UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

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

For the quarterly period ended June 30, 2004

[_] 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 1-13638

MARVEL ENTERPRISES, INC.
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 13-3711775
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

10 East 40th Street, New York, NY 10016
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

212-576-4000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)

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 [_]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)

Yes [X] No [_]

As of July 28, 2004, the number of outstanding shares of the registrant's common
stock, par value $.01 per share, was 109,186,765. This number does not include
11,091,000 shares of the registrant's common stock held by a wholly owned
subsidiary of the registrant.

TABLE OF CONTENTS

Page
PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited) ........ 1

Condensed Consolidated Balance Sheets as of June 30, 2004 and
December 31, 2003 .............................................. 2

Condensed Consolidated Statements of Income and Comprehensive
Income for the Three and Six Months Ended June 30, 2004 and 2003 3

Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2004 and 2003 ............................ 4

Notes to Condensed Consolidated Financial Statements ........... 5

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................... 12

Results of Operations .......................................... 14

Liquidity and Capital Resources ................................ 19

Item 3. Quantitative and Qualitative Disclosures About Market Risk ..... 20

Item 4. Controls and Procedures ........................................ 20

PART II. OTHER INFORMATION ....................................................... 21

Item 1. Legal Proceedings .............................................. 22

Item 4. Submission of Matters to a Vote of Security Holders ............ 23

Item 6. Exhibits and Reports on Form 8-K ............................... 23

SIGNATURES ........................................................................ 24

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements
(Unaudited)

MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

June 30, December 31,
2004 2003
------- -----------
(Unaudited)
ASSETS
Current assets:

Cash and cash equivalents ................................................... $ 104,140 $ 32,562
Certificates of deposit, tax exempt notes, and commercial paper ............. 73,000 214,457
Accounts receivable, net .................................................... 82,126 51,820
Inventories, net ............................................................ 11,485 12,975
Distribution receivable from joint venture, net ............................. -- 2,056
Deferred income taxes, net .................................................. 18,197 18,197
Deferred financing costs .................................................... -- 667
Prepaid expenses and other current assets ................................... 1,318 2,273
--------- ---------
Total current assets .................................................. 290,266 335,007

Molds, tools and equipment, net ............................................... 5,839 5,811
Product and package design costs, net ......................................... 1,517 1,433
Goodwill, net ................................................................. 341,708 341,708
Intangibles, net .............................................................. 231 335
Accounts receivable, non-current portion ...................................... 36,376 26,437
Deferred income taxes, net, non-current portion .............................. 13,830 28,246
Deferred financing costs, non-current portion ................................. -- 2,779
Other assets .................................................................. 201 101
--------- ---------
Total assets .......................................................... $ 689,968 $ 741,857
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 28,978 $ 18,455
Accrued royalties ........................................................... 46,648 32,936
Accrued expenses and other current liabilities .............................. 33,501 30,654
Minority interest to be distributed ......................................... 704 --
Administration expense claims payable ....................................... 533 788
Unsecured creditors payable ................................................. -- 2,963
Income taxes payable ........................................................ 22,817 4,705
Deferred revenue ............................................................ 20,375 30,308
--------- ---------
Total current liabilities ............................................. 153,556 120,809
Senior notes .................................................................. -- 150,962
Accrued rent .................................................................. 492 636
Deferred revenue, non-current portion ......................................... 2,500 --
--------- ---------
Total liabilities ..................................................... 156,548 272,407
--------- ---------

Stockholders' equity:
Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued .... -- --
Common stock, $.01 par value, 250,000,000 shares authorized, 120,255,122 issued
and 109,164,122 outstanding in 2004, and 119,706,206 issued and 108,615,206
outstanding in 2003 ........................................................... 1,203 1,197
Deferred stock compensation ................................................... (6,896) (4,857)
Additional paid-in capital .................................................... 572,425 566,909
Retained earnings (deficit) ................................................... 2,467 (57,934)
Accumulated other comprehensive loss .......................................... (2,824) (2,910)
--------- ---------
Total stockholders' equity before treasury stock ...................... 566,375 502,405
Treasury stock, 11,091,000 shares ............................................. (32,955) (32,955)
--------- ---------
Total stockholders' equity ............................................ 533,420 469,450
--------- ---------
Total liabilities and stockholders' equity ............................ $ 689,968 $ 741,857
========= =========

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

MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(unaudited)

Three Months Six Months
Ended June 30, Ended June 30,

2004 2003 2004 2003
---- ---- ---- ----

Net sales ............................................. $ 155,467 $ 89,966 $ 277,793 $ 177,342
Cost of sales ......................................... 62,860 17,142 103,383 37,426
--------- --------- --------- ---------
Gross profit .......................................... 92,607 72,824 174,410 139,916
--------- --------- --------- ---------
Operating expenses:
Selling, general and administrative ................... 30,001 31,235 62,147 47,594
Depreciation and amortization ......................... 811 914 1,556 1,757
--------- --------- --------- ---------
Total operating expenses .............................. 30,812 32,149 63,703 49,351
Equity in net income of joint venture ................. -- 2,162 8,117 6,986
Other income, net ..................................... 1,817 349 2,089 543
--------- --------- --------- ---------
Operating income ...................................... 63,612 43,186 120,913 98,094
Interest expense, net ................................. 14,973 4,382 18,893 8,833
--------- --------- --------- ---------
Income before income taxes and minority interest ...... 48,639 38,804 102,020 89,261
Income tax expense .................................... 15,680 6,051 37,791 14,286
Minority interest in consolidated joint venture ....... 3,828 -- 3,828 --
--------- --------- --------- ---------
Net income ............................................ 29,131 32,753 60,401 74,975
Less: preferred dividend requirement .................. -- -- -- 1,163
--------- --------- --------- ---------
Net income attributable to common stock ............... $ 29,131 $ 32,753 $ 60,401 $ 73,812
========= ========= ========= =========

Basic earnings per share attributable to common stock.. $ 0.27 $ 0.33 $ 0.56 $ 0.77
========= ========= ========= =========
Weighted average number of basic shares outstanding ... 108,554 99,315 108,473 95,780
========= ========= ========= =========
Diluted earnings per share attributable to common stock $ 0.25 $ 0.28 $ 0.52 $ 0.66
========= ========= ========= =========
Weighted average number of diluted shares outstanding.. 115,525 115,703 115,300 113,565
========= ========= ========= =========

Comprehensive income:
Net income ............................................ $ 29,131 $ 32,753 $ 60,401 $ 74,975
Other comprehensive loss .............................. (43) (35) (86) (70)
--------- --------- --------- ---------
Comprehensive income .................................. $ 29,088 $ 32,718 $ 60,315 $ 74,905
========= ========= ========= =========

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

MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

Six Months
Ended June 30,
2004 2003
---- ----
Cash flows from operating activities:

Net income ............................................ $ 60,401 $ 74,975
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ......................... 1,556 1,757
Provision for doubtful accounts ....................... 790 936
Amortization of deferred financing costs .............. 3,446 333
Non-cash charge for stock-based compensation .......... 1,240 454
Tax benefit of stock option exercise .................. 984 412
Gain from sale of fixed assets ........................ -- (134)
Deferred income taxes ................................. 14,416 11,167
Minority interest in profits of joint venture ......... 3,828 --
Equity in net income from joint venture ............... (8,117) (6,986)
Changes in operating assets and liabilities:
Accounts receivable ................................. (35,263) 3,196
Inventories ......................................... 1,490 5,333
Distributions received from joint venture ........... 3,321 10,781
Prepaid expenses and other current assets ........... 1,570 (367)
Other assets ........................................ (100) 12
Deferred revenue & distributions in excess of equity in
joint venture ..................................... (12,807) (20,891)
Minority interest to be distributed ................. (3,585) --
Income taxes payable ................................ 18,112 --
Accounts payable, accrued expenses and other current
liabilities ......................................... 24,948 993
--------- ---------
Net cash provided by operating activities ............... 76,230 81,971
--------- ---------

Cash flows from investing activities:
Cash of consolidated joint venture .................... 8,376 --
Payment of administrative claims and unsecured claims,
net ................................................. (3,218) (617)
Purchases of molds, tools and equipment ............... (950) (72)
Proceeds from sale of fixed assets .................... -- 254
Expenditures for product and package design ........... (614) (868)
Net sales (purchases) of certificates of deposit, tax
exempt notes, and commercial paper .................. 141,457 (118,000)
--------- ---------
Net cash provided by (used in) investing activities ..... 145,051 (119,303)
--------- ---------

Cash flows from financing activities:
Payment of Senior Notes ............................... (150,962) --
Exercise of warrants and stock options ................ 1,259 9,979
--------- ---------
Net cash (used in) provided by financing activities ..... (149,703) 9,979
--------- ---------
Net increase (decrease) in cash and cash equivalents .... 71,578 (27,353)
Cash and cash equivalents, at beginning of period ....... 32,562 53,690
--------- ---------
Cash and cash equivalents, at end of period ............. $ 104,140 $ 26,337
========= =========
Supplemental disclosures of cash flow information:
Interest paid during the period ....................... $ 18,115 $ 9,058
Income taxes paid during the period ................... $ 4,258 $ 2,003

Non-cash transactions:
Preferred stock dividends ............................. $ -- $ 1,163
Conversion of preferred stock to common stock ......... $ -- $ 33,943

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

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(unaudited)

1. BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited Consolidated Financial Statements of Marvel
Enterprises, Inc. and its subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The Condensed Consolidated Statements of Income
and Comprehensive Income and the Consolidated Statements of Cash Flows for the
three and six-month periods ended June 30, 2004 are not necessarily indicative
of those for the full year ending December 31, 2004. For further information on
the Company's historical financial results, refer to the Consolidated Financial
Statements and Notes thereto contained in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2003. Certain prior period amounts
have been re-classified to conform with the current period's presentation.

All share and per share amounts in the accompanying unaudited Condensed
Consolidated Financial Statements have been adjusted for the 3 for 2 common
share stock split effective March 26, 2004.

2. SIGNIFICANT ACCOUNTING POLICIES

Accounting for Stock Based Compensation - In accordance with the provisions
of SFAS 148 "Accounting for Stock-Based Compensation", the Company has elected
to continue to account for its stock options under APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on date
of grant, no compensation expense is recognized. For the purposes of SFAS 148
pro forma disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting periods. The Company's pro forma information
follows:

Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2004 2003 2004 2003
---- ---- ---- ----
(In thousands, except per share data)

Net income, as reported ............................................................ $29,131 $32,753 $60,401 $74,975
Net income attributable to common stock, as reported ............................... 29,131 32,753 60,401 73,812
Net income per share attributable to common stock - basic, as reported ............. 0.27 0.33 0.56 0.77
Net income per share attributable to common stock - diluted, as reported ........... 0.25 0.28 0.52 0.66
Stock based employee compensation cost, net of tax, if SFAS 123 was applied ........ 3,141 1,496 6,060 2,892
Pro forma net income ............................................................... 25,990 31,257 54,341 72,083
Pro forma net income attributable to common stock .................................. 25,990 31,257 54,341 70,920
Pro forma net income per share attributable to common stock - basic ................ 0.24 0.31 0.50 0.74
Pro forma net income per share attributable to common stock - diluted .............. 0.22 0.27 0.47 0.62

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2004
(unaudited)

The fair value for each option grant under the stock option plans was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for the various grants made during
2000: risk free interest rates ranging from 6.12% to 6.72%; no dividend yield;
expected volatility of 0.55; and expected life of three years. The weighted
average assumptions for the 2001 grants are: risk free interest rates ranging
from 2.91% to 4.90%; no dividend yield; expected volatility of 0.920; and
expected life of three years. The weighted average assumptions for the 2002
grants are: risk free interest rates ranging from 3.19% to 4.92%; no dividend
yield; expected volatility of 0.83; and expected life of five years. The
weighted average assumptions for the 2003 grants are: risk free interest rates
ranging from 2.32% to 3.43%; no dividend yield; expected volatility ranging from
0.59 to 0.78; and expected life of five years. The weighted average assumptions
for the 2004 grants are: risk free interest rates ranging from 2.81% to 3.96%;
no dividend yield; expected volatility ranging from 0.48 to 0.58; and expected
life of five years. The Black Scholes option pricing model was developed for use
in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, the option valuation model
requires the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those traded options, and because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing model does not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

The effects of applying SFAS 123 for providing pro forma disclosures are
not likely to be representative of the effects on reported net income in future
periods.

3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS

June 30, December 31,
2004 2003
(in thousands)
Accounts receivable, net, consist of the following:

Accounts receivable .................................................... $ 101,236 $ 68,738
Less allowances for:
Doubtful accounts .................................................... (5,556) (5,073)
Advertising, markdowns, returns, volume, discounts and other.......... (13,554) (11,845)
--------- ---------
Total .............................................................. $ 82,126 $ 51,820
========= =========
Inventories, net, consist of the following:
Finished goods ......................................................... $ 6,877 $ 8,613
Component parts, raw materials and work-in-process ..................... 4,608 4,362
--------- ---------
Total ............................................................... $ 11,485 $ 12,975
========= =========
Accrued expenses and other current liabilities consist of the following:
Advertising costs ...................................................... $ 2,211 $ 608
Inventory purchases .................................................... 8,637 7,290
Bonuses ................................................................ 3,180 4,074
Accrued expenses - Fleer sale including pension benefits ............... 5,133 5,234
Litigation and legal accruals .......................................... 3,228 2,719
Interest expense ....................................................... -- 1,079
Other accrued expenses ................................................. 11,112 9,650
--------- ---------
Total .................................................................. $ 33,501 $ 30,654
========= =========

4. SENIOR NOTES

The Company had outstanding Senior Notes due June 15, 2009, which bore
interest at 12% per annum. The Company redeemed all of such notes on June 15,
2004 with available cash resources, which resulted in a non-recurring charge of
$3.2 million associated with the accelerated write-off of previously unamortized
deferred debt costs, and a non-recurring charge of $9.0 million related to the
6% premium necessitated by the terms of the redemption.

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2004
(unaudited)

5. EARNINGS PER SHARE

The total number of shares of common stock outstanding as of June 30, 2004
was 109,164,122, net of treasury shares; assuming the exercise of all
outstanding stock options, the number of shares would be 124,598,419. During the
six month period ended June 30, 2004, 372,204 shares of common stock were issued
through stock option exercises.

The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):

Three Months Six Months
Ended Ended
June 30, June 30,
--------------------- ---------------------
2004 2003 2004 2003
---- ---- ---- ----

Numerator:
Net income ...................................... $ 29,131 $ 32,753 $ 60,401 $ 74,975
Preferred dividends ............................. -- -- -- (1,163)
--------- --------- --------- ---------
Numerator for basic earnings per share .......... 29,131 32,753 60,401 73,812
Preferred dividends* ............................ -- -- -- 1,163
--------- --------- --------- ---------
Numerator for diluted earnings per share ......... $ 29,131 $ 32,753 $ 60,401 $ 74,975
========= ========= ========= =========

Denominator:
Denominator for basic earnings per share ........ 108,554 99,315 108,473 95,780
Effect of dilutive warrants/
options/restricted stock ..................... 6,971 16,388 6,827 15,289
Effect of dilutive redeemable cumulative
exchangeable preferred stock .................. -- -- -- 2,496
--------- --------- --------- ---------
Denominator for diluted earnings
per share - adjusted weighted average
shares and assumed conversions ................ 115,525 115,703 115,300 113,565
========= ========= ========= =========
Basic earnings per share ............................. $ 0.27 $ 0.33 $ 0.56 $ 0.77
========= ========= ========= =========
Diluted earnings per share ........................... $ 0.25 $ 0.28 $ 0.52 $ 0.66
========= ========= ========= =========

* In accordance with the provisions of SFAS 128 "Earnings Per Share", under the
if-converted method, preferred dividends applicable to convertible preferred
stock are added back to the numerator and the resulting common shares are
included in the denominator for the entire period presented.

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2004
(unaudited)

6. SEGMENT INFORMATION

The Company's business is divided into three operating segments: Toy
Merchandising and Distribution, Publishing and Licensing.

Toy Segment

The toy segment designs, develops, sources, markets and distributes a
limited line of toys to the worldwide marketplace. The Company's toy products
are based upon movies and television shows featuring Spider-Man and produced by
Sony Pictures, and upon the movie trilogy Lord of the Rings (New Line Cinema).
The Spectra Star division (which ceased manufacturing operations in March 2003
and was closed in July 2003) designed, produced and sold kites in both mass
market stores and specialty hobby shops. Spectra Star's sales were $0.9 million
for the three and six month periods ended June 30, 2004 and $1.4 million and
$7.8 million for the three and six month periods ended March 31, 2003,
respectively.

Publishing Segment

The publishing segment creates and publishes comic books and trade
paperbacks principally in North America. Marvel has been publishing comic books
since 1939 and has developed a roster of more than 4,700 Marvel Characters. The
Company's titles feature classic Marvel Super Heroes such as: Spider-Man, X-Men,
the Incredible Hulk, Daredevil and newly developed Marvel characters and
characters created by others and licensed to the Company.

Licensing Segment

The licensing segment is responsible for the licensing of Marvel characters
for use in a wide variety of products, including toys, electronic games,
apparel, accessories, footwear, collectibles and novelties in a variety of
media, including feature films, television programs and destination based
entertainment (e.g., theme parks), and for promotional use.

Set forth below is certain operating information for the segments of the
Company.

Three month period ended June 30, 2004
Licensing Publishing Toys Corporate Total
--------- ---------- ---- --------- -----
(in thousands)

Net sales $ 49,537 $ 21,609 $ 84,321 -- $155,467
Gross profit 49,537 11,397 31,673 -- 92,607
Operating income (loss) 35,566 8,969 23,229 (4,152) 63,612

Three month period ended June 30, 2003
Licensing Publishing Toys Corporate Total
--------- ---------- ---- --------- -----
(in thousands)

Net sales $ 56,750 $ 19,535 $ 13,681 $ -- $ 89,966
Gross profit 56,750 9,817 6,257 -- 72,824
Operating income (loss) 41,238* 6,184 2,559 (6,795) 43,186

(*) Includes equity in net income of joint venture of $2,162 for the three
month period ended June 30, 2003. The Joint Venture was consolidated
effective April 1, 2004. See Note 9.

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2004
(unaudited)

Six month period ended June 30, 2004
Licensing Publishing Toys Corporate Total
--------- ---------- ---- --------- -----
(in thousands)

Net sales $ 99,640 $ 41,253 $136,900 $ -- $277,793
Gross profit 99,640 22,111 52,659 $ -- 174,410
Operating income (loss) 74,050* 16,279 38,852 (8,268) 120,913

Six month period ended June 30, 2003
Licensing Publishing Toys Corporate Total
--------- ---------- ---- --------- -----
(in thousands)
Net sales $106,651 $ 34,747 $ 35,944 $ -- $177,342
Gross profit 106,651 18,202 15,063 -- 139,916
Operating income (loss) 90,065** 11,259 8,553 (11,783) 98,094

(*) Includes equity in net income of joint venture of $8,117 for the three month
period from January 1, 2004 to March 31, 2004.

(**) Includes equity in net income of joint venture of $6,986 for the six month
period ended June 30, 2003.

7. BENEFIT PLANS

In connection with the 1999 sale of a subsidiary, the company retained
certain liabilities related to a defined benefit pension plan for certain of
such subsidiary's employees. In prior years, this plan was amended to freeze the
accumulation of benefits and to prohibit new participants. Assumptions include:
a discount rate of 6.25% for 2004 expense, 6.25% for the obligation and an
expected rate of return of 8.0%.

Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
---- ---- ---- ----
(in thousands)

Total cost for plan period
Service cost .................................. $-- $-- $-- $--
Interest cost ................................. 292 300 586 600
Expected return on plan assets ................ (277) (272) (555) (544)
Amortization of:
Unrecognized net transition obligation (asset) -- 24 -- 47
Unrecognized prior service cost .............. (13) (14) (26) (27)
Unrecognized net (gain)/loss ................. 30 -- 60 --
----- ----- ----- -----
Net periodic pension cost ........................ $ 32 $ 38 $ 65 $ 76
===== ===== ===== =====

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2004
(unaudited)

8. INCOME TAXES

The Company's effective tax rate for the six months ended June 30, 2004
(37.0%) was higher than the Federal statutory rate due primarily to state and
local taxes. The Company's effective tax rate for the three months ended June
30, 2004 (32.2%) was lower than the Federal statutory rate due primarily to the
effects of the consolidation of Spider-Man Merchandising, L.P. (the "Joint
Venture"), federally tax-free investment returns and establishment of deferred
tax assets for certain foreign tax credits. At March 31, 2004, the Company had
completely utilized its Federal net operating loss carryforwards. The Company
retains various state and local net operating loss carryforwards of $340
million, which will expire in various jurisdictions in years 2005 through 2024.
As of June 30, 2004, there is a valuation allowance of $7.2 million against
certain state and local and foreign net operating losses, as there is no
assurance that such assets will be realized in the future.

The Company's effective tax rate for the three and six months ended June
30, 2003 was lower than the Federal statutory rate due primarily to the expected
benefit from the utilization of net operating loss carryforwards for which
benefit was not previously taken.

9. JOINT VENTURE

The Joint Venture is a Delaware limited partnership between Sony Pictures
Entertainment Inc. ("SPE") and Marvel. The Joint Venture was formed on February
22, 1999 to pursue licensing opportunities relating to characters based upon
movies or television shows featuring Spider-Man and produced by SPE.

In May 2004, SPE and Marvel settled various disputed matters described in
Note 10 to the financial statements and, among other matters, altered the
distribution of net receipts of the Joint Venture effective April 1, 2004. As a
result of this settlement, effective April 1, 2004, the operations of the Joint
Venture have been included in the accompanying consolidated financial
statements. Because the Joint Venture is now consolidated, the Company's results
include the revenues ($11.2 million) and expenses of the Joint Venture for the
three month period ended June 30, 2004. Minority interest due to SPE of $3.8
million was recorded to reflect SPE's interest in the operations of the Joint
Venture for the three month period ended June 30, 2004. Prior to April 1, 2004,
the Company accounted for its interest in the activity of this Joint Venture
under the equity method. For the three month period ended June 30, 2003, the
Company recognized $2.2 million in income in connection with its share of this
Joint Venture.

10. COMMITMENTS AND CONTINGENCIES

Legal Matters

The Company is a party to certain legal actions described below. In
addition, the Company is involved in various other legal proceedings and claims
incident to the normal conduct of its business. Although it is impossible to
predict the outcome of any legal proceeding and there can be no assurances, the
Company believes that its legal proceedings and claims (including those
described below), individually and in the aggregate, are not likely to have a
material adverse effect on its financial condition, results of operations or
cash flows.

Marvel Characters, Inc. v. Sony Pictures Entertainment Inc. et al. On
February 25, 2003, Marvel Characters, Inc. ("MCI"), a wholly owned subsidiary of
Marvel Enterprises, Inc., sued SPE and related entities, in California Superior
Court for Los Angeles County, alleging, among other things, that the 1999
license agreement for Spider-Man between MCI and SPE should be dissolved based
on SPE's fraudulent representations to MCI during the negotiation of the license
agreement. On April 21, 2003, in response to Marvel's complaint, SPE filed a
cross-complaint in which SPE alleged that MCI breached the licensing agreement
with respect to the licensing of Spider-Man merchandise unrelated to Spider-Man:
The Movie to SPE's financial detriment. On June 1, 2004, Marvel and SPE
announced that MCI's suit and SPE's cross-complaint would be voluntarily
withdrawn.

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2004
(unaudited)

Brian Hibbs, d/b/a Comix Experience v. Marvel. On May 6, 2002, plaintiff
commenced an action on behalf of himself and a purported class consisting of
specialty store retailers and resellers of Marvel comic books against the
Company in New York State Supreme Court, County of New York, alleging that the
Company breached its own Terms of Sale Agreement in connection with the sale of
comic books to members of the purported class, breached its obligation of good
faith and fair dealing(s), fraudulently induced plaintiff and other members of
the purported class to buy comics and unjustly enriched itself. The relief
sought in the complaint consists of certification of the purported class and the
designation of plaintiff as its representative, compensatory damages of $8
million on each cause of action and punitive damages in an amount to be
determined at trial. The parties have reached a proposed settlement in which the
retailers and resellers would receive a credit to their account with the
Company's exclusive distributor, depending on their prior purchases of certain
comic book issues. The parties have tendered that settlement to the Court for
approval. It is not known when the Court will act on this matter or how long it
will take for final approval of the settlement. In the event the matter does not
settle, the Company intends to defend vigorously against the claims made in this
action on their merits.

Stan Lee v. Marvel. On November 12, 2002, Stan Lee commenced an action in
the United States District Court for the Southern District of New York, alleging
claims for breach of his November 1, 1998 employment agreement. Mr. Lee claims
the right to a 10% profit participation in connection with the Spider-Man movie
and other film and television productions that utilize Marvel characters.
Pursuant to the terms of the employment agreement, the Company is currently
paying Mr. Lee a salary of $1.0 million per year and believes that Mr. Lee's
claim is without merit. Marvel has answered the complaint and denied all of its
material allegations. The action is currently in the discovery phase and no
trial date has been set.

Tribune Entertainment Company v. Marvel Enterprises, Inc. On October 30,
2003, Tribune Entertainment Company ("Tribune") filed a complaint against the
Company in New York State Supreme Court, New York County. The complaint alleges
three causes of action: fraud, negligent misrepresentation, and breach of
warranty, all in connection with the license from the Company under which
Tribune produced the Mutant X television series (the "Tribune License"). Prior
to release of the Mutant X television series in 2001, both the Company and
Tribune were sued by Twentieth Century Fox Film Corporation ("Fox"), the
licensee of the X-Men properties for motion pictures, among other rights. That
suit, which alleged breach of the 1993 X-Men movie license, unfair competition,
copyright infringement and tortious interference with contract, all arising from
the Tribune License, was settled between the Company and Fox in February 2003.
According to the action filed by Tribune on October 30, 2003, Tribune settled
with Fox on October 3, 2003. Tribune's October 30, 2003 complaint against the
Company alleges that the Company misrepresented the rights it was granting to
Tribune in the Tribune License, and that the Company breached its warranty in
the Tribune License that the Mutant X property did not conflict with the rights
of any third party. On December 11, 2003, the Company filed its answer, denying
all material allegations of Tribune's complaint and asserting two counterclaims.
First, the Company asserted a claim for breach of contract, alleging that
Tribune has failed to pay the Company any monies under a provision of the
Tribune License that grants the Company a portion of Tribune's receipts from the
Mutant X series, as defined in the Tribune License. Second, the Company alleged
that the 2001 Fox litigation was due to Tribune's actions and therefore the
Company is owed indemnification for its costs and expenses incurred in its
defense of that litigation. The current action is in the discovery phase and no
trial date has been set.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed herein
concerning the Company's business and operations could cause actual results to
differ materially from those contained in forward-looking statements made in
this Form 10-Q Quarterly Report. When used in this Form 10-Q, the words
"intend", "estimate", "believe", "expect", and similar expressions are intended
to identify forward-looking statements. In addition, the following factors,
among others, could cause the Company's financial performance to differ
materially from that expressed in any forward-looking statements made by the
Company: (i) a decrease in the level of media exposure or popularity of the
Company's characters, (ii) financial difficulties of the Company's major
licensees, (iii) delays and cancellations of movies and television productions
based on the Company's characters, (iv) poor performance of major movies based
on the Company's characters, (v) toy-production delays or shortfalls, continued
concentration of toy retailers, and toy inventory risk and (vi) significant
appreciation of the Chinese currency against other currencies and the imposition
of quotas or tariffs on products manufactured in China. These forward-looking
statements speak only as of the date of this report. The Company does not intend
to update or revise any forward-looking statements to reflect events or
circumstances after the date of this report, including changes in business
strategy or planned capital expenditures, or to reflect the occurrence of
unanticipated events.

Management Overview of Business Trends

The Company principally operates in three distinct operating segments:
licensing, publishing and toys. The Company's strategy is to increase exposure
of the Marvel characters through its media and promotional licensing activities,
which it believes will create revenue opportunities for the Company through
sales of toys and other licensed merchandise. The Company uses comic book
publishing to support consumer awareness of the Marvel characters and to develop
new characters and storylines.

A key driver of operating results is the successful release of major
entertainment programming, such as movies, published materials and television
shows, based on the Company's characters, which fuels demand for all products
based on the featured characters. During 2003 and through June 30, 2004, the
Company had five major theatrical releases that fueled growth in its businesses:
Daredevil, The Hulk, X-Men II, Punisher and Spider-Man 2. These releases
resulted in increased awareness of these characters, which subsequently drove
sales of Marvel-branded licensed products, including toys and published
materials based on these characters. The Company's results are partially
dependent on the successful release of theatrical films and acceptance of
products developed for the characters appearing in the films. Marvel is also
involved in the creative direction of all entertainment projects based on its
characters.

Licensing

Marvel's licensing group is responsible for the merchandising, licensing
and promotions for Marvel's characters worldwide. The licensing group has
expanded its overseas businesses in the second half of 2003 through the
establishment of offices located in London and Tokyo. The licensing group is
pursuing a strategy of concentrating its licensee relationships in a smaller
number of high-quality licensees, and negotiating higher guaranteed royalty
amounts from each licensee. The licensing group is also focusing on entering
into licenses in new product categories. The Company typically enters into
multi-year merchandise license agreements that specify guaranteed minimum
royalty payments and include a significant down-payment upon signing. The
Company recognizes license revenue when it satisfies the requirements of
completing the earnings process, which is normally upon the effective date of
the agreement. If sales of the licensee's merchandise are high enough to entitle
the Company to royalties over the amount of the minimum royalty guarantee (which
excess amounts are defined as "overages"), those overages are recognized as
revenue when collected. Licensing fees collected in advance of the period in
which revenue would be recognized are recorded as deferred revenue. During the
three and six month periods ended June 30, 2003, merchandise license income
related to Spider-Man movie characters, other than for toys, was recorded
through the Company's investment in the joint venture with Sony. Effective April
1, 2004, the joint venture with Sony is included in the Company's consolidated
results. Revenue derived from this joint venture for the period from April 1,
2004 to June 30, 2004 and included in the table below was $11.2 million.

Revenue recognized under license agreements during the periods ended June
30, 2004 and 2003 were generated within the following business categories:

Licensing Segment Categories

Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -----------------------------
2004 2003 2004 2003
---- ---- ---- ----
(in thousands) (in thousands)

Apparel and accessories $20,470 $12,800 $40,166 $17,673
Entertainment (including studios, themed
attractions and electronic games) 10,786 9,373 16,230 37,280
Toy royalties 10,833 15,152 19,250 24,065
Toy service fees 706 12,031 1,880 18,729
Other 6,742 7,394 22,114 8,904
------------- ----------- ------------- -------------
Totals $49,537 $56,750 $99,640 $106,651
============= =========== ============= =============

Publishing

Marvel's publishing group is in the process of expanding its advertising
and promotions business with an increased emphasis on custom comics and
in-school marketing. The publishing business will also continue its long-term
focus on expanding distribution to new channels, like the mass market, and
expanding its product line to target new demographics, although the Company does
not expect these initiatives to have a significant impact on 2004 revenue.
Growth in 2004 is expected to continue to be derived from expansion of the core
product lines of comics and trade paperbacks, and increased sales due to the
anticipated effects of theatrical releases.

Toys

2004 business outlook for toys is closely tied to the movie, Spider-Man 2,
which was released on June 30, 2004. Spider-Man 2 has been one of the Toy
Industry's most highly anticipated events of 2004, and retailers have developed
strategies around the movie release. However, no one can guarantee the timing of
toy sell through and re-orders.

Revenues from Sales of the Company's Toys vs. from Licensed Toys

The only toys produced by or for the account of the Company are (i) toys
based on Spider-Man movies and television shows produced by Sony Pictures and
(ii) toys based on the Lord of the Rings movie trilogy. Sales of toys produced
by or for the account of the Company are recorded in the Company's toy segment.

The Company has licensed the right to make all other toys based on Marvel
characters to licensees. Royalties received by the Company from the sales of
licensed toys are recorded in the Company's licensing segment, as royalties.

In 2003, there was no release of a Spider-Man movie, but there were several
movies released that featured Marvel characters (notably The Hulk) on which
licensed toys are based. As a result, the Company's toy segment revenue for 2003
was somewhat lower, and the Company's licensing segment revenue for 2003 was
somewhat higher, than if the year's main Marvel-character movie had been a
Spider-Man movie.

On June 30, 2004, the second Spider-Man movie was released, and is expected
to drive toy sales more than any other Marvel-character movie in 2004. The
Company therefore expects that in 2004 (as in 2002), toy segment revenues will
be somewhat higher and licensing segment revenues will be somewhat lower than if
2004's main Marvel-character movie were based on any other Marvel character.

Results of Operations

Three month period ended June 30, 2004 compared with the three month period
ended June 30, 2003

Net Sales

Three Months
ended June 30,
(in thousands)
2004 2003 Change
------ ----- ------

Licensing $49.5 $56.8 (13%)
Publishing 21.6 19.5 11%
Toys 84.4 13.7 516%
------ -----
Total $155.5 $90.0 73%
====== =====

The Company's net sales of $155.5 million in the second quarter of 2004
were up significantly versus the second quarter of 2003, which amounted to $90.0
million. Sales within the Licensing segment were $49.5 million in the second
quarter of 2004 as compared to $56.8 million in the second quarter of 2003.
Prior to April 1, 2004, licenses related to the Spider-Man 2 movie were recorded
as equity in joint venture, not licensing sales. Effective April 1, 2004, the
joint venture with Sony is included in the Company's consolidated results.
Revenue derived from the Sony joint venture for the period from April 1, 2004
through June 30, 2004 and included in the table above was $11.2 million. The
overall decrease ($7.3 million) in licensing revenue relates to a shift from
Hulk related toy sales during the three months ended June 30, 2003, which were
recorded within the licensing segment revenues, to sales of Spider-Man 2 toy
sales during the three months ended June 30, 2004, which are recorded within the
Company's toy segment revenues. Overages, which are license revenues in excess
of minimum guarantees, were $8.5 million in the second quarter of 2004 versus
$8.0 million in the second quarter of 2003. As anticipated, toy sales,
principally Spider-Man 2 movie toys, rose from $13.7 million in the second
quarter of 2003 to $84.4 million in the second quarter of 2004.

Sales from the publishing segment increased $2.1 million to $21.6 million
in the second quarter of 2004 fueled by increases in sales of comics and trade
paperbacks.

Gross Profit

Three Months ended June 30,
(in thousands)
2004 Margin 2003 Margin
---- ------ ---- ------

Licensing $ 49.5 100% $ 56.8 100%
Publishing 11.4 53% 9.8 50%
Toys 31.7 38% 6.2 45%
----- ------
Total $ 92.6 60% $ 72.8 81%
===== ======

Gross profit increased $19.8 million to $92.6 million in the second quarter
of 2004, primarily due to growth in the toy segment. The Company's gross profit
as a percentage of sales decreased to 60% in the second quarter of 2004, as
compared to 81% in the second quarter of 2003, due to an increase in toy segment
revenues as a percentage of total revenue. Gross margins are lower in the case
of toy segment revenues than for publishing or licensing segment revenue.

Selling, General & Administrative Expenses

Three Months ended June 30,
(in thousands)
2004 % of Net Sales 2003 % of Net Sales
---- -------------- ---- --------------

Licensing $ 13.9 28% $ 17.7 31%
Publishing 3.5 16% 3.6 18%
Toys 8.4 10% 3.1 23%
Corporate Overhead 4.2 N/A 6.8 N/A
----- ----
Total $ 30.0 19% $ 31.2 35%
===== ====

Selling, general and administrative ("SG&A") expenses decreased $1.2
million to $30.0 million in the second quarter of 2004. As a percentage of
sales, SG&A decreased to 19% of net sales in the second quarter of 2004 from 35%
of net sales in the second quarter of 2003. The toy segment exhibited the
highest year-over-year growth in absolute dollars with an increase of $5.3
million, primarily due to higher royalty provisions for the share of toy
royalties owed to the Company's studio partner. General corporate expenses
decreased $2.6 million due to lower legal fees incurred in connection with
litigation activities in the prior year.

The Company participates in a jointly owned limited partnership with Sony,
whose purpose is to pursue licensing opportunities, other than action figure and
accessory toys, relating to characters based upon movies and television shows
featuring Spider-Man and produced by Sony. The Company accounted for the
activity of this joint venture under the equity method until April 1, 2004.
Effective April 1, 2004, the operations of the joint venture have been included
in the accompanying consolidated financial statements (within licensing, above).

Other Income

Other income during the three month period ended June 30, 2004 includes
$1.0 million generated from cash previously held in trust for the purpose of
paying bankruptcy claims assumed by the Company when it acquired Marvel
Entertainment Group, Inc. out of bankruptcy in 1998. Those funds were released
to the Company upon the completion of the bankruptcy proceedings in the second
quarter of 2004.

Operating Income
Three Months ended June 30,
(in thousands)
2004 Margin 2003 Margin
---- -------------- ---- --------------

Licensing $35.6 72% $ 41.3 73%
Publishing 9.0 42% 6.2 32%
Toys 23.2 27% 2.5 18%
Corporate Overhead (4.2) N/A (6.8) N/A
------ ------
Total $63.6 41% $ 43.2 48%
====== ======

Operating income increased $20.4 million to $63.6 million in the second
quarter of 2004. As a percentage of sales, operating margins decreased to 41% of
net sales in the second quarter of 2004 predominantly due to the shift towards a
higher weighting of the toy segment, which has the lowest margins. While
operating margins increased in the publishing and toy segments, margins in the
licensing segment decreased due to a greater volume of commissions on foreign
sales in the second quarter of 2004 than in the comparable period in 2003.

Net interest expense increased $10.6 million to $15.0 million in the second
quarter of 2004, as compared to $4.4 million in the second quarter of 2003. This
increase was the result of the write-off of unamortized deferred debt costs
($3.2 million) plus a 6% prepayment premium ($9.0 million) in connection with
the redemption of the Company's 12% Senior notes on June 15, 2004. These
expenses were partially offset by increased interest income as a result of
higher cash and cash equivalent, certificates of deposits and commercial paper
balances.

The Company's effective tax rate for the three months ended June 30, 2004
(32.2%) was lower than the Federal statutory rate due primarily to the effects
of the consolidation of the Sony joint venture, federally tax-free investment
returns and the establishment of deferred tax assets for certain foreign tax
credits. At March 31, 2004, the Company has completely utilized its Federal net
operating loss carryforwards. The Company retains various state and local net
operating loss carryforwards of $340 million, which will expire in various
jurisdictions in years 2005 through 2024. As of June 30, 2004, there is a
valuation allowance of $7.2 million against certain state and local and foreign
net operating losses as it is not assured that such assets will be realized in
the future.

The Company is currently under examination by the Internal Revenue Service
for the 1995 through 1998 years. The Company has reached a tentative agreement
on all matters with the IRS which will be reviewed in accordance with procedures
of the Congressional Joint Committee on Taxation. The effects of these agreed
adjustments are not material to the Company's financial position, results of
operations or cash flows.

Six month period ended June 30, 2004 compared with the six month period ended
June 30, 2003

Net Sales
Six Months ended June 30,
(in thousands)
2004 2003 Change
------ ------ ------

Licensing $99.6 $106.7 (7)%
Publishing 41.3 34.7 19%
Toys 136.9 35.9 281%
------ ------
Total $277.8 $177.3 57%
====== ======

The Company's net sales of $277.8 million for the six months ended June 30,
2004 were up significantly versus the same period in 2003, which were $177.3
million. Sales within the licensing segment were $99.6 million for the six
months ended June 30, 2004 as compared to $106.7 million for the six months
ended June 30, 2003. Prior to April 1, 2004, licenses related to the Spider-Man
2 movie were recorded as equity in joint venture, not licensing sales. Effective
April 1, 2004, the joint venture with Sony is included in the Company's
consolidated results. Revenue derived from the Sony joint venture for the period
from April 1, 2004 through June 30, 2004 and included in the table above was
$11.2 million. The overall decrease ($7.1 million) in licensing revenue relates
to a shift from Hulk related toy sales during the six months ended June 30,
2003, which were recorded within the Company's licensing segment revenues, to
sales of Spider-Man 2 toy sales during the six months ended June 30, 2004, which
are recorded within the Company's toy segment revenues. Overages, which are
license revenues in excess of minimum guarantees, were $16.4 million for the six
months ended June 30, 2004 versus $15.4 million in the year-ago period.

Sales from the Publishing segment increased $6.6 million to $41.3 million
for the six months ended June, 30 2004, from $34.7 million for the six months
ended June 30, 2003, fueled by increases in sales of comics, trade paperbacks
and advertising income. As anticipated, sales from the Toy segment increased
$101.0 million to $136.9 million for the six months ended June 30, 2004,
primarily due to an increase in the sales of action figures and accessories
based on characters associated with the Spider-Man 2 theatrical release.

Gross Profit
Six Months ended June 30,
(in thousands)
2004 Margin 2003 Margin
------ ------ ------ ------

Licensing $99.6 100% $106.7 100%
Publishing 22.1 54% 18.2 52%
Toys 52.7 38% 15.0 42%
------ ------
Total $174.4 63% $139.9 79%
====== ======

Gross profit increased $34.5 million to $174.4 million for the six months
ended June 30, 2004, primarily due to growth in the publishing and toy segments.
The Company's gross profit as a percentage of sales decreased to 63% for the six
months ended June 30, 2004, as compared to 79% for the six months ended June 30,
2003, due to an increase in toy revenue as a percentage of total revenue. Gross
margins are lower for toy segment revenue than for publishing or licensing
segment revenue.

Selling, General & Administrative Expenses

Six Months ended June 30,
(in thousands)
2004 Margin 2003 Margin
------ ------ ------ ------

Licensing $33.6 34% $23.7 22%
Publishing 6.8 16% 7.0 20%
Toys 13.4 10% 5.1 14%
Corporate Overhead 8.3 N/A 11.8 N/A
------ ------
Total $62.1 22% $47.6 27%
====== ======

Selling, general and administrative ("SG&A") expenses increased $14.5
million to $62.1 million for the six months ended June 30, 2004. As a percentage
of sales, SG&A decreased to 22% of net sales for the six months ended June 30,
2004 from 27% of net sales for the six months ended June 30, 2003. The licensing
segment exhibited the highest year-over-year growth in absolute dollars and as a
percentage of licensing sales with an increase of $9.9 million, primarily due to
a greater volume of commissions on foreign sales and the incremental overhead
costs to open and operate the Company's offices in London and Tokyo. General
Corporate expenses decreased $3.5 million due to lower legal fees incurred in
connection with litigation activities in the prior year.

The Company accounted for the activity of its joint venture with Sony under
the equity method until April 1, 2004. Effective April 1, 2004, the operations
of the joint venture have been included in the accompanying consolidated
financial statements, within of the Company's licensing segment.

Other Income

Other income during the six month period ended June 30, 2004 includes $1.0
million generated from cash previously held in trust for the purpose of paying
bankruptcy claims assumed by the Company when it acquired Marvel Entertainment
Group, Inc. out of bankruptcy in 1998. Those funds were released to the Company
upon the completion of the bankruptcy proceedings in the second quarter of 2004.

Operating Income
Six Months ended June 30,
(in thousands)
2004 Margin 2003 Margin
------ ------ ------ ------

Licensing $74.1 74% $90.0 84%
Publishing 16.3 39% 11.3 33%
Toys 38.8 28% 8.6 24%
Corporate Overhead (8.3) N/A (11.8) N/A
------ ------
Total $120.9 44% $98.1 55%
====== ======

Operating income increased $22.8 million to $120.9 million for the six
months ended June 30, 2004. As a percentage of sales, operating margins
decreased to 44% of net sales for the first six months ended June 30, 2004,
predominately due to the shift towards a higher weighting of the toy segment,
which has the lowest margins. While operating margins increased versus the prior
year in the publishing and toy segments, margins in the licensing segment
decreased due to a greater volume of commissions to sales agents on foreign
sales and incremental overhead costs to open and operate the Company's licensing
activities in London and Tokyo during the six months ended June 30, 2004 than in
the comparable period in 2003.

Net interest expense increased $10.1 million to $18.9 million during the
six months ended June 30, 2004, as compared to $8.8 million for the comparable
period in 2003. This increase was the result of the write-off of unamortized
deferred debt costs ($3.2 million) plus a 6% prepayment premium ($9.0 million)
in connection with the redemption of the Company's 12% Senior notes on June 15,
2004. These expenses were partially offset by increased interest income as a
result of higher cash and cash equivalent, certificates of deposits and
commercial paper balances.

The Company's effective tax rate for the six months ended June 30, 2004
(37.0%) was higher than the Federal statutory rate due primarily to state and
local taxes and foreign taxes. At March 31, 2004, the Company had completely
utilized its Federal net operating loss carryforwards. The Company retains
various state and local net operating loss carryforwards of $340 million, which
will expire in various jurisdictions in years 2005 through 2024. As of June 30,
2004, there is a valuation allowance of $7.2 million against certain state and
local and foreign net operating losses as it is not assured that such assets
will be realized in the future.

Liquidity and Capital Resources

The Company's primary sources of liquidity are cash, cash equivalents and
certificates of deposit on hand and cash flows from operations. The Company
anticipates that its primary uses for liquidity will be to conduct its business,
make capital expenditures and pursue its stock buy-back program.

Net cash provided by operating activities was $76.2 million for the six
month period ended June 30, 2004 as compared to net cash provided by operating
activities of $82.0 million for the six month period ended June 30, 2003.

At June 30, 2004, the Company had working capital of $136.7 million.

The Company maintains a credit facility with HSBC Bank USA ("HSBC Credit
Facility") to provide for a $15.0 million revolving credit facility and a $15.0
million letter of credit facility. As of June 30, 2004, $0.1 million of letters
of credit were outstanding and there were no borrowings under the HSBC revolver.
The HSBC Credit Facility contains customary event of default provisions and
covenants restricting the Company's operations and activities, including the
amount of capital expenditures, and also contains certain covenants relating to
the maintenance of minimum tangible net worth and minimum free cash flow. The
HSBC Credit Facility is secured by (a) a first priority perfected lien in all of
the assets of the Company; and (b) a first priority perfected lien in all of the
capital stock of each of the Company's domestic subsidiaries. Borrowings would
bear interest at prime or LIBOR-plus-two percent per annum.

In connection with the HSBC Credit Facility, the Company and Isaac
Perlmutter entered into a Security Agreement. Under the terms of the Guaranty,
Mr. Perlmutter has guaranteed the payment of the Company's obligations under the
HSBC Credit Facility in an amount equal to 25% of all principal obligations
relating to the HSBC Credit Facility plus an amount, not to exceed $10.0
million, equal to the difference between the amount required to be in the cash
reserve account maintained by the Company and the actual amount on deposit in
such cash reserve account at the end of each fiscal quarter; provided that the
aggregate amount guaranteed by Mr. Perlmutter will not exceed $30.0 million.
Under the terms of the Security Agreement, Mr. Perlmutter has provided the
creditors under the HSBC Credit Facility with a security interest in the
following types of property, whether currently owned or subsequently acquired by
him: all promissory notes, certificates of deposit, deposit accounts, checks and
other instruments and all insurance or similar payments or any indemnity payable
by reason of loss or damage to or otherwise with respect to any such property.

On July 9, 2004, the Company authorized a $100 million common stock
repurchase program. Pursuant to the authorization, the Company may, at its
option, purchase shares of its common stock from time to time in the open market
or through privately negotiated transactions through the earlier of January 2006
or such time as $100 million of the Company's shares have been repurchased under
the program. The Company's largest stockholder and Vice Chairman, Isaac
Perlmutter, and its Marvel Studios' Chief Executive Officer, Avi Arad, have each
agreed not to sell any shares while the repurchase program is in place.

As a result of the conclusion of the bankruptcy proceedings involving
Marvel Entertainment Group, Inc. in June 2004, the Company will no longer be
required to pay any further administrative expense claims in that bankruptcy.

The Company believes that cash on hand, cash flow from operations, and
other sources of liquidity will be sufficient for the Company to conduct its
business, make capital expenditures and pursue its stock buy-back program.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has operations in Hong Kong, the UK and Japan. In the normal
course of business, these operations are exposed to fluctuations in currency
values. Management believes that the impact of currency fluctuations do not
represent a significant risk. The Company does not enter into derivative
financial instruments in the normal course of business, nor are such instruments
used for speculative purposes.

Additional information relating to the Company's outstanding financial
instruments is included in Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.

ITEM 4. CONTROLS AND PROCEDURES

The Company's management, with the participation of its principal executive
officer and principal financial officer, has evaluated the effectiveness of its
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of the end of the
period covered by this Quarterly Report on Form 10-Q. Based on this evaluation,
the Company's principal executive officer and principal financial officer
concluded that these disclosure controls and procedures are effective. The
Company has not identified any changes in its internal controls over financial
reporting during the quarter ended June 30, 2004 that have materially affected,
or are reasonably likely to materially affect, its internal controls over
financial reporting.

PART II. OTHER INFORMATION.
---------------------------

ITEM 1. LEGAL PROCEEDINGS

Stan Lee v. Marvel. On November 12, 2002, Stan Lee commenced an action in
the United States District Court for the Southern District of New York, alleging
claims for breach of his November 1, 1998 employment agreement. Mr. Lee claims
the right to a 10% profit participation in connection with the Spider-Man movie
and other film and television productions that utilize Marvel characters.
Pursuant to the terms of the Employment Agreement, the Company is currently
paying Mr. Lee a salary of $1.0 million per year and believes that Mr. Lee's
claim is without merit. Marvel has answered the complaint and denied all of its
material allegations. The action is currently in the discovery phase and no
trial date has been set.

Marvel Characters, Inc. v. Sony Pictures Entertainment Inc. et al. On
February 25, 2003, Marvel Characters, Inc. ("MCI"), a wholly owned subsidiary of
Marvel Enterprises, Inc., sued Sony Pictures Entertainment Inc. ("SPE") and
related entities, in California Superior Court for Los Angeles County, alleging,
among other things, that the 1999 license agreement for Spider-Man between MCI
and SPE should be dissolved based on SPE's fraudulent representations to MCI
during the negotiation of the license agreement. On April 21, 2003, in response
to Marvel's complaint, SPE filed a cross-complaint in which SPE alleged that MCI
breached the licensing agreement with respect to the licensing of Spider-Man
merchandise unrelated to Spider-Man: The Movie to SPE's financial detriment. On
June 1, 2004, Marvel and SPE announced that MCI's suit and SPE's cross-complaint
would be voluntarily withdrawn.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

All matters submitted to a vote of security holders during the quarter
ended June 30, 2004 were submitted at the Company's 2004 Annual Meeting of
Stockholders, which was held on May 5, 2004. The matters were as follows:

1. A proposal to elect Morton E. Handel, F. Peter Cuneo and Isaac Perlmutter
as directors of the Company to serve until the election and qualification
of their respective successors. With respect to the election of Mr. Handel
, 99,715,206 votes were cast in favor and 4,170,551 votes were withheld;
with respect to the election of Mr. Cuneo, 98,581,524 votes were cast in
favor and 5,304,233 votes were withheld; with respect to the election of
Mr. Perlmutter, 97,714,088 votes were cast in favor and 6,171,669 votes
were withheld.

2. A proposal to approve and adopt an amendment and restatement of the
Company's certificate of incorporation eliminating certain no-longer
applicable provisions. This proposal received 103,504,223 votes cast in
favor and 305,301 votes cast against; there were 76,232 abstentions.

3. A proposal to approve and adopt an amendment to the Company's stock
incentive plan to increase the number of shares issuable pursuant to awards
made under the plan. This proposal received 36,740,796 votes cast in favor
and 43,280,759 votes cast against; there were 194,321 abstentions.

4. A proposal to ratify the appointment of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending December 31, 2004. This
proposal received 93,536,327 votes cast in favor and 10,290,465 votes cast
against; there were 58,965 abstentions.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

a) Exhibits.

10.1 Amendment to the Employment Agreement with Avi Arad

10.2 Amendment to the Employment Agreement with Alan Fine

31.1 Certification by Chief Executive Officer pursuant to Rule 13a-14(a)
under the Exchange Act.

31.2 Certification by Chief Financial Officer pursuant to Rule 13a-14(a)
under the Exchange Act.

32 Certification by Chief Executive Officer and Chief Financial Officer
pursuant to Rule 13a-14(b) under the Exchange Act.

b) Reports on Form 8-K

The Registrant filed the following report on Form 8-K during the quarter
ended June 30, 2004:

1. Current Report on Form 8-K filed May 11, 2004, reporting Items 7 and
12.

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.

MARVEL ENTERPRISES, INC.
(Registrant)

Dated: July 29, 2004 By: /s/ Allen S. Lipson
---------------------------------
Allen S. Lipson
President and Chief Executive Officer

Dated: July 29, 2004 By: /s/ Kenneth P. West
----------------------------------------
Kenneth P. West
Chief Financial Officer