Focus Media Reports Second Quarter 2012 Results

SHANGHAI, August 23, 2012 /PRNewswire-Asia/ -- Focus Media Holding Limited (Nasdaq: FMCN) today announced its unaudited financial results for the second quarter ended June 30, 2012.

Highlights for second Quarter 2012:

• Total net revenue for the second quarter of 2012 was $233.0 million, of which
  • aggregate net revenues from the LCD display network, in-store network, poster frame network and movie theater network was $219.3 million, which exceeded by approximately 3% the mid-point of the Company's guidance range of $211-213 million. This represented a year-on-year increase of 32% from $166.1 million for the second quarter of 2011 and a quarter-on-quarter increase of 19% from $184.3 million for the first quarter of 2012;
  • net revenue from the traditional outdoor billboard network for the second quarter of 2012 was $13.7 million, meeting the guidance of $13-15 million. This represented a year-on-year increase of 6% from $12.9 million for the second quarter of 2011.
• GAAP net income attributable to Focus Media for the second quarter of 2012 was $58.9 million, representing a year-on-year increase of 38% from $42.8 million for the second quarter of 2011 and a quarter-on-quarter increase of 55% from $37.9 million for the first quarter of 2012.
• Non-GAAP net income attributable to Focus Media was $81.9 million, exceeding the mid-point of the Company's guidance range of $78-$80 million by 4%, and representing a year-on-year increase of 30% from non-GAAP net income attributable to Focus Media of $62.9 million for the second quarter of 2011 and a quarter-on-quarter increase of 33% from non-GAAP net income attributable to Focus Media of $61.6 million for the first quarter of 2012. Please see the below sections on "Use of Non-GAAP Financial Measures" and "Reconciliation of GAAP to non-GAAP" for more information about the non-GAAP measures referred to within this announcement.
• GAAP net income attributable to Focus Media per fully diluted ADS was $0.44, representing a year-on-year increase of 47% from $0.30 per fully diluted ADS for the second quarter of 2011 and a quarter-on-quarter increase of 57% from $0.28 per fully diluted ADS for the first quarter of 2012.
• Non-GAAP net income attributable to Focus Media per fully diluted ADS was $0.62, representing a year-on year increase of 41% from $0.44 per fully diluted ADS for the second quarter of 2011 and a quarter-on-quarter increase of 35% from $0.46 per fully diluted ADS for the first quarter of 2012.

Highlights for Balance Sheet and Cash Flow Results of Second Quarter 2012:

• Cash, cash equivalents, restricted cash and short-term investments were $856.9 million as of June 30, 2012, as compared to $816.8 million as of March 31, 2012. Restricted cash is deposited in bank accounts as security for bank borrowings. These deposits earn fixed interest rates and are released when the related bank borrowings are settled by the Company. Restricted cash was $206.1 million as of June 30, 2012, as compared to $226.1 million as of March 31, 2012, and was comprised of current restricted cash of $106.8 million and non-current restricted cash of $99.3 million. Short-term investments, consisting of longer term dated cash deposits that earn higher interest rates as compared to cash and cash equivalent, were $211.4 million as of June 30, 2012 as compared to $228.5 million as of March 31, 2012.
• Bank loans were $207.5 million inclusive of short-term bank loans of $107.5 million and long-term bank loans of $100.0 million as of June 30, 2012, as compared to bank loans of $197.6 million as of March 31, 2012, which were used to finance the Company's share repurchases and dividend payouts. Operationally, as the Company generates cash inflow in Renminbi onshore, offshore bank loans are used to increase our offshore USD base cash resources mainly for future dividend payouts or share repurchases. The entire bank loan facility was extended based on an equivalent Renminbi onshore cash deposit, which was deposited as restricted cash.
• Net accounts receivable for the LCD display network, in-store network, poster frame network and movie theater network was $238.4 million as of June 30, 2012, an increase of 5% from $226.4 million as of March 31, 2012 due to sequential growth of revenues. Days sales outstanding was 91 days in the second quarter of 2012 versus 107 days for the first quarter of 2012 as a result of better cash collection in the second quarter of 2012 as compared to in the first quarter of 2012.
• Net cash inflow from operating activities in the second quarter of 2012 was $93.1 million, representing year-on-year growth of 84% from $50.6 million for the second quarter of 2011 and a quarter-on-quarter growth of 108% from $44.8 million for the first quarter of 2012.
• Net cash inflow from operating activities for the second quarter of 2012, after deducting the purchase of equipment and subsidiaries was $87.2 million, a year-on-year growth of 134% from $37.3 million for the second quarter of 2011 and a quarter-on-quarter growth of 126% from $38.5 million for the first quarter of 2012.
• Capital expenditures were $4.9 million for the second quarter of 2012, mostly attributable to network expansion in the LCD display network and in the in-store network.
• Cash paid for the acquisition of subsidiaries in the second quarter of 2012 was $1.0 million, which was attributable to the LCD display network.
• Cash used for repurchasing shares in the second quarter of 2012 was $35.5 million.

Jason Jiang, Chairman and Chief Executive Officer of Focus Media said, "In the second quarter of 2012, we continue to see our year-on-year revenue growth mainly driven by the strength of our poster frame network due to its exposure to promotional spending budget which tends to be less affected by macroeconomic uncertainty. We saw some improvements in year-on-year growth in our LCD network in the second quarter of 2012 as compared to first quarter of 2012, but still have not seen a return to normalization due to continued impact from cut backs on branding budgets as a result of macroeconomic uncertainties."

Kit Low, the Company's Chief Financial Officer added, "In the second quarter of 2012, the Company achieved aggregate net revenue year-on-year growth in our LCD display, poster frame business, in-store and movie theater network of 32%. GAAP net income attributable to Focus Media and Non-GAAP net income attributable to Focus Media for the second quarter of 2012 was $58.9 million and $81.9 million, respectively. In the second quarter of 2012, the Company generated a net cash inflow from operating activities after deducting the purchases of equipment and subsidiaries of $87.2 million."

Second Quarter 2012 financial results

Advertising net revenue from the LCD display network was $122.1 million for the second quarter of 2012, representing an increase of 18% from $103.9 million for the second quarter of 2011 and an increase of 39% from $87.6 million for the first quarter of 2012 due to seasonal factors as well as slight improvements in the brand advertising environment.

Advertising net revenue from the poster frame network was $68.6 million for the second quarter of 2012, representing an increase of 80% from $38.2 million for the second quarter of 2011 which was driven by the continued strength of promotional budget spending in the market as well as a more stabilized competitive environment of the poster frame business. It also represented an increase of 4% from $65.7 million for the first quarter of 2012.

Advertising net revenue from the in-store network was $13.6 million for the second quarter of 2012, representing a decrease of 9% from $14.9 million for the second quarter of 2011 partially due to the delay of promotional campaigns from second to the third quarter of 2012 by certain advertisers and an increase of 7% from $12.7 million for the first quarter of 2012.

Advertising net revenue from the movie theater network was $15.2 million for the second quarter of 2012, representing an increase of 67% from $9.1 million for the second quarter of 2011 and a decrease of 17% from $18.4 million for the first quarter of 2012 which was due to seasonality as the first quarter is traditionally a strong season for movie theater business.

Advertising net revenue from the traditional outdoor billboard network was $13.7 million for the second quarter of 2012, representing an increase of 6% from $12.9 million for the second quarter of 2011 and a decrease of 10% from $15.3 million for the first quarter of 2012.

Non-GAAP gross profit from the LCD display network for the second quarter of 2012 was $96.7 million, an increase of 12% from $86.6 million for the second quarter of 2011 and an increase of 54% from $62.6 million for the first quarter of 2012.

Non-GAAP gross profit from the poster frame network for the second quarter of 2012 was $38.6 million, more than tripling the $12.2 million for the second quarter of 2011 due to significant year-on-year growth of revenues, and representing an increase of 6% from $36.5 million for the first quarter of 2012.

Non-GAAP gross profit from the in-store network for the second quarter of 2012 was $8.3 million, representing a decrease of 10% from $9.2 million for the second quarter of 2011 due to year-on-year decline of revenues and an increase of 17% from $7.1 million for the first quarter of 2012.

Non-GAAP gross profit from the movie theater network for the second quarter of 2012 was $6.6 million, more than doubling the $3.1 million for the second quarter of 2011 and a decrease of 45% from $12.0 million for the first quarter of 2012 which was mainly attributable to seasonal revenue decline.

Non-GAAP gross profit from the traditional outdoor billboard network for the second quarter of 2012 was $1.0 million, a decrease of 72% from $3.6 million for the second quarter of 2011 and a decrease of 69% from $3.2 million for the first quarter of 2012. The decrease of non-GAAP gross profit was due to costs associated with the expansion of the traditional outdoor billboard network areas around intercity high-speed rail lines having kicked in but without material revenue contribution during the quarter.

Non-GAAP operating expenses for the second quarter of 2012 was $67.8 million, an increase of 48% from $45.9 million for the second quarter of 2011, which was attributable to an increase in selling and marketing expenses from year-on-year revenue growth and professional fee increase in general and administrative expenses. It also represented an increase of 43% from $47.3 million for the first quarter of 2012 which was also attributable to an increase in selling and marketing expenses due to sequential revenue growth as well as professional fee increase in general and administrative expenses.

Net cash inflow from operating activities in the second quarter of 2012 was $93.1 million, representing year-on-year growth of 84% from $50.6 million for the second quarter of 2011 and quarter-on-quarter growth of 108% from $44.8 million for the first quarter of 2012.

Net cash inflow provided by investing activities for the second quarter of 2012 was $29.2 million. In the second quarter of 2012, the Company incurred capital expenditures of $4.9 million and subsidiary acquisition payments of $1.0 million. Meanwhile, the Company incurred net cash inflows from net investment in short-term investments and deposits in restricted cash of $34.8 million during the quarter. Short-term investments are longer term dated cash deposits normally with maturities between three and twelve months that earn higher interest rates as compared to cash and cash equivalents. Restricted cash is deposited in bank accounts as security for bank borrowings.

Net cash used by financing activities for the second quarter of 2012 was $42.6 million. In the second quarter of 2012, the Company received net cash inflow from the proceeds of bank loans of $10.8 million. Meanwhile, the Company used $35.5 million for share repurchases and paid $17.9 million for the dividend payout announced in the first quarter of 2012.

Operating Data Summary

The Company is providing a breakdown of operating data as follows:

1) The approximate number of displays in the LCD display network was as follows:

2) The approximate number of devices in the poster frame network was as follows:

3) The total number of displays installed in our in-store network was approximately 51,995 as of June 30, 2012, as compared to 49,330 as of March 31, 2012. The increase was due to organic network expansion.

4) The number of movie screens on which the Company had the right to lease advertising time as of June 30, 2012 was approximately 2,320, as compared to 2,190 as of March 31, 2012.

Business Outlook for Third Quarter 2012

The Company provides the following guidance with respect to the quarter ending September 30, 2012:

Net revenues for the core business (inclusive of the LCD display network, the in-store network, the poster frame network and the movie theater network) are expected to be in the range of $241-$243 million, the mid-point of which would represent year-on-year growth of 23% and quarter on quarter growth of 10%. Net revenues for the non-core business (the traditional outdoor billboard network) are expected to be in the range of $13-$14 million. The Company's non-GAAP net income is expected to be in the range of $92-$94 million. The Company estimates the weighted average fully diluted ADS count for the quarter at 133.8 million, assuming no further share repurchases during the quarter.

Announced Receipt of "Going Private" Proposal

On August 13, 2012, the Company announced that its Board of Directors had received a preliminary non-binding proposal letter, dated August 12, 2012, from affiliates of The Carlyle Group , FountainVest Partners, CITIC Capital Partners, CDH Investments and China Everbright Limited and Mr. Jason Nanchun Jiang, Chairman of the Board and Chief Executive Officer of Focus Media, and his affiliates (together, the "Consortium Members"), that proposes a "going-private" transaction (the "Transaction") for $27.00 in cash per American depositary share, or $5.40 in cash per ordinary share. According to the proposal letter, the Consortium Members will form an acquisition company for the purpose of implementing the Transaction, and the Transaction is intended to be financed with a combination of debt and equity capital. The proposal letter states that the Consortium Members have been in discussions with Citigroup Global Markets Asia Limited, Credit Suisse AG, Singapore Branch and DBS Bank Ltd. about financing the Transaction and that these banks have provided certain of the Consortium Members with a letter dated August 11, 2012 indicating that they are highly confident of their ability to fully underwrite the debt financing of the Transaction subject to the terms and conditions set out therein.

The Company's Board of Directors has formed a committee of independent directors (the "Independent Committee") to consider the proposed transaction.

No decisions have been made by the Independent Committee with respect to the Company's response to the Transaction. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated. The Company does not undertake any obligation to provide any updates with respect to this or any other transaction, except as required under applicable law.

Announced Share Repurchase Program

As of August 22, 2012, the Company has cumulatively spent $491 million in share repurchases out of the share repurchase program totaling $650 million. The Company spent $35.5 million in share repurchases in the second quarter of 2012.

Payment of announced recurring payout

Focus Media announced on January 10, 2012 that the Company is committed to a 55% annual payout based on prior year non-GAAP net income. Of which 25% of the payout is expected to be dividend payments paid on a quarterly basis, which will be paid out in the following calendar year to shareholders of record as of March 31, June 30, September 30 and December 31 respectively, while the remaining 30% payout is expected to be either dividend payments and/or share repurchases. The payout commenced in 2012 in respect of Focus Media's non-GAAP net income for 2011.

Based on the Company 2011 non-GAAP net income of $284.1 million, a cash dividend of US$0.0274 per ordinary share (or US$0.137 per American Depositary Share) was paid on April 16, 2012 to shareholders of record as of the close of business on March 30, 2012 and a cash dividend of US$0.0272 per ordinary share (or US$0.136 per American Depositary Share) was paid on July 16, 2012 to shareholders of record as of the close of business on July 10, 2012. Meanwhile, the board of directors has approved a cash dividend of US$0.0272 per ordinary share (or US$0.136 per American Depositary Share) to be payable on October 16, 2012 to shareholders of record as of the close of business on September 28, 2012.

Value-added tax reform in Shanghai

The government implemented a value-added tax reform pilot program, which replaced the business tax with value-added tax on selected sectors including the advertising sector, in Shanghai effective January 1, 2012. The value-added tax rate applicable to the subsidiaries of our group in Shanghai is 6% as compared to the 5% business tax rate which was applicable prior to the reform.

Foreign Currency Translation

Assets and liabilities are translated at the exchange rate as of June 30, 2012, which was $1 to RMB 6.3249. Equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the second quarter of 2012, which was $1 to RMB 6.3194. Translation adjustments are reported as cumulative translation adjustments and are a separate component of other comprehensive income.

USE OF NON-GAAP FINANCIAL MEASURES

In addition to Focus Media's consolidated financial results under GAAP, the Company also provides non-GAAP financial measures, including non-GAAP gross profit (cumulatively and by segment), non-GAAP operating expenses, non-GAAP operating profit (loss), non-GAAP net income and non-GAAP fully-diluted earnings per ADR, all excluding share-based compensation expenses, amortization of acquired intangible assets, and loss from equity method investee. Management uses these non-GAAP financial measures to better assess operating performance of the Company. The Company believes that these non-GAAP financial measures provide investors with another method for assessing Focus Media's operating results in a manner that is focused on the performance of its ongoing operations. Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with non-GAAP results in the attached financial information. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the performance of Focus Media and when planning and forecasting for future periods. The Company computes its non-GAAP financial measures using a consistent method from quarter to quarter, mostly excluding share-based compensation expenses, amortization of acquired intangible assets, and loss from equity method investee. The accompanying tables have more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliation between these financial measures.

CONFERENCE CALL

1) The Company will host a conference call to discuss the second quarter 2012 results at 9:00 p.m. U.S. Eastern Time on August 22, 2012 (6:00 p.m. U.S. Pacific Time on August 22, 2012 and 9:00 a.m. Beijing/Hong Kong Time on August 23, 2012). The dial-in details for the live conference call are set forth below:

International Toll Dial-In Number: + 65.6723.9381

Local Dial-In Number(s):
China, Domestic Mobile: 400.620.8038
China, Domestic: 800.819.0121
Hong Kong: +852.2475.0994
United States: +1.718.354.1231

International Toll Free Dial-in Number(s):
Hong Kong: +852.800.930.346
United States: +1.866.519.4004

Conference ID # 19894719

2) A replay of the call will be available from August 23, 2012 12:00am until August 30, 2012 9:59am (US Eastern Time). The dial-in details for the replay are set forth below:

International Toll Dial-In Number: +61.2.8235.5000

Local Dial-In Number(s):
China: 400.692.0026

United States: +1.718.354.1232

International Toll Free Dial-in Number(s):
China North: 10800.714.0386
China South: 10800.140.0386
Hong Kong: +852. 800.901.596
United States: +1.866.214.5335

Conference ID # 19894719

Additionally, a live and archived web cast of this call will be available on the Focus Media web site at http://ir.focusmedia.cn

SAFE HARBOR: FORWARD-LOOKING STATEMENTS

This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Focus Media may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 20-F and 6-K, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Focus Media's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, risks outlined in Focus Media's filings with the U.S. Securities and Exchange Commission, including its registration statements on Form F-1, F-3 and 20-F, in each case as amended. Focus Media does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

This release is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or selling security holder and that will contain detailed information about the company and management, as well as financial statements.

ABOUT FOCUS MEDIA HOLDING LIMITED

Focus Media Holding Limited (Nasdaq: FMCN) operates China's largest lifestyle targeted interactive digital media network. The Company offers one of the most comprehensive targeted interactive digital media platforms aimed at Chinese consumers at various urban locations. The increasingly fragmented and mobile lifestyle of Chinese urban consumers has created the need for more efficient media means to capture consumer attention. Focus Media's mission is to build an increasingly comprehensive and measurable interactive urban media network that reaches consumers at various out-of-home locations.