
<CAPTION> 
                                                        Name of each exchange
   Title of each class                                   on which registered
   -------------------                                  --------------------
<S>                                                     <C> 
Class A Common Stock,
par value $0.01 per share............................   New York Stock Exchange
                                                        Pacific Stock Exchange
Class B Common Stock,
par value $0.01 per share............................   New York Stock Exchange
                                                        Pacific Stock Exchange 
</TABLE> 

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. ___

   The aggregate market value of Class A Common Stock, par value $0.01 per
share, held by nonaffiliates (based upon the closing sale price on the New York
Stock Exchange) on August 31, 1997 was $16,038,372. The aggregate market value
of Class B Common Stock, par value $0.01 per share, held by nonaffiliates (based
upon the closing sale price on the New York Stock Exchange) on August 31, 1997
was $94,182,790.

   As of August 31, 1997, there were 4,748,954 shares of Class A Common Stock,
par value $0.01 per share, and 15,753,594 shares of Class B Common Stock, par
value $0.01 per share, outstanding.

<TABLE> 
<CAPTION> 
DOCUMENTS INCORPORATED BY REFERENCE
Documents                                             Form 10-K Reference
---------                                             -------------------
<S>                                                   <C>   
Annual Report to Shareholders for the                 Part I, Item 1, to the extent indicated
fiscal year ended June 30, 1997                        under such item
                                                      Part II, Items 5-8, to the extent indicated
                                                       under such items
Notice of Annual Meeting of Stockholders and Proxy    Part III, Items 10-13, to the extent
 Statement (to be filed) relating to the Annual        described therein
 Meeting of Stockholders to be held in November 1997 
</TABLE> 
<PAGE>
 
                           PLAYBOY ENTERPRISES, INC.
                         1997 FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS

<TABLE> 
<CAPTION>                                                      
                                                                                                                 Page
                                                                                                                 ----
<S>                                                                                                              <C> 
                                 PART I

Item 1.    Business............................................................................................     3
Item 2.    Properties..........................................................................................    21
Item 3.    Legal Proceedings...................................................................................    22
Item 4.    Submission of Matters to a Vote of Security Holders.................................................    23

                                 PART II

Item 5.    Market for Registrant's Common Stock and Related Stockholder Matters................................    26
Item 6.    Selected Financial Data.............................................................................    26
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations...............    26
Item 7A.   Quantitative and  Qualitative Disclosures About Market Risk.........................................    26
Item 8.    Financial Statements and Supplementary Data.........................................................    26
Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................    26

                                 PART III

Item 10.   Directors and Executive Officers of the Registrant..................................................    27
Item 11.   Executive Compensation..............................................................................    27
Item 12.   Security Ownership of Certain Beneficial Owners and Management......................................    27
Item 13.   Certain Relationships and Related Transactions......................................................    27

                                 PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................................    27
</TABLE> 

                                       2
<PAGE>
 
                                    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 licenses its trademarks for use on various consumer
products and operates a direct marketing business.

     The Company's businesses are classified into four industry segments:
Publishing, Entertainment, Product Marketing and Catalog. The net revenues,
income before income taxes 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 1997 Annual Report to Shareholders ("fiscal
1997 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 periodically
and which can be renewed indefinitely, include Playboy, Playmate, Rabbit Head
Design, Sarah Coventry, Critics' Choice Video, Collectors' Choice Music and
AdulTVision.

PUBLISHING GROUP

     The Company's Publishing Group operations include the publication of
Playboy magazine, other domestic publishing businesses (including newsstand
specials, calendars, books and new media) and international editions of Playboy
magazine.

     The revenues and operating income of the Publishing Group were as follows
for the periods indicated in the following table (in millions):

<TABLE>
<CAPTION>
                                                    Years Ended June 30,
                                              ------------------------------
                                                1997       1996       1995
                                              -------    -------    --------
<S>                                           <C>        <C>        <C> 
REVENUES                                                        
Playboy Magazine............................  $105.0     $105.3      $104.4
Other Domestic Publishing...................    22.7       21.4        18.7
International Publishing....................    10.0        6.2         4.2
                                              ------     ------      ------
  Total Revenues............................  $137.7     $132.9      $127.3
                                              ------     ------      ------

OPERATING INCOME............................  $  8.4     $  9.2      $ 10.7
                                              ======     ======      ======
</TABLE> 

PLAYBOY MAGAZINE

     Founded by Hugh M. Hefner in 1953, Playboy magazine is the best-selling
men's magazine in the world. Worldwide monthly circulation, which includes
international editions, is approximately 4.5 million copies. Approximately 3.2
million copies of the U.S. edition are sold monthly. International sales of the
U.S. edition of Playboy magazine and 15 licensed international editions extend
the magazine's reach to approximately 45 countries worldwide. According to
Spring 1997 data published by Mediamark Research, Inc. ("MRI"), in the United
States Playboy magazine is read by approximately one in every seven men aged 18
to 34.

                                       3
<PAGE>
 
     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 44-year history, exclusive interviews have included
prominent public figures (e.g., Martin Luther King, Jr., Jimmy Carter, Fidel
Castro, Mike Wallace, Rush Limbaugh), business leaders (e.g., Bill Gates, David
Geffen, Tommy Hilfiger, Ted Turner), entertainers (e.g., Steve Martin, Jerry
Seinfeld, David Letterman, Jay Leno, Mel Gibson, Bruce Willis, John Travolta),
authors (e.g., Salman Rushdie, Anne Rice, Ray Bradbury, Alex Haley, James
Michener) and sports figures (e.g., Michael Jordan, Muhammad Ali, Brett Favre).
The magazine also regularly publishes the works of leading journalists, authors
and other prominent individuals. For example, Playboy magazine has published
fiction by Scott Turow, Jay McInerney, John Updike and Margaret Atwood, articles
by Michael Crichton, Bill Maher and William F. Buckley, and book adaptations by
Tony Horwitz (Middle East correspondent for The Wall Street Journal) and
Pulitzer Prize winning author William Kennedy. It has long been known for its
graphic excellence and features, and publishes the work 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 also renowned for its pictorials of
beautiful women and frequently features celebrities on its cover and in
exclusive pictorials (among them Farrah Fawcett, Pamela Anderson, Elle
Macpherson, Jenny McCarthy, Cindy Crawford, Sharon Stone, Madonna and Stephanie
Seymour).

     The net circulation revenues of the U.S. edition of Playboy magazine for
the years ended June 30, 1997, 1996 and 1995 were $74.9 million, $76.2 million
and $75.4 million, respectively. Net circulation revenues are gross revenues
less provisions for newsstand returns and unpaid subscriptions, and commissions.
Circulation revenue comparisons may be materially impacted with respect to any
period which includes one or more issues of unusually high public interest.

     According to the Audit Bureau of Circulations ("ABC"), an independent audit
agency, Playboy magazine's circulation rate base (the total newsstand and
subscription circulation guaranteed to advertisers) at June 30, 1997 was larger
than Newsweek and Cosmopolitan, and also greater than the combined circulation
rate bases of Rolling Stone, Esquire and GQ, which have substantial adult male
audiences. Playboy magazine's rate base compares to that of other selected
publications as noted in the following table:

<TABLE>
<CAPTION>
        Selected U.S. Consumer Publications                                      Rate Base(1)         Ranking(2)
        -----------------------------------                                      ------------         ----------
        <S>                                                                      <C>                  <C>
            Reader's Digest...................................................        15.00                 1
            TV Guide..........................................................        13.00                 2
            National Geographic...............................................         8.50                 3
            Time..............................................................         4.00                10
            PLAYBOY...........................................................         3.15                12
            People............................................................         3.15                12
            Sports Illustrated................................................         3.15                12
            Newsweek..........................................................         3.10                15
            Cosmopolitan......................................................         2.25                20
            Rolling Stone.....................................................         1.25                46
            Business Week.....................................................         0.88                81
            Esquire...........................................................         0.65               111
            GQ................................................................         0.65               111
</TABLE>

______________________

     (1)  Represents rate base at June 30, 1997 (in millions) as reported by
          ABC.
     (2)  Based on rate base at June 30, 1997 as reported by ABC.

                                       4
<PAGE>
 
     Effective with the January 1996 issue, the Company reduced the rate base 7%
to 3.15 million in response to extraordinary paper price increases plus a postal
rate increase in order to enable the Company to manage circulation more
profitably, while maintaining the magazine's circulation leadership as the best-
selling men's magazine. A number of other magazine publishers have also reduced
their rate bases in the recent past. From fiscal 1987 until the January 1996
issue, the U.S. edition of Playboy magazine reported a circulation rate base of
3.40 million, which it met or exceeded in most of the six-month periods over
which it was averaged in each fiscal year, and which it did not meet by less
than 5% in the other periods, including the six-month period leading up to the
rate base reduction.

     Playboy magazine has historically generated over two-thirds of its revenues
from subscription and newsstand circulation, with the remainder from
advertising. Subscription copies as a percentage of total copies sold were
approximately 80% for the year ended June 30, 1997. 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 32, with a median annual household
income of approximately $40,000. 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.

     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 continually tests a variety of
subscription pricing strategies. The Company attracts new subscribers to the
magazine through its own direct mail advertising campaigns, and through
subscription agent 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 general postal
rate increase of 14% in January 1995. The next increase in postal rates is not
expected to occur until, at the earliest, late fiscal 1998.

     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 250 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 be
sold. The number of issues sold on newsstands varies from month to month,
depending in part on the cover, the pictorials and the editorial features.

     Playboy magazine is one of the highest priced magazines in the United
States. The basic U.S. newsstand cover price has been $4.95, $5.95 for holiday
issues, since fiscal 1993. The Company increased the Canadian cover price to
C$5.95, C$6.95 for holiday issues, in fiscal 1995. The Company regularly price
tests, but no newsstand price increases are planned for copies sold in the U.S.
or Canada in fiscal 1998.

                                       5
<PAGE>
 
     Advertising by category, as a percent of total ad pages, was as follows:

<TABLE> 
<CAPTION> 
          Advertising Category                       Years Ended June 30,
          --------------------                   ----------------------------

                                                  1997       1996       1995
                                                 ------     ------     ------ 
         <S>                                     <C>        <C>        <C> 
         Beer/Wine/Liquor......................     24%        19%       18%
         Retail/Direct Mail....................     23         25        31
         Tobacco...............................     21         24        20
         Toiletries/Cosmetics..................      7          9         9
         Jewelry/Optical/Photo.................      4          3         3
         Home Electronics......................      4          1         4
         Apparel/Footwear/Accessories..........      4          3         4
         Automotives...........................      4          8         4
         Entertainment.........................      3          2         1
         Drugs/Remedies........................      3          3         4
         All Other.............................      3          3         2
                                                  ----       ----      ----
                                                   100%       100%      100%
                                                  ====       ====      ====
</TABLE> 

     Playboy magazine targets a wide range of advertisers and continues to focus
on securing new advertisers from underdeveloped categories. The Company utilizes
information from its database of approximately 11 million names, including
Playboy magazine subscribers and catalog customers, to offer advertisers new
ways to reach Playboy readers. In fiscal 1996 the Company implemented a national
trade campaign, Growing Up, I never thought I'd be in Playboy, which features
top executives from top advertisers talking about the power and appeal of the
magazine and the Playboy brand. The campaign was expanded in fiscal 1997. The
thrust of the campaign is to reinforce the mainstream, upscale nature of the
publication and its readership to the advertising community, specifically
targeting the fashion, fragrance and consumer electronics categories.

     In fiscal 1995, Playboy's advertising pages remained stable compared to the
prior year at 595 pages, while advertising revenues declined by 1% based on
higher frequency discounts, special pricing and a change in the mix of
advertising pages sold. Net advertising income increased by 8%.

     In fiscal 1996, Playboy's advertising pages decreased 4% from the prior
year to 569 pages, while advertising revenues declined by 1% primarily due to
the effect of a 2% cost per thousand ("CPM") increase in advertising rates
effective with the January 1996 issue. Net advertising income increased by 5%.

     In fiscal 1997, Playboy's advertising pages decreased 2% from the prior
year to 558 pages, while advertising revenues increased by 4% primarily due to
the mix of advertising pages sold combined with the effect of rate increases
effective with the January 1997 and 1996 issues. Net advertising income
increased by 5%.

     Advertising sales for the fiscal 1998 first quarter issues of the magazine
are closed, and the Company expects to report 9% increases in the number of
advertising pages and revenues compared to the fiscal 1997 first quarter. The
Company plans to implement a 6% CPM increase in advertising rates effective with
the January 1998 issue.

     The Company does not believe that it will be impacted by the Food and Drug
Administration (the "FDA") regulation announced in August 1996 which prohibits
the publication of tobacco advertisements containing drawings, colors or
pictures. The regulation does not apply to a magazine which is demonstrated to
be an "adult publication," which means a publication (i) whose readers younger
than 18 years of age constitute no more than 15% of total readership, and (ii)
is read by fewer than two million persons younger than 18 years of age, in each
case as measured by competent and reliable survey evidence. Based on information
available to the Company on its readership, the Company believes that Playboy
magazine qualifies as an "adult publication" and that the regulation is not
applicable to the magazine. On April 25, 1997, the Federal District Court for
the Middle District of North Carolina ruled that the FDA has no authority under
existing law to restrict the advertising and promotion of tobacco products and
ordered the FDA not to implement any of the advertising and promotion
restrictions contained in the regulation. The Government has
appealed this ruling and a decision is pending.

                                       6
<PAGE>
 
     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, 1997, 1996 and 1995 were $28.4
million, $27.4 million and $27.6 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.

     The Playboy Jazz Festival provides advertisers sponsorship and advertising
opportunities through the Festival at the Hollywood Bowl, the published Jazz
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.

     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, 1997 decreased 5%
compared to the prior year principally as a result of lower average paper
prices, partially offset by an increase in the average book size. As expected,
average paper prices for the year ended June 30, 1997 were 15%, or $3.9 million,
lower compared to the prior year principally due to a decline in paper prices
which began impacting the Company in the second quarter of fiscal 1997. The
Company expects average paper prices to continue to decrease in fiscal 1998,
principally as the result of the extremely high levels of paper prices at the
beginning of fiscal 1997.

     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, television and Internet sites, 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 44-year history, the
Company has never sold a product that has been judged to be obscene or illegal
in any U.S. jurisdiction.

     The National Defense Authorization Act of 1997 was signed into law in
September 1996. One section of that legislation that began as the Military Honor
and Decency Act (the "Military Act") bans the sale or rental of sexually
oriented written or videotaped material on property under the jurisdiction of
the Department of Defense. A Federal Court has permanently enjoined enforcement
of the Military Act and has prohibited the Department of Defense from changing
its acquisition and stocking practices based on the Military Act. The government
has filed an appeal and a decision by the Appellate Court is pending. The
Military Act, if applicable to the Company's products and enforceable, would
prohibit the sale of Playboy magazine, newsstand specials and videos at
commissaries, PX's and ship stores, and would adversely affect a portion of the
Company's sales attributable to such products. Based on preliminary estimates
and current sales levels at such locations, the Company believes that any such
impact would be immaterial.

OTHER DOMESTIC PUBLISHING

     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 and use both original photographs
and photographs from the Company's library. In fiscal 1995 and 1996, the group
published 18 and 21 newsstand specials, respectively. In fiscal 1997, the
Company published 22 newsstand specials, and expects to publish 22 newsstand
specials in fiscal 1998. The last increase in the newsstand cover price (to
$6.95) was implemented in fiscal 1996.

     The Publishing Group also generates revenues from various media businesses
which include 900-number Playboy-related audiotext services, Playboy Collectible
Trading Cards and books. In conjunction with General Publishing Group, an
unaffiliated third party, the Company published The Playmate Book: Five Decades
of Centerfolds in fiscal 1997, which features photographs and capsule
biographies of 514 Playmates.

                                       7
<PAGE>
 
     In fiscal 1995, the Company launched a free site on the Internet.
Playboy.com is one of the Internet's most visited destination sites, averaging
approximately 1.3 million page impressions per day in June 1997 according to
unaudited information from Nielsen I/PRO. A "page impression" is recorded each
time an Internet page is seen by a user, regardless of the number of files
contained on the page. Taking full advantage of the technological capabilities
of the medium, Playboy.com contains popular editorial features from Playboy
magazine, such as excerpts of Playboy Interviews, articles and Playboy Advisor
columns, and select photos from Playmate pictorials. Playboy.com also promotes
Playboy TV's monthly programming schedule and sells Playboy magazine
subscriptions. New features added in fiscal 1997 included French, German,
Italian and Spanish translations. The Company also implemented two additional
mirror servers in fiscal 1997 (one in the U.S. and one in the U.K.) to handle
increased traffic on Playboy.com. These new servers may also help attract
additional advertisers to the site by providing an opportunity to target a
focused market.

     In fiscal 1996, the Company began generating revenues from the sale of
advertising on Playboy.com which resulted in the site realizing a net profit in
fiscal 1996. The site nearly tripled advertising revenues in fiscal 1997.
Advertising on Playboy.com is priced on a cost-per-thousand basis determined by
page impressions. Advertising is sold by the Company as well as a division of
Softbank, Interactive Media Sales. Advertising revenues for fiscal 1998 are
again expected to be significantly higher than advertising revenues in the prior
year.

     Late in fiscal 1996 the Company added an online version of the Company's
Playboy catalog to Playboy.com, called the Playboy Store, which is discussed
more fully in the Catalog Group.

     In July 1997, the Company launched a pay site on the Internet which is
currently offered on a subscription basis. Pay-per-visit access is expected to
be available by the end of calendar 1997. Playboy Cyber Club allows members to
peruse more than 50,000 pages on the site. Major attractions include individual
home pages for every Playboy Playmate; every Playboy Interview published in the
magazine; Playboy Advisor columns; video clips of Playboy home videos and
Playboy TV shows; the Playboy Photo Library, which includes never-before-
published images from Playboy magazine's 9-million-image photo library; the
Playboy Art Gallery, which features images from the Company's extensive art
collection; and the Playboy Sports Page, which includes real-time sports scores
and sports-related features. Playboy Cyber Club also features six chat rooms and
five exclusive newsgroups. The free and pay sites combined will offer the
Company four sources of revenue: advertising, merchandising, subscription and
pay-per-visit.

     The Company also enters into partnerships with companies to create
multimedia products, such as the fiscal 1997 releases of the following CD-ROM
titles: The Art of Playboy, showcasing images from the Company's extensive art
collection produced with Corel Corporation, and Jenny McCarthy: Playmate
Portfolio, the second celebrity Playmate title produced with Anomaly
Corporation.

INTERNATIONAL PUBLISHING

     The Company licenses the right to publish 15 international editions of
Playboy magazine in the following countries: Australia, Brazil, Croatia, the
Czech Republic, France, Germany, Greece, Italy, Japan, Mexico, Netherlands,
Poland, Russia, Spain and Taiwan. In fiscal 1997, the Company launched an
edition in Croatia and discontinued the South African edition. The Company
recently announced plans to launch a sixteenth edition in Scandinavia, that
initially will circulate in Norway, expanding later to Sweden, Finland and
Denmark. The Polish edition is the first in which the Company has had an equity
interest, which was increased from 45% to a majority interest in March 1996.
Combined average circulation of the international editions is approximately 1.3
million copies monthly. Local publishing licensees tailor their international
editions by mixing the work of their national writers and artists with editorial
and pictorial material from the U.S. edition. The Company monitors the content
of the international 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
international editions vary, but in general are for terms of three or 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 1997, three editions --
Brazil, Germany and Japan -- accounted for approximately 55% of the total
licensing revenues from international editions.

                                       8
<PAGE>
 
OTHER PUBLICATIONS

     The Company owns a 20% interest in duPont Publishing, Inc. ("duPont"),
publisher of duPont Registry, A Buyers Gallery of Fine Automobiles; duPont
Registry, A Buyers Gallery of Fine Homes; and, beginning in February 1997,
duPont Registry, A Buyers Gallery of Fine Boats. The Company has an option to
acquire the remaining 80% interest in duPont at a price based on fair market
value as of December 31, 1999, and receives management fees. 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.

ENTERTAINMENT GROUP

     The Company's Entertainment Group operations include the production and
marketing of programming through Playboy TV, other domestic television,
international television and worldwide home video businesses as well as the
worldwide distribution of programming through AdulTVision and the co-production
and distribution of feature films.

     The revenues and operating income of the Entertainment Group were as
follows for the periods indicated in the following table (in millions):

<TABLE> 
<CAPTION> 
                                                         Years Ended June 30,
                                                      -------------------------
                                                       1997      1996     1995
                                                      ------    ------   ------
     <S>                                              <C>       <C>      <C> 
     REVENUES
     Playboy TV
       Cable.......................................   $ 21.2    $ 21.2   $ 18.9
       Satellite Direct-to-Home....................     23.1      16.4      9.6
       Off-Network Productions and Other...........      3.0       1.7      0.4
                                                      ------    ------   ------
     Total Playboy TV..............................     47.3      39.3     28.9
     Domestic Home Video...........................      8.5       9.4      9.5
     International TV and Home Video...............     12.2      11.9     11.2
                                                      ------    ------   ------
     Total Playboy Businesses......................     68.0      60.6     49.6
     AdulTVision...................................      4.5       1.9        -
     Movies and Other..............................      2.2       2.3      2.1
                                                      ------    ------   ------
       Total Revenues..............................   $ 74.7    $ 64.8   $ 51.7
                                                      ======    ======   ======
     OPERATING INCOME                                 
     Profit Contribution Before Programming Expense   $ 39.7    $ 30.5   $ 21.1
     Programming Expense (a).......................    (21.4)    (21.3)   (20.1)
                                                      ------    ------   ------
       Total Operating Income......................   $ 18.3    $  9.2   $  1.0
                                                      ======    ======   ======
</TABLE>

     (a)  Includes amortization expense for all businesses listed above,
including AdulTVision and movies.

PROGRAMMING

     The Entertainment Group develops, produces and distributes programming for
Playboy TV, other domestic pay television, domestic home video and international
television and home video markets. Its productions have included feature films,
magazine-format shows, dramatic series, game shows, anthologies of sexy short
stories and celebrity and Playmate features.

     The Company invests in Playboy-style, original quality programming to
support its expanding businesses. The Company invested $30.7 million, $25.5
million and $21.3 million in entertainment programming in fiscal 1997, 1996 and
1995, respectively. These amounts, which include expenditures for Playboy-
branded programming, AdulTVision and feature films, resulted in 166, 120 and 86
hours of original programming being produced in fiscal 1997, 1996 and 1995,
respectively. At June 30, 1997, the Company's library of exclusive, Playboy-
brand original programming exceeded 1,000 hours. The increase in investments in
programming for fiscal 1997 compared to the prior year primarily reflects
spending for series, films and a celebrity pay-per-view event and home video. In
fiscal 1998, the Company expects to invest approximately $30.8 million in
Company-produced and licensed programming, which would result in approximately
175 hours of original programming being produced. These amounts could vary based
on the timing of completion of productions.

                                       9
<PAGE>
 
     The following tables list movies produced or co-produced by the Company and
the series still in distribution, each generally containing 26 episodes, and
certain information related to each:

<TABLE>
<CAPTION>
   MOVIES                                         NUMBER OF RELEASES
   ------                                         ------------------
   <S>                                            <C>
   Playboy Films
          1995..................................       Three
          1996..................................       Four
          1997..................................       Three

   The Eros Collection
          1995..................................       Six
          1996..................................       Twelve
          1997..................................       Seventeen
</TABLE>

<TABLE>
<CAPTION>
   TITLE OF SERIES                                     GENRE
   ---------------                                     -----
   <S>                                                 <C>
   Playboy Late Night...........................       magazine-format
   Inside Out...................................       anthology
   Eden.........................................       dramatic series
   Playboy's Secret Confessions and Fantasies...       hosted series
   Playboy's Love & Sex Test....................       game show
   Erotic Fantasies.............................       anthology
   Women:  Stories of Passion...................       anthology
   Red Shoe Diaries.............................       anthology
</TABLE>

     In fiscal 1995, the Company began releasing feature films in the $1 million
to $2 million range under the Playboy Films label. These films are completed
under co-production and distribution agreements with, among others, the Motion
Picture Corporation of America. In fiscal 1997, the Company signed a co-
production agreement with Zalman King Entertainment, Inc. ("Zalman King"). The
agreement provides for the Company and Zalman King to co-produce feature films,
two of which were completed in fiscal 1997 and released in early fiscal 1998.
Because of the strong demand for this genre of programming, the Company is able
to presell international distribution rights and earn a quicker return on its
programming investment. All of these films have also aired or will air on
Playboy TV.

     Also in fiscal 1995, the Company created and began marketing The Eros
Collection, a line of small-budget, non-Playboy-branded movies. These movies are
released internationally through home video and television and air on Playboy
TV. In fiscal 1997, seven co-produced films were also included under the Eros
label, bringing the total Eros Collection films released to 17.

     In fiscal 1996, the Company and Orion Home Video ("Orion") signed an
agreement to release both Playboy Films and The Eros Collection films in the
domestic home video market. In 1997, Orion was purchased by a division of MGM/UA
Home Entertainment ("MGM"). The Company is currently discussing future release
schedules and contract obligations with MGM.

     The Company's series air on the Company's Playboy TV networks and are
marketed internationally. Additionally, some episodes have been released as
Playboy Home Video titles and have been licensed to other networks. In fiscal
1996, the Company began production of Women: Stories of Passion ("Women"), a
series of 30-minute erotic anthologies written, produced and directed by women.
In fiscal years 1997 and 1996 combined, the Company licensed 39 episodes of the
Women series to Showtime Networks Inc. ("Showtime"), six of which are to be
delivered in fiscal 1998. Broadcast initially by Showtime, the series is then
distributed worldwide by Playboy.

     As part of the co-production agreement with Zalman King discussed above,
the Company and Zalman King are also co-producing 18 new episodes of the popular
cable television series Red Shoe Diaries, 12 of which were completed during
fiscal 1997. The production of the series is co-financed by the Company and
Showtime. The agreement grants the Company international distribution rights to
the new episodes of Red Shoe Diaries, plus 48 episodes previously aired on
Showtime.

                                       10
<PAGE>
 
     During fiscal 1997, Farrah Fawcett became the subject of the Company's
first multimedia celebrity production. Early in June, Farrah's second Playboy 
magazine cover and pictorial went on sale and she starred in a cable and 
direct-to-home ("DTH") pay-per-view special event. A Playboy home video of the
event was released in August 1997.

     The Company's Playboy-branded programming is available in the United States
through Playboy TV, and internationally through the Company's networks and, on a
tier or program-by-program basis, by foreign broadcasters. Playboy TV is offered
on cable and through the DTH market on a pay-per-view and monthly subscription
basis. The Company currently has three international Playboy TV networks in the
United Kingdom, Japan and Latin America. Additionally, the Company has an
AdulTVision network in Latin America. The Company has also announced plans to
launch networks in Spain, Portugal and South Korea during fiscal 1998. The
Company also distributes its programming on videocassettes, laserdiscs and
digital video discs ("DVDs"), which are sold or rented through retail outlets
worldwide and sold through direct mail in domestic markets.

     The Company's Playboy-branded programming for television and home video
features stylized eroticism in a variety of entertaining formats for men and
women, with an 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.

PLAYBOY TV

     When the Company introduced its national pay cable network, Playboy TV, 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. In recent
years, Playboy TV has added viewers through the DTH business, which is the
fastest-growing segment of the pay television business.

Cable

     In May 1994, the Company expanded Playboy TV from a 10-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 buying opportunities to the
consumer. At June 30, 1997, Playboy TV was available to 11.2 million cable
addressable households, a 1% decrease compared to June 30, 1996, while
households with 24-hour availability decreased 1.1 million, or 28%, to 2.8
million over the same period. The drop in households with 24-hour availability
occurred in the fourth quarter of fiscal 1997 after the enforcement of Section
505 of the Telecommunications Act of 1996 (the "Telecommunications Act"), as
discussed below.

     The performance of Playboy TV in individual cable systems varies based
principally on the ordering technology and the quantity and quality of marketing
done by affiliated cable systems ("Cable Affiliates").

     Pay-per-view permits customers to purchase only as much of the Company's
programming as they wish and only when they desire 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 competes well with many other forms of entertainment.
Individual cable system operators determine the retail price of the pay-per-view
service, although prices average approximately $5.25 for a block of programming.

     The number of monthly cable subscribers has declined, as expected. As of
June 30, 1997, Playboy TV had approximately 157,000 monthly subscribing
households, down from 192,000 at June 30, 1996 and 201,000 at June 30, 1995.
Individual Cable Affiliates determine the retail price of the monthly
subscription service, although prices average approximately $9.00, largely
dependent on the number of premium services to which a household subscribes.

                                       11
<PAGE>
 
       The following table illustrates certain information regarding cable
households in general, and Playboy TV (in thousands):

<TABLE> 
<CAPTION> 
                                                                  Playboy TV
                             Total Cable    Cable Addressable  Cable Addressable
                             Households(a)    Households(a)      Households(b)
                            -------------    -------------      -------------
  <S>                       <C>            <C>                <C>
  June 30, 1995                60,350           23,450             10,600
  June 30, 1996                62,850           26,400             11,300
  June 30, 1997                64,000           29,350             11,200

  Compound Annual
   Growth Rate (1995-1997)        3.0%            11.9%               2.8%
</TABLE> 
 
  _______________
  (a)  Source: Estimated by the Company based on information reported in 1997 by
       Paul Kagan Associates, Inc. ("Kagan") for December 31 of each respective
       year.  Kagan projects less than 1% and 9% average annual increases in
       total cable households and total cable addressable households,
       respectively, through calendar 2000.

  (b)  Represents the number of cable addressable households to which Playboy TV
       was available as of the end of the fiscal year.

       Most cable service in the United States is distributed through large
multiple system operators ("MSOs"). At June 30, 1997, the Company had
arrangements with 18 of the nation's 20 largest MSOs. These 18 MSOs, through
Cable Affiliates, controlled access to approximately 56.0 million, or 88%, of
the 64.0 million total cable households. Once arrangements are made with an MSO,
the Company is able to negotiate channel space for Playboy TV 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.
Four of these 18 MSOs served approximately 8.7 million, or 78%, of the 11.2
million cable addressable households to which Playboy TV was available at June
30, 1997. Consistent with industry practice, the Company's agreements with Cable
Affiliates are generally cancelable upon 60 or 90 days' notice by either party.

       At June 30, 1997, the cable systems in which Playboy TV was offered
included approximately 22.1 million cable households which either had access, or
could obtain access, to the network. Of these households, 11.7 million could
purchase Playboy TV only on a pay-per-view basis, 0.7 million could purchase
only on a monthly subscription basis and 9.7 million could purchase the
programming on either basis.

       Management believes that the Telecommunications Act discussed below has
slowed growth in cable access for the Company's domestic pay television
businesses. Additionally, management believes that the growth has slowed in
recent years due to the effects of cable reregulation by the Federal
Communications Commission ("FCC"), including the "going-forward rules" announced
in fiscal 1995 which provide cable operators with incentives to add basic
services. As cable operators have utilized available channel space to comply
with "must-carry" provisions, mandated retransmission consent agreements and
"leased access" provisions, competition for channel space has increased.
Additionally, the delay of new technology, primarily digital set-top converters
which would dramatically increase channel capacity, has contributed to the
slowdown. Management believes that growth will continue to be affected in the
near term as the cable television industry responds to the FCC's rules and
subsequent modifications, and develops new technology. However, as digital
technology (which is unaffected by Section 505) becomes more available, the
Company believes that ultimately its pay television networks will be available
to the vast majority of cable households on a 24-hour basis.

                                       12
<PAGE>
 
     In February 1996, Congress passed the Telecommunications Act, and President
Clinton signed it into law.  Certain provisions of the Telecommunications Act
are directed exclusively at cable programming in general and adult cable
programming in particular. In some cable systems, audio or momentary bits of
video of premium or pay-per-view channels may accidentally become available to
nonsubscribing cable customers. This is called "bleeding." The practical effect
of Section 505 of the Telecommunications Act ("Section 505") is to require many
existing cable systems to employ additional blocking technology in every
household in every cable system that offers adult programming, whether or not
customers request it or need it, to prevent any possibility of bleeding, or to
restrict the period during which the programming is transmitted from 10:00 p.m.
to 6:00 a.m. Penalties for violation of the Telecommunications Act are
significant and include fines and imprisonment. Surveying of cable operators and
initial results indicate that most will choose to comply with Section 505 by
restricting the hours of transmission. See Part I. Item 3. "Legal Proceedings."

     Management believes that the Company's revenues attributable to its
domestic pay television cable services will continue to be materially adversely
affected as a result of enforcement of Section 505 due to reduced buy rates from
the systems that roll back carriage to a 10:00 p.m. start time and possibly
reduced carriage from cable operators due to aggressive competition for carriage
from all program suppliers. However, the impact on the fiscal year ended June
30, 1997 was not material as enforcement of Section 505 did not commence until
May 18, 1997. Preliminary results which the Company has received from the cable
operators indicate that the Entertainment Group's annual revenue decline will be
approximately $5 million. The Company intends to pursue in the United States
District Court in Wilmington, Delaware (the "Court") its case challenging on
constitutional grounds the validity of Section 505 and to seek a permanent
injunction against the enforcement of Section 505. There can be no assurance
that the Court will grant such an injunction. The Company's full case on the
merits will not be heard or decided by the Court until calendar 1998.

     Additionally, from time to time, certain groups have sought to exclude the
Company's 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.

     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. 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.

     Playboy TV's cable programming is delivered primarily through a
communications satellite transponder. Playboy TV'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). The
Company's current lease term expires October 30, 2001.

     As of April 30, 1996, the Company was no longer obligated to make monthly
royalty payments that the Company had paid under a termination agreement with
the former distributor of its pay television service. As a result, the profit
contribution of Playboy TV and the operating performance of the Entertainment
Group have been favorably impacted by the termination of such royalty payments.

                                       13
<PAGE>
 
     Competition among providers of cable services for channel space and viewer
spending is intense and the Company competes in this segment of its business
primarily on the basis of its brand name and its original unique quality
programming. Playboy TV's competition varies in the type and quality of
programming offered, and includes adult movie services which offer primarily
third party programming. As the Company's agreements with cable operators have
come up for renewal or renegotiation, the Company has experienced significant
competition from these lower cost competitors with respect to the revenue split
between the cable operator and the Company. The Company believes that a majority
of its current fee arrangements with its Cable Affiliates with respect to
Playboy TV are generally more favorable to it as a service provider than fee
arrangements offered by its adult movie service competitors and less favorable
to the Company as a service provider than fee arrangements offered by general
interest movie service competitors. While there can be no assurance that the
Company will be able to maintain its current fee structures in the face of price
competition, the Company believes that strong Playboy brand recognition, the
quality of its programming and its resulting ability to appeal more effectively
to a broader range of adult audiences are critical factors which will continue
to differentiate Playboy TV from its competitors. In fiscal 1996, in part as a
response to such price competition, the Company launched a flanker channel,
AdulTVision, to provide a lower-cost product that, in combination with Playboy
TV, can result in a more attractive overall fee arrangement for cable operators.

DTH

     The Company also provides Playboy TV via encrypted signal, on both a pay-
per-view and subscription basis, to home satellite dish viewers. The DTH market,
which is not impacted by Section 505, is the fastest growing segment of Playboy
TV, with fiscal 1997 DTH revenues exceeding cable revenues for the first time.
As of June 30, 1997, 1996 and 1995, Playboy TV was available on a monthly
subscription and/or pay-per-view basis to approximately 6,277,000, 4,867,000 and
3,282,000 DTH viewers, respectively. At the end of fiscal 1994, Playboy TV
became one of the first networks to be launched on DirecTV, the first commercial
digital broadcast satellite ("DBS") 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. Playboy TV
expanded from 10-hour to 24-hour programming on DirecTV in August 1995. Playboy
TV was added to a second DBS service, PrimeStar, at the end of fiscal 1995 and
was expanded from 10-hour to 24-hour programming and became available on a
subscription (as well as a pay-per-view) basis beginning in April 1997. The
significant growth in the DTH market has provided the Company with an expanded
customer base via a digital transmission which has produced higher buy rates
than analog cable markets.

DOMESTIC HOME VIDEO

     The Company also distributes its original programming domestically via
videocassettes, laserdiscs and DVDs that are sold or rented in video stores,
music and other retail outlets and through direct mail, including two of the
Company's catalogs. Playboy Home Video is one of the largest-selling brands of
nontheatrically released, special-interest videos in the United States. Playboy
Home Video was named as Billboard magazine's "Top Video Sales Label" for
calendar years 1996 and 1995. The format of Playboy Home Videos is consistent
with the style, quality and focus of Playboy magazine.

     During fiscal 1995, the Company released 14 new Playboy Home Video titles,
including 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"), a position
that it maintained for 12 weeks in fiscal 1996. Additionally, three other fiscal
1995 releases were in the top five on the Sales Chart. In addition, the Company
released four other titles in fiscal 1995, including a documentary and a workout
video. Also in fiscal 1995, a new product line, The Eros Collection, was
introduced. As previously discussed, these are small-budget, non-Playboy-branded
movies.

     In fiscal 1996, the Company released 14 new Playboy Home Video titles,
including The Best of Anna Nicole Smith which reached the number two spot on the
Sales Chart. Eight of the 14 new titles entered the top five on the Sales Chart
in fiscal 1996. The Best of Jenny McCarthy was released in June 1996 and became
the second Playboy title to reach the number one spot on the Sales Chart, a
position it held for five weeks in the summer of 1996. Due to its outstanding
performance throughout the year, this title held the number four position in
Billboard magazine's 1996 Year in Video Chart.

                                       14
<PAGE>
 
     The Company also released 14 new Playboy Home Video titles in fiscal 1997,
all of which entered the top 20 on the Sales Chart during the fiscal year, with
11 of the 14 also reaching the top ten. The Company plans to release 16 Playboy
Home Video titles in fiscal 1998.

     In addition to retail sales, the Company also sells its videos through
direct-marketing channels, including Playboy magazine, Playboy catalog, Critics'
Choice Video catalog and the Playboy Store, on Playboy.com. The Company has also
entered into various direct marketing alliances for the sales of its continuity
series. In fiscal 1997, the Company introduced a second continuity series
featuring new products with Sony Music Direct. As of June 1997, Sony Music
Direct also took over from Time Life Inc. the marketing and distribution of the
first continuity series representing the core retail product line to new direct
response customers. Time Life Inc. will continue to market and distribute the
core retail product to the existing customer base through June 1998. Also, the
Company entered into an agreement with Real Entertainment, Inc. in May 1997 for
a separate direct response program representing the Playboy Home Video product
line.

     The Company's Playboy Home Video products have been distributed in the
United States and Canada by Universal Music & Video Distribution ("Uni";
formerly Uni Distribution Corp.) 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 of fiscal 1995
the Company entered into a three-year distribution agreement with Uni related to
backlist titles (titles in release for longer than a year) that shifted
manufacturing and marketing responsibilities to Uni. The Company has received
annual guarantees for the backlist titles, the first two years of which were
subject to certain earn-out provisions. During fiscal 1997, the third and final
year of the agreement was extended through June 1998.

     The Company also distributes its video programming via laserdiscs and,
beginning in fiscal 1997, the new DVD format, through agreements with Image
Entertainment, Inc.

INTERNATIONAL TV AND HOME VIDEO

     Internationally, Playboy programming is available in approximately 150
countries, either on a tier or program-by-program basis or, in the United
Kingdom, Japan and Latin America, through a local Playboy network in which the
Company owns an equity interest and from which it receives licensing fees for
programming and the use of the Playboy brand name.

     The Company markets its programming to foreign broadcasters and pay
television services. As appropriate, typically the licensees then customize, dub
or subtitle the programming to meet the needs of individual markets. In
countries that can support a Playboy programming tier, the Company has expanded
its relationships with foreign broadcasters by entering into exclusive multiyear
multiproduct output agreements with international pay television distributors.
These agreements enable the Company to have an ongoing branded presence in
international markets and generate higher and more consistent revenues than
selling programs on a show-by-show basis.

     In fiscal 1995, the Company launched the first international Playboy TV
network in the United Kingdom in a joint-venture agreement with Flextech plc, a
U.K. entertainment company that is majority-owned by a subsidiary of Tele-
Communications, Inc. ("TCI") and British Sky Broadcasting Ltd. ("BSKyB"). The
Company owns 19% of the network, with an option to acquire an additional 10%
equity interest, and receives license fees for programming and the use of the
Playboy brand name.

     During fiscal 1996, a second international Playboy TV network was launched
in Japan in partnership with Tohokushinsha Film Corp. in which the Company owns
less than a 20% interest. Additionally, the Company entered into a long term
program supply agreement under which it will provide 700 hours of programming
over the first five years of the venture and receives a royalty for use of its
brand name. During fiscal 1997, the venture was granted a license to distribute
to the DTH market in Japan.

                                       15
<PAGE>
 
     A third international Playboy TV network and the first international
AdulTVision network were launched in Latin America in the fall of 1996. The
Company holds a 19% interest in the venture, with an option to acquire up to
49.9% of all equity interests. The Company also receives licensing fees for its
programming and royalty payments for use of its brand name. The venture is with
an affiliate of the Cisneros Group of Companies ("Cisneros"), one of Latin
America's most prominent conglomerates and broadcasters. The two Latin American
networks are on Galaxy Latin America, a DTH service majority-owned by Hughes
Electronics, which owns DirecTV in the United States.

     The Company's partnership with Cisneros has been expanded to encompass
Playboy TV and AdulTVision networks in Spain and Portugal, which are expected to
be launched during fiscal 1998. In March 1997, the Company announced that it
will launch a Playboy TV network in South Korea through a partnership with
Daewoo Corporation. The Company will own 15% of the venture; the highest equity
position a foreign entity can hold. The South Korean network, expected to be
launched during fiscal 1998, will initially be offered on a 24-hour basis in
hotels and motels. The Company continues to explore opportunities for additional
international networks.

     As the Company's international networks grow, the Company intends to
produce programming specifically targeted to the local markets in order to
maximize the appeal of Playboy TV among the Company's new customers. For
example, the U.S. popularity of Night Calls, the Company's live call-in talk
show, prompted the creation of Night Calls U.K. in fiscal 1997, and the Company
also plans to develop a Latin American version of the show.

     Through separate distribution agreements, the Company also distributes its
U.S. home video products to more than 50 countries in South 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.

ADULTVISION

     In July 1995, the Company launched a second pay television network,
AdulTVision, as a flanker network to Playboy TV. The new network allows the
Company to appeal more effectively to a broader range of adult audiences.
AdulTVision is principally offered on a pay-per-view basis and is sold primarily
in combination with Playboy TV through cable operators, and to the DTH market.
At June 30, 1997, the network was available in approximately 5.3 million cable
addressable and DTH households. The network reported an operating loss for
fiscal 1996 but was profitable in fiscal 1997. As previously discussed, the
Company launched the network internationally in Latin America in the fall of
1996 and expects to launch an additional AdulTVision network in Spain and
Portugal during fiscal 1998.

     AdulTVision's programming is available through a full-service distribution
agreement with a third-party provider until June 1998. Under the terms of this
agreement, uplink, encoding, access to a transponder and other services are
provided. Management believes that upon expiration of the current agreement it
will be able to continue with its current provider or locate another transponder
for the transmission of AdulTVision.

PRODUCT MARKETING GROUP

     The Product Marketing Group licenses the Playboy name, Rabbit Head Design
and other trademarks and artwork owned by the Company for the worldwide
manufacture, sale and distribution of a variety of consumer products.

     The revenues and operating income of the Product Marketing Group were as
follows for the periods indicated in the following table (in millions):

<TABLE> 
<CAPTION> 
                                               Years Ended June 30,
                                             ------------------------
                                             1997      1996      1995
                                             ----      ----      ----
  <S>                                        <C>       <C>       <C> 
  REVENUES...............................    $8.0      $7.1      $6.8
                                             ====      ====      ====
  OPERATING INCOME.......................    $3.5      $3.7      $3.4
                                             ====      ====      ====
</TABLE> 

                                       16
<PAGE>
 
     The Product Marketing Group works with licensees to develop, market and
distribute high-quality, branded merchandise. The Company's licensed product
lines include men's clothing, accessories, watches, jewelry, fragrances, small
leather goods, stationery, eyewear, home fashions and condoms. These products
are marketed principally in countries in Asia, primarily through retail outlets,
including department and specialty stores. The Company's Hong Kong-based apparel
licensee operates approximately 450 freestanding Playboy stores and boutiques
within department stores in China and Hong Kong. To control more effectively
sales and distribution in mainland China, this licensee has five distribution
and sales offices throughout the country and is expected to complete
construction of a new factory by the end of calendar 1997.

     Continuing its alliance with Consolidated Cigar Corporation, a second
Playboy cigar line was launched in fiscal 1997, the limited-edition LeRoy Neiman
Selection. Neiman, whose artwork has been featured in Playboy magazine for more
than 40 years, created an original work of art for the cigar box and his image
appears on the cigar band. In fiscal 1998, Playboy by Don Diego cigars, the
Company's first cigar line, will be marketed internationally for the first time,
with initial rollouts in Germany, Japan and the United Kingdom.

     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 1997,
approximately 72% of the royalties earned from licensing the Company's
trademarks was derived from licensees in Asia, 13% from the United States and
12% from Europe.

     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-branded products
throughout the world, a global advertising campaign and brand strategy was
launched in fiscal 1995 to integrate all of the marketing efforts of the product
licensees and to control the brand more effectively. Significant investments in
brand marketing and product design were also made during fiscal 1997 to further
promote a cohesive brand image.

     To capitalize on its international name recognition, the Company continues
to increase its international product marketing activities, specifically
targeting growth for its licensing business in South America and Europe.

     Special Editions, Ltd. primarily licenses art-related products based on the
Company's extensive collection of artwork, 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
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.

     Additionally, the Company owns all of the trademarks and service marks of
Sarah Coventry, Inc., which it licenses primarily domestically. Costume jewelry
and watches are the principal product lines distributed by Sarah Coventry
licensees.

     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. The Company uses 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.

                                       17
<PAGE>
 
CATALOG GROUP

     The Company's Catalog Group operations include the direct marketing of
products through Critics' Choice Video, Collectors' Choice Music and Playboy
catalogs, combined with the marketing of products through sites on the Internet.

     The revenues and operating income of the Catalog Group were as follows for
the periods indicated in the following table (in millions):

<TABLE> 
<CAPTION> 
                                       Years Ended June 30,
                                     ------------------------
                                      1997     1996     1995  
                                     ------   ------   ------ 
  <S>                                <C>      <C>      <C> 
  REVENUES.......................... $ 76.3   $ 71.7   $ 61.4
                                     ======   ======   ====== 
                                                     
  OPERATING INCOME.................. $ 4.8    $  5.2   $  5.2
                                     ======   ======   ======
</TABLE> 


     The Critics' Choice Video catalog, one of the largest-circulation catalogs
of classic, popular and hard-to-find movies, is published quarterly and includes
movies from all of the major film studios and hundreds of special-interest
videos. The catalog has expanded through alternative distribution methods such
as package inserts, solo mailings and ads in specialty publications. Critics'
Choice Video was challenged in fiscal 1997 by a softness in prospect catalog
response rates and, as a result, is planning new initiatives for fiscal 1998 to
counter this softness. In the fall of 1997, the catalog is planning to launch
CCVideo, an online version of the catalog, and The Big Book of Movies, a 324-
page, perfect-bound oversize catalog featuring 10,000 in-stock videos, of which
over 2,000 will be offered at a 25% discount. This catalog is expected to help
establish Critics' Choice Video as the ultimate catalog authority in home video.

     The Collectors' Choice Music catalog currently offers more than 1,500
titles from all music genres on CDs and cassettes, including imports and 
hard-to-find reissues. The Collectors' Choice Music catalog is published three 
times annually. Since the catalog's inception in fiscal 1994, the Company has
successfully increased the circulation and product offerings of the catalog,
resulting in year-over-year increases in revenues and operating income.

     In a continuing effort to provide superior customer service, the Critics'
Choice Video and Collectors' Choice Music catalogs operate telephone search
lines through which customers can inquire about the availability of any film or
musical recording, including those not in the catalogs.  This service not only
provides immediate assistance to the customer, but information on the interests
of the customers. Also, in fiscal 1997 the Company produced, under its own
labels, 24 exclusive releases under each of the Critics' Choice Video and
Collectors' Choice Music catalogs, more than double the number of exclusive
titles offered in fiscal 1996.  Both catalogs plan to continue to expand their
exclusive offerings in fiscal 1998.

     Playboy catalog products include Playboy-branded fashions, cigars and
gifts, Playboy Home Video titles, Playboy collectibles, such as calendars, back
issues of the magazine and newsstand specials, and CD-ROM products. The Playboy
catalog is published three times annually and, beginning in fiscal 1998, has
been reformatted to a larger (81/2" x 11"), more upscale catalog which will
expand on Playboy-branded and licensed product offerings.

     To expand the reach of the group's products, in April 1996 an online
version of the Playboy catalog, called the Playboy Store, was added to the
Company's Internet site (http://www.playboy.com). The Playboy Store offers, at
20% less than through the mail, the same products as the printed version. In
fiscal 1997, sales from the Playboy Store equaled approximately 9% of the print
catalog sales, of which 80% were from first-time buyers, and orders were
received from approximately 40 countries. In fiscal 1998, the group is planning
to expand the Playboy Store, including adding more interactive features.  Based
on this performance and consumer interest in purchasing music and videos online,
the group launched CCMusic, an online version of the Collectors' Choice Music
catalog, in the summer of 1997 at http://www.ccmusic.com. As previously
discussed, the group is also planning to launch CCVideo, the online version of
the Critics' Choice Video catalog, in the fall of 1997 at
http://www.ccvideo.com.

                                       18
<PAGE>
 
     Paper is the principal raw material used in publishing the Company's
catalogs. In fiscal 1997, all three of the catalogs were favorably impacted by
lower paper prices, which had been significantly higher in fiscal 1996. The
Company plans to continue to increase overall circulation for the catalogs in
fiscal 1998.

  In the summer of 1997, near the end of a five-year lease, the catalog
operations began moving from its former facility to a larger facility, under
terms of a built-to-suit lease, to meet additional space requirements resulting
from growth in the business. The new facility is located in the same Chicago
suburb and constitutes the group's second expansion in five years. The facility
features an automated inventory management system and houses the group's
merchandising, marketing, customer service and order fulfillment divisions. The
Company will initially occupy 106,000 square feet of space and has an option to
lease an additional 23,000 square feet commencing in December 2002.

     The catalog business is subject to competition from other catalogs and
distributors and retail outlets selling similar merchandise. The Company
continuously reviews 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. In
fiscal 1997, the Company purchased from the trustee in bankruptcy selected
assets of the Time Warner Viewer's Edge videocassette catalog.

CASINO GAMING

     In fiscal 1996, the Company announced plans to reenter the casino gaming
business. The Company, with a consortium of Greek investors, bid for and won an
exclusive casino gaming license on the island of Rhodes, Greece. The Company's
consortium executed the contract with the government in October 1996 and is
presently renovating the historic Hotel des Roses that will be the Playboy
Casino and Beach Hotel, which is expected to open in calendar 1998. The Company
is continuing to explore other casino gaming opportunities with a strategy to
form joint ventures, with strong local partners, in which the Company would
receive license fees for the use of the Playboy name and trademarks and would
consider taking equity positions.

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 Part III. 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 Playboy Mansion is included in the Company's
financial statements as of June 30, 1997 at a cost, including all improvements
and after accumulated depreciation, of approximately $2,740,000. The operating
expenses of the Playboy Mansion, including depreciation, taxes and security (but
excluding video taping which is now reflected as a direct controllable expense
in the Office of the Chairman Emeritus), net of rent received from Mr. Hefner
were approximately $3,635,000, $3,615,000 and $3,530,000 for the years ended
June 30, 1997, 1996 and 1995, respectively.

     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 organizations and also
donates public service advertising space in Playboy magazine and in-kind
printing and design services.

                                       19
<PAGE>
 
EMPLOYEES

     At August 31, 1997, the Company employed 684 full-time employees compared
to 636 at August 31, 1996. No employees are represented by collective bargaining
agreements. The Company believes it maintains a satisfactory relationship with
its employees.

                                       20
<PAGE>
 
Item 2.  Properties
-------------------

The Company leases office space at the following locations:

     The Company was lessee under an initial fifteen-year lease effective
September 1989 of approximately 100,000 square feet of corporate headquarters
space located at 680 North Lake Shore Drive, Chicago, Illinois.  In August of
1996, the Company renegotiated this lease on more favorable terms, including a
lower base rent which will result in savings of approximately $2.0 million over
the initial term of the lease, combined with the Company obtaining certain
expansion options in the building.  Further, the lease term was extended three
years to August 2007, with a renewal option for an additional five years.
Subsequent to the renegotiation of the lease, average annual base rental expense
is approximately $985,000. The Company was granted a rent abatement for the
first two years of the initial lease; however, rent expense is being charged to
operations on a straight-line basis over the extended 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.

     The Company's Publishing Group headquarters in New York City consists of
approximately 50,000 square feet of space in the Crown Building, 730 Fifth
Avenue, Manhattan.  The Crown Building lease expires in August 2004, has an
average annual base rental expense of approximately $1,380,000, 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.  A limited amount of this 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
$1,550,000, 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 for a 64,000
square foot warehouse facility in Itasca, Illinois, which has been used
primarily for Catalog Group operations. Due to the growth of the catalog
business, beginning June 1997, the Company began leasing a new larger facility
in the same Chicago suburb under a 10 1/2 year lease, with a renewal option for
an additional five years. The purpose of the catalog operations facility is to
provide order fulfillment and related activities, and also house a portion of
the Company's data processing operations and serve as a storage facility for the
entire Company. The Company will initially utilize 106,000 square feet of space
in the new facility and has an option to lease an additional 23,000 square feet
commencing December 2002. The lease under the previous facility was terminated
early as of August 1997. The average annual base rental expense under the
previous lease was approximately $300,000, and will be approximately $775,000
under the new lease agreement. Additionally, the lease terms require the Company
to pay real estate taxes and operating expenses.

     The Company's West Coast photography studio is located in Santa Monica,
California, under terms of a ten-year lease, which commenced January 1994.  The
lease is for approximately 9,800 square feet of space, with an average annual
base rental expense of approximately $180,000.  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.

     In June 1995, the Company entered into a two-year lease effective July 1995
for a motion picture production facility to be used by its Entertainment Group
located in Los Angeles, California.  In March 1997, this lease was extended an
additional year until June 1998.  The lease is for 11,600 square feet, with an
annual base rental expense of approximately $105,000 for the first two years,
which increases three percent in the third year.

The Company owns a Holmby Hills, California mansion property comprised of 5-1/2
acres. See "Promotional and Other Activities" under Part I. Item 1.

                                       21
<PAGE>
 
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 is immaterial in amount. 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 O
of Notes to Consolidated Financial Statements.

     In February 1996, Congress passed the Telecommunications Act, and President
Clinton signed it into law. Certain provisions of the Telecommunications Act are
directed exclusively at cable programming in general and adult cable programming
in particular. In some cable systems, audio or momentary bits of video of
premium or pay-per-view channels may accidentally become available to
nonsubscribing cable customers. This is called "bleeding." The practical effect
of Section 505 of the Telecommunications Act is to require many existing cable
systems to employ additional blocking technology in every household in every
cable system that offers adult programming, whether or not customers request it
or need it, to prevent any possibility of bleeding, or to restrict the period
during which the programming is transmitted from 10:00 p.m. to 6:00 a.m.
Penalties for violation of the Telecommunications Act are significant and
include fines and imprisonment. Surveying of cable operators and initial results
indicate that most will choose to comply with Section 505 by restricting the
hours of transmission.

     On February 26, 1996, one of the Company's subsidiaries filed a civil suit
challenging Section 505 on constitutional grounds. On March 7, 1996, the Company
was granted a Temporary Restraining Order ("TRO") staying the implementation and
enforcement of Section 505. In granting the TRO, the court found that the
Company had demonstrated it was likely to succeed on the merits of its claim
that Section 505 is unconstitutional. On November 8, 1996, eight months after
the TRO was granted, a three-judge panel in the Court denied the Company's
request for preliminary injunction against enforcement of Section 505 of the Act
and, in so denying, found that the Company was not likely to succeed on the
merits of its claim. The Company appealed the Court's decision to the United
States Supreme Court and enforcement of Section 505 was stayed pending that
appeal. On March 24, 1997, without opinion, the Supreme Court summarily affirmed
the Court's denial of the Company's request for a preliminary injunction. On
July 22, 1997, the Company filed a motion for summary judgment on the ground
that Section 505 is unconstitutionally vague based on the Supreme Court's
decision on June 26, 1997 that certain provisions of the Telecommunications Act
regulating speech on the Internet were invalid for numerous reasons, including
vagueness. The Company is awaiting a decision on its motion by the Court.

     Management believes that the Company's revenues attributable to its
domestic pay television cable services will continue to be materially adversely
affected as a result of enforcement of Section 505 due to reduced buy rates from
the systems that roll back carriage to a 10:00 p.m. start time and possibly
reduced carriage from cable operators due to aggressive competition for carriage
from all program suppliers. However, the impact on the fiscal year ended June
30, 1997 was not material as enforcement of Section 505 did not commence until
May 18, 1997. Preliminary results which the Company has received from the cable
operators indicate that the Entertainment Group's annual revenue decline will be
approximately $5 million. The Company intends to pursue in the Court its case
challenging on constitutional grounds the validity of Section 505 and to seek a
permanent injunction against the enforcement of Section 505. There can be no
assurance that the Court will grant such an injunction. The Company's full case
on the merits will not be heard or decided by the Court until calendar 1998.

                                       22
<PAGE>
 
     On December 18, 1995, BrandsElite International Corporation, an Ontario,
Canada corporation ("BrandsElite"), filed a complaint against the Company in the
Circuit Court of Cook County, Illinois. In the complaint, BrandsElite, an
international distributor of premium merchandise, including liquor, perfume,
cosmetics and luxury gifts, principally to duty-free retailers, alleges that the
Company breached a product license agreement, shortly after its execution by the
Company in October 1995. The agreement provided for the appointment of
BrandsElite as the exclusive, worldwide licensee of the Playboy trademark and
tradename with respect to the sale of cognac and possibly some deluxe whiskeys.
The Company has admitted that it advised BrandsElite that it had determined not
to proceed with the transaction but disputes strongly BrandsElite's allegation
that as a result of the Company's breach, BrandsElite has suffered millions of
dollars of damages in future lost profits and diminished value of its stock.
BrandsElite also seeks to recoup alleged out-of-pocket expenses, fees and costs
incurred in bringing the action, and specific performance of the agreement. The
license agreement provides for recovery by a party in any judgment entered in
its favor of attorneys' fees and litigation expenses, together with such court
costs and damages as are provided by law. The action is currently in discovery.

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 1997.

                                       23
<PAGE>
 
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, 71                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, 44               Appointed to present position in November    
Chairman of the Board and         1988. From September 1986 to November 1988   
Chief Executive Officer           served as 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.                                        
                                  
                                  
Linda G. Havard, 42               Appointed to present position in May 1997.   
Executive Vice President,         From August 1982 to May 1997 held various    
Finance and Operations,           financial and management positions at Atlantic
and Chief Financial Officer       Richfield Company ("ARCO"). From October 1996
                                  to May 1997 served as ARCO's Senior Vice     
                                  President in the Global Energy Ventures      
                                  division. She also served as ARCO's Vice     
                                  President of Corporate Planning from January 
                                  1994 to December 1996. Her other positions   
                                  with ARCO have included Vice President,      
                                  Finance, Planning and Control, ARCO          
                                  Transportation Co. and President, ARCO Pipe  
                                  Line Co.                                      
                                  

Marianne Howatson, 49             Appointed to present position in April 1997.  
Executive Vice President and      From January 1995 to April 1997 served as Vice
President, Publishing Group       President and General Manager of the retail   
                                  division of Cardinal Business Media. From     
                                  April 1992 to July 1994 served as Group       
                                  Publisher at Gruner + Jahr USA Publishing.    
                                  From March 1987 to December 1991 served as
                                  Publisher of Conde Nasts' Self magazine. From
                                  March 1986 to March 1987 was Vice President
                                  and Publisher of American Express Publishing's
                                  Travel & Leisure magazine, and from January
                                  1983 to March 1986 served as Senior Vice
                                  President and Director of Marketing for the
                                  Magazine Publishers of America, the industry's
                                  preeminent trade association.

                                  
Herbert M. Laney, 52              Appointed to present position in December    
Executive Vice President and      1996. From September 1995 to December 1996   
President, Catalog Group          served as Senior Vice President and President,
                                  Catalog Group. From June 1993 to September   
                                  1995 served as President, Catalog Group. From
                                  August 1990 to June 1993 served as Senior Vice
                                  President, Catalog Group. From June 1988 to  
                                  August 1990 served as Senior Vice President, 
                                  Direct Marketing.                             
                                  
                                  

                                       24
<PAGE>
 
Name, Age and Position            Business Experience During Past 5 Years
----------------------            --------------------------------------- 

Anthony J. Lynn, 45               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 J. Perkins, 50             Appointed to present position in October 1996.
Executive Vice President,         From March 1995 to September 1996 served as  
Chief Marketing Officer           Senior Vice President of licensing and       
                                  marketing at Calvin Klein, Inc., a leading   
                                  producer of designer apparel. From March 1994
                                  to February 1995 served as President of Q    
                                  Direct, a data base marketing subsidiary of  
                                  QVC Inc. From March 1991 to March 1994 was   
                                  Senior Vice President of Marketing at Pizza  
                                  Hut Inc. and from April 1985 to March 1991   
                                  held a variety of positions, finally as      
                                  President and Chief Operating Officer, at the
                                  New York office of Chiat/Day/Mojo, a         
                                  distinguished advertising agency.             


Richard S. Rosenzweig, 62         Appointed to present position in November    
Executive Vice President          1988. 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, 50                Appointed to present position in May 1996.   
Executive Vice President,         From September 1989 to May 1996, served as   
Law and Administration,           Executive Vice President, Law and            
General Counsel and Secretary     Administration and General Counsel. From May 
                                  1985 to September 1989 served as Senior Vice 
                                  President, Law and Administration 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.                 
                                                                                

Martha O. Lindeman, 46            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.


                                       25
<PAGE>
 
                                    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 P of Notes to Consolidated Financial
Statements on pages 41 and 42 of the fiscal 1997 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, 1997, there
were 8,341 and 9,001 record holders of Class A Common Stock and Class B Common
Stock, respectively.  There were no cash dividends declared during either of the
last two fiscal years. The Company's revolving credit agreement prohibits the
payment of cash dividends.

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, 1997, set
forth under the caption "Selected Financial and Operating Data" on page 23 of
the fiscal 1997 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 1997 Annual Report is incorporated herein by reference.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------

  Not required for fiscal 1997 because the Company's market capitalization was
less than $2.5 billion as of January 28, 1997.

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 1997 Annual
Report are incorporated herein by reference:

  Consolidated Statements of Operations - Years ended June 30, 1997, 1996 and
  1995

  Consolidated Balance Sheets - June 30, 1997 and 1996

  Consolidated Statements of Shareholders' Equity - Years ended June 30, 1997,
  1996 and 1995

  Consolidated Statements of Cash Flows - Years ended June 30, 1997, 1996 and
  1995

  Notes to Consolidated Financial Statements

  Report of Independent Accountants

  The supplementary data regarding quarterly results of operations set forth in
Note P of Notes to Consolidated Financial Statements on pages 41 and 42 of the
fiscal 1997 Annual Report is incorporated herein by reference.

Item 9.  Changes in and Disagreements With Accountants on Accounting and
------------------------------------------------------------------------
Financial Disclosure
--------------------

  None

                                       26
<PAGE>
 
                                    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 (to be
filed) relating to the Annual Meeting of Stockholders to he held in November
1997, which will be filed within 120 days after the close of the registrant's
fiscal year ended June 30, 1997, and is incorporated herein by reference.
Information regarding executive officers is contained on pages 24 and 25 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 1997 Annual
    Report:

       Consolidated Statements of Operations - Years ended June 30, 1997, 1996
       and 1995

       Consolidated Balance Sheets - June 30, 1997 and 1996

       Consolidated Statements of Shareholders' Equity - Years ended June 30,
       1997, 1996 and 1995

       Consolidated Statements of Cash Flows - Years ended June 30, 1997, 1996
       and 1995

       Notes to Consolidated Financial Statements

       Report of Independent Accountants


    Financial Statement Schedule of the registrant not included in the fiscal
    1997 Annual Report but filed herewith:

                                                                            Page
                                                                            ----
       Report of Independent Accountants on Financial Statement Schedule      39

       Schedule II - Valuation and Qualifying Accounts                        40

(b) Reports on Form 8-K

    There were no reports on Form 8-K filed by the Company during the fourth
    quarter of fiscal 1997.

(c) Exhibits

  3.1  Restated Certificate of Incorporation of the Company (incorporated by
       reference to Exhibit 3.1 from the Company's annual report on Form 10-K
       for the year ended June 30, 1995 (the "1995 Form 10-K"))

  3.2  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"))

  10.1 Stock Incentive Plan

       *a   Amended and Restated Playboy Enterprises, Inc. 1995 Stock Incentive
            Plan (incorporated by reference to Exhibit 10.1 from the Company's
            quarterly report on Form 10-Q for the quarter ended March 31, 1997
            (the "Third Quarter 1997 Form 10-Q"))

       *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

       (items (b), (c) and (d) incorporated by reference to Exhibits 4.3, 4.4
       and 4.5, respectively, from the Company's Registration Statement No. 33-
       58145 on Form S-8 dated March 20, 1995)

       *e   Form of Section 162(m) Restricted Stock Agreement for Section 162(m)
            Restricted Stock issued under the Plan

 *10.2 Playboy Enterprises, Inc. Employee Stock Purchase Plan, as amended and
       restated (incorporated by reference to Exhibit 10.2 from the Third
       Quarter 1997 Form 10-Q)

                                       27
<PAGE>
 
 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.

       (items (a) and (b) incorporated by reference to Exhibits 10.3(a) and (b),
       respectively, from the 1995 Form 10-K)

       c    First Amendment dated August 15, 1996 to May 15, 1990 agreement
            (incorporated by reference to Exhibit 10.3(c) from the Company's
            annual report on Form 10-K for the year ended June 30, 1996 (the
            "1996 Form 10-K"))

 10.4  Playboy Magazine Distribution Agreement dated as of May 27, 1997 between
       Playboy Enterprises, Inc. and Warner Publisher Services, Inc.

 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 Company's annual report on Form 10-K for the year
            ended June 30, 1992 (the "1992 Form 10-K"))

       b    Amendment dated as of June 1, 1988 to said Fulfillment Agreement
            (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 Company's
            annual report on Form 10-K for the year ended June 30, 1991 (the
            "1991 Form 10-K"))

       d    Amendment dated as of July 1, 1996 to said Fulfillment Agreement
            (incorporated by reference to Exhibit 10.5(d) from the 1996 Form 10-
            K)

 10.6  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"))

 10.7  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)

 10.8  Distribution Agreement between Playboy Entertainment Group, Inc. and
       Universal Music & Video Distribution (formerly Uni Distribution Corp.)
       regarding licensing and sale of domestic home video product

       a    Agreement dated as of March 24, 1995 (incorporated by reference to
            Exhibit 10.8 from the 1995 Form 10-K)

       b    Amendment to March 24, 1995 agreement dated February 28, 1997
            (incorporated by reference to Exhibit 10.6 from the Third Quarter
            1997 Form 10-Q)

 10.9  Agreements effective November 1, 1995 between Playboy Entertainment
       Group, Inc., Continental Shelf 16 Limited, Precis (1378) Limited and
       Playboy TV/Benelux Limited regarding the establishment of a Playboy TV
       pay television service in the United Kingdom (incorporated by reference
       to Exhibit 10.9 from the 1996 Form 10-K)

10.10  Agreements between Playboy Entertainment Group, Inc. and Tohokushinsha
       Film Corporation regarding the establishment of a Playboy TV pay
       television service in Japan

       a    Memorandum of Agreement and Amendment dated July 31, 1995

       b    Amendment to July 31, 1995 agreement dated March 26, 1996

       (items (a) and (b) incorporated by reference to Exhibits 10.10(a) and
       (b), respectively, from the 1996 Form 10-K)

10.11  Agreements between Playboy Entertainment Group, Inc. and Bloomfield
       Mercantile Inc. related to establishing international networks in Latin
       America, Spain and Portugal

       #a   Agreement outline as of March 29, 1996

       #b   Letter agreement dated January 13, 1997

       (items (a) and (b) incorporated by reference to Exhibits 10.4(a) and (b),
       respectively, from the Third Quarter 1997 Form 10-Q)

#10.12 Memorandum of Understanding as of February 26, 1997 between Playboy
       Entertainment Group, Inc. and Daewoo Corporation related to establishing
       international networks in South Korea (incorporated by reference to
       Exhibit 10.5 from the Third Quarter 1997 Form 10-Q)

 10.13 Deal Memorandum dated June 22, 1995 between Playboy Networks Worldwide
       and TVN regarding distribution and services related to the AdulTVision
       pay television service (incorporated by reference to Exhibit 10.11 from
       the 1996 Form 10-K)

                                       28
<PAGE>
 
 10.14 Distribution Agreement between Playboy Entertainment Group, Inc. and
       Orion Home Video regarding the distribution of certain home video
       programs and product

       a    Agreement dated June 27, 1996 (incorporated by reference to Exhibit
            10.12 from the 1996 Form 10-K)

       b    Amendment to June 27, 1996 agreement dated July 29, 1996
            (incorporated by reference to Exhibit 10.7 from the Third Quarter
            1997 Form 10-Q)

 10.15 Affiliation Agreement between Playboy Entertainment Group, Inc. and
       DirecTV regarding the satellite distribution of Playboy TV

       a    Agreement dated November 15, 1993

       b    First Amendment to November 15, 1993 agreement dated as of April 19,
       1994

       c    Second Amendment to November 15, 1993 agreement dated as of July 26,
       1995 

       (items (a), (b) and (c) incorporated by reference to Exhibits 10.13(a),
       (b) and (c), respectively, from the 1996 Form 10-K)

 10.16 Affiliation Agreement dated February 29, 1996 between Playboy
       Entertainment Group, Inc. and PrimeStar Partners, L.P. regarding the
       satellite distribution of Playboy TV (incorporated by reference to
       Exhibit 10.14 from the 1996 Form 10-K)

 10.17 Warner Home Video/Critics' Choice Direct Marketing License Agreements

       a    Agreement dated February 22, 1994 regarding purchase of Turner
            product

       b    Agreement dated February 22, 1994 regarding purchase of non-Turner
            product

       (items (a) and (b) incorporated by reference to Exhibits 10.10 and 10.11,
       respectively, from the 1995 Form 10-K)

       c    Agreement dated June 28, 1996 regarding purchase of Turner and
            non-Turner product (incorporated by reference to Exhibit 10.15(c)
            from the 1996 Form 10-K)

 10.18 Product License Agreements between Playboy Enterprises, Inc. and Chaifa
       Investment, Limited

       a    Agreement dated September 26, 1989 related to the Hong Kong
            territory

       b    Agreement dated March 4, 1991 related to the People's Republic of
            China territory

       c    Amendment dated July 21, 1992 related to the March 4, 1991 agreement

       d    Amendment dated August 17, 1993 related to the agreements dated
            September 26, 1989 and March 4, 1991

       e    Amendment dated January 23, 1996 related to the agreements dated
            September 26, 1989 and March 4, 1991

       (items (a) through (e) incorporated by reference to Exhibits 10.16(a)
       through (e), respectively, from the 1996 Form 10-K)

       f    Amendment dated May 12, 1997 related to the agreements dated
            September 26, 1989 and March 4, 1991
 
 10.19 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    First Amendment to February 10, 1995 Credit Agreement dated as of
            March 31, 1995

       (items (a) and (b) incorporated by reference to Exhibits 10.12(a) and
       (b), respectively, from the 1995 Form 10-K)

       c    Second Amendment to February 10, 1995 Credit Agreement dated as
            of March 5, 1996 (incorporated by reference to Exhibit 10.17(c) from
            the 1996 Form 10-K)

       d    Third Amendment to February 10, 1995 Credit Agreement dated as of
            September 11, 1997 but effective as of July 8, 1997

 10.20 Playboy Mansion West Lease Agreement, as amended, between Playboy
       Enterprises, Inc. and Hugh M. Hefner
 
       a    Letter of Interpretation of Lease

       b    Agreement of lease

       (items (a) and (b) incorporated by reference to Exhibits 10.3(a) and (b),
       respectively, from the 1991 Form 10-K)

 10.21 Los Angeles Office Lease Documents

       a    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)

       b    Amendment to July 25, 1991 lease dated June 26, 1996

       c    Amendment to July 25, 1991 lease dated September 12, 1996

       (items (b) and (c) incorporated by reference to Exhibits 10.19(b) and
       (c), respectively, from the 1996 Form 10-K)

 10.22 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)

                                       29
<PAGE>
 
       b    First Amendment to April 7, 1988 lease dated October 26, 1989
            (incorporated by reference to Exhibit 10.15(b) from the 1995 Form
            10-K)

       c    Second 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    Third Amendment to April 7, 1988 lease dated August 30, 1993
            (incorporated by reference to Exhibit 10.15(d) from the 1995 Form
            10-K)

       e    Fourth Amendment to April 7, 1988 lease dated August 6, 1996
            (incorporated by reference to Exhibit 10.20(e) from the 1996 Form
            10-K)

 10.23 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)

 10.24 Itasca Warehouse Lease Documents - Teachers' Retirement System of the
       State of Illinois

       a    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)

       b    Lease termination agreement related to the October 20, 1992 lease
            agreement dated May 27, 1997

 10.25 Itasca Warehouse Lease Documents - Centerpoint Properties Corporation

       a    Agreement dated as of September 6, 1996 between Centerpoint
            Properties Corporation and Playboy Enterprises, Inc. (incorporated
            by reference to Exhibit 10.23 from the 1996 Form 10-K)
 
       b    Amendment to September 6, 1996 lease dated June 1, 1997
 
 10.26 Selected Company Remunerative Plans
 
       *a   Executive Protection Program dated March 1, 1990 (incorporated by
            reference to Exhibit 10.18(c) from the 1995 Form 10-K)
 
       *b   Deferred Compensation Plan for Employees effective October 1, 1992

       *c   Deferred Compensation Plan for Nonemployee Directors effective
            October 1, 1992

       (items (b) and (c) incorporated by reference to Exhibits 10.2(g) and (h),
       respectively, from the 1992 Form 10-K)
 
       *d   First Amendment to Deferred Compensation Plan for Employees
            effective December 31, 1993 (incorporated by reference to Exhibit
            10.1(f) from the 1994 Form 10-K)
 
       *e   Second Amendment to Deferred Compensation Plan for Employees
            effective April 1, 1996
 
       *f   First Amendment to Deferred Compensation Plan for Nonemployee
            Directors effective April 1, 1996

       (items (e) and (f) incorporated by reference to Exhibits 10.24(g) and
       (h), respectively, from the 1996 Form 10-K)
 
       *g   Third Amendment to Deferred Compensation Plan for Employees
            effective July 1, 1997
 
       *h   Second Amendment to Deferred Compensation Plan for Nonemployee
            Directors effective July 1, 1997

 10.27 Selected Employment, Termination and Other Agreements

       *a   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)

       *b   Playboy Enterprises, Inc. 1989 Stock Option Agreement

       *c   Letter dated July 18, 1990 pursuant to the June 7, 1990
            recapitalization regarding adjustment of options

       (items (b) and (c) incorporated by reference to Exhibits 10.19(c) and
       (d), respectively, from the 1995 Form 10-K)

       *d   Consent and Amendment regarding the 1989 Option Plan

       *e   Playboy Enterprises, Inc. 1991 Non-Qualified Stock Option Plan for
            Non-Employee Directors, as amended

       *f   Playboy Enterprises, Inc. 1991 Non-Qualified Stock Option Agreement
            for Non-Employee Directors

       (items (d), (e) and (f) incorporated by reference to Exhibits 10.4(aa),
       (rr) and (nn), respectively, from the 1991 Form 10-K)

       *g   Playboy Enterprises, Inc. Severance Agreement (incorporated by
            reference to Exhibit 10.4(vv) from the 1991 Form 10-K)

       *h   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)

       *i   Amendment dated August 15, 1996 regarding the Employment Agreement
            dated May 21, 1992 between Playboy Enterprises, Inc. and Anthony J.
            Lynn (incorporated by reference to Exhibit 10.25(i) from the 1996
            Form 10-K)

       *j   Agreement dated October 16, 1996 amending the Employment Agreement
            dated May 21, 1992 between Playboy Enterprises, Inc. and Anthony J.
            Lynn

                                       30
<PAGE>
 
       *k   Playboy Enterprises, Inc. Incentive Compensation Plan for Anthony J.
            Lynn

       (items (j) and (k) incorporated by reference to Exhibits 10.3(a) and (b),
       respectively, from the Third Quarter 1997 Form 10-Q)

       *l   Letter Agreement dated February 26, 1993 regarding Special Incentive
            Compensation Plan for Herb Laney

       *m   Memorandum dated May 1, 1996 regarding extension of Special
            Incentive Compensation Plan for Herb Laney dated February 26, 1993

       (items (l) and (m) incorporated by reference to Exhibits 10.25(j) and
       (k), respectively, from the 1996 Form 10-K)

       *n   Memorandum dated October 11, 1996 regarding special compensation
            plan for Herb Laney

       *o   Playboy Enterprises, Inc. Incentive Compensation Plan for Herbert M.
            Laney

       *p   Employment Agreement dated April 7, 1997 between Playboy
            Enterprises, Inc. and Marianne Howatson

       *q   Letter Agreement dated April 18, 1997 regarding employment of Linda
            Havard

       (items (n) through (q) incorporated by reference to Exhibits 10.3(c)
       through (f), respectively, from the Third Quarter 1997 Form 10-Q)

       *r   Letter Agreement dated September 6, 1996 regarding employment of Bob
            Perkins

       *s   Letter Agreement dated September 4, 1997 regarding Anthony J. Lynn's
            waiver of fiscal 1998 base salary increase

*10.28 Form of Nonqualified Option Agreement between Playboy Enterprises, Inc.
       and each of Dennis S. Bookshester and Sol Rosenthal (incorporated by
       reference to Exhibit 4.4 from the Company's Registration Statement No.
       333-30185 on Form S-8 dated November 13, 1996)

  11   Computation of Net Income 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   Subsidiaries

  23   Consent of Independent Public Accountants

  27   Financial Data Schedule



______
*    Indicates management compensation plan

#    Certain information omitted pursuant to a request for confidential
     treatment filed separately with and granted by the Securities and Exchange
     Commission

(d)  Financial Statement Schedules

     See Item 14(a) above

                                       31
<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.


September 23, 1997               By /s/ Linda G. Havard
                                    -----------------------------------
                                     Linda G. Havard
                                     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 20, 1997
---------------------------------------
Christie Hefner
Chairman of the Board,
Chief Executive Officer and Director
 
/s/Richard S. Rosenzweig                  September 22, 1997
---------------------------------------
Richard S. Rosenzweig
Executive Vice President and Director
 
/s/Dennis S. Bookshester                  September 20, 1997
---------------------------------------
Dennis S. Bookshester
Director
 
/s/David I. Chemerow                      September 21, 1997
---------------------------------------
David I. Chemerow
Director
 
 
/s/Donald G. Drapkin                      September 19, 1997
---------------------------------------
Donald G. Drapkin
Director
 
/s/Sol Rosenthal                          September 22, 1997
---------------------------------------
Sol Rosenthal
Director
 
/s/Sir Brian Wolfson                      September 24, 1997
---------------------------------------
Sir Brian Wolfson
Director
 
/s/Linda G. Havard                        September 23, 1997
---------------------------------------
Linda G. Havard
Executive Vice President,
Finance and Operations,
and Chief Financial Officer

                                       32
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------

  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.

<TABLE> 
<CAPTION> 
Exhibit                                                                              Sequentially
Number      Description                                                              Numbered Page
------      -----------                                                              -------------
<S>                                                                                  <C>  
  3.1  Restated Certificate of Incorporation of the Company (incorporated by
       reference to Exhibit 3.1 from the 1995 Form 10-K)                                 

  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   Amended and Restated Playboy Enterprises, Inc. 1995 Stock Incentive
            Plan (incorporated by reference to Exhibit 10.1 from the Third
            Quarter 1997 Form 10-Q)
       *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
       (items (b), (c) and (d) incorporated by reference to Exhibits 4.3, 4.4           
       and 4.5, respectively, from the Company's Registration Statement No. 33-
       58145 on Form S-8 dated March 20, 1995)
       *@e  Form of 162(m) Restricted Stock Agreement for Section 162(m)
            Restricted Stock issued under the Plan                                       41-50

*10.2  Playboy Enterprises, Inc. Employee Stock Purchase Plan, as amended and
       restated (incorporated by reference to Exhibit 10.2 from the Third
       Quarter 1997 Form 10-Q)

 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.
       (items (a) and (b) incorporated by reference to Exhibits 10.3(a) and (b),
       respectively, from the 1995 Form 10-K)
       c    First Amendment dated August 15, 1996 to May 15, 1990 agreement
            (incorporated by reference to Exhibit 10.3(c) from the 1996 Form 10-
            K)

@10.4  Playboy Magazine Distribution Agreement dated as of May 27, 1997
       between Playboy Enterprises, Inc. and Warner Publisher Services, Inc.             51-80

 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    Amendment dated as of June 1, 1988 to said Fulfillment Agreement
            (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 July 1, 1996 to said Fulfillment Agreement
            (incorporated by reference to Exhibit 10.5(d) from the 1996 Form 10-
            K)
</TABLE> 

                                       33
<PAGE>
 
<TABLE> 
<S>                                                                                  <C> 
 10.6   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)                                                                       
                                                                                         
 10.7   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)             
                                                                                         
 10.8   Distribution Agreement between Playboy Entertainment Group, Inc. and             
        Universal Music & Video Distribution (formerly Uni Distribution Corp.)           
        regarding licensing and sale of domestic home video product                      
        a    Agreement dated as of March 24, 1995 (incorporated by reference to          
             Exhibit 10.8 from the 1995 Form 10-K)                                       
        b    Amendment to March 24, 1995 agreement dated February 28, 1997               
             (incorporated by reference to Exhibit 10.6 from the Third Quarter           
             1997 Form 10-Q)                                                             
                                                                                         
 10.9   Agreements effective November 1, 1995 between Playboy Entertainment              
        Group, Inc., Continental Shelf 16 Limited, Precis (1378) Limited and             
        Playboy TV/Benelux Limited regarding the establishment of a Playboy TV           
        pay television service in the United Kingdom (incorporated by reference          
        to Exhibit 10.9 from the 1996 Form 10-K)                                         
                                                                                         
10.10   Agreements between Playboy Entertainment Group, Inc. and Tohokushinsha           
        Film Corporation regarding the establishment of a Playboy TV pay                 
        television service in Japan                                                      
        a    Memorandum of Agreement and Amendment dated July 31, 1995                   
        b    Amendment to July 31, 1995 agreement dated March 26, 1996                   
        (items (a) and (b) incorporated by reference to Exhibits 10.10(a) and            
        (b), respectively, from the 1996 Form 10-K)                                      
                                                                                         
10.11   Agreements between Playboy Entertainment Group, Inc. and Bloomfield              
        Mercantile Inc. related to establishing international networks in Latin          
        America, Spain and Portugal                                                      
        #a   Agreement outline as of March 29, 1996                                      
        #b   Letter agreement dated January 13, 1997                                     
        (items (a) and (b) incorporated by reference to Exhibits 10.4(a) and             
        (b), respectively, from the Third Quarter 1997 Form 10-Q)                        
                                                                                         
#10.12  Memorandum of Understanding as of February 26, 1997 between Playboy             
        Entertainment Group, Inc. and Daewoo Corporation related to establishing         
        international networks in South Korea (incorporated by reference to              
        Exhibit 10.5 from the Third Quarter 1997 Form 10-Q)                               

 10.13  Deal Memorandum dated June 22, 1995 between Playboy Networks Worldwide
        and TVN regarding distribution and services related to the AdulTVision
        pay television service (incorporated by reference to Exhibit 10.11 from
        the 1996 Form 10-K)

 10.14  Distribution Agreement between Playboy Entertainment Group, Inc. and
        Orion Home Video regarding the distribution of certain home video
        programs and product
       a    Agreement dated June 27, 1996 (incorporated by reference to Exhibit
            10.12 from the 1996 Form 10-K)
       b    Amendment to June 27, 1996 agreement dated July 29, 1996
            (incorporated by reference to Exhibit 10.7 from the Third Quarter
            1997 Form 10-Q)
</TABLE> 

                                       34
<PAGE>
 
<TABLE> 
<S>                                                                                      <C> 
10.15  Affiliation Agreement between Playboy Entertainment Group, Inc. and
       DirecTV regarding the satellite distribution of Playboy TV
       a    Agreement dated November 15, 1993
       b    First Amendment to November 15, 1993 agreement dated as of April 19, 1994
       c    Second Amendment to November 15, 1993 agreement dated as of July 26, 1995
       (items (a), (b) and (c) incorporated by reference to Exhibits 10.13(a),
       (b) and (c), respectively, from the 1996 Form 10-K)

10.16  Affiliation Agreement dated February 29, 1996 between Playboy
       Entertainment Group, Inc. and PrimeStar Partners, L.P. regarding the
       satellite distribution of Playboy TV (incorporated by reference to
       Exhibit 10.14 from the 1996 Form 10-K)

10.17  Warner Home Video/Critics' Choice Direct Marketing License Agreements
       a    Agreement dated February 22, 1994 regarding purchase of Turner
            product
       b    Agreement dated February 22, 1994 regarding purchase of non-Turner
            product
       (items (a) and (b) incorporated by reference to Exhibits 10.10 and 10.11,
       respectively, from the 1995 Form 10-K)
       c    Agreement dated June 28, 1996 regarding purchase of Turner and non-
            Turner product (incorporated by reference to Exhibit 10.15(c) from
            the 1996 Form 10-K)

10.18  Product License Agreements between Playboy Enterprises, Inc. and Chaifa
       Investment, Limited
       a    Agreement dated September 26, 1989 related to the Hong Kong
            territory
       b    Agreement dated March 4, 1991 related to the People's Republic of
            China territory
       c    Amendment dated July 21, 1992 related to the March 4, 1991 agreement
       d    Amendment dated August 17, 1993 related to the agreements dated
            September 26, 1989 and March 4, 1991
       e    Amendment dated January 23, 1996 related to the agreements dated
            September 26, 1989 and March 4, 1991
       (items (a) through (e) incorporated by reference to Exhibits 10.16(a)
       through (e), respectively, from the 1996 Form 10-K)
       @f   Amendment dated May 12, 1997 related to the agreements dated
            September 26, 1989 and March 4, 1991                                         81-82

10.19  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    First Amendment to February 10, 1995 Credit Agreement dated as of
            March 31, 1995
       (items (a) and (b) incorporated by reference to Exhibits 10.12(a) and
       (b), respectively, from the 1995 Form 10-K)
       c    Second Amendment to February 10, 1995 Credit Agreement dated as of
            March 5, 1996 (incorporated by reference to Exhibit 10.17(c) from
            the 1996 Form 10-K)
       @d   Third Amendment to February 10, 1995 Credit Agreement dated as of
            September 11, 1997 but effective as of July 8, 1997                          83-85

10.20  Playboy Mansion West Lease Agreement, as amended, between Playboy
       Enterprises, Inc. and Hugh M. Hefner
       a    Letter of Interpretation of Lease
       b    Agreement of lease
       (items (a) and (b) incorporated by reference to Exhibits 10.3(a) and (b),
       respectively, from the 1991 Form 10-K)
</TABLE> 

                                       35
<PAGE>
 
<TABLE> 
<S>                                                                                      <C>         
10.21  Los Angeles Office Lease Documents
       a    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)
       b    Amendment to July 25, 1991 lease dated June 26, 1996
       c    Amendment to July 25, 1991 lease dated September 12, 1996
       (items (b) and (c) incorporated by reference to Exhibits 10.19(b) and
       (c), respectively, from the 1996 Form 10-K)

10.22  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    First Amendment to April 7, 1988 lease dated October 26, 1989
            (incorporated by reference to Exhibit 10.15(b) from the 1995 Form
            10-K)
       c    Second 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    Third Amendment to April 7, 1988 lease dated August 30, 1993
            (incorporated by reference to Exhibit 10.15(d) from the 1995 Form
            10-K)
       e    Fourth Amendment to April 7, 1988 lease dated August 6, 1996
            (incorporated by reference to Exhibit 10.20(e) from the 1996 Form
            10-K)

10.23  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)

10.24  Itasca Warehouse Lease Documents - Teachers' Retirement System of the
       State of Illinois
       a    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)
       @b   Lease termination agreement related to the October 20, 1992 lease
            agreement dated May 27, 1997                                                 86-88

10.25  Itasca Warehouse Lease Documents - Centerpoint Properties Corporation
       a    Agreement dated as of September 6, 1996 between Centerpoint
            Properties Corporation and Playboy Enterprises, Inc. (incorporated
            by reference to Exhibit 10.23 from the 1996 Form 10-K)
       @b   Amendment to September 6, 1996 lease dated June 1, 1997                      89-91

10.26  Selected Company Remunerative Plans
       *a   Executive Protection Program dated March 1, 1990 (incorporated by
            reference to Exhibit 10.18(c) from the 1995 Form 10-K)
       *b   Deferred Compensation Plan for Employees effective October 1, 1992
       *c   Deferred Compensation Plan for Nonemployee Directors effective 
            October 1, 1992
       (items (b) and (c) incorporated by reference to Exhibits 10.2(g) and (h),
       respectively, from the 1992 Form 10-K) 
       *d   First Amendment to Deferred Compensation Plan for Employees
            effective December 31, 1993 (incorporated by reference to Exhibit
            10.1(f) from the 1994 Form 10-K)
       *e   Second Amendment to Deferred Compensation Plan for Employees
            effective April 1, 1996
</TABLE> 
     

                                       36
<PAGE>
 
<TABLE> 
<S>                                                                                      <C> 
       *f   First Amendment to Deferred Compensation Plan for
            Nonemployee Directors effective April 1, 1996
       (items (e) and (f) incorporated by reference to Exhibits 10.24(g) and
       (h), respectively, from the 1996 Form 10-K)
       *@g  Third Amendment to Deferred Compensation Plan for Employees                  
            effective July 1, 1997                                                       92-94
       *@h  Second Amendment to Deferred Compensation Plan for   
            Nonemployee Directors effective July 1, 1997                                    95
 
10.27  Selected Employment, Termination and Other Agreements
       *a   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)
       *b   Playboy Enterprises, Inc. 1989 Stock Option Agreement
       *c   Letter dated July 18, 1990 pursuant to the June 7, 1990
            recapitalization regarding adjustment of options
       (items (b) and (c) incorporated by reference to Exhibits 10.19(c) and
       (d), respectively, from the 1995 Form 10-K)
       *d   Consent and Amendment regarding the 1989 Option Plan
       *e   Playboy Enterprises, Inc. 1991 Non-Qualified Stock Option Plan for
            Non-Employee Directors, as amended
       *f   Playboy Enterprises, Inc. 1991 Non-Qualified Stock Option Agreement
            for Non-Employee Directors
       (items (d), (e) and (f) incorporated by reference to Exhibits 10.4(aa),
       (rr) and (nn), respectively, from the 1991 Form 10-K)
       *g   Playboy Enterprises, Inc. Severance Agreement (incorporated by
            reference to Exhibit 10.4(vv) from the 1991 Form 10-K)
       *h   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)
       *i   Amendment dated August 15, 1996 regarding the Employment Agreement
            dated May 21, 1992 between Playboy Enterprises, Inc. and Anthony J.
            Lynn (incorporated by reference to Exhibit 10.25(i) from the 1996
            Form 10-K)
       *j   Agreement dated October 16, 1996 amending the Employment Agreement
            dated May 21, 1992 between Playboy Enterprises, Inc. and Anthony J.
            Lynn
       *k   Playboy Enterprises, Inc. Incentive Compensation Plan for Anthony J.
            Lynn
       (items (j) and (k) incorporated by reference to Exhibits 10.3(a) and (b),
       respectively, from the Third Quarter 1997 Form 10-Q)
       *l   Letter Agreement dated February 26, 1993 regarding Special Incentive
            Compensation Plan for Herb Laney
       *m   Memorandum dated May 1, 1996 regarding extension of Special
            Incentive Compensation Plan for Herb Laney dated February 26, 1993
       (items (l) and (m) incorporated by reference to Exhibits 10.25(j) and
       (k), respectively, from the 1996 Form 10-K)
       *n   Memorandum dated October 11, 1996 regarding special compensation
            plan for Herb Laney
       *o   Playboy Enterprises, Inc. Incentive Compensation Plan for Herbert M.
            Laney
       *p   Employment Agreement dated April 7, 1997 between Playboy
            Enterprises, Inc. and Marianne Howatson
       *q   Letter Agreement dated April 18, 1997 regarding employment of Linda
            Havard
       (items (n) through (q) incorporated by reference to Exhibits 10.3(c)
       through (f), respectively, from the Third Quarter 1997 Form 10-Q)
       *@r  Letter Agreement dated September 6, 1996 regarding employment of
            Bob Perkins                                                                  96-98
       *@s  Letter Agreement dated September 4, 1997 regarding Anthony J.
            Lynn's waiver of fiscal 1998 base salary increase                               99
</TABLE> 

                                       37
<PAGE>
 
<TABLE> 
<S>                                                                                    <C> 
*10.28  Form of Nonqualified Option Agreement between Playboy Enterprises, Inc.
        and each of Dennis S. Bookshester and Sol Rosenthal (incorporated by
        reference to Exhibit 4.4 from the Company's Registration Statement No.
        333-30185 on Form S-8 dated November 13, 1996)

@11     Computation of Net Income Per Share                                                100

@13     Annual Report to Security Holders                                              101-122

        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     Subsidiaries                                                                       123

@23     Consent of Independent Public Accountants                                          124

@27     Financial Data Schedule                                                            125
</TABLE> 

_________________

*   Indicates management compensation plan
#   Certain information omitted pursuant to a request for confidential treatment
    filed separately with and granted by the Securities and Exchange Commission
@  Filed herewith

                                       38
<PAGE>
 
                       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 1997 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 27 of this Form 10-K.

  In our opinion, the financial statement schedule 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 5, 1997

                                       39
<PAGE>
 
                  PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS
               FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
                                (IN THOUSANDS)


<TABLE>
<CAPTION>
==========================================================================================================
           COLUMN A                         COLUMN B          COLUMN C          COLUMN D       COLUMN E
----------------------------------------------------------------------------------------------------------
                                                             Additions
                                                       ----------------------
                                           Balance at  Charged to  Charged to                 Balance at
                                            Beginning   Costs and   Other                        End
         Description                        of Period   Expenses    Accounts   Deductions     of  Period
-------------------------------            ----------  ----------  ----------  ----------     ----------
<S>                                        <C>         <C>         <C>         <C>            <C>
Allowance deducted in the balance sheet
 from the asset to which it applies:

Year ended June 30, 1997:

 Allowance for doubtful accounts           $    3,009  $    1,241  $  1,522(a) $    1,890(b)  $   3,882
                                           ==========  ==========  ========    ==========     =========

 Allowance for returns                     $   21,939  $        -  $ 64,197(c) $   63,389(d)  $  22,747
                                           ==========  ==========  ========    ==========     =========


Year ended June 30, 1996:

 Allowance for doubtful accounts           $    4,837  $      504  $  1,632(a) $    3,964(b)  $   3,009
                                           ==========  ==========  ========    ==========     =========
 Allowance for returns                     $   20,952  $        -  $ 59,718(c) $   58,731(d)  $  21,939
                                           ==========  ==========  ========    ==========     =========


Year ended June 30, 1995:

 Allowance for doubtful accounts           $    3,155  $    1,709  $  2,042(a) $    2,069(b)  $   4,837
                                           ==========  ==========  ========    ==========     =========
 Allowance for returns                     $   18,612  $        -  $ 57,057(c) $   54,717(d)  $  20,952
                                           ==========  ==========  ========    ==========     =========
</TABLE>

Notes:

(a)  Represents provisions for unpaid subscriptions charged to net revenues.
     Also included in fiscal 1996 amount was $98 related to the consolidation of
     the VIPress Poland Sp. z o.o. balance at the acquisition date in March
     1996.

(b)  Represents uncollectible accounts less recoveries.

(c)  Represents provisions charged to net revenues for estimated returns of
     Playboy magazine, other domestic publishing products and domestic home
     videos.

(d)  Represents settlements on provisions previously recorded.

                                       40