<PAGE>
 
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-Q



(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
For the quarterly period ended December 31, 1995

                                       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)


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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.            YES  X      NO 
                                                  ---       ---

As of January 31, 1996, there were 4,713,954 shares of Class A Common Stock, par
value $.01 per share and 15,286,567 shares of Class B Common Stock, par value
$.01 per share, outstanding.
<PAGE>
 
                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                               INDEX TO FORM 10-Q

                                  ____________

                                                                     Page Number
                                                                     -----------


Part I.   Financial Information
 
          Condensed Consolidated Statements of Operations
          for the Quarters Ended December 31, 1995 and 1994                3
 
          Condensed Consolidated Statements of Operations
          for the Six Months Ended December 31, 1995 and 1994              4
 
          Condensed Consolidated Balance Sheets
          at December 31, 1995 and June 30, 1995                           5
 
          Condensed Consolidated Statements of Cash Flows
          for the Six Months Ended December 31, 1995 and 1994              6
 
          Notes to Condensed Consolidated Financial
          Statements                                                     7-8
 
          Management's Discussion and Analysis of
          Financial Condition and Results of Operations                 9-16
 

Part II.  Other Information                                               17

                                       2
<PAGE>
 
                  PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                for the Quarters Ended December 31 (Unaudited)
                   (In thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                         1995       1994*
                                                       --------   --------
<S>                                                   <C>        <C>
Net revenues                                           $ 71,618   $ 64,663
                                                       --------   --------
 
Costs and expenses:
  Cost of sales                                         (60,498)   (56,436)
  Selling and administrative expenses                    (8,266)    (6,936)
                                                       --------   --------
    Total costs and expenses                            (68,764)   (63,372)
                                                       --------   --------
 
      Operating income                                    2,854      1,291
                                                       --------   --------
 
Nonoperating income (expense):
  Investment income                                          13         20
  Interest expense                                         (150)      (178)
  Other, net                                                 (8)        52
                                                       --------   --------
    Total nonoperating expense                             (145)      (106)
                                                       --------   --------
 
      Income before income taxes                          2,709      1,185
 
Income tax expense                                       (1,571)      (184)
                                                       --------   --------
 
      Net income                                       $  1,138   $  1,001
                                                       ========   ========
 
Weighted average number of common shares outstanding     19,990     19,986
                                                       ========   ========

Net income per common share                            $    .06   $    .05
                                                       ========   ========
</TABLE> 
 


* Certain reclassifications have been made to conform to the current year
  presentation.


  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                       3
<PAGE>
 
                  PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               for the Six Months Ended December 31 (Unaudited)
                   (In thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                         1995       1994*
                                                       ---------  ---------
<S>                                                   <C>        <C>
Net revenues                                           $ 133,881  $ 121,881
                                                       ---------  ---------
 
Costs and expenses:
 Cost of sales                                          (114,182)  (107,165)
 Selling and administrative expenses                     (15,405)   (14,289)
                                                       ---------  ---------
   Total costs and expenses                             (129,587)  (121,454)
                                                       ---------  ---------
                                        
     Operating income                                      4,294        427
                                                       ---------  ---------
                                        
Nonoperating income (expense):          
 Investment income                                            29         31
 Interest expense                                           (306)      (343)
 Other, net                                                  (34)        39
                                                       ---------  ---------
   Total nonoperating expense                               (311)      (273)
                                                       ---------  ---------
                                        
     Income before income taxes                            3,983        154
                                        
Income tax expense                                        (1,833)      (381)
                                                       ---------  ---------
                                       
     Net income (loss)                                 $   2,150  $    (227)
                                                       =========  =========
 
Weighted average number of common shares outstanding      19,990     19,979
                                                       =========  =========

Net income (loss) per common share                     $     .11  $    (.01)
                                                       =========  =========
</TABLE> 


*  Certain reclassifications have been made to conform to the current year
   presentation.


  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                       4
<PAGE>
 
                  PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                 (Unaudited)
                                                                  Dec. 31,    June 30,
                                                                    1995        1995
                                                                 -----------  ---------
<S>                                                              <C>          <C>
Assets
------
  Cash and cash equivalents                                        $  1,132   $  1,471
  Receivables, net of allowance for doubtful accounts of
   $3,840 and $4,837, respectively                                   25,608     24,151
  Inventories                                                        26,236     21,428
  Programming costs                                                  28,926     29,740
  Deferred subscription acquisition costs                             9,542      9,176
  Other current assets                                               10,054     10,190
                                                                   --------   --------
    Total current assets                                            101,498     96,156
                                                                   --------   --------
 
  Property and equipment, at cost                                    36,810     36,576
  Accumulated depreciation                                          (24,296)   (23,100)
                                                                   --------   --------
    Property and equipment, net                                      12,514     13,476
                                                                   --------   --------
 
  Programming costs - noncurrent                                      5,250      3,209
  Trademarks                                                         11,269     11,046
  Net deferred tax assets                                             5,441      6,493
  Other noncurrent assets                                            10,106      7,455
                                                                   --------   --------
 
  Total assets                                                     $146,078   $137,835
                                                                   ========   ========
 
Liabilities
-----------
  Short-term borrowings                                            $  6,500   $  5,000
  Current financing obligations                                         336        333
  Accounts payable                                                   24,074     19,549
  Accrued salaries, wages and employee benefits                       3,772      4,088
  Reserves for losses on disposals of discontinued operations           750        766
  Income taxes payable                                                  861        875
  Deferred revenues                                                  42,146     42,905
  Other liabilities and accrued expenses                              9,872      8,621
                                                                   --------   --------
    Total current liabilities                                        88,311     82,137
 
  Long-term financing obligations                                       344        687
  Other noncurrent liabilities                                        8,178      7,921
                                                                   --------   --------
    Total liabilities                                                96,833     90,745
                                                                   --------   --------
 
Shareholders' Equity
--------------------
  Common stock, $.01 par value
   Class A - 7,500,000 shares authorized; 5,042,381 issued               50         50
   Class B - 30,000,000 shares authorized; 16,477,143 issued            165        165
  Capital in excess of par value                                     36,399     36,398
  Retained earnings                                                  20,696     18,546
  Less cost of treasury stock                                        (8,065)    (8,069)
                                                                   --------   --------
    Total shareholders' equity                                       49,245     47,090
                                                                   --------   --------
 
  Total liabilities and shareholders' equity                       $146,078   $137,835
                                                                   ========   ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       5
<PAGE>
 
                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                for the Six Months Ended December 31 (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
 
 
                                                                  1995       1994
                                                                --------   --------
<S>                                                            <C>        <C>
Cash Flows From Operating Activities
------------------------------------
Net income (loss)                                               $  2,150   $   (227)
Adjustments to reconcile net income (loss) to net cash
 provided by (used for) operating activities:
  Depreciation of property and equipment                           1,196      1,267
  Amortization of intangible assets                                  872        746
  Amortization of investments in entertainment programming         9,023      9,125
  Investments in entertainment programming                       (10,250)   (10,838)
  Net change in operating assets and liabilities                  (1,449)    (2,433)
  Net cash used for discontinued operations                          (16)       (96)
  Other, net                                                          15         30
                                                                --------   --------
    Net cash provided by (used for) operating activities           1,541     (2,426)
                                                                --------   --------
 
Cash Flows From Investing Activities
------------------------------------
Additions to property and equipment                                 (234)      (171)
Acquisitions of equity interests in international ventures        (2,856)         -
Other, net                                                            60         16
                                                                --------   --------
    Net cash used for investing activities                        (3,030)      (155)
                                                                --------   --------
 
Cash Flows From Financing Activities
------------------------------------
Increase in short-term borrowings                                  1,500      4,000
Repayment of debt                                                   (350)    (1,850)
Proceeds from exercise of stock options                                -        198
                                                                --------   --------
    Net cash provided by financing activities                      1,150      2,348
                                                                --------   --------
 
Net decrease in cash and cash equivalents                           (339)      (233)
 
Cash and cash equivalents at beginning of period                   1,471      1,258
                                                                --------   --------
 
Cash and cash equivalents at end of period                      $  1,132   $  1,025
                                                                ========   ========
 
</TABLE>



 The accompanying notes are an integral part of these consolidated financial
 statements.

                                       6
<PAGE>
 
                  PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
       for the Quarters and Six Months Ended December 31, 1995 and 1994

(A)  BASIS OF PREPARATION
     --------------------

     The financial information included herein is unaudited, but in the opinion
     of management, reflects all adjustments (which include only normal
     recurring adjustments) necessary for a fair presentation of the results for
     the interim periods. The interim results of operations and cash flows are
     not necessarily indicative of such results and cash flows for the entire
     year. These financial statements should be read in conjunction with the
     financial statements and notes thereto contained in the Annual Report on
     Form 10-K for the fiscal year ended June 30, 1995 of Playboy Enterprises,
     Inc. and Subsidiaries (the "Company").

(B)  INCOME TAXES
     ------------

     The Company's net deferred tax asset declined to $5.8 million at December
     31, 1995 based on management's projection of fiscal 1996 taxable income. As
     reported in the Company's Annual Report on Form 10-K for the fiscal year
     ended June 30, 1995, the significant components of the net deferred tax
     asset include net operating loss, capital loss and tax credit
     carryforwards. Of the $5.8 million and $6.9 million net deferred tax assets
     included in the Condensed Consolidated Balance Sheets at December 31, 1995
     and June 30, 1995, respectively, $0.4 million is included in "Other current
     assets" with the remainder segregated as "Net deferred tax assets".

     Realization of the net deferred tax asset is dependent upon the Company's
     ability to generate taxable income in future years. The recognition of
     benefits in the financial statements is based upon projections by
     management of future operating income and the anticipated reversal of
     temporary differences that will result in taxable income. Projections of
     future earnings were based on adjusted historical earnings.

     In order to fully realize the net deferred tax asset of $6.9 million
     recorded at June 30, 1995, the Company will need to generate future taxable
     income of approximately $20.2 million. Management believes that it is more
     likely than not that the required amount of taxable income will be
     realized. Management will periodically reconsider the assumptions utilized
     in the projection of future earnings and, if warranted, increase or
     decrease the amount of deferred tax benefits recognized through an
     adjustment to the valuation allowance.

(C)  INVENTORIES
     -----------

     Inventories, which are stated at the lower of cost (average cost, specific
     cost and first-in, first-out) or market, consisted of the following (in
     thousands):

<TABLE>
<CAPTION>
                                                           Dec. 31,  June 30,
                                                             1995      1995
                                                           --------  --------
<S>                                                        <C>       <C>
 
               Paper                                        $11,930   $ 7,342
               Editorial and other prepublication costs       5,962     6,193
               Merchandise finished goods                     8,344     7,893
                                                            -------   -------
       
               Total inventories                            $26,236   $21,428
                                                            =======   =======
</TABLE>
(D)  TREASURY STOCK
     --------------

     Treasury stock consisted of 328,427 Class A common shares and 1,200,576
     Class B common shares at December 31, 1995. At June 30, 1995, treasury
     stock consisted of 328,427 Class A common shares and 1,201,294 Class B
     common shares.

                                       7
<PAGE>
 
(E)  REVOLVING CREDIT AGREEMENT
     --------------------------

     Under the terms of the Company's revolving credit agreement, which was
     finalized in March 1995, the line of credit decreased from $30.0 million to
     $19.5 million at December 31, 1995. In January 1996, the banks approved an
     amendment to the current agreement which will increase the line of credit
     from $19.5 million to $35.0 million and extend the maturity date of the
     entire line to February 1999. The amended revolving credit agreement, which
     is subject to final documentation, will remain collateralized by
     substantially all of the Company's assets and will require the Company to
     maintain financial covenants pertaining to net worth, leverage and cash
     flow.

(F)  CONTINGENCIES
     -------------

     In January 1993, the Company received a General Notice from the United
     States Environmental Protection Agency (the "EPA") as a "potentially
     responsible party" ("PRP") in connection with a site identified as the
     Southern Lakes Trap & Skeet Club, apparently located at the Resort-Hotel in
     Lake Geneva, Wisconsin (the "Resort"), formerly owned by a subsidiary of
     the Company. The Resort was sold by the Company's subsidiary to LG
     Americana-GKP Joint Venture in 1982. Two other entities were also
     identified as PRPs in the notice. The notice relates to actions that may be
     ordered taken by the EPA to sample for and remove contamination in soils
     and sediments, purportedly caused by skeet shooting activities at the
     Resort property. During fiscal 1994, the EPA advised the Company of its
     position that the area of land requiring remediation is approximately twice
     the size of the initial site. The Company believes that it has established
     adequate reserves, which totaled $0.8 million at December 31, 1995, to
     cover the eventual cost of its anticipated share (based on an agreement
     with one of the other PRPs) of any remediation that may be agreed upon. The
     Company is also reviewing available defenses, insurance coverage and claims
     it may have against third parties.

 
    
                                       8
<PAGE>
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
               (IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)


RESULTS OF OPERATIONS
---------------------

  The Company's revenues increased 11% to $71.6 for the quarter ended December
31, 1995 compared to $64.7 for the prior year quarter.  Revenues were $133.9 for
the six months ended December 31, 1995, a 10% increase over revenues of $121.9
for the six months ended December 31, 1994.  These increases were due to higher
revenues from all of the Company's Groups, primarily driven by increases in the
domestic pay television business and the Collectors' Choice Music and Critics'
Choice Video catalogs.

  The Company reported operating income of $2.9 for the quarter ended December
31, 1995 compared to $1.3 in the prior year quarter.  For the six months ended
December 31, 1995, the Company had operating income of $4.3 compared to $0.4 in
the prior year.  These increases were primarily due to significantly higher
operating income for the domestic pay television and international product
marketing businesses, partially offset by lower operating income for Playboy
magazine and the international television and home video business.
Additionally, the current year six-month period reported meaningful increases in
operating income from the Playboy-related and domestic home video businesses.

  Net income for the quarter ended December 31, 1995 was $1.1, or $0.06 per
share, compared to $1.0, or $0.05 per share, for the prior year quarter.  For
the six months ended December 31, 1995, net income was $2.2, or $0.11 per share,
compared to a net loss of $0.2, or $0.01 per share, for the six months ended
December 31, 1994.

  Several of the Company's businesses can experience variations in quarterly
performance.  For example, Playboy magazine newsstand revenues vary from issue
to issue, with revenues generally higher for holiday issues and any issues
including editorial or pictorial features that generate unusual public interest.
Advertising revenues also vary from quarter to quarter, depending on product
introductions by advertising customers, changes in advertising buying patterns
and economic conditions.  In addition, Entertainment Group revenues vary with
the timing of sales to international customers, including the timing of new
multiyear agreements to both program and supply programming for exclusive
Playboy-branded time slots on overseas pay television services.  As a result,
the Company's performance in any quarterly period is not necessarily reflective
of full-year or longer-term trends.

PUBLISHING GROUP

  The revenues and operating income of the Publishing Group were as follows for
the periods indicated below:
<TABLE>
<CAPTION>
 
                                               REVENUES                   OPERATING INCOME
                                   ------------------------------  ------------------------------ 
                                      QUARTERS       SIX MONTHS       QUARTERS       SIX MONTHS
                                       ENDED           ENDED           ENDED           ENDED
                                    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                   --------------  --------------  --------------  --------------
                                    1995    1994    1995    1994    1995    1994    1995    1994
                                   ------  ------  ------  ------  ------  ------  ------  ------
<S>                                <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
     Playboy Magazine............   $29.3   $29.1   $54.1   $54.1  $ 2.6   $ 3.4   $ 3.2   $ 4.5
     Playboy-Related Businesses..     5.5     4.9    13.5    11.8    1.9     1.6     5.1     3.7
                                    -----   -----   -----   -----  -----   -----   -----   -----
        Subtotal.................    34.8    34.0    67.6    65.9    4.5     5.0     8.3     8.2
     Administrative Expenses.....       -       -       -       -   (1.0)   (0.8)   (2.1)   (1.9)
                                    -----   -----   -----   -----  -----   -----   -----   -----
          Total..................   $34.8   $34.0   $67.6   $65.9  $ 3.5   $ 4.2   $ 6.2   $ 6.3
                                    =====   =====   =====   =====  =====   =====   =====   =====
</TABLE>
Playboy Magazine

  Playboy magazine circulation revenues increased 6%, or $1.1, for the quarter
ended December 31, 1995 compared to the prior year.  This increase was primarily
due to 22% more U.S. and Canadian newsstand copies sold in the current year
quarter, principally attributable to the strong-selling December 1995 issue
featuring Farrah Fawcett.  Partially offsetting the above were unfavorable
newsstand sales adjustments related to prior issues in the current year quarter
compared to favorable adjustments related to prior issues in the prior year
quarter.  Subscription revenues were essentially flat for the quarter.  For the
six months ended December 31,

                                       9
<PAGE>
 
1995, circulation revenues remained stable compared to the prior year as a 1%
increase in subscription revenues combined with a higher average newsstand rate
in the current year were mostly offset by favorable newsstand sales adjustments
in the prior year related to prior years' issues.  Advertising revenues for the
quarter and six months ended December 31, 1995 decreased 15% and 3%,
respectively, compared to the prior year primarily due to 17% and 8% fewer
advertising pages, respectively, in the current year.  Partially offsetting the
decrease for the six-month period was an increase in average net revenue per
page principally due to a 5% rate increase effective with the January 1995
issue.  Advertising sales for the fiscal 1996 third quarter issues of the
magazine are closed, and the Company expects to report 6% more advertising pages
for the quarter compared to the prior year quarter.

  For the quarter and six months ended December 31, 1995, Playboy magazine
operating income decreased $0.8 and $1.3, respectively, compared to the prior
year primarily due to an increase in manufacturing costs partially offset by a
decrease in direct costs and operating expenses.  Manufacturing costs for the
quarter and six months ended December 31, 1995 increased 24% and 26%,
respectively, compared to the prior year principally due to higher paper prices
which began impacting the Company in the second half of fiscal 1995.  For the
quarter and six months ended December 31, 1995, average paper prices were 65%
and 53% higher, respectively, than the prior year.  Direct costs and operating
expenses decreased 7% and 8%, respectively, for the quarter and six months ended
December 31, 1995 largely due to lower subscription acquisition amortization
expense in the current year combined with a legal settlement in the prior year
with the Company's former distributor of Playboy magazine.  Further, editorial
costs for the quarter and six-month period increased and decreased,
respectively, as a result of higher photo costs related to the Farrah Fawcett
pictorial in the current year, more than offset by costs related to an
additional celebrity pictorial in the prior year six-month period.

Playboy-Related Businesses

  For the quarter and six months ended December 31, 1995, operating income from
the Company's Playboy-related businesses increased $0.3 and $1.4, respectively,
on $0.6 and $1.7 increases, respectively, in revenues.  These increases were
primarily due to higher revenues from newsstand specials principally as a result
of the publication of two additional issues in both of the current year periods
combined with a $1.00 increase in the cover price to $6.95 in most of the
country in the fourth quarter of the prior year, partially offset by 21% and
11%, respectively, lower average copy sales in the current year quarter and six-
month period.  Partially offsetting the above were lower revenues from ancillary
businesses.  Additionally, benefiting the comparison for the six-month period
were higher royalties from Playboy foreign editions.

Administrative Expenses

  The Publishing Group's administrative expenses increased $0.2 for both the
quarter and six months ended December 31, 1995.

CATALOG GROUP

  The revenues and operating income of the Catalog Group were as follows for the
periods indicated below:
<TABLE>
<CAPTION>
 
                           QUARTERS     SIX MONTHS
                             ENDED        ENDED
                         DECEMBER 31,  DECEMBER 31,
                         ------------  ------------
                         1995   1994   1995   1994
                         -----  -----  -----  -----
<S>                      <C>    <C>    <C>    <C>
 
     REVENUES..........  $20.8  $17.4  $35.0  $30.7
                         =====  =====  =====  =====
 
     OPERATING INCOME..  $ 1.9  $ 1.8  $ 2.6  $ 3.2
                         =====  =====  =====  =====
</TABLE>

                                       10
<PAGE>
 
  For the quarter and six months ended December 31, 1995, revenues of the
Catalog Group increased 20% and 14%, respectively, compared to the prior year
primarily due to higher sales volume from all of the Company's catalogs,
primarily the Collectors' Choice Music and Critics' Choice Video catalogs.  The
increased revenues related to the Critics' Choice Video catalog were primarily
attributable to a strong response to a competitive pricing strategy implemented
in the current year quarter to offset lower response rates in the previous two
quarters.  These lower response rates were due in part to competition from mass
marketers which offer popular videos at deeply-discounted prices.  The
Collectors' Choice Music and Playboy catalogs also had higher revenues primarily
due to increased circulation.

  For the quarter ended December 31, 1995, operating income increased 8%
compared to the prior year quarter primarily due to higher operating income from
the Critics' Choice Video and Collectors' Choice Music catalogs, primarily due
to the improved revenues.  Partially offsetting the above was lower operating
income from the Playboy catalog largely due to a slightly lower gross profit
margin.  For the six months ended December 31, 1995, operating income was 18%
lower than the prior year primarily due to lower operating income from the
Playboy and Critics' Choice Video catalogs.  These decreases were primarily due
to the lower revenues in the previous quarter for the Critics' Choice Video
catalog, combined with higher expenses for both catalogs due to paper price and
postal rate increases and expanded mailings to prospective customers.  Also
unfavorably impacting the Playboy catalog was a slightly lower gross profit
margin.  Slightly offsetting the above was an increase in operating income from
the Collectors' Choice Music catalog primarily due to the increased revenues.

ENTERTAINMENT GROUP

  The revenues and operating income (loss) of the Entertainment Group were as
follows for the periods indicated below:

<TABLE>
<CAPTION>
                                                                  QUARTERS       SIX MONTHS
                                                                   ENDED           ENDED
                                                                DECEMBER 31,    DECEMBER 31,
                                                               --------------  --------------
                                                                1995    1994    1995    1994
                                                               ------  ------  ------  ------
    <S>                                                        <C>     <C>     <C>     <C>
     REVENUES
     Domestic Pay Television:
      Playboy Television Pay-Per-View........................  $ 3.5   $ 2.9   $ 7.3   $ 5.6
      Playboy Television Monthly Subscription................    1.7     1.7     3.5     3.5
      Playboy Television Satellite Direct-to-Home and Other..    4.1     2.2     7.5     4.3
      AdulTVision............................................    0.5       -     0.9       -
                                                               -----   -----   -----   -----
        Total Domestic Pay Television........................    9.8     6.8    19.2    13.4
     Domestic Home Video.....................................    2.2     2.3     4.4     4.2
     International Television and Home Video.................    1.3     2.2     3.2     4.0
     Movies and Other........................................    0.4     0.2     0.7     0.3
                                                               -----   -----   -----   -----
        Total Revenues.......................................  $13.7   $11.5   $27.5   $21.9
                                                               =====   =====   =====   =====
 
     OPERATING INCOME (LOSS)
     Profit Contribution Before Programming Expense..........  $ 4.9   $ 3.9   $10.7   $ 7.0
     Programming Expense.....................................   (4.2)   (4.8)   (8.8)   (8.9)
                                                               -----   -----   -----   -----
        Total Operating Income (Loss)........................  $ 0.7   $(0.9)  $ 1.9   $(1.9)
                                                               =====   =====   =====   =====
</TABLE>

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

                                       11
<PAGE>
 
Domestic Pay Television

  For the quarter and six months ended December 31, 1995, pay-per-view revenues
for the domestic pay television service, Playboy Television, were 20% and 32%
higher, respectively, compared to the prior year, primarily attributable to
higher average buy rates, an increase in the number of addressable homes to
which Playboy Television was available, and higher average revenue per buy in
the current year.  At December 31, 1995, Playboy Television was available to
11.3 million cable addressable homes, a 9% increase compared to December 31,
1994.  Of the 11.3 million cable addressable homes, 3.3 million could receive
Playboy Television on a 24-hour basis, a 38% increase compared to December 31,
1994.  The number of cable addressable homes to which Playboy Television was
available at December 31, 1995 increased 0.4 million, or 4%, from September 30,
1995, while homes with 24-hour availability increased 0.2 million, or 6%, over
the same period.  The average annual increase in the number of cable addressable
homes to which Playboy Television was available over the last five complete
fiscal years was 29%.

  Management believes that beginning in the fourth quarter of fiscal 1993,
growth of the Company's domestic pay television business slowed due to the
effects of cable reregulation by the Federal Communications Commission ("FCC"),
which has resulted in a slowdown in the industry's rollout of addressability.
Additionally, competition for channel space has contributed to the slower
growth as cable operators have utilized available channel space for new cable
networks in connection with mandated retransmission consent agreements and for
other new services, including adult movie pay television services.  Management
believes that growth will continue to be affected in the near term as the cable
television industry responds to the FCC's initial rules and to subsequent
modifications, including the "going-forward rules" announced in fiscal 1995.
Over the coming months, management expects to continue to be impacted by the
slower growth of addressable homes related to these "going-forward rules," as a
result of cable operators being provided with incentives to add basic services.
Nevertheless, management believes that ultimately reregulation should benefit
pay-per-view services as cable operators seek unregulated sources of revenue,
such as pay-per-view.

  In February 1996, Congress passed, and President Clinton signed into law, The
Telecommunications Act of 1996 (the "Act").  The Act, among other things,
requires that sexually-oriented cable programming be scrambled unless it is
broadcast only during certain restricted periods.  The Act also imposes the
first-ever content regulations on on-line communications.  Penalties for
violation of the Act are significant and include fines and imprisonment.  The
Company believes that some of the Act's provisions are unconstitutional and will
be the subject of court challenges, the outcomes of which are difficult to
predict with certainty at the present time.  Certain cable operators that carry
programming regulated by the Act will have to scramble cable signals in order to
continue broadcasting programming produced by the Company.  Otherwise they would
have to restrict periods during which the programming is transmitted.  The
Company believes that if the scrambling requirements of the Act are enforced, a
portion of the Company revenues attributable to its domestic pay television
services will be adversely affected due to reduced carriage and/or reduced buy
rates. Based upon preliminary estimates, the Company believes that any loss in
revenues attributable to enforcement of the Act in its domestic pay television
operations would be less than $1 million for the fiscal year ended June 30,
1996.

  Playboy Television monthly subscription revenues remained stable for both the
quarter and six months ended December 31, 1995, compared to the prior year.
Playboy Television satellite direct-to-home and other revenues were 86% and 76%
higher for the quarter and six months ended December 31, 1995, respectively,
compared to the prior year.  These increases were due to higher DirecTV
revenues, as a result of an increase in the subscriber universe and a change to
24-hour programming in August 1995, and revenues in the current year from
PrimeStar, which launched Playboy Television in the fourth quarter of fiscal
1995, slightly offset by lower TVRO revenues.  Playboy Television was available
to 15.4 million cable and satellite direct-to-home households, including 362,000
monthly subscribers, at December 31, 1995.

  In July 1995, the Company launched a second domestic pay television channel,
AdulTVision, as a flanker channel to Playboy Television to protect the Company
against competitive pressures from other adult channels and to drive cable
access.  AdulTVision is being offered on a pay-per-view basis and is sold in
combination with Playboy Television through cable operators, and to the direct-
to-home market.  For the quarter and six months ended December 31, 1995,
revenues for the new channel were $0.5 and $0.9, respectively.  The Company
expects the channel to report a modest loss in fiscal 1996.

                                       12
<PAGE>
 
  Profit contribution for domestic pay television increased $2.2 and $4.0,
respectively, for the quarter and six months ended December 31, 1995 primarily
due to the significant increases in revenues combined with lower distribution
costs, partially offset by transponder expenses related to the new channel and
higher sales and marketing costs in the current year.

Domestic Home Video

  Domestic home video revenues decreased $0.1 for the quarter ended December 31,
1995, compared to the prior year quarter. For the six-month period, revenues
increased $0.2 compared to the prior year primarily due to higher royalties
related to a direct-response continuity series with Warner Music Enterprises,
Inc. ("Warner Music"), combined with revenues from the sale of inventory to
Warner Music in connection with the continuity series.  As a result of Time
Warner Inc.'s recent decision to eliminate Warner Music, the continuity series
will be distributed by another division of Time Warner Inc., Time Life Inc.,
which has elected to continue with the Company's series without interruption.
Additionally, there were higher sales of new releases in the current year, in
part due to the extraordinary sales of The Best of Pamela Anderson.  Partially
offsetting the above were net revenues in the prior year related to sales and
returns of catalog titles compared to none in the current year due to a three-
year licensing agreement effective in the prior year with the Company's
distributor whereby the Company receives an annual guarantee in the second half
of each year, subject to certain earn-out provisions in the final year.  The
second quarter revenues were impacted by the same factors.

  Profit contribution increased $0.1 for the quarter ended December 31, 1995,
compared to the prior year quarter.  For the six-month period, profit
contribution increased $0.9 compared to the prior year principally due to the
increase in revenues in the current year combined with costs in the prior year
related to an industry convention which will not be held in the current year.

International Television and Home Video

  For the quarter and six months ended December 31, 1995, profit contribution
from the international television and home video business decreased $0.9 for
both periods on $0.9 and $0.8 decreases in revenues for the quarter and six-
month period, respectively.  These decreases were primarily due to higher
international television revenues in the prior year associated with multiyear
agreements.  Partially offsetting the above were revenues in the current year as
a result of the recent launch of a Playboy Television channel in Japan combined
with new sales to Mexico, and an unfavorable adjustment in the prior year
related to revenues associated with a multiyear agreement recorded in fiscal
1994.  Variations in quarterly performance are caused by revenues and profit
contribution from multiyear agreements being recognized depending upon the
timing of program delivery, license periods and other factors.

Programming Expense

  Programming amortization expense associated with the Entertainment Group
businesses discussed above decreased $0.6 and $0.1 for the quarter and six
months ended December 31, 1995, respectively, compared to the prior year
primarily due to the lower revenues from international television and home
video, partially offset by increased investments in entertainment programming.

Movies and Other

  For the quarter and six months ended December 31, 1995, operating income from
movies and other businesses remained stable and increased $0.1, respectively, on
$0.2 and $0.4 increases in revenues, respectively.  The Entertainment Group's
administrative expenses for the quarter and six months ended December 31, 1995
increased $0.6 and $0.5, respectively, compared to the prior year primarily due
to higher compensation expenses in the current year.

                                       13

<PAGE>
 
PRODUCT MARKETING GROUP

  The revenues and operating income of the Product Marketing Group were as
follows for the periods indicated below:

<TABLE>
<CAPTION>
                                         QUARTERS     SIX MONTHS
                                           ENDED         ENDED
                                        DECEMBER 31,  DECEMBER 31,
                                        ------------  ------------
                                        1995   1994   1995   1994
                                        -----  -----  -----  -----
     <S>                                <C>    <C>    <C>    <C>
 
     REVENUES.........................  $ 2.3  $ 1.8  $ 3.8  $ 3.4
                                        =====  =====  =====  =====
 
     OPERATING INCOME.................  $ 1.2  $ 0.3  $ 1.9  $ 1.1
                                        =====  =====  =====  =====
</TABLE>

  Revenues for the quarter and six months ended December 31, 1995 increased $0.5
and $0.4, respectively, compared to the prior year largely due to significantly
higher international product licensing royalties, primarily from Asia.
Partially offsetting the above were lower revenues in the current year from
Special Editions, Ltd., as the Company's art publishing and art products
business moves from direct sales to licensing, combined with no royalties in the
current year from a Sarah Coventry licensee that experienced financial
difficulties and was terminated in the second quarter of the prior year.
Operating income for the quarter and six-month period increased $0.9 and $0.8,
respectively, principally due to increases in the operating performances of
international product licensing, primarily due to the higher revenues, and Sarah
Coventry product licensing, as the lower revenues were more than offset by
marketing and bad debt expenses in the prior year.

CORPORATE ADMINISTRATION AND PROMOTION

  Corporate administration and promotion expenses of $4.4 and $8.4 for the
quarter and six months ended December 31, 1995, respectively, increased $0.3, or
8%, and $0.1, or 1%, respectively, compared to the prior year periods.

GAMING

  The Company has announced plans to re-enter the gaming business.  The
Company's image, international appeal and successful history in gaming makes
this a logical extension into a fast growing field of adult entertainment.  The
Company, with a consortium of Greek investors, bid in June 1995 for an exclusive
gaming license on the island of Rhodes, Greece.  In November 1995, the Greek
government officially notified the Company's consortium that it had won the
competitive bid for this license, and the Company expects the casino to open in
fiscal 1997.  The Company will receive licensing royalties on revenues of the
consortium and owns less than 20% of its equity.  The Company is also exploring
other gaming ventures.  The Company's strategy is to enter into joint-venture
agreements with strong local partners in which it would consider taking equity
positions as well as receiving license fees for the use of the Playboy name and
trademarks.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

  At December 31, 1995, the Company had $1.1 in cash and cash equivalents and
$6.5 in short-term borrowings, compared to $1.5 in cash and cash equivalents and
$5.0 in short-term borrowings at June 30, 1995.  The Company expects to meet its
short-term and long-term cash requirements through its amended revolving credit
agreement and cash generated from operations.  See Cash Flows From Financing
Activities below.

Cash Flows From Operating Activities

  Net cash provided by operating activities was $1.5 for the six months ended
December 31, 1995 compared to net cash used of $2.4 for the prior year period
principally due to the Company's improved operating performance in the current
year.  The Company invested $10.3 in Company-produced and licensed entertainment
programming during the first six months of fiscal 1996 compared to $10.8 in the
prior year period, and expects to invest approximately $16.3 in such programming
during the remainder of fiscal 1996.

                                       14
<PAGE>
 
Cash Flows From Investing Activities

  Net cash used for investing activities was $3.0 for the six months ended
December 31, 1995 compared to $0.2 for the prior year period.  The current year
period included investments in equity interests of $2.9 in the first overseas
Playboy television channels in the United Kingdom and Japan and in the gaming
venture awarded an exclusive license on the island of Rhodes, Greece.

Cash Flows From Financing Activities

  Net cash provided by financing activities was $1.2 for the six months ended
December 31, 1995 compared to $2.3 for the prior year period.  This decrease was
principally due to a $2.5 lower increase in the level of short-term borrowings
under the Company's revolving line of credit in the current year, partially
offset by a payment in the prior year related to the Company's acquisition
effective July 1, 1993 of the remaining 20% interest in Critics' Choice Video,
Inc. for $3.0, which consisted of $1.5 in cash and one-year promissory notes
totaling $1.5, which were paid July 1, 1994.

  Under the terms of the Company's revolving credit agreement, which was
finalized in March 1995, the line of credit decreased from $30.0 to $19.5 at
December 31, 1995.  In January 1996, the banks approved an amendment to the
current agreement which will increase the line of credit from $19.5 to $35.0 and
extend the maturity date of the entire line to February 1999.  The amended
revolving credit agreement, which is subject to final documentation, will remain
collateralized by substantially all of the Company's assets and will require the
Company to maintain financial covenants pertaining to net worth, leverage and
cash flow.

Income Taxes

  Based on current tax law, the Company must generate approximately $20.2 of
future taxable income prior to the expiration of the Company's net operating
loss carryforwards ("NOLs") for full realization of the $6.9 net deferred tax
asset recorded at June 30, 1995.  At June 30, 1995, the Company had NOLs of
$47.8 for tax purposes, with $12.1 expiring in 2001, $8.9 expiring in 2003, $8.2
expiring in 2004, $1.1 expiring in 2007, $1.1 expiring in 2008 and $16.4
expiring in 2009.

  Management continues to believe that it is more likely than not that a
sufficient level of taxable income will be generated prior to the expiration of
the Company's NOLs to realize the $6.9 net deferred tax asset recorded at June
30, 1995.  The Company's net deferred tax asset declined to $5.8 at December 31,
1995 based on management's projection of fiscal 1996 taxable income.  Following
is a summary of the bases for management's belief that it is more likely than
not that the net deferred tax asset of $6.9 at June 30, 1995 will be realized:

 . Management reviewed the components of the Company's NOLs and determined that
  they primarily resulted from several nonrecurring events, which were not
  indicative of the Company's ability to generate future earnings.

 . The Publishing, Catalog and Product Marketing Groups continue to generate
  earnings, while the Company's substantial investments in the Entertainment
  Group resulted in earnings in fiscal 1995, and should lead to increased
  earnings in future years.

 . The Company has several opportunities to accelerate taxable income into the
  NOL carryforward period.  Tax planning strategies would include the
  capitalization and amortization versus immediate deduction of circulation
  expenditures, the immediate inclusion versus deferred recognition of prepaid
  subscription income, the revision of depreciation and amortization methods for
  tax purposes and the sale-leaseback of certain property that would generate
  taxable income in future years.

                                       15
<PAGE>
 
Other

  In January 1993, the Company received a General Notice from the United States
Environmental Protection Agency (the "EPA") as a "potentially responsible party"
("PRP") in connection with a site identified as the Southern Lakes Trap & Skeet
Club, apparently located at the Resort-Hotel in Lake Geneva, Wisconsin (the
"Resort"), formerly owned by a subsidiary of the Company.  The Resort was sold
by the Company's subsidiary to LG Americana-GKP Joint Venture in 1982.  Two
other entities were also identified as PRPs in the notice.  The notice relates
to actions that may be ordered taken by the EPA to sample for and remove
contamination in soils and sediments, purportedly caused by skeet shooting
activities at the Resort property.  During fiscal 1994, the EPA advised the
Company of its position that the area of land requiring remediation is
approximately twice the size of the initial site.  The Company believes that it
has established adequate reserves, which totaled $0.8 at December 31, 1995, to
cover the eventual cost of its anticipated share (based on an agreement with one
of the other PRPs) of any remediation that may be agreed upon.  The Company is
also reviewing available defenses, insurance coverage and claims it may have
against third parties.

                                       16
<PAGE>
 
                           PART II. OTHER INFORMATION
Item 6(a) Exhibits
------------------

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                                   EXHIBIT 11
                    COMPUTATION OF EARNINGS PER COMMON SHARE
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                           Quarters Ended          Six Months Ended
                                                            December 31,             December 31,
                                                        --------------------      --------------------
                                                         1995         1994         1995         1994
                                                        -------      -------      -------      -------
<S>                                                     <C>          <C>          <C>          <C>
Primary:
--------
 Earnings:
  Net income (loss)                                     $ 1,138      $ 1,001       $ 2,150      $  (227)
                                                        =======      =======       =======      =======
 
 Shares:
  Weighted average number of common
   shares outstanding                                    19,990       19,986        19,990       19,979
  Assuming exercise of options reduced
   by the number of shares which could have
    been purchased with the proceeds from
     exercise of such options                               229          245           233          208
                                                        -------      -------       -------      -------
  Weighted average number of common shares
   outstanding as adjusted                               20,219       20,231        20,223       20,187
                                                        =======      =======       =======      =======
 
 Primary earnings per common share:
  Net income (loss)                                     $  0.06/1/   $  0.05/1/    $  0.11/1/   $ (0.01)/1/
                                                        =======      =======       =======      =======
 
Fully Diluted:
--------------
 Earnings:
  Net income (loss)                                     $ 1,138      $ 1,001       $ 2,150      $  (227)
                                                        =======      =======       =======      =======
 
 Shares:
  Weighted average number of common
   shares outstanding                                    19,990       19,986        19,990       19,979
  Assuming exercise of options reduced
   by the number of shares which could have
    been purchased with the proceeds from
     exercise of such options                               230          377           237          307
                                                        -------      -------       -------      -------
  Weighted average number of common shares
   outstanding as adjusted                               20,220       20,363        20,227       20,286
                                                        =======      =======       =======      =======
 
 Earnings per common share assuming full dilution:
  Net income (loss)                                     $  0.06/1/   $  0.05/1/    $  0.11/1/   $ (0.01)/1/
                                                        =======      =======       =======      =======
</TABLE>



 /1/  This calculation is submitted in accordance with Regulation S-K item
      601(b)(11) although not required by footnote 2 to paragraph 14 of APB 
      Opinion No. 15 because it results in dilution of less than 3%.

                                       17
<PAGE>
 
                                 SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.





                                           PLAYBOY ENTERPRISES, INC.
                                           -------------------------
                                                  (Registrant)



Date   February 9, 1996                    By   /s/David I. Chemerow
      -------------------                       ------------------------------
                                                David I. Chemerow
                                                Executive Vice President,
                                                Finance and Operations and
                                                Chief Financial Officer

                                       18