Marvel Entertainment 10-Q 2009 Q1 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 endedMarch 31, 2009

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 organization)	(IRS Employer Identification No.)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).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 May 5, 2009, the number of outstanding shares of the registrant’s common stock, par value $.01 per share, was 78,457,930, including 495,312 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 March 31, 2009 and December 31, 2008		2
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2009 and 2008		3
Condensed consolidated Statements of Equity and Comprehensive Income for the Three Months Ended March 31, 2009 and 2008		4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008		5
Notes to Condensed Consolidated Financial Statements		6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Results of Operations		22
Liquidity and Capital Resources		27
Item 3 Quantitative and Qualitative Disclosures About Market Risk		30
Item 4 Controls and Procedures		30
PART II. OTHER INFORMATION
Item 1 Legal Proceedings		31
Item 1A Risk Factors		31
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 5 Other Information		31
Item 6 Exhibits		32
SIGNATURES		32
Exhibit 10.1: Amended and Restated Share Disposition Agreement
Exhibit 10.2: Isaac Perlmutter Employment Agreement
Exhibit 10.3: Simon Philips Employment Agreement
Exhibit 10.4: Hasbro 2009 License Agreement
Exhibit 31.1: Section 302 Certification of CEO
Exhibit 31.2: Section 302 Certification of CFO
Exhibit 32: Section 906 Certification of CEO and CFO

(i)

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements
(Unaudited)

1

MARVEL ENTERTAINMENT,INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	March 31,			December 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	83,305		$	105,335
Restricted cash		9,419			12,272
Short-term investments		—			32,975
Accounts receivable, net		73,874			144,487
Inventories, net		12,452			11,362
Income tax receivable		—			2,029
Deferred income taxes, net		32,436			34,072
Prepaid expenses and other current assets		5,814			5,135
Total current assets		217,300			347,667
Fixed assets, net		3,870			3,432
Film inventory, net		133,653			181,564
Goodwill		346,152			346,152
Accounts receivable, non-current portion		6,559			1,321
Income tax receivable, non-current portion		5,906			5,906
Deferred income taxes, net		18,963			13,032
Deferred financing costs		4,566			5,810
Restricted cash, non-current portion		121,835			31,375
Other assets		3,287			455
Total assets	$	862,091		$	936,714
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,588		$	2,025
Accrued royalties		90,784			76,580
Accrued expenses and other current liabilities		31,481			40,635
Deferred revenue		57,635			81,335
Income tax payable		16,940			—
Film facility		61,901			204,800
Total current liabilities		260,329			405,375
Accrued royalties, non-current portion		715			10,499
Deferred revenue, non-current portion		104,156			48,939
Film facility, non-current portion		—			8,201
Income tax payable, non-current portion		64,347			59,267
Other liabilities		8,395			8,612
Total liabilities		437,942			540,893
Commitments and contingencies
Marvel Entertainment, Inc. stockholders’ equity:
Preferred stock, $.01 par value, 100,000,000 shares authorized, none issued		—			—
Common stock, $.01 par value, 250,000,000 shares authorized, 134,616,383 issued and 77,932,972 outstanding in 2009 and 134,397,258 issued and 78,408,082 outstanding in 2008		1,346			1,344
Additional paid-in capital		750,416			750,132
Retained earnings		599,606			555,125
Accumulated other comprehensive loss		(4,523	)		(4,617	)
Total Marvel Entertainment, Inc. stockholders’ equity before treasury stock		1,346,845			1,301,984
Treasury stock, at cost, 56,683,411 shares in 2009 and 55,989,176 shares in 2008		(921,700	)		(905,293	)
Total Marvel Entertainment, Inc. stockholders’ equity		425,145			396,691
Noncontrolling interest in consolidated Joint Venture		(996	)		(870	)
Total equity		424,149			395,821
Total liabilities and equity	$	862,091		$	936,714

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

2

MARVEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

	Three Months Ended March 31,
	2009			2008
	(in thousands, except per share data)
Net sales	$	196,964		$	112,567
Costs and expenses:
Cost of revenues (excluding depreciation expense)		84,020			12,467
Selling, general and administrative		39,171			31,519
Depreciation and amortization		273			375
Total costs and expenses		123,464			44,361
Other income, net		121			19,326
Operating income		73,621			87,532
Interest expense		3,654			3,086
Interest income		168			979
Income before income tax expense		70,135			85,425
Income tax expense		24,491			33,210
Net income		45,644			52,215
Noncontrolling interest in consolidated Joint Venture		(1,163	)		(6,984	)
Net income attributable to Marvel Entertainment, Inc.	$	44,481		$	45,231
Basic and diluted earnings per share:
Net income attributable to Marvel Entertainment, Inc.	$	44,481		$	45,231
Weighted average shares outstanding:
Weighted average shares for basic earnings per share		78,287			77,423
Effect of dilutive stock options and restricted stock		371			803
Weighted average shares for diluted earnings per share		78,658			78,226
Earnings per share, attributable to Marvel Entertainment, Inc.:
Basic	$	0.57		$	0.58
Diluted	$	0.57		$	0.58

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

3

MARVEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
AND COMPREHENSIVE INCOME

											Accumulated Other									Noncontrolling
	Common			Common		Additional					Comprehensive Loss									Interests in
	Stock			Stock		Paid-In			Retained		Foreign			Pension			Treasury			Consolidated			Total
	Shares			Amount		Capital			Earnings		Currency			Liability			Stock			Joint Venture			Equity
	(in thousands)
Balance at December 31, 2008		78,408		$	1,344	$	750,132		$	555,125	$	(812	)	$	(3,805	)	$	(905,293	)	$	(870	)	$	395,821
Employee stock options exercised		12			—		161			—		—			—			—			—			161
Tax benefit of stock options exercised, net		—			—		622			—		—			—			—			—			622
Restricted stock vesting		278			2		(2	)		—		—			—			—			—			—
Common stock retired		(71	)		—		(2,073	)		—		—			—			—			—			(2,073	)
Treasury stock, at cost		(694	)		—		—			—		—			—			(16,407	)		—			(16,407	)
Compensatory stock expense		—			—		1,576			—		—			—			—			—			1,576
Distributions to the noncontrolling interest in consolidated Joint Venture (including non-cash distributions of $20 related to foreign tax credits)		—			—		—			—		—			—			—			(1,289	)		(1,289	)
Net income		—			—		—			44,481		—			—			—			1,163			45,644
Other comprehensive income		—			—		—			—		17			77			—			—			94
Comprehensive income*		—			—		—			—		—			—			—			—			45,738
Balance at March 31, 2009		77,933		$	1,346	$	750,416		$	599,606	$	(795	)	$	(3,728	)	$	(921,700	)	$	(996	)	$	424,149

* Comprehensive income attributable to Marvel Entertainment, Inc. stockholders was $44,575

											Accumulated Other								Noncontrolling
	Common			Common		Additional					Comprehensive Loss								Interests in
	Stock			Stock		Paid-In			Retained		Foreign		Pension			Treasury			Consolidated			Total
	Shares			Amount		Capital			Earnings		Currency		Liability			Stock			Joint Venture			Equity
	(in thousands)
Balance at December 31, 2007		77,625		$	1,333	$	728,815		$	349,590	$	342	$	(3,737	)	$	(894,840	)	$	556		$	182,059
Employee stock options exercised		16			—		156			—		—		—			—			—			156
Tax benefit of stock options exercised, net		—			—		690			—		—		—			—			—			690
Restricted stock vesting		290			1		(1	)		—		—		—			—			—			—
Common stock retired		(81	)		—		(2,079	)		—		—		—			—			—			(2,079	)
Treasury stock, at cost		(414	)		—		—			—		—		—			(9,945	)		—			(9,945	)
Compensatory stock expense		—			—		1,571			—		—		—			—			—			1,571
Distributions to the noncontrolling interest in consolidated Joint Venture (including non-cash distributions of $216 related to foreign tax credits)		—			—		—			—		—		—			—			(7,495	)		(7,495	)
Net income		—			—		—			45,231		—		—			—			6,984			52,215
Other comprehensive income		—			—		—			—		101		44			—			—			145
Comprehensive income**		—			—		—			—		—		—			—			—			52,360
Balance at March 31, 2008		77,436		$	1,334	$	729,152		$	394,821	$	443	$	(3,693	)	$	(904,785	)	$	45		$	217,317

** Comprehensive income attributable to Marvel Entertainment, Inc. stockholders was $45,376

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

4

MARVEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months Ended March 31,
	2009			2008
	(in thousands)
Cash flows from operating activities:
Net income	$	45,644		$	52,215
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		273			375
Amortization of film inventory		71,051			—
Amortization of deferred financing costs		1,244			1,245
Unrealized (gain) loss on interest rate cap and foreign currency forward contracts		(20	)		198
Non-cash charge for stock-based compensation		1,576			1,571
Excess tax benefit from stock-based compensation		(622	)		(690	)
Loss on sale of equipment		—			5
Impairment of long-term assets		99			—
Deferred income taxes		(3,949	)		(4,057	)
Changes in operating assets and liabilities:
Accounts receivable		65,375			9,156
Inventories		(1,090	)		(661	)
Prepaid expenses and other current assets		(679	)		(1,771	)
Film inventory		(23,140	)		(38,505	)
Other assets		(2,812	)		56
Deferred revenue		31,517			5,408
Income taxes payable		24,257			35,353
Accounts payable, accrued expenses and other current liabilities		(7,351	)		(13,262	)
Net cash provided by operating activities		201,373			46,636
Cash flows from investing activities:
Purchases of fixed assets		(810	)		(142	)
Sales of short-term investments		32,983			4,031
Purchases of short-term investments		(8	)		(44,869	)
Change in restricted cash		(87,607	)		(2,365	)
Net cash used in investing activities		(55,442	)		(43,345	)
Cash flows from financing activities:
Borrowings from film facilities		1,000			48,274
Repayments of film facility		(152,100	)		—
Distributions to the noncontrolling interest in consolidated Joint Venture		(1,269	)		(7,279	)
Purchase of treasury stock		(16,407	)		(9,945	)
Exercise of stock options		161			156
Excess tax benefit from stock-based compensation		622			690
Net cash (used in) provided by financing activities		(167,993	)		31,896
Effect of exchange rates on cash		32			207
Net (decrease) increase in cash and cash equivalents		(22,030	)		35,394
Cash and cash equivalents, at beginning of period		105,335			30,153
Cash and cash equivalents, at end of period	$	83,305		$	65,547

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

5

MARVEL ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

(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, Equity and Comprehensive Income and Cash Flows for the three-month period ended March 31, 2009 are not necessarily indicative of those for the full year ending December 31, 2009. The year-end 2008 condensed consolidated 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, 2008.

Certain reclassifications have been made to prior periods to conform to the current period presentation. Specifically, we have made adjustments as a result of the adoption of SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS 160”) (see Note 2), and as the result of revising the presentation of certain restricted cash balances from current assets to non-current assets (see Note 6).

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 are party to a joint venture with Sony Pictures Entertainment Inc., called Spider-Man Merchandising L.P. (the “Joint Venture”), for 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 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.

6

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2009
(unaudited)

Supplemental Disclosure of Cash Flow Information

	Three Months Ended March 31,
	2009		2008
	(in thousands)
Interest paid during the period	$	3,631	$	5,496
Income taxes paid during the period		3,946		2,171
Income tax refund		45		—

Our film-production expenditures, including expenditures funded by draw-downs from our film facility, 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. Likewise, cash collections from our film productions are reflected in cash provided by operating activities; however, the related increase in restricted cash funded by these collections is reflected as cash used in our investing activities.

Recent Accounting Standards Adopted in 2009

In December 2007, the FASB issued SFAS No. 160, which 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 a component of equity in the consolidated financial statements and requires disclosure, on the face of the consolidated statements of income, of the amounts of consolidated net income attributable to the company and to the noncontrolling interests. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. On January 1, 2009, we adopted the provisions of SFAS 160. The implementation of this statement did not have a material impact on our consolidated financial statements or results of operations. The 2008 financial information has been revised so that the basis of presentation is consistent with the 2009 financial information.

In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) “Partial Deferral of the Effective Date of Statement 157” (“FSP FAS 157-2”), which deferred the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. On January 1, 2009, we adopted the provisions of FSP FAS 157-2. On January 1, 2008, we adopted the provisions of FAS 157 related to financial assets and liabilities as well as other assets and liabilities carried at fair value on a recurring basis. The implementation of this statement did not have a material impact on our consolidated financial statements or results of operations.

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. On January 1, 2009, we adopted the provisions of SFAS 141R. The implementation of this statement did not have any impact on our consolidated financial statements or results of operations.

In March 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination” (“FSP FAS 141(R)-1”), which amends the guidance in SFAS 141R, for the initial recognition and measurement, subsequent measurement, and disclosures of assets and liabilities arising from contingencies in a business combination. In addition, FSP FAS 141(R)-1 amends the existing guidance related to accounting for pre-existing contingent consideration assumed as part of the business combination. FSP FAS 141(R)-1 was effective as of January 1, 2009. The implementation of FSP FAS 141(R)-1 did not have any impact on our consolidated financial statements or results of operations. However, any business combinations entered into in the future may impact our consolidated financial statements as a result of the potential earnings volatility due to the changes described above.

7

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2009
(unaudited)

Recent Accounting Standards Not Yet Adopted

In December 2008, the FASB issued FSP SFAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”). FSP FAS 132(R)-1 amends SFAS 132(R), “Employers’ Disclosures about Pension and Other Postretirement Benefits” and provides guidance on an employer’s disclosure about plan assets of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. We are currently evaluating the impact FSP FAS 132(R)-1 may have on our consolidated financial statements.

3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS

	March 31,			December 31,
	2009			2008
	(in thousands)
Accounts receivable, net, consists of the following:
Licensing:
Accounts receivable	$	8,843		$	9,434
Less allowances for doubtful accounts		(74	)		(278	)
Total licensing		8,769			9,156
Publishing:
Accounts receivable		25,565			30,474
Less allowance for:
Doubtful accounts		(231	)		(266	)
Allowance for returns		(13,048	)		(14,460	)
Total publishing		12,286			15,748
Film Production
Accounts receivable		52,797			119,459
All Other:
Accounts receivable		22			124
Total	$	73,874		$	144,487
Inventories, net, consists of the following:
Finished goods	$	5,387		$	5,734
Editorial and raw materials		7,065			5,628
Total	$	12,452		$	11,362
Accounts receivable , non-current portion, are due as follows:
2010	$	5,551		$	—
2011		1,140			1,381
Discounting		(132	)		(60	)
Total	$	6,559		$	1,321
Film inventory, net, consists of the following:
Theatrical Films:
Released, net of amortization	$	101,443		$	172,224
In development or pre-production		25,332			7,257
Total theatrical films		126,775			179,481
Animated television productions:
In production		6,852			—
In development or pre-production		26			2,083
Total animated television productions		6,878			2,083
Total	$	133,653		$	181,564
Accrued royalties consists of the following:
Merchandise royalty obligations	$	3,077		$	1,556
Freelance talent		3,588			4,005
Studio and talent share of royalties		84,119			71,019
Total	$	90,784		$	76,580

8

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2009
(unaudited)

	March 31,		December 31,
	2009		2008
	(in thousands)
Accrued expenses and other current liabilities consists of the following:
Inventory purchases	$	1,771	$	2,030
Bonuses		4,597		12,860
Legal fees and litigation accruals		2,517		2,111
Licensing common marketing funds		10,603		9,441
Interest		2,438		3,675
Other accrued expenses		9,555		10,518
Total	$	31,481	$	40,635

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 attributable to common stock 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, if dilutive, outstanding during the period. 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 our common stock outstanding as of March 31, 2009 was 77,932,972, net of treasury shares and restricted stock; assuming the exercise of all outstanding stock options (2,386,122) and the vesting of all outstanding restricted shares (495,312), the total number outstanding would be 80,814,406. During the three-month period ended March 31, 2009, 12,250 shares of common stock were issued through stock option exercises.

Options to purchase 0.3 million shares of common stock were not included in the calculation of diluted earnings per share for each of the three-month periods ended March 31, 2009 and 2008, 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 Facility

MVL Film Finance LLC, a wholly owned bankruptcy-remote subsidiary of ours, maintains a $525 million credit facility for producing theatrical motion pictures based on our characters. MVL Film Finance LLC’s ability to borrow under the film facility expires on September 1, 2012. The film facility expires on September 1, 2016, subject to extension by up to ten months under certain circumstances. 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 and was repurchased by us during 2008. 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, but in no event less than $3.4 million per year. The weighted average interest rate of our senior bank debt was 3.95% at March 31, 2009, inclusive of the percentage fee owed to Ambac (assuming the minimum has been reached). In addition, our fees on unused senior bank debt are 0.90%.

Interest payable under the film facility must be paid from the films’ net collections, rather than from any of our other sources of cash. The film facility requires us to maintain a liquidity reserve of $25 million, included in non-current restricted cash, to cover future interest payments in the event that the films’ net collections are not sufficient to make these payments.

9

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2009
(unaudited)

The film facility also requires us to maintain an interest reserve equal to the subsequent quarter’s estimated interest. As of March 31, 2009, this reserve was $3.1 million, and is included in non-current restricted cash.

The film facility also requires us to fund 33% of the budget of each film distributed under our 2008 distribution agreement with Paramount. The film facility will provide up to 67% of the budget (reduced by the proceeds of any co-financing). During the first quarter of 2009, we funded 33% of theIron Man 2budget and included that amount in non-current restricted cash as of March 31, 2009.

In the first quarter of 2009, we amended the film facility to allow us, at our option, to utilize a lower cost completion bond structure. In order to take advantage of this lower cost completion bond structure for a picture, we funded into escrow approximately $31.5 million forIron Man 2for the duration of production. This amount is included in non-current restricted cash as of March 31, 2009.

Our films’ net collections may only be used to service debt under the film facility or to fund production costs of other films produced under the film facility, and are therefore included in restricted cash (see Note 6). During the quarter, we repaid $152.1 million of film facility debt using net collections from theIron ManandThe Incredible Hulkproductions.

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, as amended, expires on March 31, 2011. 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. In March 2009, the HSBC Line of Credit was amended to provide for an unused commitment fee of 0.45% commencing April 1, 2009. The HSBC Line of Credit contains customary event-of-default provisions and a default provision based on our market capitalization. We continue to be in compliance with the covenants of the facility, which address net income, leverage and free cash flow. The HSBC Line of Credit is secured by a lien on (a) our accounts receivable, (b) our rights under our toy 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 option, at LIBOR plus 1.25% per annum. As of March 31, 2009, 32.1 million of our shares held in treasury are pledged as collateral under the HSBC Line of Credit. As of March 31, 2009, we had no borrowings outstanding under the HSBC Line of Credit.

6. RESTRICTED CASH

Cash that has been contractually restricted as to usage or withdrawal is included in the caption “Restricted cash”. Restricted cash attributable to our Film Production segment includes our net film collections, borrowings under the film facility and any other funds designated to be used for film inventory costs, for debt service, for various reserves required under the film facility and for certain amounts required under our completion bond arrangements. Restricted cash in the Film Production segment increased from $39.6 million as of December 31, 2008 to $127.3 million as of March 31, 2009. Restricted cash in the Licensing segment includes cash balances of the Joint Venture that are not freely available to either Sony Pictures or to us until distributed. Distributions are made no less frequently than quarterly.

Restricted cash not expected to be released within one year of the balance sheet date and restricted cash designated to be used for film inventory costs is classified as a non-current asset in the accompanying condensed consolidated balance sheets. $31.4 million of restricted cash included in current assets as of December 31, 2008 is now classified as non-current assets in the accompanying condensed consolidated balance sheets to conform to the current period presentation.

10

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2009
(unaudited)

7. FAIR VALUE MEASUREMENTS

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

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 assets measured at fair value on a recurring basis as of March 31, 2009:

	Recurring Fair Value Measurements Using
	Total Fair
	Value		Level 1		Level 2		Level 3
	(in thousands)
Financial Assets:
Interest rate cap	$	120		—	$	120		—

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 using derivative financial instruments. We use derivative financial instruments to manage risk and not 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. These derivative instruments are therefore classified within level 2. Gains and losses from changes in the fair value of the interest rate cap are recorded within other income in the accompanying condensed consolidated statements of income.

The estimated fair value of certain of our financial instruments, including cash equivalents, current portion of accounts receivable, accounts payable and accrued expenses, approximate their carrying amounts due to their short-term maturities. The non-current portion of accounts receivable has been discounted to its net present value, which approximates fair value. The carrying value of our film facility debt approximates its fair value because the interest rates applicable to that debt are based on floating rates identified by reference to market rates.

Non-Financial Instruments

The majority of the our non-financial instruments, which include goodwill, inventories and property, plant and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or at least annually for goodwill) such that a non-financial instrument is required to be evaluated for impairment, a resulting asset impairment would require that the non-financial instrument be recorded at the lower of historical cost or its fair value.

We account for film production costs in accordance with the guidance in SOP 00-2, which requires that upon the occurrence of an event or change in circumstance that may indicate that the fair value of a film is less than its unamortized costs, an entity should determine the fair value of the film and write off the amount by which the unamortized capitalized costs exceed the film’s fair value. Some of these events or changes in circumstance include: (i) an adverse change in the expected performance of a film prior to its release, (ii) actual costs substantially in excess of budgeted costs, (iii) substantial delays in completion or release schedules, (iv) changes in release plans, (v) insufficient funding or resources to complete the film and to market it effectively and (vi) the failure of actual performance subsequent to release to meet that which had been expected prior to release. When required to determine the fair value of our films, we estimate the timing of ultimate cash to be received and apply a discounted cash flow methodology.

11

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2009
(unaudited)

8. SEGMENT INFORMATION

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

Licensing Segment

Our 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 (including Wolverine), Daredevil/Elektra, Ghost Rider, Namor the Sub-Mariner and The Punisher. In May 2009, theX-Men Origins: Wolverinemovie was released.Under these licenses, we retain control over merchandising rights and retain more than 50% of merchandising-based royalty revenue.

We intend 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 television shows based on our characters are in various stages of development including animated programming based on Iron Man, X-Men (including Wolverine), the Incredible Hulk and Black Panther. Since January 2009, the new animated series “Wolverine and the X-Men” has been airing on Nicktoons Network. In addition, as part of our efforts to build demand for our licensed consumer products, the Licensing segment has begun to self-produce animated television programming featuring Marvel characters. By controlling the content and distribution of self-produced animation, we hope to increase our consumer products licensing activities more than is possible through animation whose content and distribution is under the control of animation licensees.

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 eight feature-length animated films for distribution directly to the home video market. To date, six titles have been distributed under this arrangement.

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MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2009
(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 theme parks in Dubai and 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. Our titles include Spider-Man, X-Men, Fantastic Four, Iron Man, the Incredible Hulk, Captain America, the Avengers, and Thor. 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 digital media activities. Our digital media activities have had a small but growing impact on our Publishing segment revenues, mostly through online advertising and digital comic subscription sales. We expect continued moderate growth and diversification in Marvel digital media revenues as we continue to increase our online presence.

Film Production Segment

Until we began producing our own films, our growth strategy was to increase exposure of our characters by licensing them to third parties for development as movies and television shows. The increased exposure creates revenue opportunities for us through increased sales of toys and other licensed merchandise. Our self-produced movies, the first two of which were released in 2008, represent an expansion of that strategy that also increases our level of control in developing and launching character brands. Our self-produced movies also offer us an opportunity to participate in the films’ financial performance to a greater extent than we could as a licensor.

Our Film Production segment includes our self-produced feature films. Those films are financed primarily with our $525 million film facility. 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 are currently in production on one film,Iron Man 2,scheduled to be released May 7, 2010, and we are in pre-production on another film,Thor, scheduled to be released May 20, 2011. In addition, we are developing two other films,The First Avenger: Captain AmericaandThe Avengers,scheduled to be released on July 22, 2011 and May 4, 2012, respectively.

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MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2009
(unaudited)

Set forth below is certain operating information for our segments.

	Licensing (1)		Publishing		Film Production(2)			All Other			Total
	(in thousands)
Three months ended March 31, 2009
Net sales	$	80,817	$	25,822	$	90,325		$	—		$	196,964
Operating income (loss)		58,855		6,988		15,572			(7,794	)		73,621
Three months ended March 31, 2008
Net sales	$	84,573	$	26,473	$	—		$	1,521		$	112,567
Operating income (loss)		85,382		9,951		(1,994	)		(5,807	)		87,532

(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)	In the first quarter of 2009, net sales and operating income reflects the activity in the Film Production segment principally related to home video revenues from theIron ManandThe Incredible Hulkmovies. Revenue was first recognized in the Film Production segment in the second quarter of 2008.

9. 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 SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”.

Assumptions used for the 2009 and 2008 expense include a discount rate of 5.62 % and 5.88%, and an expected rate of return on plan assets of 4.82% and 5.25%, respectively.

	Three Months Ended March 31,
	2009			2008
	(in thousands)
Total cost for plan period:
Service cost	$	—		$	—
Interest cost		283			291
Expected return on plan assets		(197	)		(257	)
Amortization of:
Unrecognized net loss		53			50
Unrecognized prior service cost		(13	)		(13	)
Unrecognized net asset obligation		—			—
Net periodic pension cost	$	126		$	71

10. 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.

14

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2009
(unaudited)

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 rate for the three-month period ended March 31, 2009 (34.9%) was lower than the federal statutory rate due primarily to a benefit from the reversal of tax reserves and by the benefit, explained below, associated with the earnings of the Joint Venture, offset by state and local taxes. Our effective tax rate for the three-month period ended March 31, 2008 (38.9%) was higher than the federal statutory rate due primarily to state and local taxes, partially offset by the benefit associated with the earnings of the Joint Venture.

We are not responsible for the income taxes related to the noncontrolling interest in the Joint Venture’s earnings. The tax liability associated with the noncontrolling interest in 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 $314.0 million, which will expire in various jurisdictions in the years 2009 through 2026. As of March 31, 2009, there is a valuation allowance of $0.3 million against capital loss carryforwards, as we believe it is more likely than not that those assets will not be realized in the future.

Unrecognized tax benefits totaled $58.7 million and $57.0 million at March 31, 2009 and December 31, 2008, respectively. The current quarter increase was the result of tax positions taken during the quarter in various jurisdictions in which we operate. Except for increases attributable to earnings in subsequent quarters, we do not expect our balance of unrecognized tax benefits to materially change over the next twelve months.

11. COMMITMENTS AND CONTINGENCIES

Legal Matters

On January 26, 2009, in the United States District Court for the Southern District of New York, four purported shareholders of Stan Lee Media, Inc. (“SLM”), individually and on behalf of all SLM shareholders, filed a derivative action against several Marvel entities, Isaac Perlmutter (our President and Chief Executive Officer), Avi Arad (a former officer and director), Stan Lee, Joan C. Lee, Joan Lee and Arthur Lieberman. On April 28, 2009 two of the original four plaintiffs filed an amended complaint, which supersedes the original complaint and alleges only derivative claims on behalf of SLM. The amended complaint eliminated all claims against Mr. Perlmutter, Mr. Arad, Joan C. Lee and Joan Lee. The amended complaint alleges that SLM is the owner of certain vaguely defined rights and property (the “Rights and Property”) which may or may not include rights in characters co-created by Mr. Lee while he was employed by our predecessors and the Marvel name and trademark (collectively, the “Marvel Intellectual Property”). The plaintiffs allege that prior to the date Mr. Lee entered into a new employment agreement with us in 1998, Mr. Lee transferred his interest in the Marvel Intellectual Property to a predecessor of SLM. Mr. Lee has denied that he had any ownership interest in the Marvel Intellectual Property and that any transfer of those rights to SLM ever took place. The amended complaint alleges claims against us for violations of section 43(a) of the Lanham Act, tortious interference with a contract between Mr. Lee and an alleged predecessor of SLM, and aiding and abetting alleged breaches by Mr. Lee of fiduciary duties owed to SLM. The relief sought against us in the amended complaint includes damages in an amount to be determined at trial and the imposition of a constructive trust on and an accounting for the profits derived from our exploitation of the Rights and Property. We believe all claims in the amended complaint against us are without merit.

15

MARVEL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
March 31, 2009
(unaudited)

On January 2, 2009, in the New York State Supreme Court, New York County, Marvel and the Joint Venture filed separate actions against MGA Entertainment, Inc. (“MGA”). Those lawsuits alleged that MGA owed several million dollars in unpaid royalties and had otherwise breached license agreements between the parties. On or about March 2, 2009, MGA filed a separate action against Marvel and Isaac Perlmutter and served counterclaims against the Joint Venture, Marvel and Mr. Perlmutter. MGA’s action and counterclaims assert causes of action for breach of contract, breach of the covenant of good faith and fair dealing, malicious prosecution, abuse of process, and intentional infliction of economic harm. MGA is seeking damages in excess of $100 million. We believe all of MGA’s claims in the actions are without merit.

On March 30, 2007, in the United States District Court for the Southern District of Illinois, Gary Friedrich and Gary Friedrich Enterprises, Inc. (“Friedrich”) filed a lawsuit 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.

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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 Marvel or its 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 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:

• Exposure to a continuing economic downturn

• Exposure to a sustained tightening of credit markets

• Dependence on a single distributor to the direct comic book market

• Financial difficulties of licensees

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

• 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 key talent might become incapacitated or suffer reputational damage.

• 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 information related to the accounting for film-production activities

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

• We might be unable to obtain financing to make more than four films if an interim asset test related to the economic performance of the film slate is not satisfied

• Cash flows from our films might be insufficient to pay our interest costs under the film facility

• The film facility’s lenders might default

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, 2008.

Management Overview of Business Trends

We operate in three integrated and complementary operating segments: Licensing, Publishing and Film Production.

17

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 (the retro depiction of our characters) 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 2008, our Licensing segment revenue reflected the benefit from the release of our self-produced moviesIron Man, which was released on May 2, 2008, andThe Incredible Hulk, which was released on June 13, 2008. We expect that our 2009 Licensing segment revenue will be lower than in 2008 as there will only be one major entertainment event in 2009,X-Men Origins: Wolverine, domestically released May 1, 2009 by Twentieth Century Fox. In addition, although we have many licensees that are large companies, the majority of our consumer product licensees are small to medium sized companies, located throughout the world, that rely on access to credit to produce and distribute their products. As a result of world-wide tightening of credit markets, some of our licensees may have difficulties producing and distributing goods. In addition, due to the lessening of consumer demand resulting from the global recessionary environment, some of our licensees may have difficulty obtaining sufficient sales orders. These macro-economic factors are another reason for our expectation that 2009 Licensing segment revenue will be lower than in 2008. We believe the negative impact of these macro-economic factors on the Licensing segment may be partially mitigated as a result of the non-durable nature of the products sold by most of our licensees and the low prices at which the majority of these products are sold.

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”.

18

Publishing

The Publishing segment is focused on strengthening its Super Hero graphic fiction presence in its primary distribution channels such as the direct and mass market, and expanding its reach to a broader demographic by providing all-ages and new reader products in the book market and online. In 2008, Marvel launched a major comic book crossover series,Secret Invasion, which involves many of the Marvel characters and features tie-ins to many other Marvel publications.Secret Invasion ran from April through December 2008. The third volume of theDark Towerseries and the first volume ofThe Standseries were released in October 2008. The momentum of these efforts was followed up withthe Dark ReignandUltimatumpublishing events that began in December 2008 and will continue through the remainder of 2009. In addition, a variety of Wolverine products will be released in the second quarter of 2009 and distributed around theX-Men Origins: Wolverinefilm domestically released May 1, 2009 by Twentieth Century Fox. We also released the first collection forThe Standin the first quarter of 2009 and the first collection forthe Ender’s Gameseries is scheduled to release in the third quarter of 2009. In addition, the third collection of theDark Toweris set to be released in the second quarter of 2009. However, due to the macro-economic factors discussed above, we believe that Publishing segment revenue in 2009 will be lower than in 2008 as customer’s advertising budgets remain constrained and consumer spending is expected to be down. The current economic climate may also lead to a reduction in the number of retail store fronts in the book market and the direct-market.

The Publishing segment has continued its development and investment in digital media, resulting in increased content on our Marvel Digital Comics Unlimited service, where we currently have over 5,000 previously published Marvel comic books available for viewing online in a proprietary viewer. We have also added more content to our website, including videos, casual games, news and character biographies. We also maintain a separate website,www.marvelkids.com, featuring Marvel characters and content developed for children ages 6-11. We also distribute our digital media content through arrangements with third-party websites such as YouTube and iTunes. We expect continued moderate growth and diversification in digital media revenues as we continue to increase our online presence. However, our expectations for digital media revenue growth, expected in large part to be achieved through increased advertising revenues, have been reduced because of the macro-economic factors discussed above, which have had a negative impact on industry-wide online advertising.

Film Production

In 2008, we released our first two self-produced films:Iron Manon May 2 andThe Incredible Hulkon June 13. We are currently in production on one film,Iron Man 2,scheduled to be released May 7, 2010, and we are in pre-production on another film,Thor, scheduled to be released May 20, 2011. In addition, we are developing two other films,The First Avenger: Captain AmericaandThe Avengers,scheduled to be released on July 22, 2011 and May 4, 2012, respectively. After the release of each of our films, 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.

We account for our film inventory under the guidance provided by 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.

19

The capitalized costs of projects in development 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, 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.

As of March 31, 2009, our Film Production segment had unamortized film inventory of $133.7 million, primarily forIron ManandThe Incredible Hulk, which were completed and released during 2008, andIron Man 2, which began production in the first quarter of 2009.

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. We received minimum guarantees from local distributors in five territories in connection with the release ofIron ManandThe Incredible Hulk. In those territories, revenue is recognized when the film becomes available for exhibition in the respective media.

Revenue from the sale of home video units is recognized when our distributors report as due to us the home 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 costs 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 in pre-production of 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 additional collateral to secure the film facility.

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.

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 up to 67% of our budgeted production costs including 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. Beginning with our third film (Iron Man 2), upon meeting the film’s initial funding conditions, we are required to fund 33% of that film’s budget using non-film production operating cash. ForIron Man 2, this amount was funded and included in non-current restricted cash as of March 31, 2009. In 2008, we entered into a studio distribution agreement with Paramount Pictures Corporation under which Paramount has agreed to distribute five of our future films (extendable to six under certain circumstances) and to provide advertising and marketing efforts for each film.

Critical Accounting Policies

Recent Accounting Standards Adopted in 2009

In December 2007, the FASB issued SFAS No. 160, which 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 a component of equity in the consolidated financial statements and requires disclosure, on the face of the consolidated statements of income, of the amounts of consolidated net income attributable to the company and to the noncontrolling interests. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. On January 1, 2009, we adopted the provisions of SFAS 160. The implementation of this statement did not have a material impact on our consolidated financial statements or results of operations. The 2008 financial information has been revised so that the basis of presentation is consistent with the 2009 financial information.

In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position “Partial Deferral of the Effective Date of Statement 157” (“FSP FAS 157-2”), which deferred the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. On January 1, 2009, we adopted the provisions of FSP FAS 157-2. On January 1, 2008, we adopted the provisions of FAS 157 related to financial assets and liabilities as well as other assets and liabilities carried at fair value on a recurring basis. The implementation of this statement did not have a material impact on our consolidated financial statements or results of operations.

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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. On January 1, 2009, we adopted the provisions of SFAS 141R. The implementation of this statement did not have any impact on our consolidated financial statements or results of operations.

In March 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination” (“FSP FAS 141(R)-1”), which amends the guidance in SFAS 141R, for the initial recognition and measurement, subsequent measurement, and disclosures of assets and liabilities arising from contingencies in a business combination. In addition, FSP FAS 141(R)-1 amends the existing guidance related to accounting for pre-existing contingent consideration assumed as part of the business combination. FSP FAS 141(R)-1 was effective as of January 1, 2009. The implementation of FSP FAS 141(R)-1 did not have any impact on our consolidated financial statements or results of operations. However, any business combinations entered into in the future may impact our consolidated financial statements as a result of the potential earnings volatility due to the changes described above.

Recent Accounting Standards Not Yet Adopted

In December 2008, the FASB issued FSP SFAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”). FSP FAS 132(R)-1 amends SFAS 132(R), “Employers’ Disclosures about Pension and Other Postretirement Benefits” and provides guidance on an employer’s disclosure about plan assets of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. We are currently evaluating the impact FSP FAS 132(R)-1 may have on our consolidated financial statements.

Results of Operations

Three-month period ended March 31, 2009 compared with the three-month period ended March 31, 2008

Net Sales

	Three Months ended March 31,
	2009		2008		% Change
	(dollars in millions)
Licensing	$	80.8	$	84.6		(4	)%
Publishing		25.8		26.5		(3	)%
Film Production		90.4		—		N/A
All Other		—		1.5		N/A
Total	$	197.0	$	112.6		75	%

Our consolidated net sales of $197.0 million for the first quarter of 2009 were $84.4 million higher than net sales in the first quarter of 2008. The increase primarily reflects home video revenues in the Film Production segment from theIron ManandThe Incredible Hulkmovies. Revenue was first recognized in the Film Production segment in the second quarter of 2008.

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Licensing segment net sales decreased $3.8 million during the first quarter of 2009, reflecting a $24.5 million decrease in Joint Venture revenue (to $5.2 million) related to the May 2007 release ofSpider-Man 3and a $9.6 million decrease in Studio licensing revenue, primarily associated with reduced proceeds from Spider-Man, Fantastic 4 and X-Men movie properties. These decreases were partially offset by a $23.7 million increase in domestic licensing revenue and a $6.7 million increase in foreign licensing revenue, primarily resulting from an increase in the collection of minimum guarantees. In the first quarter of 2009, Licensing segment net sales included $7.1 million of royalty and service fee revenues from Hasbro ($8.3 million recorded during the first quarter of 2008). The significant increase in Film Production segment revenue caused first-quarter 2009 Licensing segment net sales to decrease as a percentage of consolidated net sales from 75% in the 2008 quarter to 41% in the 2009 quarter. Full-year 2009 revenues in our Licensing segment will be lower than in 2008, primarily due to the decline in licensing associated with theIron Man, The Incredible HulkandSpider-Man 3movies.

Net sales from the Publishing segment decreased $0.7 million to $25.8 million for the three months ended March 31, 2009, primarily reflecting a decrease in trade paperback book sales of $0.8 million and a decrease of $0.3 million in advertising partially offset by an increase of $0.4 million in comic book sales. Publishing segment net sales decreased as a percentage of consolidated net sales from 24% in 2008 to 13% in 2009 as a result of the significant increase in the Film Production segment net sales.

Net sales from the Film Production segment were $90.4 million in the first quarter of 2009, related to the theatrical releases ofIron ManandThe Incredible Hulk.There were no Film Production segment revenues in the first quarter of 2008 as these films were released in the second quarter of 2008.

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

Cost of Revenues

	Three Months ended March 31,
	2009					2008
			% of Net					% of Net
			Segment					Segment
	Amount		Sales			Amount		Sales
	(dollars in millions)
Licensing	$	—		N/A		$	—		N/A
Publishing		13.0		50	%		11.6		44	%
Film Production		71.0		79	%		—		N/A
All Other		—		N/A			0.9		N/A
Total	$	84.0		43	%	$	12.5		11	%

Consolidated cost of revenues increased $71.5 million to $84.0 million for the first quarter of 2009 compared with the first quarter of 2008, primarily reflecting the amortization of film inventory in our Film Production segment. Our consolidated cost of revenues as a percentage of sales increased to 43% during the first quarter of 2009 from 11% in the comparable 2008 period as a result of the amortization of film inventory.

Publishing segment cost of revenues for comic book and trade paperback publishing consists primarily of art and editorial costs, printing costs and royalties for licensed content. Publishing segment cost of revenues as a percentage of Publishing segment net sales increased from 44% during the three months ended March 31, 2008 to 50% during the three months ended March 31, 2009. The increase primarily reflects the impact of rising talent costs, which are independent of the number of units manufactured, along with the impact of rising paper costs and smaller print runs.

Film Production segment cost of revenues during the 2009 period consists of the amortization of film inventory as revenue was generated from theIron ManandThe Incredible Hulkfeature films.

Cost of revenues included in All Other for the quarter ended March 31, 2008 consisted of our toy production activities.

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Selling, General and Administrative Expenses

	Three Months ended March 31,
	2009					2008
			% of Net					% of Net
			Segment					Segment
	Amount		Sales			Amount		Sales
	(dollars in millions)
Licensing	$	21.8		27	%	$	18.0		21	%
Publishing		5.9		23	%		4.9		18	%
Film Production		3.7		4	%		1.8		N/A
All Other		7.8		N/A			6.8		N/A
Total	$	39.2		20	%	$	31.5		28	%

Consolidated selling, general and administrative (“SG&A”) expenses of $39.2 million for the first quarter of 2009 were $7.7 million higher than SG&A expenses in the prior-year period, primarily reflecting increases in the Licensing and Film Production segments. Consolidated SG&A as a percentage of net sales decreased to 20%, from 28%, for the quarter ended March 31, 2009, primarily reflecting the significant increase in consolidated net sales generated by 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 certain contractually agreed-upon deductions) from the licensing of both “classic” and “movie” versions of characters featured in the films. Licensing segment SG&A expenses of $21.8 million for the three months ended March 31, 2009 were $3.8 million greater than the prior-year period. This increase principally reflects an increase in royalties owed to studios due to the change in sales-mix in the first quarter of 2009, compared with the first quarter of 2008. Net sales in the first quarter of 2009 were comprised of a greater percentage of classic licensing net sales and a lesser percentage of Joint Venture Licensing net sales. Sony Pictures’ share of royalty income is reflected as noncontrolling interest, whereas other studios’ share of license royalty income is recorded within SG&A expense. As a percentage of Licensing segment net sales, Licensing segment SG&A increased from 21% to 27%. This resulted from the decrease in licensing revenue derived from the activities of the Joint Venture, as discussed above.

Publishing segment SG&A expenses consists primarily of payroll, distribution fees and other general overhead costs. Publishing segment SG&A expenses increased $1.0 million during the three-month period ended March 31, 2009 over the comparable period in 2008. This amount principally reflects a $0.4 million increase in employee compensation related to the growth of our digital media headcount and an increase of $0.4 million in selling costs related to our digital media initiatives.

SG&A expenses for our Film Production segment consist primarily of employee compensation and the allocated expenses associated with our California office. The costs of marketing and promoting our films are borne by our distributors. Film Production SG&A expenses increased $1.9 million from the first quarter of 2008 to the first quarter of 2009 partially due to the expensing of overhead costs in the first quarter of 2009 that were previously capitalized whenIron ManandThe Incredible Hulkfilms were in production in the first quarter of 2008, and as a result of an increase in employee headcount.

SG&A expenses included in All Other for the first quarter of 2009 increased $1.0 million over 2008, principally reflecting a $0.6 million increase in employee compensation expense and a $0.5 million increase in legal fees.

Depreciation and Amortization

Depreciation and amortization expense decreased slightly to $0.3 million in the first quarter of 2009 from $0.4 million in the first quarter of 2008.

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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 decreased to $0.1 million in the first quarter of 2009 from $19.3 million in the first quarter of 2008. In the first quarter of 2008, we received settlement payments from two interactive licensees in connection with the early termination of their agreements and recorded $19.0 million of other income from those settlement payments.

Operating Income

	Three Months ended March 31,
	2009						2008
	Amount			Margin			Amount			Margin
	(dollars in millions)
Licensing	$	58.8			73	%	$	85.4			101	%
Publishing		7.0			27	%		9.9			37	%
Film Production		15.6			17	%		(2.0	)		N/A
All Other		(7.8	)		N/A			(5.8	)		N/A
Total	$	73.6			37	%	$	87.5			78	%

Consolidated operating income decreased $13.9 million to $73.6 million for the first quarter of 2009, primarily as a result of the recognition of $19.0 million of non-recurring income in the first quarter of 2008 related to licensing settlement payments associated with early contract terminations, a decrease in net sales from the Licensing segment, which generates the highest margin, and increases in SG&A expenses of Licensing segment and Film Production segment by $3.8 million and $1.9 million, respectively. These decreases were partially offset by a $19.4 million contribution from the gross profit of the Film Production segment related to the theatrical releases ofIron ManandThe Incredible Hulkmovies.

Operating income in the Licensing segment decreased $26.6 million and operating margins declined from 101% in the first quarter of 2008 to 73% in the comparable quarter of 2009, primarily as a result of the $19.0 licensing settlement payments recorded in the first quarter of 2008 and a decrease inSpider-Man 3merchandise licensing revenue. These decreases were partially offset by increases in domestic and foreign licensing revenue.

Operating income in the Publishing segment decreased $2.9 million and operating margins declined from 37% in the first quarter of 2008 to 27% in the comparable quarter of 2009. The decrease in operating margins reflects reduced net sales and higher cost of sales associated with increases in talent costs, which are independent of the number of units manufactured, along with the impact of rising paper costs and smaller print runs. In addition, the Publishing segment had increased operating costs associated with the expansion of our digital media initiatives in advance of generating related revenues. These costs were partially offset by an increase in the cover price of our comic books.

For the first quarter of 2009, operating income in the Film Production segment reflects a $19.4 million gross profit contribution from our self-produced films. This was partially offset by a $1.9 million increase in SG&A expenses of the Film Production segment. For the first quarter of 2008, Film Production operating costs primarily reflects the SG&A costs noted above.

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

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Interest Expense

	Three Months ended March 31,
	2009		2008
	(dollars in millions)
Interest incurred, film facilities	$	3.7	$	7.3
Less: Interest capitalized		—		(4.2	)
Total	$	3.7	$	3.1

From first quarter of 2008 to first quarter of 2009, there was a $3.6 million decrease for interest we incurred due to decreased outstanding borrowings coupled with lower interest rates. We capitalized no interest in the first quarter of 2009 as compared to $4.2 million capitalized in the first quarter of 2008 as we now expense, rather than capitalize, interest on the amounts borrowed to fund theIron ManandThe Incredible Hulkproductions, which were completed during the second quarter of 2008. This resulted in a $0.6 million increase to interest expense for the first quarter of 2009 compared with the comparable 2008 period. We expect that full-year interest expense for 2009 will be less than 2008 as a result of expected lower outstanding borrowings and our commencing production ofIron Man 2, for which we will start capitalizing a portion of interest incurred beginning in the second quarter of 2009.

Interest Income

Interest income reflects amounts earned on cash equivalents and short-term investments and restricted cash. Interest income decreased $0.8 million to $0.2 million in the first quarter of 2009 as compared to the first quarter of 2008, due to lower average cash and investment balances and due to a decrease in interest rates.

Income Taxes

Our effective tax rate for the three-month period ended March 31, 2009 (34.9%) was lower than the federal statutory rate due primarily to a benefit from the reversal of tax reserves and by the benefit, explained below, associated with the earnings of the Joint Venture, offset by state and local taxes. Our effective tax rate for the three-month period ended March 31, 2008 (38.9%) was higher than the federal statutory rate due primarily to state and local taxes, partially offset by the benefit associated with the earnings of the Joint Venture.

We are not responsible for the income taxes related to the noncontrolling interest in the Joint Venture’s earnings. The tax liability associated with the noncontrolling interest in the Joint Venture’s earnings is therefore not reported in our income tax expense, even though all of the Joint Venture’s entire 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.

Noncontrolling Interest

Noncontrolling interest expense, related to the Joint Venture, amounted to $1.2 million in the three-month period ended March 31, 2009 and $7.0 million in the comparable period of 2008. This decrease of $5.8 million reflects the decreased operations from licensing associated withSpider-Man 3, which was released in May 2007.

Earnings per Share

Diluted earnings per share decreased to $0.57 in the first quarter of 2009 from $0.58 in the first quarter of 2008 primarily reflecting a 2% decrease in net income attributable to Marvel Entertainment Inc.

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Liquidity and Capital Resources

Our primary sources of liquidity are cash, cash equivalents, cash flows from operations, our film credit facility and the HSBC line of credit, described below. We anticipate that our primary uses for liquidity will be to conduct our business, including the funding of our self-produced animation and our obligation to fund 33% of the budget of each of our prospective self-produced films commencing withIron Man 2in 2009, and to repurchase our common stock.

In the first quarter of 2009, our cash and cash equivalents decreased by $22.0 million.

Net cash provided by operating activities increased $154.8 million to $201.4 million during the three months ended March 31, 2009, compared to $46.6 million during the comparable prior-year period. This increase was primarily due to strong cash collections of home video revenue related to theIron ManandThe Incredible Hulkmovies in our Film Production segment and from strong cash collections from our Licensees. Our film-production expenditures, including expenditures funded by draw-downs from our film facilities, appear on our accompanying consolidated statements of cash flows as cash used in operating activities. The related draw-downs appear on our accompanying condensed consolidated statements of cash flows as cash provided by financing activities. Likewise, cash collections from our film productions are reflected in cash provided by operating activities; however, the related increase in restricted cash funded by these collections is reflected as cash used in our investing activities.

Our working capital deficiency decreased $14.7 million from $57.7 million at December 31, 2008 to $43.0 million at March 31, 2009. This improvement primarily reflects the $201.4 million of cash generated through operations noted above, which allowed us to reduce our current film facility debt by $142.9 million. However, this improvement was partially offset by the use of our operating cash and proceeds from the sale of short-term investments to fund a $90.5 million increase in non-current restricted cash primarily designated for 33% of theIron Man 2budget, the completion bond escrow, as described below, and various other required reserves under the film facility, and to fund the repurchase of $16.4 million in treasury stock.

Net cash flows used in investing activities for the quarter ended March 31, 2009 primarily reflect the funding of restricted cash for the purposes described above, partially offset by the sale of short-term investments. Net cash flows used in investing activities for the quarter ended March 31, 2008 reflected the purchase of short-term investments using our excess cash.

Net cash used in financing activities during the quarter ended March 31, 2009 reflects $152.1 million in repayments of our film facility borrowings. In addition, we repurchased 0.7 million shares of our common stock at a cost of $16.4 million. During the quarter ended March 31, 2008, we repurchased 0.4 million shares of our common stock at a cost of $9.9 million. Repurchases were financed through cash generated from operations. At March 31, 2009, the remaining amount authorized and available for stock repurchases was $111.3 million. Net cash used in financing activities during the quarter ended March 31, 2008 also reflects borrowings from our film facilities.

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MVL Film Finance LLC maintains a $525 million credit facility for producing theatrical motion pictures based on our characters. MVL Film Finance LLC’s ability to borrow under the film facility expires on September 1, 2012. The film facility expires on September 1, 2016, subject to extension by up to ten months under certain circumstances. The expiration date and final date for borrowings under the film facility occur 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 and, as discussed below, was repurchased by us. 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 investment grade ratings. 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, but in no event less than $3.4 million per year. 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 (assuming the minimum has been reached). During 2008, our wholly-owned subsidiary, MVL International C.V. repurchased all $60 million of the mezzanine debt for $58.1 million. The mezzanine debt remains outstanding and MVL International C.V. receives the interest payments made by MVL Film Finance LLC with respect to this debt. The interest expense and interest income related to the mezzanine debt are therefore eliminated in our consolidated results and our consolidated financial position does not include the mezzanine debt.

All future interest payable under the film facility must now be paid from the films’ net collections, rather than from any of our other sources of cash. Effective December 31, 2008, the film facility requires us to maintain a liquidity reserve of $25 million, included in non-current restricted cash, to cover future interest payments in the event that the films’ net collections are not sufficient to make these payments. If we do not release a film in 2010, 2011 and 2012 or our sixth film under the facility by August 26, 2012, the liquidity reserve requirement will be increased to $45 million.

The film facility also requires us to maintain an interest reserve equal to the subsequent quarter’s estimated interest. As of March 31, 2009, this reserve was $3.1 million, and is included in non-current restricted cash.

The interest rate for the mezzanine debt is LIBOR plus 7.0%. As noted above, we repurchased the mezzanine debt and, accordingly, interest expense, from the dates of repurchase, related to the mezzanine debt is not reflected in our consolidated operating results.

The interest rate for outstanding senior bank debt is currently LIBOR (1.19% at March 31, 2009) or the commercial paper rate, as applicable, plus 2.935%. The LIBOR rate on our outstanding senior bank debt resets to the quoted LIBOR rate two business days preceding the commencement of each calendar quarter. The commercial paper rate resets periodically depending on how often our lenders issue commercial paper to fund their portion of our outstanding debt. The weighted average interest rate of our senior bank debt was 3.95% at March 31, 2009.

The film facility 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.

In June 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 above. Downgrades of Ambac’s rating after the June 2008 downgrade, if any, do not affect our rate of interest or fees under the film facility.

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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 the ratio of our indebtedness, excluding the film facility, to our total capital, defined as our consolidated equity plus indebtedness excluding film facility indebtedness, were to exceed 0.4 to 1.0, then 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 rate increases to be material.

The film facility requires the maintenance of a minimum tangible net worth, a prospective cash coverage test, an historical cash coverage test and an asset coverage ratio, each measured quarterly, and compliance with various administrative covenants. We have maintained compliance with all required provisions of the film facility since its inception.

Until recently, we would also have been required, before our fifth film’s funding, either to obtain a cumulative, minimum budget percentage (33%) from our pre-sales of film distribution rights in Australia and New Zealand, Japan, Germany, France and Spain (the “Reserved Territories”), together with the proceeds of any government rebate, subsidy or tax incentive and any other source of co-financing, or to fund that budget percentage with cash generated by operations other than films (the “Pre-Sales Test”). The Pre-Sale Test has now been effectively subsumed by other terms of the film facility, as explained below. Future distribution in the Reserved Territories will be handled by Paramount, with limited exceptions.

The film facility requires us to fund 33% of the budget of each film distributed under our 2008 agreement with Paramount. The film facility will provide up to 67% of the budget (reduced by the proceeds of any 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 from the Reserved Territories. Our recoupment will be crossed among all films distributed under the distribution agreement with Paramount (five films, extendable to six under certain circumstances) and among all Reserved Territories. After recoupment of our 33% contribution, all additional film proceeds from the Reserved Territories will be used to pay down borrowings under the film facility.

In the first quarter of 2009, we amended the film facility to allow us, at our option, to utilize a lower cost completion bond structure. In order to take advantage of this lower cost completion bond structure for a picture, we funded into escrow approximately $31.5 million forIron Man 2for the duration of production. Upon delivery of the completed film, the escrowed funds will be returned to us. However, the amount of escrowed funds returned to us will be reduced to the extent that the cost of the film exceeds 110% of its budget. As discussed above, we exercised this option forIron Man 2and funded the escrow account using cash from operations.

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 unused 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, as amended, expires on March 31, 2011. 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. In March 2009, the HSBC Line of Credit was amended to provide for an unused commitment fee of 0.45% commencing April 1, 2009. The HSBC Line of Credit contains customary event-of-default provisions and a default provision based on our market capitalization. We continue to be in compliance with the covenants of the facility, which address net income, leverage and free cash flow. The HSBC Line of Credit is secured by a lien on (a) our accounts receivable, (b) our rights under our toy 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 option, at LIBOR plus 1.25% per annum. As of March 31, 2009, we had no borrowings outstanding under the HSBC Line of Credit.

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Our capital expenditures for the quarters ended March 31, 2009 and 2008 were $0.8 million and $0.1 million, respectively. We do not expect to have significant capital expenditures for the balance of 2009. Capital expenditures do not include film costs, which we capitalize into film inventory.

We believe that our cash and cash equivalents, cash flows from operations, the film facility, and the HSBC line of credit will be sufficient for us to conduct our business, including the funding of our self-produced animation and our obligation to fund 33% of the budget of each of our prospective 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 bank deposits denominated in various currencies, which subjects us to currency rate fluctuation risk. A substantial portion of our international licenses are denominated in U.S. dollars, which insulates us from currency rate fluctuation risk on the minimum payments under those licenses. Currency fluctuations do affect, however, the value in U.S. dollars of sales of underlying licensed products in local currencies and therefore affect the rate at which minimum guarantees are earned out and the extent to which we receive overages on those licenses. 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. We believe 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. We do not believe the impact of these actual or potential increases to be material.

The continued current volatility and disruption to the capital and credit markets are causing contraction in the availability of business and consumer credit and has led to a global recession. This current decrease and any future decreases in economic activity in the United States or other regions in the world in which we do business could significantly and adversely affect our future 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, the ability of licensees to produce and sell our licensed consumer products and the demand for our publications, 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

Marvel’s management has evaluated, with the participation of Marvel’s 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

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 11 to the Condensed Consolidated Financial Statements in Part I hereof, beginning on page 15.

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, 2008.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

					Total number of
					shares
					purchased as
	Total				part of publicly		Approximate dollar value
	number of				announced		of shares that may yet be
	shares		Average price		plans or		purchased under the plans
Period	purchased		paid per share		programs(a)		or programs
2009
January		—		N/A		—
February		272,547	$	23.93		272,547
March		421,688		23.44		421,688
Total		694,235	$	23.63		694,235	$	111.3 million	(b)

(a)	This column represents the number of shares repurchased through our common stock repurchase program announced on February 19, 2008.
(b)	As of March 31, 2009.

ITEM 5. OTHER INFORMATION

In February 2008, we entered into a share disposition agreement with Isaac Perlmutter in connection with our stock repurchase program announced on February 19, 2008. Mr. Perlmutter is Marvel’s Chief Executive Officer, Vice Chairman and largest stockholder. Under the agreement, Mr. Perlmutter agreed not to dispose of any of his shares of Marvel stock while the repurchase program was in effect.

On March 3, 2009, we and Mr. Perlmutter amended and restated the share disposition agreement. The main purpose of the amendment and restatement was to provide that the agreement does not preclude Mr. Perlmutter, upon any exercise of his stock options, from disposing of the shares underlying the options in order to pay the options’ exercise price or to pay estimated taxes due, and/or to reimburse us for amounts withheld, in connection with the exercise of the options.

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The above description is qualified in its entirety by reference to the full text of the amended and restated share disposition agreement dated March 3, 2009, a copy of which is attached hereto as Exhibit 10.1. A copy of the March 3, 2009 agreement was also filed with the SEC on March 4, 2009 as Exhibit A to Mr. Perlmutter’s Schedule 13D/A (Amendment No. 23).

ITEM 6. EXHIBITS

For the exhibits filed with this report, see the exhibit index below.

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. West
	Kenneth P. West
	Chief Financial Officer (duly authorized officer and principal financial officer)

Dated: May 8, 2009

EXHIBIT INDEX

Exh. No.		Description
	10.1	Amended and Restated Share Disposition Agreement, dated March 3, 2009 by and between Marvel Entertainment, Inc. and Isaac Perlmutter. *
	10.2	Executive Employment Agreement dated as of March 23, 2009 by and between Marvel Entertainment, Inc. and Marvel Characters B.V. on one hand and Isaac Perlmutter on the other.*
	10.3	Employment Agreement dated as of December 10, 2008 between Marvel Entertainment International Ltd. and Simon Philips.*
	10.4	License Agreement dated February 17, 2009 by and between Marvel Characters B.V. and Spider-Man Merchandising L.P. on the one hand and Hasbro, Inc. on the other. Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.
	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.

* Management contract or compensatory plan or arrangement.

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