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:

o We might be unable to attract and retain creative talent

o Our key talent might become incapacitated or suffer reputational damage

o Our films might be less successful economically than we anticipate

o Our film productions might be disrupted or delayed

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

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

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

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

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

o 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

o Cash flows from our films might be insufficient to service our debt under the film facility

o 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.

In addition, our forward-looking statements relating to the merger described below are subject to the risks described in Part II, Item 1A of this Quarterly Report on Form 10-Q, beginning on page 42.

Management Overview of Business Trends

Recent Developments

Proposed Merger with The Walt Disney Company. For information relating to our proposed merger with The Walt Disney Company ("Disney"), please see the discussion under the heading "Description of Business and Principles of Consolidation-Recent Developments-Proposed Merger with The Walt Disney Company" in Note 2 to our condensed consolidated financial statements, which discussion is incorporated herein by reference.

General

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

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 movies; Iron Man, which was released on May 2, 2008, and The Incredible Hulk, which was released on June 13, 2008. Our full-year 2009 Licensing segment revenue will be lower than in 2008 as there is only one major entertainment event in 2009, X-Men Origins: Wolverine, domestically released May 1, 2009 by Twentieth Century Fox.

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".

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. A variety of Wolverine products were released in the second quarter of 2009 and distributed around the X-Men Origins: Wolverine film domestically released May 1, 2009 by Twentieth Century Fox. We also released the first collection for The Stand in the first quarter of 2009 and the third collection of the Dark Tower in July 2009. The first collections for the Ender's Game and the Ender's Shadow series were released in the third quarter of 2009. 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 the Dark Tower series and the first volume of The Stand series were released in October 2008. The momentum of these efforts was followed up with the Dark Reign and Ultimatum publishing events that began in December 2008 and will continue through the remainder of 2009. Due in part to the economic recession and tightening of credit markets, we believe that Publishing segment revenue in 2009 will be lower than in 2008 as customers' advertising budgets and consumer spending remain constrained.

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 7,000 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. Our digital media content is also distributed through arrangements with third-party websites such as YouTube, Xbox Live 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, planned in large part to be achieved through increased advertising revenues, have been reduced because of the current economic climate, which have had a negative impact on industry-wide online advertising.

Film Production

In 2008, we released our first two self-produced films: Iron Man on May 2 and The Incredible Hulk on June 13. We are currently in postproduction 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 America and The 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 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 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 salary benefits and stock compensation) 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.

The capitalized costs of projects in development consist primarily of script development and producer costs. 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 September 30, 2009, our Film Production segment had unamortized film inventory of $217.4 million, primarily for our film Iron Man 2, which began production in the first quarter of 2009, and Iron Man and The Incredible Hulk, which were completed and released during 2008.

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 of Iron Man and The Incredible Hulk. In those territories, revenue was recognized when the film became 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

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. For Iron Man 2, this amount was funded and was all spent on this production as of September 30, 2009. In 2008, we entered into a studio distribution agreement with Paramount Pictures Corporation under which Paramount agreed to distribute five of our 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 June 2009, the FASB issued authoritative guidance (the "Codification"), which was launched on July 1, 2009 and became the single source of authoritative nongovernmental GAAP, superseding existing FASB, AICPA, Emerging Issues Task Force (EITF) and related literature. The Codification eliminates the GAAP hierarchy and establishes one level of authoritative GAAP. All other literature is considered non-authoritative. This Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The implementation of this guidance changed how we disclose authoritative accounting pronouncements in the notes to our consolidated financial statements.

In December 2007, the FASB issued authoritative guidance on noncontrolling interests. The guidance 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. This guidance is effective for fiscal years beginning on or after December 15, 2008. On January 1, 2009, we adopted the provisions of this guidance. The implementation of this guidance 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 FASB issued amendments to authoritative guidance on fair value measurements, which deferred the effective date of authoritative guidance on fair value measurements for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. On January 1, 2009, we adopted these amendments to this authoritative guidance. On January 1, 2008, we adopted the provisions of this authoritative guidance on fair value measurements 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 authoritative guidance and its amendments did not have a material impact on our consolidated financial statements or results of operations.

In December 2007, the FASB issued authoritative guidance on business combinations. The guidance 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 guidance also establishes disclosure requirements to enable the evaluation of the nature and financial effect of the business combination. This guidance is effective for fiscal years beginning after December 15, 2008. On January 1, 2009, we adopted this guidance. The implementation of this guidance did not have any impact on our consolidated financial statements or results of operations.

The FASB issued additional authoritative guidance on business combinations in March 2009, specifically, for the initial recognition and measurement, subsequent measurement, and disclosures of assets and liabilities arising from contingencies in a business combination as well as for pre-existing contingent consideration assumed as part of the business combination. This guidance was effective as of January 1, 2009. The implementation of this authoritative guidance 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.

In May 2009, the FASB issued authoritative guidance on subsequent events, which establishes the accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date; that is, whether that date represents the date the financial statements were issued or were available to be issued. This guidance was effective beginning with our second quarter financial reporting and did not have a material impact on our consolidated financial statements or results of operations (see Note 13).

In April 2009, the FASB amended authoritative guidance on disclosures about the fair value of financial instruments, which was effective for the Company on June 30, 2009. The amended guidance requires a publicly traded company to include disclosures about fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. In addition, the guidance requires an entity to disclose either in the body or in the accompanying notes of its summarized financial information the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position. The adoption of this amended guidance did not have any impact on our consolidated financial statements or results of operations.

Recent Accounting Standards Not Yet Adopted

In December 2008, the FASB amended authoritative guidance on retirement benefits and provided guidance on an employer's disclosure about plan assets of a defined benefit pension or other postretirement plan. The amended guidance is effective for fiscal years ending after December 15, 2009. We are currently evaluating the potential impact of this amended guidance on our consolidated financial statements.

In September 2009, the EITF reached a consensus related to revenue arrangements with multiple deliverables. The consensus will be issued by the FASB as an update to authoritative guidance for revenue recognition and will be effective for the Company on January 1, 2011. The updated guidance will revise how the estimated selling price of each deliverable in a multiple element arrangement is determined when the deliverables do not have stand-alone value. In addition, the revised guidance will require additional disclosures about the methods and assumptions used to evaluate multiple element arrangements and to identify the significant deliverables within those arrangements. We are currently evaluating the potential impact of the amended guidance on our consolidated financial statements or results of operations.

Results of Operations

Three-month period ended September 30, 2009 compared with the three-month period
ended September 30, 2008

Net Sales

                              Three Months ended September 30,
                                2009                     2008           % Change
                                    (dollars in millions)

        Licensing         $           48.9         $           58.1           (16 )%
        Publishing                    32.0                     34.0            (6 )%
        Film Production               24.8                     90.2           (73 )%
        All Other                        -                      0.2           N/A
        Total             $          105.7         $          182.5           (42 )%

Our consolidated net sales of $105.7 million for the third quarter of 2009 were $76.8 million lower than net sales in the third quarter of 2008, primarily reflecting decreases in the Film Production segment and Licensing segment net sales.

Licensing segment net sales decreased $9.2 million during the third quarter of 2009, reflecting a $6.7 million decrease in foreign licensing revenue and a $5.8 million decrease in Joint Venture revenue (to $2.4 million) related to the 2007 release of Spider-Man 3. These decreases were primarily due to the recognition in the third quarter of 2008 of merchandise licensing revenue related to the Iron Man and The Incredible Hulk feature films, as well as a decrease in revenue from the Spider-Man merchandising joint venture. The third quarter of 2009 Licensing segment net sales included $6.3 million of royalty and service fee revenues from Hasbro compared with $12.0 million included in the third quarter of 2008, a period that benefited from the Summer 2008 releases of Iron Man and The Incredible Hulk movies. These decreases were partially offset by a $1.9 million increase in Studio licensing revenue, primarily associated with the X-men movie properties.

Net sales from the Publishing segment decreased $2.0 million to $32.0 million for the three months ended September 30, 2009, primarily relating to a $2.7 million decrease in custom publishing sales and a $0.5 million decrease in advertising sales as compared to the same period in 2008. These decreases were offset by a $1.6 million increase in our sales of trade paperbacks to the book market, as a result of an increase in new titles released during the current quarter.

Net sales from the Film Production segment, related to Iron Man and The Incredible Hulk, decreased $65.4 million to $24.8 million for the three months ended September 30, 2009. Net sales from the Film Production segment in the third quarter of 2009 primarily reflect the recognition of revenues associated with the international pay TV window for Iron Man and the domestic pay TV window for The Incredible Hulk as well as contributions from DVD sales for both Iron Man and The Incredible Hulk, and, in the third quarter of 2008, reflected theatrical box office revenues from the theatrical release of these films, which were both released in the second quarter of 2008, and the opening of the home video window in certain international pre-sold territories for Iron Man.

Net sales included in 2008 All Other consisted of our then remaining direct toy manufacturing operations, which we exited in early 2008.

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