MARVEL PARENT HOLDINGS INC, 10-Q, 1996-11-14

MARVEL PARENT HOLDINGS INC
10-Q, 1996-11-14
PERIODICALS: PUBLISHING OR PUBLISHING & PRINTING

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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 September 30, 1996

[ ] 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 33-65496

MARVEL (PARENT) HOLDINGS INC.

- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

DELAWARE 13-3501047

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

5900 NORTH ANDREWS AVENUE, FT. LAUDERDALE, FL 33309

- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

305-772-3152

- --------------------------------------------------------------------------------
(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
--- ----

At November 8, 1996, the number of outstanding shares of the registrant's
common stock, par value $1.00 per share, was 1,000 shares, all of which were
held by Marvel III Holdings.

<PAGE>

MARVEL (PARENT) HOLDINGS INC.
INDEX TO CONTENTS OF THE THIRD QUARTER 1996 FORM 10-Q

Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 ......................... 3

Condensed Consolidated Statements of Operations for the quarters and nine months ended
September 30, 1996 and 1995 ................................................................................ 4

Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 ................................................................................. 5

Notes to Condensed Consolidated Financial Statements ......................................................... 6

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

Other Information ............................................................................................ 19

Signatures ................................................................................................... 20

</TABLE>

<PAGE>

MARVEL (PARENT) HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
(UNAUDITED)

September 30, December 31,
1996 1995
------------- -------------
ASSETS
Current assets:
Cash....................................... $ 36.0 $ 53.6
Accounts receivable, net................... 257.2 236.7
Inventories, net........................... 99.1 82.4
Deferred income taxes...................... 32.5 50.4
Income taxes receivable.................... 18.2 24.6
Prepaid expenses and other................. 58.2 43.0
-------- --------
Total current assets.................... 501.2 490.7

Property, plant and equipment, net........... 87.7 71.3
Goodwill and other intangibles, net.......... 894.2 908.0
Deferred charges and other................... 81.6 69.0
-------- --------
$1,564.7 $1,539.0
======== ========

LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable.......................... $ 95.8 $ 104.8
Accrued expenses and other................ 171.0 195.9
Short term borrowings (See Note 3)...... 28.7 13.3
Current portion of long-term debt (See Note 4) 625.8 5.2
-------- --------
Total current liabilities............... 921.3 319.2
Long-term debt (See Note 4).................. 647.9 1,177.5
Other long-term liabilities.................. 70.6 63.5
-------- --------
1,639.8 1,560.2
-------- --------
Minority interest in Toy Biz................. 102.9 70.4
Minority interest in Marvel:
Held by affiliates......................... 4.2 2.8
Held by non-affiliates..................... 34.0 41.1
Stockholder's deficit:
Common stock................................ -- --
Capital deficiency.......................... (18.2) (19.5)
Accumulated deficit ........................ (198.4) (116.4)
Cumulative translation adjustment .......... 0.4 0.4
-------- --------
Total stockholder's deficit............. (216.2) (135.5)
-------- --------
$1,564.7 $1,539.0
======== ========

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

<PAGE>

MARVEL (PARENT) HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
(UNAUDITED)

Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -------------------------
1996 1995 1996 1995
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>

Net revenues..................................................... $209.4 $269.0 $581.2 $596.1
------ ------ ------ ------
Operating Expenses:
Cost of sales.................................................... 143.1 138.8 372.4 352.6
Selling, general & administrative expenses....................... 60.7 62.5 168.3 156.3
Depreciation and amortization.................................... 6.3 4.9 15.6 12.4
------ ------ ------ ------
Total Operating Expenses............. 210.1 206.2 556.3 521.3

Amortization of goodwill, intangibles and deferred charges....... 8.8 8.2 25.7 21.3

Interest expense, net............................................ 32.5 27.4 93.7 75.7

Foreign exchange loss/ (gain), net............................... 0.6 -- 2.1 (0.8)

Gain on sale of Toy Biz common stock (See Notes 6 and 8)....... 22.0 -- 22.0 14.3

Equity in net (loss) income of unconsolidated subsidiaries....... (0.7) 0.8 (0.5) 1.6
------ ------ ------ ------
(Loss) income before provision (benefit) for income taxes, minority
interest and extraordinary item............................... (21.3) 28.0 (75.1) (5.5)

Provision (benefit) for income taxes............................. 3.0 21.0 (0.7) 25.6
------ ------ ------ ------
(Loss) income before minority interest and extraordinary item.... (24.3) 7.0 (74.4) (31.1)

Minority interest in earnings of Toy Biz......................... 8.6 5.9 13.5 10.0

Minority interest in earnings of Marvel:
Attributable to affiliates..................................... (0.3) 0.3 (0.5) 0.2
Attributable to non-affiliates................................. (2.3) 3.9 (5.4) 2.0
------ ------ ------ ------
Loss before extraordinary item................................... (30.3) (3.1) (82.0) (43.3)

Extraordinary item, net of taxes................................. -- -- -- (3.3)
------ ------ ------ ------
Net loss......................................................... ($30.3) ($3.1) ($82.0) ($46.6)
====== ====== ====== ======

</TABLE>

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

<PAGE>

MARVEL (PARENT) HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................................ ($82.0) ($46.6)
----- -----
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................................ 41.7 33.5
Amortization of debt discount................................................ 50.9 45.5
Provision for deferred income taxes.......................................... 8.5 19.6
Extraordinary item, net...................................................... -- 3.3
Undistributed earnings of unconsolidated subsidiaries........................ 0.5 (1.6)
Distributions from unconsolidated subsidiaries............................... -- 3.0
Gain from Toy Biz IPO........................................................ (22.0) (14.3)
Minority interest in earnings of Toy Biz..................................... 13.5 10.0
Minority interest in earnings of Marvel...................................... (5.9) 2.2
Changes in assets and liabilities, net of effects in 1995 of
previously unconsolidated subsidiary and the SkyBox Acquisition.......... (75.4) (73.5)
----- -----
Total adjustments............................................................... 11.8 27.7
----- -----
Net cash used in operating activities...................................... (70.2) (18.9)
----- -----
Cash flows from investing activities:
Capital expenditures (including product development and package design costs) (32.9) (26.1)
Net proceeds from sale of investment in Toy Biz.............................. 35.7 --
Acquisition of SkyBox, net of cash and cash equivalents...................... -- (159.5)
Purchase of Marvel shares of common stock.................................... (0.7) (7.9)
Other acquisitions........................................................... -- (14.4)
Other........................................................................ (8.0) (5.6)
----- -----
Net cash used in investing activities...................................... (5.9) (213.5)
----- -----
Cash flows from financing activities:
Net (repayments) borrowings under term portion of credit agreements.......... (5.3) 184.9
Net borrowings (repayments) under revolving portion of credit agreement ...... 17.0 (2.0)
Borrowings related to Adespan adhesives facility.............................. 6.3 --
Net borrowings (repayments) of other debt..................................... 30.5 (5.8)
Net proceeds from Toy Biz common stock offerings.............................. 9.7 44.2
Capital contributions from parent............................................ 0.9 8.1
Proceeds from exercise of stock options....................................... 0.5 8.3
Debt issuance costs........................................................... (1.4) (8.1)
Other financing activities.................................................... (1.0) --
----- -----
Net cash provided by financing activities.................................. 57.2 229.6
----- -----
Effect of exchange rate changes on cash......................................... 1.3 1.9
----- -----
Cash balance from previously unconsolidated subsidiary.......................... -- 7.5
----- -----
Net (decrease) increase in cash................................................. (17.6) 6.6
Cash at beginning of period..................................................... 53.6 18.1
----- -----
Cash at end of period........................................................... $36.0 $24.7
===== =====
Supplemental disclosures of cash flow information:
Interest paid during the period.......................................... $45.9 $17.8
Income taxes paid, net of refunds, during the period..................... ($2.4) $9.2

</TABLE>

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

<PAGE>

MARVEL (PARENT) HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

1. BACKGROUND AND BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying condensed consolidated financial statements of Marvel
(Parent) Holdings Inc., ("Parent Holdings", together with its subsidiaries the
"Company"), are unaudited. Parent Holdings is a direct wholly owned subsidiary
of Marvel III Holdings Inc., an indirect wholly owned subsidiary of Andrews
Group Incorporated ("Andrews Group"), which in turn is a wholly owned
subsidiary of MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings"), which
in turn is wholly owned through Mafco Holdings Inc. ("Mafco" and together with
MacAndrews Holdings, "MacAndrews & Forbes") by Ronald O. Perelman. In the
opinion of management, all adjustments and intercompany eliminations necessary
for a fair presentation of the results of operations, financial position and
cash flows have been made and were of a normal recurring nature. The condensed
consolidated financial statements of the Company include the results of
operations, financial position and cash flows of Marvel Entertainment Group,
Inc. and its subsidiaries ("Marvel"). The Company's operations consist of (i)
the publication and sale of comic books and children's magazines, (ii) the
marketing and distribution of sports and entertainment trading cards and
activity sticker collections, (iii) consumer products, media and advertising
promotions licensing of the various characters owned by the Company, (iv) the
design, marketing and distribution of toys and (v) the manufacture and
distribution of adhesives and confectionery products. These interim condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto contained in the
Company's 1995 Annual Report on Form 10-K. Certain prior year amounts have been
reclassified to conform with the current year presentation.

The condensed consolidated financial statements presented herein
reflect the ownership by the Company of approximately 79% of the outstanding
shares of Marvel common stock for all periods.

2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

ACCOUNTS RECEIVABLE, NET:
September 30, December 31,
1996 1995
----------------- ---------------
Accounts receivable ........... $292.3 $314.5
Less: Allowances ............. (35.1) (77.8)
------ ------
$257.2 $236.7
====== ======
INVENTORIES, NET:

Finished goods ................ $ 79.6 $ 58.8
Work in process ............... 19.3 22.3
Raw materials ................. 23.7 23.7
Less: Reserve for obsolescence (23.5) (22.4)
------ ------
$ 99.1 $ 82.4
====== ======
GOODWILL AND OTHER INTANGIBLES, NET:

Goodwill and other intangibles $974.5 $970.0
Less: Accumulated amortization (80.3) (62.0)
------ ------
$894.2 $908.0
====== ======

Goodwill and other intangibles, net related to the trading card
operations of the Company was approximately $365.0 and $375.0 as of September
30, 1996 and December 31, 1995, respectively.

<PAGE>

MARVEL (PARENT) HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

ACCRUED EXPENSES AND OTHER:
September 30, December 31,
1996 1995
-------------- --------------
Royalties and incentives ......... $ 29.1 $ 21.4
Reserve for returns .............. 40.3 59.0
Income taxes payable ............. 4.0 19.7
Other ............................ 97.6 95.8
------ ------
$171.0 $195.9
====== ======

3. SHORT-TERM BORROWINGS

Under line of credit arrangements for short-term borrowings with a
group of banks, Panini may borrow up to Italian Lire 73.2 billion
(approximately $48.0 based on exchange rates at September 30, 1996) on such
terms as Panini and the banks may mutually agree upon. These arrangements do
not have termination dates but are reviewed annually for renewal. At September
30, 1996 and December 31, 1995, the unused portion of the credit lines were
Italian Lire 29.4 billion and Italian Lire 44.2 billion, respectively
(approximately $19.3 and $29.0, respectively based on exchange rates at
September 30, 1996). The weighted average interest rates on short-term
borrowings as of September 30, 1996 and December 31, 1995 were 7.74% and 6.08%,
respectively.

4. DEBT

Debt consists of the following:

September 30, December 31,
1996 1995
------------- ------------
U.S. Term Loan Agreement ........... $ 350.0 $ 350.0
Term Loan Agreement ................ 139.9 139.5
Amended and Restated Credit Agreement:
Revolving credit facility ..... 104.5 87.5
11-1/4% Series B Senior Secured
Discount Notes, net of unamortized
discount of $80.3 at September 30, 1996
and $114.6 at December 31, 1995 .... 437.2 402.8
11-7/8% Senior Secured Discount Notes,
net of unamortized discount of $40.9
at September 30, 1996 and $58.3 at
December 31, 1995 .................. 210.7 193.4
Capital lease obligations and other
long term debt ..................... 31.4 9.5
-------- --------
1,273.7 1,182.7
Less current maturities ............ 625.8 5.2
-------- --------
Long-term debt ..................... $ 647.9 $1,177.5
======== ========

Marvel has experienced greater than expected operating losses, and as
a result has failed to satisfy certain financial covenants contained in the
Credit Agreements (as defined below) and has commenced discussions with its
agent bank seeking waivers of these covenants and a restructuring of the Credit
Agreements to provide for its cash requirements. Marvel believes that the
restructuring of the Credit Agreements will require an infusion of new equity
capital and has received a proposal from Andrews Group Incorporated ("Andrews
Group"), a parent corporation, regarding such equity infusion, which is subject
to a number of significant conditions (see Note 8). As a result of Marvel's
failure to satisfy certain financial covenants and in the absence of waivers as
of this date

<PAGE>

MARVEL (PARENT) HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

relating thereto, the balance of its long-term debt has been reclassified to
current liabilities. In addition, as a result of Marvel's failure to satisfy
the financial covenants contained in the Credit Agreements, rollovers of
existing Eurocurrency Rate Loans will be made as Alternate Base Rate Loans or
Negotiated Rate Loans thereby likely increasing Marvel's borrowing costs. There
can be no assurance that the debt can be restructured on favorable terms to
Marvel or that an additional capital infusion will be received by Marvel.

Marvel's indebtedness is principally represented by the outstanding
balance under the U.S. Term Loan Agreement, as defined below, the Amended and
Restated Credit Agreement effective August 30, 1994 between Marvel, a syndicate
of banks, the Co-Agents and The Chase Manhattan Bank (formerly named Chemical
Bank), as administrative agent (the "Amended and Restated Credit Agreement"),
and the outstanding balance of the Term Loan Agreement, as defined below. The
Applicable Margin under the Amended and Restated Credit Agreement for Alternate
Base Rate loans range from 0% to 1% and for Eurodollar Rate loans range from
5/8 of 1% to 2%, in each case depending on Marvel's financial performance. The
interest rate on Eurodollar Rate Loans at September 30, 1996 was approximately
7 5/16% to 7 23/32% per annum, depending upon the length of the relevant
interest period. The proceeds of loans incurred under the revolving credit
portion of the Amended and Restated Credit Agreement may be used for general
corporate purposes of Marvel and for investments within an aggregate limit.

In April 1995, Marvel entered into a $350.0 term loan agreement with a
syndicate of banks, the Co-Agents and The Chase Manhattan Bank (formerly named
Chemical Bank), as administrative agent (the "U.S. Term Loan Agreement"). Loans
under the U.S. Term Loan Agreement bear interest at a rate per annum equal to
the Eurodollar Rate (as defined in the U.S. Term Loan Agreement), or the
Alternate Base Rate (as defined in the U.S. Term Loan Agreement) plus, in each
case, the Applicable Margin (as defined in this paragraph). Eurodollar Rate
Loans will, at the option of Marvel, have interest periods of one, two, three
or six months. Applicable Margin means (a) with respect to Eurodollar Rate
loans, 2% to 2 1/2% through the first Anniversary Date (as defined in the U.S.
Term Loan Agreement) and 1 1/8% to 2 1/2% thereafter, to be determined based on
Marvel's financial performance and (b) with respect to Alternate Base Rate
loans, 1% to 1 1/2% through the first Anniversary Date and 1/8 of 1% to 1 1/2%
thereafter, to be determined based on Marvel's financial performance. The
interest rate on Eurodollar Rate Loans at September 30, 1996, was approximately
8 1/16% to 8 3/16% depending upon the length of the relevant interest period.
Interest on Alternate Base Rate Loans is payable quarterly in arrears, and
interest on Eurodollar Rate Loans is payable at the end of the applicable
interest period, except that if the interest period is six months, interest is
payable ninety days after the commencement of the interest period and at the
end of the interest period.

On August 30, 1994, Marvel, Marvel Italia Srl (now Panini S.p.A.) and
Instituto Bancario San Paolo Di Torino S.p.A. (the "Lender"), entered into a
term loan and guarantee agreement (the "Term Loan Agreement") providing for a
term loan credit facility of Italian Lire 244.5 billion (approximately $154.0
based on exchange rates in effect on the date of acquisition) (the "Term Loan
Facility"). Through September 30, 1996, Marvel paid Italian Lire 31.2 billion
(approximately $20.5) due under the Term Loan Facility.

The Term Loan Facility bears interest at a rate per annum equal to the
Eurocurrency Rate (as defined in the Term Loan Agreement) or, in certain
limited circumstances, the Negotiated Rate (as defined in the Term Loan
Agreement), in each case plus the Applicable Margin (as defined in this
paragraph). Eurocurrency Rate Loans have, at the option of Panini, interest
periods of one, two, three or six months. Applicable Margin means (a) with
respect to Eurocurrency Loans, 5/8 of 1% to 2%, to be determined based on
Marvel's financial performance and (b) with respect to Negotiated Rate Loans,
1%. The interest rate on Eurocurrency Rate Loans at September 30, 1996, was
approximately 10.46%. Interest on Negotiated Rate Loans is payable quarterly in
arrears and interest on Eurocurrency Rate Loans is payable at the end of the
applicable interest period, except that if the interest period is six months,
interest is payable ninety days after the commencement of the interest period
and at the end of the interest period.

<PAGE>

MARVEL (PARENT) HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

The U.S. Term Loan Agreement (through incorporation by reference to
the Amended and Restated Credit Agreement), the Amended and Restated Credit
Agreement and the Term Loan Agreement include various restrictive covenants
prohibiting Marvel from, among other things, incurring additional indebtedness,
with certain limited exceptions, and making dividend, redemption and certain
other payments on its capital stock. The U.S. Term Loan Agreement, the Amended
and Restated Credit Agreement and the Term Loan Agreement also contain certain
customary financial covenants and events of default for financing of this type,
including a change of control covenant. Mandatory prepayments are required to
be made out of net proceeds from sales of assets by Marvel, with certain
exceptions, and from certain excess cash flow (as defined in the Amended and
Restated Credit Agreement).

During March 1996 and August 1996, Marvel amended the U.S. Term Loan
Agreement, the Amended and Restated Credit Agreement and the Term Loan
Agreement to, among other things; 1) provide for an additional $25.0 revolving
credit facility which will expire on December 31, 1996; 2) secure the
borrowings with substantially all of Marvel's domestic assets, other than
Marvel's investment in common stock of Toy Biz, and all of the capital stock of
Marvel's domestic subsidiaries and 65% of the capital stock of Marvel's first
tier foreign subsidiaries; and 3) amend certain financial covenants. The
additional revolving credit facility is pari passu with the loans extended by
the banks pursuant to Marvel's existing loan agreements (collectively with the
U.S. Term Loan Agreement, the Amended and Restated Credit Agreement and the
Term Loan Agreement, the "Credit Agreements"). The additional revolving credit
facility bears interest at a rate per annum equal to the Eurodollar Rate (as
defined in the Term Loan Agreement), plus 2 3/4%, or the Alternate Base Rate
(as defined in the Term Loan Agreement) plus 1 3/4%. The interest rate on the
additional revolving credit facility at September 30, 1996 was 8 7/16%.

In conjunction with the Toy Biz IPO (as defined below), Toy Biz
entered into a three year $30.0 revolving line of credit with a syndicate of
banks for which The Chase Manhattan Bank (formerly named Chemical Bank) serves
as administrative agent. Substantially all of the assets of Toy Biz have been
pledged to secure borrowings under the Toy Biz credit facility. Borrowings
under the credit facility bear interest at either The Chase Manhattan Bank's
alternate base rate or at the Eurodollar rate plus, in each case, the
applicable margin. The applicable margin is 1% unless Toy Biz meets specific
financial operating levels, in which case the applicable margin decreases to
3/4 of 1%. The credit facility requires Toy Biz to pay a commitment fee of 3/8
of 1% per annum on the average daily unused portion of the credit facility.

The Toy Biz credit facility contains various financial covenants, as
well as restrictions, on the incurrence of new indebtedness, prepaying or
amending subordinated debt, acquisitions and similar investments, the sale or
transfer of assets, capital expenditures, limitations on restricted payments,
dividends, issuing guarantees and creating liens. The credit facility also
requires that (a) Marvel control Toy Biz and (b) that the exclusive, royalty
free perpetual worldwide license agreement between Toy Biz and Marvel remain in
effect. The Toy Biz credit facility is not guaranteed by Marvel.

5. RESTRUCTURING OF OPERATIONS

In the fourth quarter of 1995, Marvel recorded restructuring charges
of $25.0 related primarily to publishing and confections operations. As part of
the restructuring, Marvel has terminated approximately 275 employees, covering
editorial, production, distribution and administrative employee groups and,
accordingly, provided for $10.7 of termination benefits, of which $6.5 has been
paid as of September 30, 1996. Additionally, approximately $6.7 of the
restructuring charges relates to facility closure and consolidation costs, of
which $5.4 has been paid as of September 30, 1996, and $7.6 of the
restructuring charges relates to other costs, of which $4.6 has been paid as of
September 30, 1996. A substantial portion of the remaining amount of $8.5 as of
September 30, 1996, which is included in accrued expenses and other, is
scheduled to be paid in the fourth quarter of 1996 with the remainder to be
paid in accordance with the terms of various agreements.

<PAGE>

MARVEL (PARENT) HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

6. TOY BIZ COMMON STOCK OFFERINGS

On March 2, 1995, Toy Biz, Inc. ("Toy Biz") completed an initial
public offering (the "Toy Biz IPO") in which it issued and sold 2,750,000
shares of class A common stock at $18 per share. As part of the Toy Biz IPO, a
stockholder sold 700,000 shares of class A common stock at $18 per share. The
net proceeds to Toy Biz, after deducting commissions and offering expenses, of
$44.1 were used to pay outstanding amounts due under subordinated notes held by
Marvel and the sole stockholder of the predecessor to Toy Biz and for working
capital and general corporate purposes. In 1995, Marvel recorded a gain of
$14.3 on the Toy Biz IPO in recognition of the net increase in value of
Marvel's investment in Toy Biz. In August, 1996, Toy Biz sold in an offering
700,000 shares of its class A common stock at a price to the public of $15 per
share. As part of the Toy Biz offering, Marvel sold 2.5 million shares of its
Toy Biz class A common stock. In the third quarter of 1996, Marvel recorded a
gain on the sale of this common stock of approximately $22.0. The net proceeds
to Toy Biz and Marvel were approximately $9.1 and $35.7, respectively, after
deducting amounts accrued for estimated fees and expenses.

In conjunction with the Toy Biz IPO, Marvel's equity ownership
percentage of Toy Biz decreased to 36.6% and its voting control increased to
85.3% and, as a result of the increase in voting control, the condensed
consolidated financial statements of Marvel include the result of operations,
financial position and cash flows of Toy Biz. For periods prior to the Toy Biz
IPO, Toy Biz was accounted for under the equity method. As a result of Marvel's
sale of class A common stock of Toy Biz in August 1996, Marvel's ownership
percentage of Toy Biz decreased to 26.7% and its voting control decreased to
78.4% (See Note 8).

7. SKYBOX ACQUISITION

On April 27, 1995, Marvel acquired all of the issued and outstanding
shares of SkyBox common stock for $165.0. The SkyBox Acquisition was accounted
for using the purchase method of accounting. The purchase price has been
allocated to the identified assets and liabilities based on their respective
fair values. The total purchase price exceeded the fair value of the net assets
of SkyBox by $158.4 and has been assigned to goodwill, which is currently being
amortized over forty years on the straight-line basis.

The following unaudited pro forma consolidated financial information
gives effect to the SkyBox Acquisition as if it had occurred at the beginning
of 1995. The pro forma results include certain adjustments, primarily increased
amortization and interest expense, and are not necessarily indicative of what
the results would have been had the SkyBox Acquisition occurred at the
beginning of the period. In addition, Toy Biz net revenues were $117.0 for the
nine months ended September 30, 1995, of which $102.3 is included in Marvel's
consolidated net revenues.
For the Nine Months Ended
September 30, 1995
--------------------
Net revenues......................................... $ 621.1
Loss before extraordinary item....................... $ (47.0)
Net loss............................................. $ (50.3)

<PAGE>

MARVEL (PARENT) HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

8. SUBSEQUENT EVENT

Marvel has experienced greater than expected operating losses in the
third quarter of 1996, and as a result has failed to satisfy certain financial
covenants contained in the Credit Agreements. Marvel has commenced discussions
with The Chase Manhattan Bank, the agent bank under the Credit Agreements,
seeking waivers of these covenants and a restructuring of the Credit Agreements
to provide for Marvel's cash requirements. Marvel believes that such a
restructuring will require an infusion of new equity capital and has received a
proposal from Andrews Group regarding such equity infusion, which is subject to
a number of significant conditions. As a result of Marvel's failure to satisfy
certain financial covenants and in the absence of waivers as of this date
relating thereto, the balance of long-term debt has been reclassified to
current liabilities.

On October 17, 1996, Andrews Group announced that it had reached
agreement with each of Isaac Perlmutter and Avi Arad to purchase approximately
67% of the class A common stock of Toy Biz for cash and debt of Andrews Group.
On November 12, 1996, Marvel received a proposal from Andrews Group to acquire
from Marvel a number of shares of Marvel common stock (or its equivalent) that
would represent 80.1% of the shares of Marvel common stock after giving effect
to such acquisition. Based on the approximately 101.8 million shares of Marvel
common stock outstanding, this would require the issuance of approximately 410
million shares of Marvel common stock (or its equivalent). The purchase price
for the acquisition would be $350 in cash or, at the option of Andrews Group,
an equal value of the shares of class A common stock of Toy Biz or a
combination of the foregoing (the "Andrews Investment"). The Andrews Group
proposal states that the shares of Toy Biz class A common stock so transferred
would be valued on the basis of the cost to Andrews Group of acquiring such
stock. The Andrews Group proposal states that any contribution by Andrews Group
to Marvel of shares of Toy Biz class A common stock would be made in the
context of Toy Biz becoming a wholly owned subsidiary of Marvel.

The Andrews Group proposal states that the consummation of the Andrews
Group Investment would be subject to a number of significant conditions,
including the satisfaction of the conditions set forth in the agreements
between Andrews Group and Messrs. Perlmutter and Arad, an agreement for the
acquisition of Toy Biz having been executed and all conditions to that
agreement having been satisfied, receipt of certain consents and amendments
under the Credit Agreements, including to provide for the additional borrowing
capacity that Marvel requires, the satisfactory resolution by Andrews Group of
a number of issues under the Marvel parent holding company indentures,
including that any Marvel common stock (or its equivalent) purchased by Andrews
Group not be subject to the liens thereunder, and the execution of a definitive
agreement for the Andrews Group Investment which contains appropriate
representations, warranties, covenants and conditions customary for
transactions of the nature of the Andrews Group Investment. There can be no
assurance that agreement will be reached on the terms of any of the foregoing
transactions or that any of the foregoing transactions will be consummated. See
Management Discussion and Analysis of Financial Condition and Results of
Operations - - Liquidity and Capital Resources.

<PAGE>

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

GENERAL

Parent Holdings is a holding company with no operations or source of
income of its own. Accordingly, except as otherwise indicated, the following
discussion relates to the results of operations of Marvel.

The Company is a leading creator, publisher and distributor of youth
entertainment products for domestic and international markets based on action
adventure characters owned by the Company, licenses from professional athletes,
sports teams and leagues and popular entertainment characters and other
properties owned by third parties. The Company also licenses its characters and
properties for consumer products, television and film and advertising
promotions. The Company's products include comic book and other publications,
sports and entertainment trading cards, activity stickers, toys, adhesives and
confectionery products.

RESULTS OF OPERATIONS

Over the past five years, the Company has diversified into a broadly
based youth entertainment company. As a result, an increasing portion of the
Company's net revenues have been derived from businesses other than comic book
publishing. The Company's business has been augmented by the marketing and
distribution of sports and entertainment trading cards and activity stickers
and the licensing of the Company's characters for consumer products, television
and film, advertising promotions and toys. Although the Company's consolidated
net revenues have increased as a result of diversification, certain changes in
market conditions, primarily associated with its publishing and trading card
businesses, have adversely affected the Company's net revenues and operating
results in recent periods.

In recent years there has been an overall decline in the comic book
specialty store industry, and more specifically, a significant reduction in
speculative purchases of comic books, which has adversely affected the
Company's publishing revenues. In response, the Company has undertaken several
strategic actions including: eliminating unprofitable and marginally profitable
titles to create a strong line-up comprising Marvel's most popular and most
profitable titles; focusing its comic books more on editorial content and less
on physical product features and enhancements; and streamlining operations
through introduction of new technology and consolidation of facilities.
However, to date these actions have not been sufficient to overcome the overall
decline in the comic book specialty store industry.

Similarly, there has been a significant contraction in the sports
trading card market related in part to lower speculative purchases. This
contraction was compounded by the baseball, hockey and basketball labor
situations in 1994 and 1995, which adversely affected sports trading card sales
and increased returns for those periods. Although Major League Baseball resumed
in April 1995, there still is no collective bargaining agreement in effect
between the owners and players as the owners rejected in early November 1996 a
proposed collective bargaining agreement. The level of fan interest, although
showing some signs of improvement during 1996, has not returned to the levels
experienced prior to the 1994 strike and the failure to enter into a new
collective bargaining agreement could result in a disruption of play in 1997.
Along with decreased fan interest, the Company believes that the labor
situations in professional sports have contributed to decreased trading card
consumer interest and, therefore, generally decreased levels of consumer
purchases of all trading cards. The Company believes that all of these factors
have negatively affected the overall trading card industry, causing the Company
to experience lower sales, higher returns and higher inventory obsolescence.

The level of demand for entertainment trading cards is dependent on
the commercial success and media exposure of the Company's characters and third
party licensed products, as well as the market conditions in the comic book
specialty stores. In 1994, the sale of entertainment cards based on Marvel's
characters and third party licensed characters offset and in 1995 such sales
substantially offset the decline in sports trading cards. However, in 1996, the
Company's sales of entertainment trading cards has been adversely affected by
lower sales of cards

<PAGE>

based on properties licensed from third parties as well as significantly lower
sales of cards based on comic book characters.

Throughout 1995, the lower sales and higher returns of the Company's
trading cards primarily related to distribution channels other than trading
card specialty stores. The Company has revamped its trading card business to
concentrate its distribution of trading card products in trading card specialty
stores and in select mass market accounts. The combination of the contraction
in the overall trading card industry, the lack of commercial success of certain
of the third party and Marvel licensed products, in part driven by the softness
in market conditions in the comic book specialty store market, and the
Company's change in distribution mentioned above have resulted in substantially
lower trading card sales by the Company in 1996.

In response to the significant contraction in the sports trading card
market, the adverse conditions related to the sale of entertainment trading
cards and the overall decline in the comic book specialty store industry and
their negative effect on the Company's operating results, the Company is
considering further actions to mitigate these declines and their effect on
future operating results. Given the unfavorable market conditions in trading
cards and publishing, the Company is evaluating whether there has been an
impairment to goodwill and other intangible assets and is considering
restructuring and other actions, all of which could result in substantial 1996
year end charges.

THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE THREE MONTHS
ENDED SEPTEMBER 30, 1995

The Company's net revenues were $209.4 million and $269.0 million in
the 1996 and 1995 periods, respectively, an decrease of $59.6 million or 22.2%.
This reflects a decrease of $59.0 million in net trading card and sticker
revenues, $16.6 million in licensing revenues, and $13.5 million in net
publishing revenues. This decrease was partially offset by a $26.2 million
increase in toy revenues and a $3.3 million increase in other revenues. The
decrease in trading card net revenues was primarily due to the continued
general decline in the demand for trading cards as well as the change in the
Company's distribution of its trading cards to concentrate in trading card
specialty stores and select mass market accounts which generally resulted in
lower gross sales in 1996. In addition, entertainment card sales decreased due
to lower sales of cards based on comic book characters due in part to market
conditions in the comic book specialty store market, as well as lower sales of
cards based on properties licensed from third parties resulting from lower
commercial success of such properties in 1996 as compared to 1995. However, as
compared to 1995, provisions for trading card sales returns were significantly
lower, reflecting the change in distribution. These decreases in trading card
net revenues were partially offset by a slight increase in net revenues of
stickers. This increase was due to the 1996 European Cup soccer tournament and
expansion into new markets such as Brazil and Russia, and was partially offset
by higher provisions for returns for stickers in 1996. In addition, the Company
experienced lower net revenues in certain European markets principally due to
lower net revenues from entertainment stickers based on properties licensed
from third parties as a result of lower commercial success of such properties
in 1996 as compared to 1995. Licensing revenues, which vary from period to
period, decreased primarily as a result of an insufficient amount of new media
exposure of the Company's characters. The Company and Fox Kid's Worldwide
("FKW") entered into an arrangement under which the Company expects to have a
new animation series on the Fox Children's Network in the 1997-1998 broadcast
seasons. Licensing revenues will vary depending on the volume and extent of
licensing agreements entered into during any particular financial period, as
well as the level and commercial success of the media exposure of the Company's
characters. The decrease in net publishing revenues was due to the impact on
the Company of the decline in the comic book specialty store industry and the
reduction of titles resulting from implementation of the Company's business
strategy. The increase in toy revenues was principally due to Toy Biz's
expanded product offerings and an increased international distribution of
products. The improvement in other revenues was due to increased sales of
adhesive paper by Panini.

Gross profit was $66.3 million and $130.2 million in the 1996 and 1995
periods, respectively, an decrease of $63.9 million. As a percentage of net
revenues, gross profit was 31.7% in the 1996 period as compared to 48.4% in the
1995 period. The decrease in gross profit as a percentage of net revenues was
due primarily to the effect of higher return provisions for stickers, the
effect of lower licensing revenues, an unfavorable product mix for trading
cards and toys as compared to 1995 and the effect of lower net revenues without
a corresponding

<PAGE>

decrease in royalty expense and advertising and promotion expense given minimum
payment obligations for trading cards in 1996.

Selling and general administrative expenses ("SG&A") were $60.7
million and $62.5 million in the 1996 and 1995 periods, respectively. The
decrease of $1.8 million was mainly attributable to a general reduction in
overhead expenses associated with the restructuring of the trading card,
publishing and confectionery operations partially offset by the increase in Toy
Biz's and Panini's advertising, promotion and selling costs. As a percentage of
net revenues, SG&A was 29.0% in the 1996 period as compared to 23.2% in the
1995 period. The increase in SG&A as a percentage of net revenues was due
primarily to lower publishing and licensing net revenues without a
corresponding reduction in SG&A.

Depreciation and amortization was $6.3 million and $4.9 million in the
1996 and 1995 periods, respectively. The increase of $1.4 million was due to
higher depreciation primarily resulting from an increased investment in product
tooling to support Toy Biz's expanded product line.

Interest expense, net was $32.5 million and $27.4 million in the 1996
and 1995 periods, respectively. The increase in interest expense of $5.0
million primarily reflects increased borrowings under the Credit Agreements
including the $25.0 million revolving credit facility, borrowings for the
expansion of Panini's Adespan adhesives facility, and higher average borrowing
rates. The accretion of discount on the Marvel Holdings Notes and the Parent
Notes was $17.6 million and $15.8 million in the 1996 and 1995 periods,
respectively.

The gain on the sale of Toy Biz common stock was $22.0 million in the
1996 period (see Note 6).

Provision for income taxes was $3.0 million and $21.0 million in the
1996 and 1995 periods, respectively. The provision for income taxes in 1996
primarily represents a provision for income taxes related to the sale of common
stock of Toy Biz and the operations of Toy Biz partially offset by a benefit
for the Company's operating losses. The provision for income taxes in 1995
represents foreign, federal, state and local income taxes. In addition, no
benefit was recorded for the separate company losses of Parent Holdings and
Marvel Holdings as they would not be able to file a consolidated return with
Marvel and they are not assured that they will ultimately receive a benefit on
a separate company basis.

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE NINE MONTHS
ENDED SEPTEMBER 30, 1995

The Company's net revenues were $581.2 million and $596.1 million in
the 1996 and 1995 periods, respectively, an decrease of $14.9 million or 2.5%.
This reflects a decrease of $37.4 million in net publishing revenues, $31.0
million in net trading card and sticker revenues, and $20.4 million in
licensing revenues, partially offset by a $66.6 million increase in toy
revenues and a $7.3 million increase in other revenues. The decrease in net
publishing revenues was due to the impact on the Company of the decline in the
comic book specialty store industry, the reduction of titles resulting from
implementation of the Company's business strategy, and the discontinuance
commencing in July 1995 of the distribution by Heroes World of comic book
publications other than the Company's titles. The decrease in trading card net
revenues was primarily due to the continued general decline in the demand for
trading cards as well as the change in the Company's distribution of its
trading cards to concentrate in trading card specialty stores and select mass
market accounts which generally resulted in lower gross sales in 1996. In
addition, entertainment card sales decreased due to lower sales of cards based
on comic book characters due in part to market conditions in the comic book
specialty store market, as well as lower sales of cards based on properties
licensed from third parties resulting from lower commercial success of such
properties in 1996 as compared to 1995. However, as compared to 1995,
provisions for trading card sales returns were significantly lower, reflecting
the change in distribution and the inclusion in the second quarter of 1995 of a
significant increase in sales returns reserves. Such lower sales return
provisions, combined with the inclusion of net revenues from SkyBox for nine
months in 1996 versus only five months in 1995 (the SkyBox Acquisition was
consummated on April 27, 1995), partially offset the lower sales discussed
above. These decreases in trading card net revenues were partially offset by an
increase in net revenues of stickers. This increase was due to the 1996
European Cup soccer tournament and expansion into new markets such as Brazil
and Russia, and was partially offset by higher provisions for returns for
stickers in 1996. In addition, the Company experienced lower net

<PAGE>

revenues in certain European markets principally due to lower net revenues from
entertainment stickers based on properties licensed from third parties as a
result of lower commercial success of such properties in 1996 as compared to
1995. Licensing revenues, which vary from period to period, decreased primarily
as a result of an insufficient amount of new media exposure of the Company's
characters. The Company and FKW entered into an arrangement under which the
Company expects to have a new animation series on the Fox Children's Network in
the 1997-1998 broadcast seasons. Licensing revenues will vary depending on the
volume and extent of licensing agreements entered into during any particular
financial period, as well as the level and commercial success of the media
exposure of the Company's characters. The increase in toy revenues was
principally due to Toy Biz's expanded product offerings, increased
international distribution of products and the consolidation of Toy Biz for
nine months in 1996 as compared to seven months in 1995. The improvement in
other revenues was due to increased sales of adhesive paper by Panini.

Gross profit was $208.8 million and $243.5 million in the 1996 and
1995 periods, respectively, a decrease of $34.7 million. As a percentage of net
revenues, gross profit was 35.9% in the 1996 period as compared to 40.8% in the
1995 period. The decrease in gross profit as a percentage of net revenues was
due primarily to the effect of higher return provisions for stickers, the
effect of lower licensing revenues, an unfavorable product mix for trading
cards and toys as compared to 1995 and the effect of lower net revenues without
a corresponding decrease in royalty expense and advertising and promotion
expense given minimum payment obligations for trading cards in 1996.

SG&A were $168.3 million and $156.3 million in the 1996 and 1995
periods, respectively. The increase of $12.0 million was mainly attributable to
the increase in advertising, promotion and selling expenses of Panini and Toy
Biz, the consolidation of Toy Biz's results for nine months in 1996 as compared
to seven months in 1995, and the inclusion of Sky Box for nine months in 1996
as compared to five months in 1995. This increase was partially offset by a
general reduction in overhead expenses associated with the restructuring of the
trading card, publishing and confectionery operations. As a percentage of net
revenues, SG&A was 29.0% in the 1996 period as compared to 26.2% in the 1995
period. The increase in SG&A as a percentage of net revenues was due primarily
to lower publishing and licensing net revenues without a corresponding
reduction in SG&A.

Depreciation and amortization was $15.6 million and $12.4 million in
the 1996 and 1995 periods, respectively. The increase of $3.2 million was
primarily due to the consolidation of Toy Biz for nine months in 1996 as
compared to only seven months in 1995 and higher depreciation primarily
resulting from an increased investment in product tooling to support Toy Biz's
expanded product line.

Amortization of goodwill, intangibles and deferred charges was $25.7
million and $21.3 million in the 1996 and 1995 periods, respectively. The
increase of $4.4 million mainly reflects the amortization related to the SkyBox
Acquisition in April 1995.

Interest expense, net was $93.7 million and $75.7 million in the 1996
and 1995 periods, respectively. The increase in interest expense of $18.0
million primarily reflects increased borrowings under the U.S. Term Loan
Facility in connection with the SkyBox Acquisition, increased borrowings under
the Credit Agreements including the $25.0 million revolving credit facility,
borrowings for the expansion of Panini's Adespan adhesives facility, and higher
average borrowing rates. The accretion of discount on the Marvel Holdings and
the Parent Notes was $51.7 million and $46.3 million in the 1996 and 1995
periods, respectively.

The gain on sale of Toy Biz common stock was $22.0 million in 1996
compared with $14.3 million from the Toy Biz IPO in 1995 (see Note 6).

(Benefit) provision for income taxes was ($0.7) million and $25.6
million in the 1996 and 1995 periods, respectively. The net tax benefit in 1996
primarily represents a benefit for the Company's operating losses partially
offset by a provision for income taxes related to the sale of common stock of
Toy Biz and the operations of Toy Biz. The provision for income taxes in 1995
represents foreign, federal, state and local income taxes. In addition, no
benefit was recorded for the separate company losses of Parent Holdings and
Marvel Holdings as they would not be

<PAGE>

able to file a consolidated return with Marvel and they are not assured that
they will ultimately receive a benefit on a separate company basis.

In 1995, the Company recorded a $3.3 million extraordinary loss, net
of taxes of $2.1 million, which represented a write-off of the related deferred
financing costs associated with the term loan portion of the Amended and
Restated Credit Agreement.

LIQUIDITY AND CAPITAL RESOURCES

Marvel has experienced greater than expected operating losses in the
third quarter of 1996, and as a result has failed to satisfy certain financial
covenants contained in the Credit Agreements. Marvel has commenced discussions
with The Chase Manhattan Bank, the agent bank for the Credit Agreements,
seeking waivers of these covenants and a restructuring of the Credit Agreements
to provide for Marvel's cash requirements. Marvel believes that such a
restructuring will require an infusion of new equity capital and has received a
proposal from Andrews Group regarding such equity infusion, which is subject to
a number of significant conditions. As a result of Marvel's failure to satisfy
certain financial covenants and in the absence of waivers as of this date
relating thereto, the balance of long-term debt has been reclassified to
current liabilities.

At November 8, 1996, the Company's outstanding bank indebtedness was
approximately $665 million, of which $16.5 million relates to the borrowings
for Panini's Adespan adhesives facility. Until Marvel receives waivers of the
failure to satisfy financial covenants contained in the Credit Agreements, it
will not be able to borrow additional amounts under its domestic credit
facilities. Panini S.p.A. had approximately $11 million available under its
foreign credit facilities at November 8, 1996. In addition, there was $30.0
million available under the Toy Biz line of credit at November 8, 1996.

If the Transactions (as defined below) are not consummated or if
consummated, are not consummated on satisfactory terms, then Marvel anticipates
that it will be required to adopt one or more extraordinary transactions in
order to meet its consolidated cash requirements, including debt service and
repayment, for the foreseeable future. However, there can be no assurance that
such extraordinary transactions could be consummated or if consummated, would
be sufficient to allow Marvel to meet its consolidated cash requirements.

The indenture governing the Marvel Holdings Notes, which have a book
value of approximately $437.2 at September 30, 1996, requires Marvel Holdings
to hold a majority of the outstanding common stock of Marvel at all times. At
November 13, 1996, the value of the approximately 50.9 million shares of Marvel
held by Marvel Holdings was approximately $130.5. The indenture governing the
Parent Notes, which have a book value of approximately $210.7 at September 30,
1996, requires Parent Holdings together with Marvel Holdings to hold a majority
of the outstanding common stock of Marvel at all times. In addition, Parent
Holdings guarantees the Holdings III Notes, which have a principal amount of
$125.0, on a non-recourse basis, secured by a first priority lien of
approximately 9.3 million common shares of Marvel. At November 13, 1996, the
value of the approximately 29.3 million common shares of Marvel held by Parent
Holdings was approximately $75.1.

Each of Parent Holdings and Marvel Holdings have no business
operations, source of income of their own or any committed sources of funding
from external sources. In light of the current financial condition of Marvel
described above, it is uncertain how Parent Holdings and Marvel Holdings will
meet their obligations on their debt instruments when they mature in 1998.

<PAGE>

equal value of the shares of class A common stock of Toy Biz or a combination of
the foregoing. The Andrews Group proposal states that the shares of Toy Biz
class A common stock so transferred would be valued on the basis of the cost to
Andrews Group of acquiring such stock. The Andrews Group proposal states that
any contribution by Andrews Group to Marvel of shares of Toy Biz class A common
stock would be made in the context of Toy Biz becoming a wholly owned
subsidiary of Marvel.

A copy of the Andrews Group proposal has been forwarded to a special
committee of Marvel's board of directors comprised of outside directors, who
are not affiliated with Andrews Group, for consideration. In addition, in
anticipation of receiving a proposal, the board of directors of Toy Biz formed
a special committee of outside directors who are not affiliated with Andrews
Group or Marvel to consider, on behalf of the minority stockholders of Toy Biz,
any proposal that may be made. (The restructuring of the Credit Agreements, the
proposed purchase of Marvel's equity capital by Andrews Group (or an affiliate)
and the proposed Toy Biz acquisition are collectively referred to as the
"Transactions".)

As of November 8, 1996, 79,407,725 shares, or 78.0%, of Marvel's
Common Stock were pledged by subsidiaries of Mafco Holdings Inc. ("Mafco"),
including Marvel Holdings and Parent Holdings, other than Marvel and its
subsidiaries, to secure indebtedness or letters of credit of such subsidiaries.
In addition, 2,932,167 shares, or 2.9%, of Marvel's Common Stock are subject to
a negative pledge under the terms of the Marvel Holdings Notes indenture. The
indentures governing this indebtedness contain various covenants relating to
Marvel, including certain limitations on Marvel's indebtedness.

For the nine months ended September 30, 1996, the Company used $70.2
million of cash as a result of its operating activities. The use of funds was
principally due to an increase in accounts receivable, a reduction in accrued
expenses, a reduction in accounts payable and increased investments in
inventory and prepaid expenses. Cash shown on the Consolidated Balance Sheets
at September 30, 1996 of $36.0 million and December 31, 1995 of $53.6 million,
includes $7.3 million and $22.5 million, respectively, of Toy Biz cash.

Cash used for investing activities for the nine months ended September
30, 1996, was $5.9 million. The primary use of these funds was for capital
expenditures for Panini's Adespan adhesives facility and tooling and molds and
capitalized product development costs primarily related to Toy Biz partially
offset by net proceeds from Marvel's sale of a portion of its investment in Toy
Biz.

Cash provided by financing activities for the nine months ended
September 30, 1996, was $57.2 million, primarily consisting of increased
borrowings under Marvel's credit facilities for working capital and investment
requirements, including the expansion of Panini's Adespan adhesives facility
and the net proceeds to Toy Biz from Toy Biz's sale of shares of its class A
common stock in an offering.

In August 1996, Toy Biz sold in an offering 700,000 shares of its
class A common stock at a price to the public of $15 per share. As part of Toy
Biz's offering, Marvel sold 2.5 million shares of Toy Biz class A common stock.
The net proceeds to Toy Biz and Marvel were approximately $9.1 million and
$35.7 million, respectively, after deducting amounts accrued for estimated fees
and expenses. As a result of the offering by Toy Biz and the

<PAGE>

sale of class A common stock of Toy Biz by Marvel, Marvel's ownership percentage
of Toy Biz decreased to 26.7% and its voting control decreased to 78.4%.

Marvel expects to incur approximately $4 million in net production
costs for The Hulk animated series (which costs would be partially offset by
any sales of video cassettes and international distribution rights to the
series). In addition, with respect to Marvel's agreement with FKW, Marvel will
be required to reimburse FKW a portion of its production costs. The Hulk
animated series, which began broadcasting on United Paramount Network in
September 1996 and Marvel's projects with FKW, which will involve the
development and production of a variety of Marvel's characters to be broadcast
over the Fox Children's Network over a period of seven years (which could be
extended to ten years in certain circumstances), are expected to be projects of
Marvel Studios.

Marvel, along with its joint venture partner, is continuing
development of Marvel theme restaurants. Five restaurants are currently under
development, with the first restaurant expected to open in the first half of
1997. Marvel expects to invest approximately $36 million over the next three
years to fund the development of such restaurants.

<PAGE>

FORWARD-LOOKING STATEMENTS

Statements in this quarterly report on Form 10-Q for the quarter ended
September 30, 1996 such as "intend", "estimated", "believe", "expect",
"anticipate" and similar expressions which are not historical are
forward-looking statements that involve risks and uncertainties. Such
statements include, without limitation, the Company's expectation as to
financial performance for the remainder of 1996 and for 1997. In addition to
factors that may be described in the Company's Securities and Exchange
Commission filings, including this filing, 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, or on behalf of, the
Company: (i) continued weakness in the comic book market which cannot be
overcome by the Company's new editorial and production initiatives in comic
publishing; (ii) continued general weakness in the trading card market; (iii)
the failure of fan interest in baseball to return to traditional levels that
existed prior to the 1994 baseball strike and the potential for decreased fan
interest due to a possible disruption of play in 1997 as a result of the
failure of the owners and players to agree on a collective bargaining
agreement, thereby negatively impacting the Company's baseball card business;
(iv) the effectiveness of the Company's changes to its trading card and
publishing distribution; (v) a decrease in the level of media exposure or
popularity of the Company's characters resulting in declining revenues based on
such characters; (vi) the lack of continued commercial success of properties
owned by major licensors which have granted the Company licenses for its sports
and entertainment trading card and sticker businesses; (vii) unanticipated
costs or delays in completing projects associated with the Company's new
ventures including media, interactive software and on-line services and theme
restaurants; (viii) consumer acceptance of new product introductions, including
those for toys; (ix) imposition of tariffs or import quotas on toys
manufactured in China as a result of a deterioration in trade relations between
the U.S. and China; and (x) the outcome of Marvel's discussions for the
restructuring of Marvel's Credit Agreements and related anticipated
transactions.

<PAGE>

PART II.
OTHER INFORMATION.

ITEM 1. LEGAL PROCEEDINGS.

Marvel is a defendant in a purported class action filed on July 26,
1996 in the United States District Court for the Eastern District of New York
entitled Fishman, et al v. Marvel Entertainment Group, Inc., CV-96-3757 (SJ),
by four persons who allegedly purchased sports and entertainment cards
manufactured by Fleer and SkyBox. The action is directed against standard
business practices in the trading card industry, including the practice of
randomly placing insert cards in packages of sports and entertainment trading
cards, and alleges that these practices constitute illegal gambling activity in
violation of state and federal law. Each of Fleer and SkyBox's principal
competitors in the trading card industry has been separately sued for employing
the same or similar practices. In addition, certain of the various sports
organizations and entertainment companies that issue licenses to Fleer and
SkyBox (as well as the other major trading card companies) in connection with
the manufacture of sports and entertainment trading cards have also been
separately sued and are alleged to be engaged in aspects of the purportedly
illegal gambling operations. Plaintiffs seek certification of a class of
persons who within four years prior to the filing of the complaint purchased
packages of trading cards that might contain randomly inserted cards, and
recovery of treble damages. On September 30, 1996, Marvel filed a motion to
dismiss the complaint. No discovery has commenced. Plaintiffs have not
specified the amount of damages sought, but generally allege that members of
the purported class have been damaged as a result of their purchases of trading
cards during the four years preceding the commencement of the action. It is not
possible at this early stage of the case to predict the outcome with certainty.
In the opinion of Marvel, the action lacks merit and Marvel intends to defend
it vigorously.

In addition, the Company is a party to various legal proceedings
described in previous filings. During the quarter ended September 30, 1996
there were no material developments in any of such proceedings. Other than the
item described above there were no new reportable legal proceedings. Although
it is impossible to predict the outcome of any outstanding legal proceeding,
the Company believes that all legal proceedings and claims, individually and in
the aggregate, are not likely to have a material effect on its financial
condition or results of operations.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The information required by Part II, Item 3, of Form 10-Q is
incorporated by reference from Notes 4 and 8 of the Condensed Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources, set
forth herein.

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

(A) Exhibits

10.1 Consent, dated as of September 24, 1996 to
the (a) Participation Agreement, dated as
of August 30,1994, among Instituto Bancario
San Paolo Di Torino, S. p. A., New York
Limited Branch ("San Paolo"), the financial
institutions party thereto and The Chase
Manhattan Bank (formerly named Chemical
Bank), as administrative agent and (b) the
Term Loan and Guarantee Agreement among
Panini S. p. A. (formerly named Marvel
Comics Italia S. r. L.), Marvel and
San Paolo. Incorporated by reference to
Exhibit 10.1 to the September 30, 1996
Marvel Quarterly Report on Form 10-Q.

<PAGE>

10.2 Employment Agreement dated as of August 13,
1996, between Marvel and David J.
Schreff. Incorporated by reference to
Exhibit 10.2 to the September 30, 1996
Marvel Quarterly Report on Form 10-Q.

10.3 Amendment dated February 7, 1996, to
License Agreement dated December 22, 1994,
between Major League Baseball Players
Association and Fleer Corp. Confidential
treatment has been granted for portions of
this document. Incorporated by reference to
Exhibit 10.3 to the September 30, 1996
Marvel Quarterly Report on Form 10-Q.

10.4 Retail Product License Agreement dated July
21, 1995, between NBA Properties, Inc. and
Marvel. Confidential treatment has
been granted for portions of this document.
Incorporated by reference to Exhibit 10.4
to the September 30, 1996 Marvel Quarterly
Report on Form 10-Q.

10.5 License Agreement dated June 30, 1995,
between SkyBox International Inc. and
National Football League Players
Incorporated, as amended June 30, 1995.
Confidential treatment has been granted for
portions of this document. Incorporated by
reference to Exhibit 10.5 to the September
30, 1996 Marvel Quarterly Report on Form
10-Q.

(B) Reports on Form 8-K

None.

<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.

MARVEL (PARENT) HOLDINGS INC.
(Registrant)

By: /s/Laurence Winoker
--------------------------------
Dated: November 14, 1996 Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Marvel
(Parent) Holdings Inc. Condensed Consolidated Balance Sheets and Statements of
Operations.
</LEGEND>
<CIK> 0000909169
<NAME> MARVEL (PARENT) HOLDINGS INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 292
<ALLOWANCES> 35
<INVENTORY> 99
<CURRENT-ASSETS> 501
<PP&E> 123
<DEPRECIATION> 35
<TOTAL-ASSETS> 1,565
<CURRENT-LIABILITIES> 921
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (216)
<TOTAL-LIABILITY-AND-EQUITY> 1,565
<SALES> 581
<TOTAL-REVENUES> 581
<CGS> 372
<TOTAL-COSTS> 372
<OTHER-EXPENSES> 184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> (75)
<INCOME-TAX> (1)
<INCOME-CONTINUING> (82)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (82)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>