Marvel Entertainment 10-Q 2008 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2008

or

o 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 ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

Delaware	13-3711775
(State or other jurisdiction of incorporation or	(IRS Employer Identification No.)
organization)
417 Fifth Avenue, New York, NY	10016
(Address of principal executive offices)	(Zip Code)

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

(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.

Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerþ Accelerated filero Non-Accelerated filero(Do not check if a smaller reporting company) Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso Noþ

At November 4, 2008, the number of outstanding shares of the registrant’s common stock, par value $.01 per share, was 79,104,381, including 700,625 shares of restricted stock.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements (unaudited)		1
Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007		2
Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2008 and 2007		3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007		4
Notes to Condensed Consolidated Financial Statements		5
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Results of Operations		22
Liquidity and Capital Resources		32
Item 3 Quantitative and Qualitative Disclosures About Market Risk		34
Item 4 Controls and Procedures		35
PART II. OTHER INFORMATION
Item 1 Legal Proceedings		37
Item 1A Risk Factors		37
Item 5 Other Information		37
Item 6 Exhibits		38
SIGNATURES		38
Manhattan Beach Studios Lease
Section 302 Certification of CEO
Section 302 Certification of CFO
Section 906 Certification of CEO & CFO

(i)

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

(Unaudited)

1

MARVEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	September 30,			December 31,
	2008			2007
	(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	125,805		$	30,153
Restricted cash		19,566			20,836
Short-term investments		—			21,016
Accounts receivable, net		33,573			28,679
Inventories		11,499			10,647
Income tax receivable		—			10,882
Deferred income taxes, net		34,386			21,256
Prepaid expenses and other current assets		5,047			4,245
Total current assets		229,876			147,714
Fixed assets, net		1,884			2,612
Film inventory, net		246,389			264,817
Goodwill		346,152			346,152
Accounts receivable, non-current portion		1,321			1,300
Income tax receivable, non-current portion		5,906			4,998
Deferred income taxes, net		37,591			37,116
Deferred financing costs		7,055			11,400
Advances to joint venture partner		542			—
Other assets		4,848			1,249
Total assets	$	881,564		$	817,358
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,917		$	3,054
Accrued royalties		74,324			84,694
Accrued expenses and other current liabilities		38,510			37,012
Deferred revenue		75,493			88,617
Film facilities		158,700			42,264
Income tax payable		24,510			—
Minority interest to be distributed		—			556
Total current liabilities		373,454			256,197
Accrued royalties, non-current portion		9,973			10,273
Deferred revenue, non-current portion		66,205			58,166
Film facilities, non-current portion		23,601			246,862
Income tax payable, non-current portion		66,917			54,066
Other liabilities		8,488			10,291
Total liabilities		548,638			635,855
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 100,000,000 shares authorized, none issued		—			—
Common stock, $.01 par value, 250,000,000 shares authorized, 134,376,983 issued and 78,408,306 outstanding in 2008 and 133,179,310 issued and 77,624,842 outstanding in 2007		1,344			1,333
Additional paid-in capital		748,764			728,815
Retained earnings		492,118			349,590
Accumulated other comprehensive loss		(4,515	)		(3,395	)
Total stockholders’ equity before treasury stock		1,237,711			1,076,343
Treasury stock, at cost, 55,968,677 shares in 2008 and 55,554,468 shares in 2007		(904,785	)		(894,840	)
Total stockholders’ equity		332,926			181,503
Total liabilities and stockholders’ equity	$	881,564		$	817,358

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

2

MARVEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2008			2007		2008			2007
	(in thousands, except per share amounts)
Net sales	$	182,499		$	123,642	$	451,925		$	376,519
Costs and expenses:
Cost of revenues (excluding depreciation expense)		60,351			17,527		108,175			46,911
Selling, general and administrative		35,596			39,501		104,175			104,630
Depreciation and amortization		401			1,438		1,164			4,669
Total costs and expenses		96,348			58,466		213,514			156,210
Other income, net		2,051			533		22,481			2,493
Operating income		88,202			65,709		260,892			222,802
Interest expense		5,656			3,721		14,228			9,822
Interest income		870			633		2,812			1,979
Gain (loss) on repurchase of debt		(417	)		—		1,916			—
Income before income tax expense and minority interest		82,999			62,621		251,392			214,959
Income tax expense		30,239			21,067		94,423			79,590
Minority interest in consolidated joint venture		2,134			5,286		14,441			23,172
Net income	$	50,626		$	36,268	$	142,528		$	112,197
Basic and diluted net income per share:
Weighted average shares outstanding:
Weighted average shares for basic earnings per share		78,403			77,691		77,946			80,917
Effect of dilutive stock options and restricted stock		514			2,830		652			2,902
Weighted average shares for diluted earnings per share		78,917			80,521		78,598			83,819
Net income per share:
Basic	$	0.65		$	0.47	$	1.83		$	1.39
Diluted	$	0.64		$	0.45	$	1.81		$	1.34
Comprehensive income:
Net income	$	50,626		$	36,268	$	142,528		$	112,197
Other comprehensive income (loss)		(1,329	)		163		(1,120	)		(780	)
Comprehensive income	$	49,297		$	36,431	$	141,408		$	111,417

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

3

MARVEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended
	September 30,
	2008			2007
	(in thousands)
Cash flows from operating activities:
Net income	$	142,528		$	112,197
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,164			4,669
Amortization of film inventory		65,599			—
Gain on repurchase of debt		(1,916	)		—
Amortization of deferred financing costs		3,736			3,735
Unrealized gain on interest rate cap and foreign currency forward contracts		(253	)		(713	)
Non-cash charge for stock-based compensation		4,743			6,297
Excess tax benefit from stock-based compensation		(8,478	)		(1,930	)
Impairment of long-term assets		1,663			—
Deferred income taxes		(16,592	)		7,137
Minority interest in joint venture (net of distributions of $15,135 in 2008 and $13,435 in 2007)		(1,098	)		9,737
Changes in operating assets and liabilities:
Accounts receivable		(4,915	)		29,782
Inventories		(852	)		148
Income tax receivable		—			39,412
Prepaid expenses and other current assets		(802	)		3,070
Film inventory		(48,220	)		(185,915	)
Other assets		(3,346	)		(49	)
Deferred revenue		(5,085	)		(20,366	)
Income taxes payable		59,251			10,405
Accounts payable, accrued expenses and other current liabilities		(14,954	)		(1,318	)
Net cash provided by operating activities		172,173			16,298
Cash flows from investing activities:
Purchases of fixed assets		(441	)		(1,882	)
Expenditures for product and package design		—			(490	)
Sales of short-term investments		66,055			277,154
Purchases of short-term investments		(45,039	)		(287,157	)
Change in restricted cash		1,270			(15,476	)
Net cash provided by (used in) investing activities		21,845			(27,851	)
Cash flows from financing activities:
Borrowings from film facilities		75,600			208,078
Repayments of film facilities		(180,509	)		—
Borrowings from line of credit		—			2,000
Repayments of line of credit		—			(19,000	)
Deferred financing costs		—			(609	)
Purchases of treasury stock		(9,945	)		(211,954	)
Exercise of stock options		8,285			10,614
Excess tax benefit from stock-based compensation		8,478			1,930
Net cash used in financing activities		(98,091	)		(8,941	)
Effect of exchange rates on cash		(275	)		154
Net increase (decrease) in cash and cash equivalents		95,652			(20,340	)
Cash and cash equivalents, at beginning of period		30,153			31,945
Cash and cash equivalents, at end of period	$	125,805		$	11,605

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

4

MARVEL ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2008

(unaudited)

1. BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements of Marvel Entertainment, Inc. and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) 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 adjustments) considered necessary for a fair statement of financial position, results of operations and cash flows for the periods presented have been included. The unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine-month periods ended September 30, 2008 and the unaudited Condensed Consolidated Statements of Cash Flows for the nine-month period ended September 30, 2008 are not necessarily indicative of those for the full year ending December 31, 2008. The year-end 2007 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. For further information on our historical financial results, refer to the Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

2. SIGNIFICANT ACCOUNTING POLICIES

Description of Business and Principles of Consolidation

Marvel Entertainment, Inc. and its subsidiaries constitute one of the world’s most prominent character-based entertainment companies, with a proprietary library of over 5,000 characters.

We operate in three integrated and complementary operating segments: Licensing, Publishing and Film Production. We no longer have an operating Toy segment. During the first quarter of 2008, we substantially completed our exit from toy manufacturing activities. We also completed a change in the focus of the support that we provide to Hasbro, Inc. (“Hasbro”), which resulted in changes to our internal organizational structure and staff reductions. These events altered our internal reporting of segment performance, with the result that we are now including revenues earned from Hasbro (associated with toys manufactured and sold by Hasbro) and related expenses (associated with royalties that we owe on our Hasbro revenue) within our Licensing segment. Those revenues and expenses were formerly included in our Toy segment. Our remaining activities related to our terminated toy manufacturing business are now included with Corporate overhead in “All Other”. We have restated prior-period segment information to conform to the current-year presentation.

We are party to a joint venture with Sony Pictures Entertainment Inc., called Spider-Man Merchandising L.P. (the “Joint Venture”), for the purpose of pursuing licensing opportunities relating to characters based upon movies or television shows featuring Spider-Man and produced by Sony. The Joint Venture is consolidated in our accompanying condensed consolidated financial statements as a result of our having control of all significant decisions relating to the ordinary course of business of the Joint Venture and our receiving the majority of the financial interest of the Joint Venture. The operations of the Joint Venture are included in our Licensing segment.

The accompanying condensed consolidated financial statements include our accounts and those of our subsidiaries, including the Film Slate Subsidiaries (as defined in our Form 10-K) and the Joint Venture. Upon consolidation, all inter-company accounts and transactions are eliminated.

5

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2008
(unaudited)

Supplemental Disclosure of Cash Flow Information

	Nine Months Ended
	September 30,
	2008		2007
	(in thousands)
Interest paid during the period	$	17,207	$	6,758
Income taxes paid during the period		52,186		65,078
Income tax refund		—		42,057

Our film-production expenditures, including expenditures funded by draw-downs from our film facilities, appear on our condensed consolidated statements of cash flows as cash used in operating activities. Those draw-downs appear on our condensed consolidated statements of cash flows as cash provided by financing activities.

Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 establishes a common definition for fair value to be applied to GAAP requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS 157 is effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. FASB Staff Position (“FSP”) 157-2 “Partial Deferral of the Effective Date of Statement 157”, deferred the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. We do not expect the adoption of FSP 157-2 to have a material impact on our consolidated financial statements. In October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” The FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” when the market for a financial asset is not active. The FSP was effective upon issuance, including reporting for prior periods for which financial statements have not been issued. The adoption of the FSP for reporting as of September 30, 2008 did not have a material impact on the Company’s consolidated financial statements.

The implementation of SFAS 157 for financial assets and financial liabilities, effective January 1, 2008, did not have a material impact on our consolidated financial position and results of operations. We do not expect SFAS 157 for nonfinancial assets and nonfinancial liabilities to have a material impact on our consolidated financial position and results of operations.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). SFAS 157 classifies the inputs used to measure fair value into the following hierarchy:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability

Level 3: Unobservable inputs for the asset or liability

6

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2008
(unaudited)

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth our financial assets and liabilities that were accounted for, at fair value, on a recurring basis as of September 30, 2008:

	Recurring Fair Value Measurements Using
	Total Fair
	Value		Level 1		Level 2		Level 3
	(in thousands)
Financial Assets:
Interest rate cap	$	1,361	$	—	$	1,361	$	—

We are exposed to market risks from changes in interest rates, which may adversely affect our operating results and financial position. When deemed appropriate, we minimize our risks from interest rate fluctuations through the use of derivative financial instruments. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes. We do not use leveraged derivative financial instruments. The interest rate cap is valued using broker quotations, or market transactions either in the listed or over-the counter markets. As such, these derivative instruments are classified within level 2.

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 became effective for the fiscal year beginning January 1, 2008. The implementation of this statement did not have a material impact on our consolidated financial statements or results of operations.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, the goodwill acquired and any noncontrolling interest in the acquiree. This statement also establishes disclosure requirements to enable the evaluation of the nature and financial effect of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008. We do not expect the adoption of this statement to have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin (ARB) No. 51,” (“SFAS 160”). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. We do not expect the adoption of this statement to have a material impact on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 expands quarterly disclosure requirements in SFAS 133 about an entity’s derivative instruments and hedging activities. SFAS 161 is effective for fiscal years beginning after November 15, 2008. We do not expect the adoption of this statement to have a material impact on our consolidated financial statements.

7

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2008
(unaudited)

3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS

	September 30,			December 31,
	2008			2007
	(in thousands)
Accounts receivable, net, consist of the following:
Accounts receivable	$	48,581		$	44,799
Less allowances for:
Doubtful accounts		(474	)		(1,101	)
Sales discounts and returns		(14,534	)		(15,019	)
Total, net	$	33,573		$	28,679
Inventories consist of the following:
Work-in-process — Publishing	$	6,188		$	4,904
Finished goods — Publishing		5,311			5,264
Finished goods — Toys		—			479
Total	$	11,499		$	10,647
Film inventory, net, consist of the following:
Theatrical Films
Released, net of amortization	$	240,869		$	—
In production		—			261,826
In development or pre-production		3,691			2,991
Total	$	244,560		$	264,817
Television productions
In development or pre-production		1,829			—
Total film inventory, net	$	246,389		$	264,817
Accrued royalties consist of the following:
Royalty obligations to licensors	$	1,556		$	2,378
Freelance talent		3,058			4,570
Studio and talent share of royalties		69,710			77,746
Total	$	74,324		$	84,694
Accrued expenses and other current liabilities consist of the following:
Inventory purchases	$	2,428		$	2,327
Bonuses		11,366			8,059
Legal fees and litigation accruals		2,018			1,625
Licensing common marketing funds		8,454			7,498
Interest		4,612			5,639
Other accrued expenses		9,632			11,864
Total	$	38,510		$	37,012

Based on our current estimates, approximately $154.1 million of film inventory for our released films is expected to be amortized during the twelve-month period beginning on October 1, 2008 using the individual-film-forecast computation method. In addition, based on our current estimates of ultimate revenue from our released feature films, we expect to amortize approximately 88% of unamortized film inventory of released films at September 30, 2008 during the three-year period beginning October 1, 2008.

8

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2008
(unaudited)

4. EARNINGS PER SHARE

In accordance with SFAS No. 128, “Earnings Per Share”, basic net income per share is computed by dividing the net income for the period by the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted-average number of common and potential common shares outstanding during the period, if dilutive. The dilutive effect of outstanding options and restricted stock is reflected in diluted earnings per share by application of the treasury stock method, which includes consideration of stock-based compensation as required under SFAS No. 123(R) “Share-Based Payment”.

The total number of shares of common stock outstanding as of September 30, 2008 was 78,408,306, net of treasury shares and restricted stock; assuming the exercise of all outstanding stock options (1,179,493) and the vesting of all outstanding restricted shares (700,625), the total number outstanding would be 80,288,424. During the three and nine-month periods ended September 30, 2008, 8,498 and 967,546 shares of common stock, respectively, were issued through stock option exercises.

Options to purchase 0.2 million and 0.7 million shares of common stock were not included in the calculation of diluted net income per share for the three and nine-month periods ended September 30, 2008, respectively, and 0.5 million and 1.2 million shares of common stock were not included in the calculation of diluted net income per share for the three and nine-month periods ended September 30, 2007, respectively, because the sum of the potential option exercise proceeds, including the unrecognized compensation expense and unrecognized future tax benefit, exceeded the average stock price and therefore would be antidilutive.

5. DEBT FINANCING

Film Facilities

Film Slate Facility Obligation

Borrowings under our $525 million film facility are non-recourse to us and our affiliates, other than MVL Film Finance LLC. MVL Film Finance LLC has pledged all of its assets, principally consisting of the theatrical film rights to the characters included in the film facility and the rights to completed films or films in production, as collateral for the borrowings. The film facility expires on September 1, 2016, or sooner if the films produced under the facility fail to meet certain defined performance measures. The film facility consists of $465 million in revolving senior bank debt and $60 million in mezzanine debt, which is subordinated to the senior bank debt. Both Standard & Poor’s, a division of the McGraw-Hill Companies, Inc., and Moody’s Investor Rating Service, Inc. have given the senior bank debt an investment grade rating. In addition, Ambac Assurance Corporation has insured repayment of the senior bank debt. In exchange for the repayment insurance, we pay Ambac a fee calculated as a percentage of senior bank debt. The interest rates for outstanding senior bank debt, and the fees payable on unused senior bank debt capacity, both described below, include the percentage fee owed to Ambac.

On June 5, 2008, Ambac’s rating was downgraded by S&P from AAA to AA. The downgrade caused an increase of 1.30% in our interest rate for outstanding senior bank debt and an increase of 0.30% in the fee payable on our unused senior bank debt capacity. These increases are reflected in the rates noted below. Any further downgrades of Ambac’s rating, such as the one by Moody’s on November 5, 2008 (to Baa1), do not affect our rate of interest or fees under the film facility.

The interest rate for outstanding senior bank debt is currently LIBOR (4.05% at September 30, 2008) or the commercial paper rate, as applicable, plus 2.935% in either case. The film facility also requires us to pay a fee on any senior bank debt capacity that we are not using. This fee is currently 0.90%, and is applied on $465 million reduced by the amount of any outstanding senior bank debt.

9

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2008
(unaudited)

If the senior bank debt’s rating (without giving effect to Ambac’s insurance) by either S&P or Moody’s were to fall below investment grade, the interest rate for the outstanding senior bank debt would increase by up to an additional 0.815%. In addition, if we become more leveraged, without considering the film facility, the interest rate for outstanding senior bank debt could increase by up to an additional 0.50%.

We must satisfy two tests as a condition to the initial funding of the fifth film to be produced under the film facility and each film thereafter. One test is an interim asset test. The other test requires us to have obtained a cumulative, minimum budget percentage (33%) from our pre-sales of film distribution rights in the Reserved Territories, together with the proceeds of any government rebate, subsidy or tax incentive and any other source of co-financing. In the third quarter of 2008, we amended the film facility to require us to fund 33% of the budget of each film in lieu of pre-selling the film distribution rights in the Reserved Territories. Distribution in the Reserved Territories will instead be handled by Paramount. We have the right to fund any cumulative shortfall under the second test with our own funds.

During the nine months ended September 30, 2008, we repurchased all $60.0 million of the mezzanine debt for $58.1 million. As a result, as of September 30, 2008, we had no mezzanine debt outstanding.

The film facility requires the maintenance of minimum tangible net worth and compliance with various administrative covenants.

We entered into an interest rate cap agreement in connection with the film facility whereby LIBOR is capped at 6.0% for debt outstanding under the film facility up to certain stipulated notional amounts which vary over the term of the film facility. The notional amount of debt associated with the interest rate cap agreement at September 30, 2008 was $280.0 million. The interest rate cap is recorded at fair value ($1.4 million) at September 30, 2008 and included in other assets in the accompanying condensed consolidated balance sheet. Fair value of the interest rate cap at December 31, 2007 was $1.1 million. Gains and losses from changes in the fair value of the interest rate cap are recorded within Other Income in the accompanying condensed consolidated statement of income. The interest rate cap expires on October 15, 2014.

As of September 30, 2008, MVL Film Finance LLC had $182.3 million ($246.9 million as of December 31, 2007) in outstanding borrowings under the film facility. Of these borrowings, $158.7 million are classified as current in the accompanying condensed consolidated balance sheets, which represents the amount we estimate to be repaid over the twelve-month period beginning on October 1, 2008. Borrowings have been used to fund direct production costs of ourIron ManandThe Incredible Hulkfeature films, to fund the interest payments of the film facility, to fund the finance transaction costs related to the closing of the facility and to purchase the interest rate cap.

Iron Man Facility

On February 27, 2007, we closed a $32.0 million financing with Comerica Bank (the “Iron Man Facility”) through our wholly-owned consolidated subsidiary, Iron Works Productions LLC. The proceeds of this financing were used solely to fund the production of ourIron Manfeature film and were collateralized by minimum guarantees related to distributors’ rights to distributeIron Manin the Reserved Territories. During the second quarter of 2008, the Iron Man Facility was repaid in full using the funds received from these minimum guarantees.

Hulk Facility

On June 29, 2007, we closed a $32.0 million financing with HSBC Bank USA, National Association (the “Hulk Facility”) through our wholly-owned consolidated subsidiary, Incredible Productions LLC. The proceeds of this financing were used solely to fund the production of ourThe Incredible Hulk feature film and were collateralized by minimum guarantees related to distributors’ rights to distributeThe Incredible Hulkin the Reserved Territories. In July 2008, the Hulk Facility was repaid in full using the funds received from these minimum guarantees.

10

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2008
(unaudited)

Corporate Line of Credit

We maintain a $100 million revolving line of credit with HSBC Bank USA, National Association (the “HSBC Line of Credit”) with a sub-limit for the issuance of letters of credit. The HSBC Line of Credit expires on March 31, 2010. Borrowings under the HSBC Line of Credit may be used for working capital and other general corporate purposes and for repurchases of our common stock. The HSBC Line of Credit contains customary event-of-default provisions and a default provision based on our market capitalization. The facility contains covenants regarding our net income, leverage ratio and free cash flow. The HSBC Line of Credit is secured by a first priority perfected lien in (a) our accounts receivable, (b) our rights under our license with Hasbro and (c) all treasury stock repurchased after November 9, 2005. Borrowings under the HSBC Line of Credit bear interest at HSBC’s prime rate or, at our choice, at LIBOR plus 1.25% per annum. As of September 30, 2008, we had no borrowings outstanding under the HSBC Line of Credit.

6. SEGMENT INFORMATION

We operate our businesses in three segments: Licensing, Publishing and Film Production.

Licensing Segment

The Licensing segment, which includes the operations of the Joint Venture, licenses our characters for use in a wide variety of products and media, the most significant of which are described below.

Consumer Products

We license our characters for use in a wide variety of consumer products, including toys, apparel, interactive games, electronics, homewares, stationery, gifts and novelties, footwear, food and beverages and collectibles.

Studio Licensing

Feature Films.We have licensed some of our characters to major motion picture studios for use in motion pictures. For example, we currently have a license with Sony to produce motion pictures featuring the Spider-Man family of characters. We also have outstanding licenses with studios for a number of our other characters, including The Fantastic Four, X-Men, Daredevil/Elektra, Ghost Rider, Namor the Submariner and The Punisher. Under these licenses, we retain control over merchandising rights and retain more than 50% of merchandising-based royalty revenue. Our current plans are to self-produce, rather than license, all future films based on our characters that have not been licensed to third parties.

Television Programs.We license our characters for use in television programs. Several live-action and animated television shows based on our characters are in various stages of development including live-action television programming based on Moon Knight and animated programming based on Iron Man, X-Men, the Incredible Hulk, Black Panther and Marvel Super Hero Squad.

Made-for-DVD Animated Feature Films. We have licensed some of our characters to an entity controlled by Lions Gate Entertainment Corp. to produce up to ten feature-length animated films for distribution directly to the home video market.

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MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2008
(unaudited)

Destination-Based Entertainment

We license our characters for use at theme parks, shopping malls and special events. For example, we have licensed some of our characters for use at Marvel Super Hero Island, part of the Islands of Adventure theme park at Universal Orlando in Orlando, Florida, and for use in a Spider-Man attraction at the Universal Studios theme park in Osaka, Japan. We have also licensed our characters for the development of a major theme park in Dubai and two theme parks in South Korea.

Promotions

We license our characters for use in short-term promotions of other companies’ products and services.

Publications

Our Licensing segment licenses our characters to publishers located outside the United States for use in foreign-language comic books and trade paperbacks and to publishers worldwide for novelizations and a range of coloring and activity books.

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 5,000 Marvel Characters. Our titles include Spider-Man, X-Men, Fantastic Four, Iron Man, the Incredible Hulk, Captain America and Ghost Rider. In addition to revenues from the sale of comic books and trade paperbacks, the Publishing segment derives revenues from sales of advertising and subscriptions and from other publishing activities, such as custom comics and online activities.

Film Production Segment

The Film Production segment includes self-produced feature films. Those films are primarily financed with our $525 million film facility, which is described in Note 5. The first two films produced by the Film Production segment wereIron Man,which was released on May 2, 2008, andThe Incredible Hulk, which was released on June 13, 2008.

We began recognizing Film Production revenue in the second quarter of 2008. We amortize the related capitalized film inventory for each film in the proportion that the recognized revenue for that film bears to the film’s total estimated lifetime revenues.

During 2008, we also began to self-finance and produce animated television series that we will distribute ourselves. We expect that our first self-produced animated series will begin to air in fall 2009. Costs associated with the development, pre-production and production of these projects have been capitalized.

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MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2008
(unaudited)

Set forth below is certain operating information of our segments.

	Licensing				Film			All Other
	(1)(2)(3)		Publishing		Production			(4)(5)(6)			Total
	(in thousands)
Three months ended September 30, 2008
Net sales	$	58,071	$	34,064	$	90,180		$	184		$	182,499
Operating income (loss)		42,477		12,700		40,422			(7,397	)		88,202
Three months ended September 30, 2007
Net sales	$	82,256	$	34,867	$	—		$	6,519		$	123,642
Operating income (loss)		58,953		15,042		(1,157	)		(7,129	)		65,709
Nine months ended September 30, 2008
Net sales	$	237,479	$	92,322	$	119,105		$	3,019		$	451,925
Operating income (loss)		205,386		34,334		40,569			(19,397	)		260,892
Nine months ended September 30, 2007
Net sales	$	267,512	$	95,356	$	—		$	13,651		$	376,519
Operating income (loss)		207,954		41,256		(4,457	)		(21,951	)		222,802

(1)	In the first quarter of 2008, operating income included $19.0 million classified as Other Income from settlement payments received in connection with the early termination of two interactive licensing agreements.
(2)	During the second quarter of 2008, we recorded a credit of $8.3 million in SG&A expense to reflect a reduction in our estimate of royalties payable to actors starring in the Spider-Man movies for the use of their likeness in licensed products.
(3)	During the three-month period ended September 30, 2007, we recorded unusually high amounts ($16.8 million) received in settlements of audit claims and recorded a non-recurring charge of $4.7 million related to a contractual obligation.
(4)	The amounts for the three months ended September 30, 2008 and 2007 include $0.2 million and $6.5 million of direct toy sales and $0.3 million and $0.1 million of related operating income, respectively, associated with our toy manufacturing operations. The amounts for the nine months ended September 30, 2008 and 2007 include $3.0 million and $13.7 million of direct toy sales and $2.2 million of related operating income and $5.2 million of related operating loss, respectively, associated with our toy manufacturing operations. The balance of “All Other” operating loss in the three and nine-month periods is primarily unallocated corporate overhead.
(5)	During the three-month period ended September 30, 2007, we recorded a charge of $0.7 million and reduced revenue by $0.4 million in connection with an anticipated recall of approximately 175,000 units of Curious George toys produced by us in 2005.
(6)	During the first quarter of 2007, we recorded a $1.9 million non-recurring credit associated with pension accounting for the Fleer/Skybox Plan.

7. BENEFIT PLAN

In connection with the 1999 sale of a subsidiary, we retained certain liabilities related to the Fleer/Skybox International Retirement Plan, a defined benefit pension plan for employees of that subsidiary (the “Fleer/Skybox Plan”). This plan has been amended to freeze the accumulation of benefits and to prohibit new participants. We account for the Fleer/Skybox Plan in accordance with “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158).

13

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2008
(unaudited)

Assumptions used for the 2008 and 2007 expense include a discount rate of 5.88% and 5.70%, and an expected long-term rate of return on plan assets of 5.25% and 6.50%, respectively.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
	(in thousands)
Total cost for plan period:
Service cost	$	—		$	—		$	—		$	—
Interest cost		291			285			872			856
Expected return on plan assets		(257	)		(244	)		(770	)		(731	)
Amortization of:
Unrecognized net loss		50			54			151			162
Unrecognized prior service cost		(13	)		(13	)		(40	)		(40	)
Unrecognized net asset obligation		—			—			—			—
Net periodic pension cost	$	71		$	82		$	213		$	247

8. INCOME TAXES

We calculate our interim income tax provision in accordance with Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” and FASB Interpretation No. 18, “Accounting for Income Taxes in Interim Periods” (“FIN 18”). At the end of each interim period, we estimate our annual effective tax rate and apply that rate to our ordinary quarterly earnings. The tax expense or benefit related to each significant, unusual, or extraordinary item that will be separately reported, or reported net of its related tax effect, is recognized in the interim period in which it occurs. In addition, the effect of changes in tax laws, rates or tax status is recognized in the interim period in which the change occurs.

The estimation of the annual effective tax rate at the end of each interim period requires estimates of, among other things, what our pre-tax income will be for the year, what portion of our income will be earned and taxed in foreign jurisdictions, what permanent and temporary differences we will record, and which of the deferred tax assets generated in the current year we will recover. Each of those estimates requires significant judgment. The estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired, additional information is obtained or as the tax environment changes.

Our effective tax rates for the three and nine-month periods ended September 30, 2008 (36.4% and 37.6%, respectively) were higher than the federal statutory rate due primarily to state and local taxes partially offset by the benefit, explained below, associated with the minority share of the Joint Venture. Our effective tax rate for the three-month period ended September 30, 2007 (33.6%) was lower than the statutory rate due primarily to the benefit associated with the minority share of the Joint Venture and a discrete tax benefit of 2.7%, primarily from a reduction of deferred tax liabilities related to our Hong Kong subsidiary, offset by state and local taxes. Our effective tax rate for the nine-month period ended September 30, 2007 (37.0%) was higher than the statutory rate due primarily to state and local taxes partially offset by the benefit associated with the minority share of the Joint Venture.

We are not responsible for the income taxes related to the minority share of the Joint Venture’s earnings. The tax liability associated with the minority share of the Joint Venture’s earnings is therefore not reported in our income tax expense, even though all of the Joint Venture’s revenues and expenses are consolidated in our reported income before income tax expense. Joint Venture earnings therefore have the effect of lowering our effective tax rate. This effect is more pronounced in periods in which Joint Venture earnings are higher relative to our other earnings.

We retain various state and local net operating loss carryforwards of $312 million, which will expire in various jurisdictions in the years 2008 through 2026. As of September 30, 2008, there is a valuation allowance of $1.2 million against capital loss carryforwards and certain state and foreign net operating loss carryforwards, as we believe it is more likely than not that those assets will not be realized in the future.

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MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2008
(unaudited)

Unrecognized tax benefits totaled $65 million and $52 million at September 30, 2008 and December 31, 2007, respectively. The increase for the nine-month period ended September 30, 2008 resulted from current tax positions claimed in various jurisdictions in which we operate. Management believes it is reasonably possible that the balance of unrecognized tax benefits may decrease by approximately $10 to $12 million over the twelve-month period beginning October 1, 2008 due to expiring statutes of limitations for the assessment of additional tax liabilities and resolution of various federal, state & local, and foreign tax examinations. The amount of any cash payments to settle these examinations is not expected to be material to the financial statements and has been fully reserved.

In October 2008, we settled a state tax examination. See discussion of Subsequent Event at Note 12.

9. COMMITMENTS AND CONTINGENCIES

Legal Matters

On March 15, 2007, Stan Lee Media, Inc. (“SLM”) sued us in the United States District Court for the Southern District of New York. The complaint alleged that SLM is the owner of intellectual property rights in characters co-created by Stan Lee between 1941 and 1968 (the “Characters”) while Mr. Lee was employed by our predecessors. SLM alleged that prior to the date Mr. Lee entered into a new employment agreement with us in 1998, Mr. Lee transferred his interest in those characters to a predecessor of SLM. Mr. Lee has denied that any such transfer took place. Mr. Lee has a lawsuit pending in the United States District Court for the Central District of California against the individuals acting as the management of SLM, which claims that any characters Mr. Lee co-created for us or our predecessors were owned and continue to be owned by us and that those individuals acting as the management as SLM have no authority to take any actions in the name of SLM. The complaint in SLM’s lawsuit against us sought a declaration of SLM’s rights in the Characters, an accounting of the profits we have made based on the Characters, the imposition of a constructive trust, and damages. We believe those claims are meritless. On June 27, 2008, a court in Colorado, where SLM is incorporated, barred the SLM board from acting in any capacity on behalf of SLM. Because SLM then did not have a board of directors to direct its lawsuit against us, on September 11, 2008 SLM’s lawsuit was dismissed by the New York court. That dismissal was without prejudice to SLM’s ability to refile its lawsuit if it obtains a new board of directors. On September 30, 2008, an entity purporting to own SLM stock filed an application in Colorado seeking a court order to call a stockholders meeting for the purpose of electing a new board of directors for SLM.

On March 30, 2007, Gary Friedrich and Gary Friedrich Enterprises, Inc. (“Friedrich”) started a lawsuit in the United States District Court for the Southern District of Illinois against us, and numerous other defendants including Sony Pictures Entertainment, Inc., Columbia Pictures Industries, Inc., Hasbro, Inc. and Take-Two Interactive Software, Inc. That suit has been transferred to the Southern District of New York. The complaint alleges that Friedrich is the owner of intellectual property rights in the character Ghost Rider and that we and other defendants have exploited the Ghost Rider character in a motion picture and merchandise without Friedrich’s consent. Friedrich has asserted numerous claims including copyright infringement, negligence, waste, state law misappropriation, conversion, trespass to chattels, unjust enrichment, tortious interference with right of publicity, and for an accounting. We believe Friedrich’s claims to be without merit.

We are also involved in various other legal proceedings and claims incident to the normal conduct of our business. Although it is impossible to predict the outcome of any legal proceeding and there can be no assurances, we believe that our legal proceedings and claims, individually and in the aggregate, are not likely to have a material adverse effect on our financial condition, results of operations or cash flows.

15

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
September 30, 2008
(unaudited)

Lease Commitment

On September 23, 2008, we entered into a non-cancellable operating lease for the rental of sound stages where we intend to film our next four self-produced films, and for Marvel Studios’ new production and corporate office space, located in Manhattan Beach, California. The lease has various commencement dates between October 2008 and January 2009 and has an initial term of three years, with four successive one-year extension options. We anticipate making aggregate rental payments under this lease of approximately $14 million over the three-year period beginning January 1, 2009.

10. OTHER INCOME

During January 2008, we received settlement payments in connection with the early termination of two interactive license agreements. We recorded $19.0 million of income from these licensing settlement payments.

11. GAIN ON REPURCHASE OF DEBT

During the nine-month period ended September 30, 2008, we repurchased all $60.0 million of the mezzanine debt related to the Film Slate Facility Obligation for $58.1 million, which resulted in a gain of $1.9 million.

12. SUBSEQUENT EVENT

In October 2008, we settled a state tax examination. This settlement will result in a $3.6 million benefit to income tax expense in the fourth quarter of 2008, after adjustments for the related impact on deferred tax assets .

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

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements that we or our representatives make. Statements that are not statements of historical fact, including comments about our business strategies and objectives, growth prospects and future financial performance, are forward-looking statements. The words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “guidance,” “forecast,” “plan,” “outlook” and similar expressions, in filings with the SEC, in our press releases and in written and oral statements made by our representatives, also identify forward-looking statements. The forward-looking statements in this report speak only as of the date of this report. We do not intend to update or revise any forward-looking statements to reflect events or circumstances after the date on which the statements are made, even if new information becomes available.

The following risk factors, among others, could cause our actual results to differ significantly from what is expressed in our forward-looking statements:

• A decrease in the level of media exposure or popularity of our characters

• Financial difficulties of licensees

• Changing consumer preferences

• Movie and television-production delays and cancellations

• Concentration of our toy licensing in one licensee

• Uncertainties to do with the film production business, such as:

• We might be unable to attract and retain creative talent

• Our films might be less successful economically than we anticipate

• Our films might be more expensive to make than we anticipate

• Our film productions might be disrupted or delayed

• We might be disadvantaged by changes or disruptions in the way films are distributed

• We might lose potential sales because of piracy of films and related products

• We will be primarily dependent on a single distributor for each film

• We will depend on our studio distributors for revenue information related to the accounting for film-production activities

• We might fail to meet the conditions set by the lenders for the funding of films

• We might fail to meet the tests imposed by the lenders for the funding of films beyond the first four

• Accounting related to the production of our films may result in significant fluctuations in our reported income or loss

• If one of the banks in our film facility’s lending consortium were to default in making a required funding and if we were unable to arrange for a replacement bank, the amount available to us under the film facility would drop by the amount of the defaulting bank’s commitment and our film productions could be disrupted as a result.

The risk factors above are discussed more fully in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007 and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Management Overview of Business Trends

We operate in three integrated and complementary operating segments: Licensing, Publishing and Film Production. We no longer have an operating Toy segment. During the first quarter of 2008, we substantially completed our exit from toy manufacturing activities as planned. We also completed a change in the focus of the support that we provide to Hasbro, which resulted in changes to our internal organizational structure and staff reductions. These events altered our internal reporting of segment performance, with the result that we are now including revenues earned from Hasbro (associated with toys manufactured and sold by Hasbro) and related expenses (associated with royalties that we owe on our Hasbro revenue) within our Licensing segment. Those revenues and expenses were formerly included in our Toy segment. Our remaining activities related to our terminated toy manufacturing business are now included with Corporate overhead in “All Other”. We have reclassified prior-period segment information to conform to the current-year presentation.

17

The increased exposure of Marvel characters in movies and television shows can create revenue opportunities for us through increased sales of licensed merchandise. Producing films ourselves provides us with more control of our film projects, gives us greater flexibility to coordinate the timing of licensing programs around Marvel-branded theatrical releases and provides us with the opportunity for a meaningful source of profits. The operations of developing and producing our own theatrical releases are reported in our Film Production segment, the funding for which comes primarily from our $525 million film facility. Our current plans are to self-produce all future films based on our characters that have not already been licensed to third parties.

Licensing

Our Licensing segment is responsible for the licensing, promotion and brand management for all of our characters worldwide. We pursue a strategy, where feasible, of concentrating our licensee relationships with fewer, larger licensees who demonstrate the financial and merchandising capability to manage our portfolio of both classic and movie properties. A key focus is negotiating strong minimum guarantees while keeping royalty rates competitive.

Another strategy of the Licensing segment’s consumer products program is to create new revenue opportunities by further segmenting our properties to appeal to new demographic profiles. Initiatives such as Marvel Super Hero Squad, Marvel Extreme, Marvel Heroes and Marvel Comics (our retro program) have all helped the licensing business expand beyond its traditional classic and event-driven properties.

Major entertainment events play an important role in driving sales of our licensed products. In 2007, our Licensing segment revenue reflected the benefit of the May 2007 release of the movieSpider-Man 3.The Licensing segment’s 2007 initiatives were focused on merchandising our self-produced moviesIron Man, which was released on May 2, 2008, andThe Incredible Hulk, which was released on June 13, 2008. Our 2008 Licensing segment revenue is benefitting from the release of those movies, beginning in the second quarter of 2008, but not as significantly as 2007 Licensing segment revenue benefited from the release ofSpider-Man 3.

We typically enter into multi-year merchandise license agreements that specify minimum royalty payments and include a significant down payment upon signing. We recognize license revenue when the earnings process is complete, including, for instance, the determination that the credit-worthiness of the licensee reasonably assures collectibility of any outstanding minimum royalty payments. If the earnings process is complete with respect to all required minimum royalty payments, then we record as revenue the present value of those payments.

The earnings process is not complete if, among other things, we have significant continuing involvement under the license, we have placed restrictions on the licensee’s ability to exploit the rights conveyed under the contract or we owe a performance obligation to the licensee. In the case where we have significant continuing involvement or where any restrictions remain on the licensee’s rights (e.g., no sales of products based on a specific character allowed until a future date), we recognize revenue as the licensee reports its sales and corresponding royalty obligation to us. Where we have a performance obligation, minimum royalty collections are not recognized until our performance obligation has been satisfied. Minimum payments collected in advance of recognition are recorded as deferred revenue. In any case where we are unable to determine that the licensee is sufficiently creditworthy, we recognize revenue only to the extent of cash collections. When cumulative reported royalties exceed the minimum royalty payments, the excess royalties are recorded as revenue when collected and are referred to as “overages”.

As discussed above, beginning in 2008 we are including revenue earned from Hasbro, and related expenses, in our Licensing segment.

18

Publishing

The Publishing segment is focused on expanding distribution channels such as the direct and mass market, and expanding its presence in the book markets and to a broader demographic. In 2007, the single issue featuring the death ofCaptain Americawas the top-selling comic book of the year. Also, the last two issues ofCivil War, a limited-edition comic book series with tie-ins to established comic book series, were the second and third top-selling comic books of 2007. In the direct market and bookstores, a hardcover collected edition of theDark Towerseries was the best-seller in 2007. TheWorld War Hulkcrossover series, featuring the Incredible Hulk, was published in mid 2007. In April 2008, Marvel launched another major comic book crossover series,Secret Invasion, which involves many of the Marvel characters and features tie-ins to many other Marvel publications, similar to theCivil Warseries. This series will run through the end of 2008. The third volume of theDark Towerseries and the first volume ofThe Standseries were released in October 2008. We expect that theDark Tower, Secret InvasionandThe Standseries, and hardcover collections that were released in the third quarter of 2008, will continue to generate momentum for the remainder of 2008. Additionally, the Publishing segment has been developing and investing in digital media as seen with the launch of the Marvel Digital Comics Unlimited subscription service.

Film Production

In the second quarter of 2008, we released our first two self-produced films:Iron Manon May 2 andThe Incredible Hulkon June 13. We are currently developing four films for release in 2010 and 2011:Iron Man 2, Thor, The First Avenger: Captain America andThe Avengers. The scheduled release dates of those films are, respectively, May 7, 2010, July 16, 2010, May 16, 2011 and July 15, 2011. After the release of each film, we begin to recognize revenue and to amortize our film inventory as described below.

Film Inventory

In general, we are responsible for all of the costs of developing and producing our feature films. The film’s distributor is responsible for the out-of-pocket costs, charges and expenses (including contingent compensation and residual costs, to a defined limit) incurred in the distribution, manufacturing, printing and advertising, marketing, publicizing and promotion of the film in all media (referred to in the aggregate as the distributor’s costs). The distributor’s costs are not included in film inventory.

In accordance with the AICPA Statement of Position 00-2, “Accounting by Producers or Distributors of Films” (“SOP 00-2”), we capitalize all direct film production costs, such as labor costs, visual effects and set construction. Those capitalized costs, along with capitalized production overhead and capitalized interest costs, appear on our balance sheet as an asset called film inventory. Production overhead includes allocable costs, including cash and stock compensation and benefits, of individuals or departments with exclusive or significant responsibility for the production of films. Capitalization of production overhead and interest costs commences upon completion of the requirements for funding the production under the film facility and ceases upon completion of the production. Because of the completion of theIron Man andThe Incredible Hulkproductions during the second quarter of 2008, we began in that quarter to expense, rather than capitalize, our production overhead associated with personnel formerly dedicated to those productions and our interest costs related to those productions. Our Film Production SG&A expenses and our interest expense therefore began, in that quarter, to increase.

In accordance with SOP 00-2, we also capitalize the costs of projects in development into film inventory. Those costs consist primarily of script development. In the event that a film does not begin pre-production within three years from the time of the first capitalized transaction, or if an earlier decision is made to abandon the project, all capitalized costs related to these projects are expensed.

Once a film is released, in accordance with SOP 00-2 using the individual-film-forecast computation method, the amount of film inventory relating to that film is amortized and included in each period’s costs of revenue in the proportion that the film’s revenue during the period bears to the film’s then-estimated total revenue, net of the distributor’s costs, over a period not to exceed ten years (ultimate revenues). Estimates of ultimate revenues for each film are regularly reviewed and revised as necessary based on the latest available information. Reductions in those revenue estimates could result in the write- off, or the acceleration of the amortization, of film inventory in that reporting period; increases in those revenue estimates could result in reduced amortization in that period.

19

As of September 30, 2008, our Film Production segment had film inventory, net of amortization, of $246.4 million, primarily for theIron ManandThe Incredible Hulkproductions. For the three and nine-months ended September 30, 2008, the Film Production segment incurred $45.2 million and $66.4 million in cost of revenue, respectively, consisting of amortization of film inventory costs. In addition, for the three and nine-months ended September 30, 2008, the Film Production segment incurred $4.5 million and $12.6 million, respectively, in selling, general and administrative expenses, consisting primarily of employee compensation and the segment’s share of the expenses associated with our California office.

Film Revenue

The amount of revenue recognized from our films in any given period depends on the timing, accuracy and sufficiency of the information we receive from our distributors.

After remitting to us five percent of the film’s gross receipts, the distributor is entitled to retain a fee based upon the film’s gross receipts and to recoup all of its costs on a film-by-film basis prior to our receiving any additional share of film receipts. Any of the distributor’s costs for a film that are not recouped against receipts for that film are borne by the distributor. Our share of the film’s receipts, as described above, is recognized as revenue when reported due to us by the distributor. There are five territories in which we have received minimum guarantees from local distributors. In those territories, we began to recognize revenue when the film was made available for exhibition in theaters.

Revenue from the sale of home video units is recognized when our distributors report as due to us the video sale proceeds that they have collected from retailers. We provide for future mark-downs and returns of home entertainment product at the time the related revenue is recognized, using estimates. Our estimates are calculated by analyzing a combination of our distributors’ historical returns and mark-down practices, our distributors’ estimates of returns of our home video units, current economic trends, projections of consumer demand for our home video units and point-of-sale data available from retailers. We periodically review our estimates using the latest information available.

Revenue from both free and pay television licensing agreements is recognized at the time the production is made available for exhibition in those markets.

Film Facility

The film facility enables us to independently finance the development and production of up to ten feature films, including films that may feature the following Marvel characters, whose theatrical film rights are pledged as collateral to secure the film facility:

• Ant-Man

• Black Panther

• Captain America

• Cloak & Dagger

• Doctor Strange

• Hawkeye

• Iron Man

• Nick Fury

• Power Pack

• Shang-Chi

• The Avengers

• The Incredible Hulk

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Also included as collateral for the film facility are the theatrical film rights to many of the supporting characters that would be most closely associated with the featured characters and character families. For example, the theatrical film rights to The Incredible Hulk’s girlfriend, Betty Ross, and his nemesis, Abomination, are both pledged as collateral to the film facility.

We are currently developing a movie based on the character Thor and expect to obtain the consent of the film facility lenders to finance and produce that film through the film facility, in which case we will pledge the theatrical film rights to Thor and various related characters as collateral to secure the film facility.

We fund, from working capital and other sources, the incremental overhead expenses and costs of developing each film to the stage at which the conditions for an initial borrowing for the film are met under the film facility. If the film’s initial funding conditions are met under the film facility, we are able to borrow our development and pre-production costs and an amount equal to our incremental overhead expenses related to that film, but not exceeding 2% of the film’s budget. If the initial funding conditions are not met, we will be unable to borrow these amounts under the film facility.

We recorded interest expense, net of interest capitalized, related to the film facility of $5.7 million and $14.2 million, respectively, during the three and nine-month periods ended September 30, 2008. Interest charges associated with borrowings to fund the productions were capitalized, rather than expensed, until the completion of production. The production ofIron Man and the production ofThe Incredible Hulkwere completed in the second quarter of 2008. Starting in the second quarter of 2008, therefore, our interest expense began to increase significantly, as we began to expense, rather than capitalize, interest on the amounts borrowed to fund theIron Man andThe Incredible Hulkproductions. No interest associated with film productions was capitalized during the three-month period ended September 30, 2008. During the nine-month period ended September 30, 2008, interest associated with film productions of $5.1 million was capitalized and included in film inventory in the accompanying condensed consolidated balance sheet.

While theatrical films featuring the characters listed above may be financed and produced by us only through the film facility, we retain all other rights associated with those characters. In addition, we may continue to license our other characters for movie productions by third parties, obtain financing to produce movies based on those other characters ourselves or with others or, with the consent of the film facility lenders, finance and produce films based on those other characters through the film facility.

Critical Accounting Policies

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 establishes a common definition for fair value to be applied to GAAP requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS 157 is effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. FSP 157-2 “Partial Deferral of the Effective Date of Statement 157”, deferred the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. We do not expect the adoption of FSP 157-2 to have a material impact on our consolidated financial statements. In October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” The FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” when the market for a financial asset is not active. The FSP was effective upon issuance, including reporting for prior periods for which financial statements have not been issued. The adoption of the FSP for reporting as of September 30, 2008 did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 became effective for the fiscal year beginning January 1, 2008. We did not elect the fair value option for any items under SFAS 159.

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In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, the goodwill acquired and any noncontrolling interest in the acquiree. This statement also establishes disclosure requirements to enable the evaluation of the nature and financial effect of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008. We do not expect the adoption of this statement to have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51,” (“SFAS 160”). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. We do not expect the adoption of this statement to have a material impact on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 expands quarterly disclosure requirements in SFAS 133 about an entity’s derivative instruments and hedging activities. SFAS 161 is effective for fiscal years beginning after November 15, 2008. We do not expect the adoption of this statement to have a material impact on our consolidated financial statements.

Results of Operations

Three-month period ended September 30, 2008 compared with the three-month period ended September 30, 2007

Net Sales

	Three Months ended September 30,
	2008		2007		% Change
	(dollars in millions)
Licensing	$	58.1	$	82.2		(29	)%
Publishing		34.0		34.9		(3	)%
Film Production		90.2		—		N/A
All Other		0.2		6.5		(97	)%
Total	$	182.5	$	123.6		48	%

Our consolidated net sales of $182.5 million for the third quarter of 2008 were $58.9 million higher than net sales in the third quarter of 2007. The increase primarily reflects $90.2 million of revenue recognized in Film Production segment related to the theatrical releases ofIron ManandThe Incredible Hulkin the second quarter of 2008. This increase is partially offset by a $24.1 million decrease in Licensing segment net sales due to decreases in Joint Venture merchandise revenue related to the May 2007 release ofSpider-Man 3and in settlement revenue from licensing audit claims.

Licensing segment net sales decreased $24.1 million during the third quarter of 2008, reflecting a $16.1 million decrease in Joint Venture merchandise revenue (to $8.1 million, primarily overages) related to the release ofSpider-Man 3and a $15.7 million decrease in licensing audit claims, resulting from an unusually high amount of settlement revenue in the third quarter of 2007. These decreases were partially offset by a $2.1 million increase in Studio licensing revenue, primarily associated with the Spider-Man, Fantastic 4 and X-men movie properties. Full-year 2008 revenues in our Licensing segment will be lower than 2007 primarily due to the strength in 2007 of licensing associated withSpider-Man 3.

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Net sales from the Publishing segment decreased $0.9 million to $34.0 million for the three months ended September 30, 2008, primarily relating to a $1.6 million decrease in custom publishing, and a $0.6 million decrease in trade paperbacks as compared to the same period in 2007. These decreases were offset by a $1.2 million increase in our sales of comic books, primarily in the direct market, which benefited from the second-quarter release ofSecret Invasion, a limited-edition comic book series with tie-ins to established comic book series.

Net sales from the Film Production segment were $90.2 million for the three months ended September 30, 2008, related to the theatrical releases ofIron ManandThe Incredible Hulk.

Net sales included in All Other represent our former direct toy manufacturing operations, which we substantially exited during the first quarter of 2008.

Cost of Revenues

	Three Months ended September 30,
	2008					2007
			% of Net					% of Net
			Segment					Segment
	Amount		Sales			Amount		Sales
	(dollars in millions)
Licensing	$	—		N/A		$	—		N/A
Publishing		15.2		45	%		14.4		41	%
Film Production		45.2		50	%		—		N/A
All Other		—		N/A			3.1		48	%
Total	$	60.4		33	%	$	17.5		14	%

Consolidated cost of revenues increased $42.9 million to $60.4 million for the third quarter of 2008 compared with the third quarter of 2007, primarily reflecting the amortization of film inventory recorded in our Film Production segment. This increase caused our consolidated cost of revenues as a percentage of sales to increase to 33% during the third quarter of 2008 compared with 14% in the comparable 2007 period.

Publishing segment cost of revenues for comic book and trade paperback publishing consists of art, editorial, and printing costs. Publishing segment cost of revenues as a percentage of Publishing segment net sales increased from 41% during the three months ended September 30, 2007 to 45% during the three months ended September 30, 2008. The increase primarily reflects the impact of rising costs of talent and paper.

Film Production segment cost of revenue during the 2008 period consisted of the amortization of film inventory as revenue was generated from theIron ManandThe Incredible Hulkfeature films.

Cost of revenues included in All Other during the 2007 period primarily consisted of our former toy production activities, including product and packaging manufacturing, shipping and buying agents’ commissions.

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Selling, General and Administrative Expenses

	Three Months ended September 30,
	2008					2007
			% of Net					% of Net
			Segment					Segment
	Amount		Sales			Amount		Sales
	(dollars in millions)
Licensing	$	17.3		30	%	$	23.1		28	%
Publishing		6.2		18	%		5.4		15	%
Film Production		4.5		5	%		1.6		N/A
All Other		7.6		N/A			9.4		N/A
Total	$	35.6		20	%	$	39.5		32	%

Consolidated selling, general and administrative (“SG&A”) expenses of $35.6 million for the third quarter of 2008 were $3.9 million lower than SG&A expenses in the prior-year period reflecting decreases of SG&A expenses in the Licensing segment and All Other SG&A. These decreases are partially offset by increases in SG&A of the Film Production and Publishing segments. Consolidated SG&A as a percentage of net sales for the third quarter of 2008 decreased to 20% from 32% for the third quarter of 2007, primarily reflecting the increased revenue from the Film Production segment.

Licensing segment SG&A expenses consist primarily of payroll, agents’ foreign-sales commissions and royalties owed to movie studios and talent for their share of license royalty income, which are variable expenses based on licensing revenues. We pay movie studio licensees up to 50% of merchandising-based royalty revenue, after contractually agreed-upon deductions, from the licensing of both “classic” and “movie” versions of characters featured in licensed films. Licensing segment SG&A expenses of $17.3 million for the three months ended September 30, 2008 were $5.8 million lower than the prior-year period, which included a non-recurring charge of $4.7 million related to a contractual obligation. In addition, professional fees decreased by $1.1 million, which related to the unusually high amount of audit settlements in the third quarter of 2007. The combined effect of the decrease in licensing net sales and the decrease in licensing SG&A expenses caused Licensing segment SG&A to increase from 28% to 30% as a percentage of Licensing segment net sales.

Publishing segment SG&A expenses consist primarily of payroll, distribution fees and miscellaneous overhead costs. Publishing segment SG&A expenses increased $0.8 million during the three-month period ended September 30, 2008 over the comparable period in 2007, principally reflecting increased employee compensation from increased headcount related to our digital media initiatives.

SG&A for our Film Production segment consists primarily of employee compensation and overhead expenses associated with film production activities in our California office, as well as certain film related costs. Film Production SG&A expenses increased $2.9 million from the three-month period ended September 30, 2007 to the comparable period in 2008 principally due to a $1.7 million write-off of costs associated with an abandoned script. The remaining SG&A increase is primarily due to higher employee compensation expense.

SG&A expenses included in All Other for the third quarter of 2008 decreased $1.8 million from the comparable period in 2007, principally reflecting a decline resulting from our exit from direct toy manufacturing activities, partially offset by an increase in employee compensation expense.

Depreciation and Amortization

Depreciation and amortization expense decreased $1.0 million to $0.4 million in the third quarter of 2008, from $1.4 million in the third quarter of 2007, due to the cessation of our production of toys.

We account for our goodwill under the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Accordingly, goodwill is not amortized but is subject to annual impairment tests. Our most recent annual impairment review did not result in an impairment charge.

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Other Income

Other Income increased $1.6 million to $2.1 million in the third quarter of 2008, from $0.5 million in the third quarter of 2007.

During September 2008, we received settlement payments of $2.0 million from a licensee in connection with a contractual violation, which was partially offset by a $0.4 million charge for the mark-to-market valuation of our interest rate cap, associated with the film facility.

In the third quarter of 2007, other income primarily resulted from a $1.2 million appreciation in the fair value of forward contracts for the Canadian dollar, entered into during the second quarter of 2007 (settled in 2008) to mitigate our risk of fluctuations in the Canadian dollar with respect to the Canadian filming of The Incredible Hulk production. This increase was partially offset by a $0.7 million charge for the mark-to-market valuation of our interest rate cap associated with the film facility.

Operating Income

	Three Months ended September 30,
	2008						2007
	Amount			Margin			Amount			Margin
	(dollars in millions)
Licensing	$	42.5			73	%	$	59.0			72	%
Publishing		12.7			37	%		15.0			43	%
Film Production		40.4			45	%		(1.2	)		N/A
All Other		(7.4	)		N/A			(7.1	)		N/A
Total	$	88.2			48	%	$	65.7			53	%

Consolidated operating income increased $22.5 million over the prior-year period to $88.2 million for the third quarter of 2008, primarily reflecting a $45.0 million contribution from the gross profit of the Film Production segment, related to the theatrical releases ofIron ManandThe Incredible Hulk.This increase is partially offset by a $24.1 million decrease in net sales from the Licensing segment, which generates the highest margin.

Operating income in the Licensing segment decreased $16.5 million; however, margins remained consistent at 73% in the third quarter of 2008 as compared to 72% in the prior-year period. This decrease reflects the effects of the decrease in licensing revenue during the third quarter of 2008 because of lower Joint Venture merchandise revenue and lower audit claim settlement revenue.

Operating income in the Publishing segment decreased $2.3 million and margins declined from 43% in the third quarter of 2007 to 37% in the comparable quarter of 2008, reflecting the effects of lower sales and an increase in cost of sales and SG&A expense related to higher talent and paper costs as well as $0.9 of incremental costs related to our digital media initiatives.

Operating income in the Film Production segment reflects a $45.0 million contribution from the gross profit of our self-produced films, after the amortization of film inventory. This increase was partially offset by the $2.9 million increase in SG&A expenses of the Film Production segment.

All Other operating costs represent corporate overhead expenses, partially offset by our toy manufacturing operations, which substantially ceased during the first quarter of 2008.

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Interest Expense

	Three Months ended September 30,
	2008		2007
	(dollars in millions)
Interest incurred — film facilities	$	5.7	$	6.4
Less: Interest capitalized		—		(2.7	)
Total	$	5.7	$	3.7

From the third quarter of 2007 to the third quarter of 2008, there was a $0.7 million decrease in interest incurred due to decreased outstanding borrowings, partly resulting from the repurchase of the mezzanine debt, which bore the highest rate of interest. In the second quarter of 2008, we began to expense, rather than capitalize, interest on the amounts borrowed to fund theIron ManandThe Incredible Hulkproductions. We capitalized no interest in the third quarter of 2008 as compared to $2.7 million in the third quarter of 2007. This resulted in a $2.0 million increase to interest expense for the third quarter of 2008 compared with the third quarter of 2007. Interest expense will continue to be in excess of the prior-year period for the remainder of 2008 as interest on borrowings for our two films released in 2008 are expensed as incurred.

Interest Income

Interest income reflects amounts earned on our cash equivalents and short-term investments. Interest income increased $0.2 million to $0.9 million in the third quarter of 2008 as compared to the third quarter of 2007, due to higher average cash and investment balances partially offset by a decrease in interest rates in the 2008 period.

Loss on Repurchase of Debt

During the third quarter of 2008, we repurchased the remaining $13.3 million of our mezzanine debt related to the film facility for $13.7 million, which resulted in a loss of $0.4 million.

Income Taxes

Our effective tax rate for the three-month period ended September 30, 2008 (36.4%) was higher than the federal statutory rate due primarily to state and local taxes partially offset by the benefit, explained below, associated with the minority share of the Joint Venture. Our effective tax rate for the three-month period ended September 30, 2007 (33.6%) was lower than the statutory rate due primarily to the benefit associated with the minority share of the Joint Venture and a discrete tax benefit of 2.7%, primarily from a reduction of deferred tax liabilities related to our Hong Kong subsidiary, offset by state and local taxes.

We are not responsible for the income taxes related to the minority share of the Joint Venture’s earnings. The tax liability associated with the minority share of the Joint Venture’s earnings is therefore not reported in our income tax expense, even though all of the Joint Venture’s revenues and expenses are consolidated in our reported income before income tax expense. Joint Venture earnings therefore have the effect of lowering our effective tax rate. This effect is more pronounced in periods in which Joint Venture earnings are higher relative to our other earnings.

Minority Interest

Minority interest related to the Joint Venture amounted to $2.1 million during the third quarter of 2008 compared to $5.3 million during the third quarter of 2007. The $3.2 million decrease reflects decreased operations in the 2008 period from licensing associated withSpider-Man 3,which was released in May 2007.

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Earnings per Share

Diluted earnings per share increased to $0.64 in the third quarter of 2008 from $0.45 in the third quarter of 2007, reflecting a 39% increase in net income and a 2% reduction in the weighted average number of shares outstanding due to the effect of restricted stock vesting and treasury share repurchases. We repurchased 0.4 million shares between October 1, 2007 and September 30, 2008.

Nine-month period ended September 30, 2008 compared with the nine-month period ended September 30, 2007

Net Sales

	Nine Months ended September 30,
	2008		2007		% Change
	(dollars in millions)
Licensing	$	237.5	$	267.5		(11	)%
Publishing		92.3		95.4		(3	)%
Film Production		119.1		—		N/A
All Other		3.0		13.6		(78	)%
Total	$	451.9	$	376.5		20	%

Our consolidated net sales of $451.9 million for the nine-month period ended September 30, 2008 were $75.4 million higher than net sales in the comparable period of 2007. The increase primarily reflects the $119.1 million increase in Film Production net sales related to the theatrical releases during the 2008 period ofIron ManandThe Incredible Hulk. This increase was partially offset by a decline in licensing net sales and, within All Other, a decline in sales due to our exit from direct toy manufacturing operations.

Licensing segment net sales decreased $30.0 million during the nine-month period ended September 30, 2008, reflecting a $48.5 million decrease in Joint Venture revenue (to $50.9 million, primarily overages) related to the release ofSpider-Man 3and a $15.7 million decrease in licensing audit claims, resulting from an unusually high amount of settlement revenue in the third quarter of 2007. These decreases were partially offset by increases of $10.7 million and $9.7 million, respectively, in domestic and foreign licensing revenue, excluding the Joint Venture. The increases in domestic and foreign licensing were primarily due to amounts that were previously recorded as deferred revenue until the second quarter of 2008, when most licensees were first permitted to begin selling merchandise relating toIron ManandThe Incredible Hulk, partially offset by a decrease in overages. Full-year 2008 revenues in our Licensing segment will be lower than 2007, primarily due to the decline in licensing associated withSpider-Man 3.

Net sales from the Publishing segment decreased $3.1 million to $92.3 million for the nine-month period ended September 30, 2008, primarily reflecting a decrease in trade paperbacks and comic book sales related to limited-edition comic book series events and a decrease in our custom comic book arrangements. Net sales for the nine-month period ended September 30, 2008 benefited from the second-quarter release ofSecret Invasion, a limited-edition comic book series with tie-ins to established comic book series, as well asWorld War Hulktrade paperbacks. Net sales for the nine-month period ended September 30, 2007 benefited to a greater extent fromCivil War trade paperback sales and comic book sales ofDark TowerandThe Death of Captain America. Publishing segment net sales decreased as a percentage of consolidated net sales from 25% in 2007 to 20% in 2008, primarily because of film production revenues in 2008 (none in 2007).

Net sales from the Film Production segment were $119.1 million for the nine months ended September 30, 2008, related to the theatrical releases ofIron ManandThe Incredible Hulk.

Net sales included in All Other represent our former direct toy manufacturing operations, which we substantially exited during the first quarter of 2008.

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Cost of Revenues

	Nine Months ended September 30,
	2008					2007
			% of Net					% of Net
			Segment					Segment
	Amount		Sales			Amount		Sales
	(dollars in millions)
Licensing	$	—		N/A		$	—		N/A
Publishing		40.8		44	%		39.2		41	%
Film Production		66.4		56	%		—		N/A
All Other		1.0		33	%		7.7		57	%
Total	$	108.2		24	%	$	46.9		12	%

Consolidated cost of revenues increased $61.3 million to $108.2 million for the nine-month period ended September 30, 2008 compared with the nine-month period ended September 30, 2007, primarily reflecting the amortization of film inventory in our Film Production segment. This also caused our consolidated cost of revenues as a percentage of sales to increase to 24% during the nine-month period ended September 30, 2008 compared with 12% for the prior-year period.

Publishing segment cost of revenues as a percentage of Publishing segment net sales increased from 41% during the nine-month period ended September 30, 2007 to 44% during the nine-month period ended September 30, 2008. The increase primarily reflects the impact of rising costs of talent and paper.

Film Production segment cost of revenue during the 2008 period consisted of the amortization of film inventory as revenue was generated from theIron ManandThe Incredible Hulkfeature films.

Cost of revenues included in All Other primarily consists of our former toy production activities.

Selling, General and Administrative Expenses

	Nine Months ended September 30,
	2008					2007
			% of Net					% of Net
			Segment					Segment
	Amount		Sales			Amount		Sales
	(dollars in millions)
Licensing	$	52.4		22	%	$	58.9		22	%
Publishing		17.2		19	%		14.9		16	%
Film Production		12.6		11	%		6.2		N/A
All Other		22.0		N/A			24.6		N/A
Total	$	104.2		23	%	$	104.6		28	%

Consolidated selling, general and administrative (“SG&A”) expenses of $104.2 million for the nine-month period ended September 30, 2008 were $0.4 million lower than SG&A expenses in the prior-year period, primarily reflecting decreases in SG&A expenses in the Licensing segment and All Other SG&A expenses, which were partially offset by increases in SG&A expenses in the Film Production and Publishing segments. Consolidated SG&A as a percentage of net sales during the nine months ended September 30, 2008 decreased to 23%, from 28% during the prior-year period, primarily reflecting increased revenue from the Film Production segment, which was partially offset by a decrease in Joint Venture Licensing segment net sales.

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Licensing segment SG&A expenses of $52.4 million for the nine months ended September 30, 2008 were $6.5 million less than in the prior-year period. This decrease reflects a $5.2 million decrease in compensation-related expense primarily due to a non-recurring charge during the third quarter of 2007. Also contributing to the decrease is a credit recorded in the 2008 period of $8.3 million to reflect a reduction in our estimate of royalties payable to actors starring in the Spider-Man movies for the use of their likenesses in licensed products. These decreases were offset by increases of $2.7 million in foreign sales commissions and $2.3 million in royalties owed to movie studios, both attributable to higher foreign sales. As a percentage of Licensing segment net sales, Licensing segment SG&A remained consistent at 22% during the nine-month periods ended September 30, 2008 and 2007.

Publishing segment SG&A expenses increased $2.3 million during the nine-month period ended September 30, 2008 over the comparable period in 2007, principally reflecting increased consulting costs and employee compensation from increased headcount related to our digital media initiatives.

Film Production SG&A expenses increased $6.4 million from the nine-month period ended September 30, 2007 to the comparable period in 2008 partially due to higher compensation resulting from box office performance bonuses and increased employee compensation expense. SG&A in 2008 also includes a $1.7 million write-off of costs associated with an abandoned script.

SG&A expenses included in All Other for the nine-month period ended September 30, 2008 decreased $2.6 million over the comparable period in 2007, principally reflecting a decline in the SG&A of our former direct toy manufacturing activities, which amounted to $0.6 million in the nine-month period ended September 30, 2008 and $8.2 million in the nine-month period ended September 30, 2007. This $7.6 million decrease was partially offset by a $3.7 million increase in employee compensation expense and a $0.6 million increase in legal fees.

Depreciation and Amortization

Depreciation and amortization expense decreased $3.5 million to $1.2 million in the nine-month period ended September 30, 2008, from $4.7 million in the nine-month period ended September 30, 2007, due to the cessation of our production of toys.

We account for our goodwill under the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Accordingly, goodwill is not amortized but is subject to annual impairment tests. Our most recent annual impairment review did not result in an impairment charge.

Other Income

Other Income increased $20.0 million to $22.5 million in the nine-month period ended September 30, 2008, from $2.5 million in the nine-month period ended September 30, 2007. In the 2008 period, we received settlement payments from two interactive licensees in connection with the early termination of their agreements, which resulted in $19.0 million of income, and settlement payments of $2.0 million from a licensee in connection with a contractual violation.

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Operating Income

	Nine Months ended September 30,
	2008						2007
	Amount			Margin			Amount			Margin
	(dollars in millions)
Licensing	$	205.4			86	%	$	208.0			78	%
Publishing		34.3			37	%		41.3			43	%
Film Production		40.6			34	%		(4.5	)		N/A
All Other		(19.4	)		N/A			(22.0	)		N/A
Total	$	260.9			58	%	$	222.8			59	%

Consolidated operating income increased $38.1 million to $260.9 million for the nine-month period ended September 30, 2008, primarily reflecting a $52.7 million contribution from the gross profit of the Film Production segment, related to the theatrical releases ofIron ManandThe Incredible Hulkand the benefit of $21.0 million of licensing settlement payments. These increases were partially offset by a $30.0 million decrease in net sales from the Licensing segment, which generates the highest margin. The consolidated operating margin as a percentage of net sales was 58% during the nine-month period ended September 30, 2008, which is consistent with 59% in the comparable 2007 period.

Operating income in the Licensing segment decreased $2.6 million, primarily because of the $30.0 million reduction in Licensing segment net sales, partially offset by the $21.0 million in licensing settlement payments. The operating margin in the Licensing segment during the nine-month period ended September 30, 2008 increased to 86%, compared with 78% in the prior-year period. This increase is the result of the $21.0 million of licensing settlement payments. Without the impact of these non-recurring items, the operating margin for the Licensing segment during the nine-month period ended September 30, 2008 would have been 78%, which is consistent with the operating margin in the comparable 2007 period.

Operating income in the Publishing segment decreased $7.0 million, and margins declined from 43% in the nine-month period ended September 30, 2007 to 37% in the 2008 comparable period, reflecting decreases in net sales volume of comic books, trade paperbacks and hardcover books, combined with an increase in operating costs associated with talent costs, paper costs, and the net costs ($1.8 million) related to our digital media initiatives.

For the nine-month period ended September 30, 2008, operating income in the Film Production segment reflects a $52.7 million gross profit contribution from our self-produced films. This was partially offset by $12.6 million in SG&A expenses of the Film Production segment. For the nine-month period ended September 30, 2007, the Film Production operating costs reflect the SG&A costs noted above, and were partially offset by a $2.0 million increase in the fair value of forward contracts for the Canadian dollar entered into during the second quarter of 2007 in connection with ourThe Incredible Hulkproduction.

All Other operating costs primarily represent corporate overhead expenses, partially offset by our toy manufacturing operations, which substantially ceased during the first quarter of 2008.

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Interest Expense

	Nine Months ended September 30,
	2008			2007
	(dollars in millions)
Interest incurred — film facilities	$	19.3		$	14.7
Interest incurred — HSBC line of credit		—			0.1
Total Interest Incurred		19.3			14.8
Less: Interest capitalized		(5.1	)		(5.0	)
Total	$	14.2		$	9.8

From the nine-month period ended September 30, 2007 to the comparable 2008 period, there was a $4.5 million increase in the amount of interest we incurred as a result of increased outstanding borrowings. We capitalized $0.1 million more interest in the nine-month period ended September 30, 2008 than in the comparable prior-year period, on the amounts borrowed to fund theIron ManandThe Incredible Hulkproductions. These activities resulted in a $4.4 million increase to interest expense for the nine-month period ended September 30, 2008, compared with the comparable prior-year period. Because these productions were completed during the second quarter of 2008, interest expense will continue to be in excess of the prior-year period for the remainder of 2008, as interest on borrowings for completed films is expensed as incurred.

Interest Income

Interest income reflects amounts earned on cash equivalents and short-term investments. Interest income increased $0.8 million to $2.8 million in the nine-month period ended September 30, 2008 as compared to the comparable period in 2007, due to higher average cash and investment balances partially offset by a decrease in interest rates.

Gain on Repurchase of Debt

During the nine-month period ended September 30, 2008, we repurchased all $60.0 million of our mezzanine debt related to the film facility for $58.1 million, which resulted in a net gain of $1.9 million.

Income Taxes

Our effective tax rate for the nine-month period ended September 30, 2008 (37.6%) was higher than the federal statutory rate due primarily to state and local taxes partially offset by the benefit, explained below, associated with the minority share of the Joint Venture. Our effective tax rate for the nine-month period ended September 30, 2007 (37.0%) was higher than the statutory rate due primarily to state and local taxes partially offset by the benefit associated with the minority share of the Joint Venture.

We are not responsible for the income taxes related to the minority share of the Joint Venture’s earnings. The tax liability associated with the minority share of the Joint Venture’s earnings is therefore not reported in our income tax expense, even though all of the Joint Venture’s revenues and expenses are consolidated in our reported income before income tax expense. Joint Venture earnings therefore have the effect of lowering our effective tax rate. This effect is more pronounced in periods in which Joint Venture earnings are higher relative to our other earnings.

Minority Interest

Minority interest related to the Joint Venture amounted to $14.4 million in the nine-month period ended September 30, 2008 and $23.2 million in the comparable period of 2007. This $8.8 million decrease reflects decreased operations in the 2008 period from licensing associated withSpider-Man 3,which was released in May 2007.

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Earnings per Share

Diluted earnings per share increased to $1.81 in the nine-month period ended September 30, 2008 from $1.34 in the comparable 2007 period reflecting a 27% increase in net income and a 6% reduction in the weighted average number of shares outstanding due to the effect of restricted stock vesting and treasury share repurchases. We repurchased 0.4 million shares between October 1, 2007 and September 30, 2008.

Liquidity and Capital Resources

Our primary sources of liquidity are cash, cash equivalents, cash flows from operations, our film credit facilities and the HSBC line of credit, described below. We anticipate that our primary uses for liquidity will be to conduct our business, including an obligation assumed in the third quarter of 2008 to fund 33% of the budget of each of our self-produced films, and to repurchase our common stock.

Net cash provided by operating activities increased $155.9 million to $172.2 million during the nine months ended September 30, 2008, compared to $16.3 million during the comparable prior-year period. The increase is principally the result of a $137.7 million reduction in film expenditures over the comparable prior-year period. Our film-production expenditures, including expenditures funded by draw-downs from our film facilities, appear on our condensed consolidated statements of cash flows as cash used in operating activities. Those draw-downs appear on our condensed consolidated statements of cash flows as cash provided by financing activities.

Our working capital deficiency increased $35.1 million from $108.5 million at December 31, 2007 to $143.6 million at September 30, 2008, primarily reflecting an increase of $116.4 million in short-term borrowings to fund long-term film inventory related to theIron ManandThe Incredible Hulkfilms. Short-term borrowings principally represent the amount of the credit facility (described below) that we estimate to be repaid over the twelve-month period beginning on October 1, 2008. Our current income tax obligations also increased by $35.4 million. These increases in current liabilities were offset by a $94.4 million increase in cash and investments (including restricted cash).

Net cash flows provided by investing activities for the nine month period ended September 30, 2008 reflect the sale of short-term investments, the proceeds of which are now held as cash equivalents. Net cash flows used in investing activities for the nine-month period ended September 30, 2007 reflect the purchase of short-term investments using our excess cash.

Net cash used in financing activities during the nine-month period ended September 30, 2008 reflects repayments of our film facility borrowings, including our repurchase of all $60.0 million of long-term mezzanine debt for $58.1 million, partially offset by borrowings used for our film production activities during that period. In addition, we repurchased 0.4 million shares of our common stock at a cost of $9.9 million. During the nine-month period ended September 30, 2007, we repurchased 8.5 million shares of our common stock at a cost of $212.0 million. Repurchases were financed through cash generated from operations. At September 30, 2008, the remaining amount authorized and available for stock repurchases was $128.2 million.

MVL Film Finance LLC maintains a $525 million credit facility for the purpose of producing theatrical motion pictures based on our characters. The film facility consists of $465 million in revolving senior bank debt and $60 million in mezzanine debt, which is subordinated to the senior bank debt. Both Standard & Poor’s, a division of the McGraw-Hill Companies, Inc., and Moody’s Investor Rating Service, Inc. have given the senior bank debt an investment grade rating. In addition, Ambac Assurance Corporation has insured repayment of the senior bank debt. In exchange for the repayment insurance, we pay Ambac a fee calculated as a percentage of senior bank debt. The interest rates for outstanding senior bank debt, and the fees payable on unused senior bank debt capacity, both described below, include the percentage fee owed to Ambac. As noted above, during the 2008 period, we repurchased all of the mezzanine debt.

On June 5, 2008, Ambac’s rating was downgraded by S&P from AAA to AA. The downgrade caused an increase of 1.30% in our interest rate for outstanding senior bank debt and an increase of 0.30% in the fee payable on our unused senior bank debt capacity. These increases are reflected in the rates noted below. Any further downgrades of Ambac’s rating, such as the one by Moody’s on November 5, 2008 (to Baa1), do not affect our rate of interest or fees under the film facility.

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The interest rate for outstanding senior bank debt is currently LIBOR (4.05% at September 30, 2008) or the commercial paper rate, as applicable, plus 2.935% in either case. At November 6, 2008, LIBOR was 2.39%.

The film facility also requires us to pay a fee on any senior bank debt capacity that we are not using. This fee is currently 0.90%, and is applied on $465 million reduced by the amount of any outstanding senior bank debt.

If the senior bank debt’s rating (without giving effect to Ambac’s insurance) by either S&P or Moody’s were to fall below investment grade, the interest rate for the outstanding senior bank debt would increase by up to an additional 0.815%. In addition, if we become more leveraged, without considering the film facility, the interest rate for outstanding senior bank debt could increase by up to an additional 0.50%. In light of recent adverse developments in the credit markets, we have assessed the economic impact on our film production activities from the actual and potential increases in interest rates described above. We do not believe the actual or potential impact from these increases to be material.

For our first two films, we generated pre-sale proceeds in the form of minimum guarantees owed to us by distributors who bought the right to distribute our self-produced films in the territories of Japan, Germany, France, Spain, Australia and New Zealand (the “Reserved Territories”). As contemplated by the film facility, we usedIron Man‘s andThe Incredible Hulk‘s pre-sale proceeds toward funding the production of those films. Most of the payments from our foreign distributors, however, were not due to us until after delivery of the completed films. In 2007, therefore, we entered into two $32.0 million credit facilities: one to fund our production ofIron Manand one to fund our production ofThe Incredible Hulk. Each facility was to be repaid with our Reserved Territory pre-sale proceeds for the respective film. During the second quarter of 2008, we repaid the Iron Man facility in full and we repaid $22.8 million of the Hulk facility. We repaid the remainder of the Hulk facility in July 2008.

Under the film facility, we must maintain a minimum tangible net worth and comply with various administrative covenants. We have maintained compliance with those provisions of the film facility since its inception.

In the third quarter of 2008, in connection with our new distribution agreement with Paramount Pictures Corporation and Viacom Overseas Holdings C.V. (collectively, “Paramount”), we amended the film facility to remove the requirement that we pre-sell the rights to distribute our films in the Reserved Territories. Distribution in the Reserved Territories will instead be handled by Paramount. The amendment to the film facility requires us to fund 33% of the budget of each film distributed under the new Paramount agreement. The film facility will provide the remaining 67% of the budget (reduced by the proceeds of any government rebate, subsidy or tax incentive and any other source of co-financing). After deduction of Paramount’s distribution fees and expenses in the Reserved Territories, we will be entitled to recoup our 33% contribution from all film proceeds in the Reserved Territories. Our recoupment will be crossed among all films distributed under the new distribution agreement with Paramount and among all Reserved Territories. After recoupment of our 33% contribution, all additional film proceeds in the Reserved Territories will be used to pay down borrowings under the film facility. The film facility continues to require that, in order to receive an initial funding for our fifth film and each film thereafter, we obtain 33% of the cumulative budget of our films in the form of pre-sales of distribution rights in the Reserved Territories, together with the proceeds of any government rebate, subsidy or tax incentive and any other source of co-financing (the “Pre-Sale Test”) and satisfy an interim asset test. Our 33% contribution, which will begin with our third film, will count towards the Pre-Sale Test. The pre-sales (and government rebates, tax incentives, etc.) for our first two films,Iron ManandThe Incredible Hulk, were approximately $17 million less, in the aggregate, than the 33% that will be required under the Pre-Sale Test. Because we will now fund 33% of the budget of each of our films, when the Pre-Sale test is first applied (that is, when we request an initial funding of our fifth film), the shortfall under the Pre-Sale test will be $17 million reduced by the proceeds of any government rebate, subsidy, tax incentive or co-financing received in respect of our third and fourth films. We may elect to make up any shortfall with our own funds.

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If one of the banks in our film facility’s lending consortium were to default in making a required funding and if we were unable to arrange for a replacement bank, the amount available to us under the film facility would drop by the amount of the defaulting bank’s commitment and our film productions could be disrupted as a result.

We maintain a $100 million revolving line of credit with HSBC Bank USA, National Association (the “HSBC Line of Credit”) with a sub-limit for the issuance of letters of credit. The HSBC Line of Credit expires on March 31, 2010. Borrowings under the HSBC Line of Credit may be used for working capital and other general corporate purposes and for repurchases of our common stock. The HSBC Line of Credit contains customary event-of-default provisions and a default provision based on our market capitalization. The facility contains covenants regarding our net income, leverage ratio and free cash flow. The HSBC Line of Credit is secured by a first priority perfected lien in (a) our accounts receivable, (b) our rights under our license with Hasbro and (c) all of our treasury stock repurchased by us after November 9, 2005. Borrowings under the HSBC Line of Credit bear interest at HSBC’s prime rate or, at our choice, at LIBOR plus 1.25% per annum. As of September 30, 2008, we had no borrowings outstanding under the HSBC Line of Credit.

We are in compliance with all of our covenants associated with the above debt arrangements.

Our capital expenditures for the nine-month periods ended September 30, 2008 and 2007 were $0.4 million and $1.9 million, respectively. We do not expect to have significant capital expenditures through the end of 2008.

On September 23, 2008, we entered into a non-cancellable operating lease for the rental of sound stages where we intend to film our next four self-produced films, and for Marvel Studios’ new production and corporate office space, located in Manhattan Beach, California. The lease has various commencement dates between October 2008 and January 2009 and has an initial term of three years, with four successive one-year extension options. We anticipate making aggregate rental payments under this lease of approximately $14 million over the three-year period beginning January 1, 2009.

We believe that our cash and cash equivalents, cash flows from operations, the film facilities, and the HSBC line of credit will be sufficient for us to conduct our business, including the funding of 33% of the budget of each of our self-produced films, and to make repurchases, if any, under our current stock repurchase program.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, we hold cash denominated in various currencies, which subjects us to currency rate fluctuation risk. Most of our international licenses are denominated in U.S. dollars, which insulates us from currency rate fluctuation risk where the minimum payments under the license are concerned. Any overages under those licenses, however, are affected by currency fluctuations: the overages are worth less to us if the local currency weakens against the dollar and vice versa. Further, our international licenses that are denominated in foreign currencies subject us to currency rate fluctuation risk with respect to both minimum payments and overages. Management believes that the impact of currency rate fluctuations do not represent a significant risk in the context of our current international operations.

In connection with our film facility, to mitigate our exposure to rising interest rates based on LIBOR, we entered into an interest rate cap to cover a majority of the notional amount of anticipated borrowings under this facility. We do not generally enter into any other types of derivative financial instruments in the normal course of business to mitigate our interest rate risk, nor are such instruments used for speculative purposes. In light of recent adverse developments in the credit markets, we have assessed the economic impact on our film production activities from the actual and potential increases in our film facility interest rates because of downgrades by S&P or Moody’s, as described above in Item 2: Liquidity. We do not believe the impact of these actual or potential increases to be material.

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The current volatility and disruption to the capital and credit markets are causing contraction in the availability of business and consumer credit and seem likely to lead to a global recession. This current decrease and any future decrease in economic activity in the United States or other regions in the world in which we do business could significantly and adversely affect our results of operations and financial condition in a number of ways. These economic conditions could reduce the performance of our theatrical and home entertainment releases and the ability of licensees to produce and sell our licensed consumer products, thereby reducing our revenues and earnings, and could cause our licensees to be unable or to refuse to make required payments to us under their license agreements.

Additional information relating to our 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

Our management has evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter covered by this report. Based on that evaluation, our chief executive officer and chief financial officer have concluded that those controls and procedures were effective at the end of the fiscal quarter covered by this report. There were no changes in our internal control over financial reporting identified by us that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

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ITEM 1. LEGAL PROCEEDINGS

The information required by Part II, Item 1 is incorporated herein by reference to the information appearing under the caption “Legal Matters” in Note 9 to the Condensed Consolidated Financial Statements in Part I hereof.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007 except that the current disruption in international financial markets may present the risk, mentioned in Part I, Item 2 above, that one or more of the banks in our film facility’s lending consortium would default in making a required funding, in which case, if we were unable to arrange for a replacement bank, the amount available to us under the film facility would drop by the amount of the defaulting bank’s commitment and our film productions could be disrupted as a result.

In connection with the risk factor describing our exposure to a union strike, it should be noted that, as of early November 2008, a strike by Hollywood actors was still reported as a possibility in light of the Screen Actors Guild and the Alliance of Motion Picture and Television Producers not yet having reached a successor agreement to their TV/theatrical agreement that expired on June 30, 2008. If that strike were to occur, it could cause a significant disruption to our film-production activities, and could hurt our associated licensing programs.

It should also be noted, in connection with the risks we face through exposure to financial difficulties of our licensees and our risk of changing consumer preferences, that the current volatility and disruption to the capital and credit markets are causing contraction in the availability of business and consumer credit and seem likely to lead to a global recession. This current decrease and any future decrease in economic activity in the United States or other regions in the world in which we do business could significantly and adversely affect our results of operations and financial condition in a number of ways. These economic conditions could reduce the performance of our theatrical and home entertainment releases and the ability of licensees to produce and sell our licensed consumer products, thereby reducing our revenues and earnings, and could cause our licensees to be unable or to refuse to make required payments to us under their license agreements.

ITEM 5. OTHER INFORMATION

In September 2008, we signed a lease (the “Manhattan Beach Studios Lease”) with an affiliate of The Carlyle Group for the sound stages where we intend to film our next four self-produced films, and for Marvel Studios’ new corporate and production offices, all at Carlyle’s Raleigh Studios facility in Manhattan Beach, California. The lease also provides that we will use, at discounted rates, equipment provided by Carlyle’s equipment provider in shooting the films we make at the Raleigh Studios facility. The Manhattan Beach Studios Lease was entered into on September 23, 2008 by our subsidiary MVL Productions LLC, as tenant, and CRP MB Studios, L.L.C., a Delaware limited liability company, as landlord. The lease has an initial term of three years, with four successive one-year extension options. Aggregate rental payments under the lease are expected to be approximately $14 million over the three-year period beginning January 1, 2009. The lease includes five sound stages totaling 95,000 square feet plus 47,000 square feet of related production offices and 14,000 square feet of corporate office space.

The above description of the terms of the Manhattan Beach Studios Lease is qualified in its entirety by reference to the full text of the Manhattan Beach Studios Lease, a copy of which is filed asExhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

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ITEM 6. EXHIBITS

10.1	Lease, dated as of September 22, 2008, between MVL Productions LLC, as tenant, and CRP MB Studios, L.L.C., as landlord.
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.

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 ENTERTAINMENT, INC.
(Registrant)
By:	/s/ Kenneth P. WestKenneth P. West Chief Financial Officer (duly authorized
	officer and principal financial officer)

Dated: November 6, 2008

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