BEIJING, Feb. 24 /PRNewswire-Asia/ -- XFMedia ("the Company;" Nasdaq: XFML), a leading media group in China, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2008.
Fourth Quarter 2008 Highlights
-- Net revenue was $49.4 million
-- Adjusted EBITDA was $5.2 million
-- Diluted adjusted net income per ADS was $0.04
-- The Company recorded one-time charges of $245.6 million
Full Year 2008 Highlights
-- Net revenue was $186.0 million
-- Adjusted EBITDA was $28.4 million
-- Diluted adjusted net income per ADS was $0.25
The Company recorded one-time charges of $245.6 million, driven primarily by a one-time non-cash impairment charge on goodwill and intangible assets of $206.4 million in connection with its annual impairment testing conducted in the fourth quarter. The Company also recorded certain one-time asset impairment charges, loss on disposal of subsidiaries, and other one-time items. Please refer to Chart 13 for details of these one-time charges. These one-time items were largely the result of the economic downturn and the Company's repositioning to sports and entertainment.
"The recent economic downturn has turned out to be much more severe than we had originally expected. 2008 was an eventful year in China, with the snow storms in Q1, earthquakes in Q2, Olympics in Q3 and the economic turmoil in Q4 all impacting the media sector. This seems to have set the stage for a challenging environment ahead in 2009. In anticipation of this, we are utilizing our resources more efficiently for cost containment and reduction of overhead expenses throughout this year," said Fredy Bush, XFMedia's CEO.
Ms. Bush added, "We have taken steps to sharpen our focus towards sports and entertainment which is a logical extension of our business model. Following board approval of our new strategy in December, and the subsequent repositioning of the Company, in January our shareholders approved the change of the Company's name to Xinhua Sports & Entertainment Limited. We will use this new name in all of our future announcements. As a part of this repositioning, we recently divested 85% of Convey Advertising, our Hong Kong based outdoor business. We have expanded our content and media platform of TV, radio, internet, and mobile phones, providing our advertising clients exceptional access to the young, upwardly mobile demographic in China.
"While we continue to see challenges in the year ahead, we are excited to build the best sports and entertainment media company in China," concluded Ms. Bush.
Fourth Quarter and Full Year 2008 Financial Results
Chart 1: Summary of 2007 fourth quarter and 2008 fourth and third quarter
results
3 months 3 months 3 months 08Q4 vs 08Q4 vs
ended ended ended 07Q4 08Q3
Dec 31, Dec 31, Sep 30, Growth Growth
2008 2007 2008 % %
In US millions
Net revenue 49.4 48.5 51.1 2% -3%
Adjusted EBITDA* 5.2 9.9 9.5 -47% -45%
Net income(loss) (251.5) 4.2 (15.9) N/A -1,484%
One-time items ** (245.6) -- (17.0) N/A -1,343%
Net income (loss) before
one-time items (5.9) 4.2 1.1 N/A N/A
Adjusted net income* 3.3 8.6 7.4 -61% -55%
* Please refer to Chart 12 for details of calculation of adjusted EBITDA
(non-GAAP) and adjusted net income (non-GAAP).
** Please refer to Chart 13 for detailed breakdown
Chart 2: Summary of full year 2008 and 2007 results
12 months 12 months
ended ended
Dec 31, Dec 31,
2008 2007 Growth %
In US millions
Net revenue 186.0 134.8 38%
Adjusted EBITDA* 28.4 27.4 4%
Net Income (loss) (274.9) 28.0 N/A
One-time items ** (263.3) 16.9 N/A
Net income (loss) before one-time items (11.6) 11.1 N/A
Adjusted net income* 19.8 29.1 -32%
* Please refer to Chart 12 for details of calculation of adjusted EBITDA
(non-GAAP) and adjusted net income (non-GAAP).
** Please refer to Chart 13 for detailed breakdown
Net Revenue
Net revenue for the fourth quarter of 2008 was $49.4 million, up 2% year-on-year from $48.5 million in the fourth quarter of 2007 or down 3% sequentially from $51.1 million in the third quarter of 2008. Net revenue for full year 2008 was $186.0 million, up 38% from $134.8 million in full year 2007.
Net Revenue by type and business group
Chart 3: Net revenue by type and business group for the fourth quarter of
2008
In US millions Advertising Broadcast Print Total
Net revenue:
Advertising services 27.6 4.5 0.3 32.4
Content production -- 1.1 -- 1.1
Advertising sales 5.3 6.9 3.7 15.9
Publishing services -- -- -- --
Total net revenue 32.9 12.5 4.0 49.4
Chart 4: Net revenue by type and business group for full year 2008
In US millions Advertising Broadcast Print Total
Net revenue:
Advertising services 92.3 13.1 2.5 107.9
Content production -- 12.4 -- 12.4
Advertising sales 21.9 29.8 13.6 65.3
Publishing services -- -- 0.4 0.4
Total net revenue 114.2 55.3 16.5 186.0
Advertising Group
Net revenue for the Advertising Group for the fourth quarter of 2008 was $32.9 million, up 9% year-on-year from $30.2 million in the fourth quarter of 2007 or up 10% sequentially from $30.0 million in the third quarter of 2008. Net revenue for the Advertising Group for full year 2008 was $114.2 million, up 44% from $79.1 million in full year 2007.
Chart 5: Revenue breakdown of the Advertising Group
3 months 3 months Growth
ended ended %
Dec 31, Dec 31,
2008 2007
In US millions
Advertising:
Television (1) -- 4.6 -100%
Print/Online 9.8 12.8 -23%
Outdoor/Other (2) 7.5 6.1 24%
BTL Marketing 14.0 5.5 155%
Research 1.6 1.2 34%
Subtotal: 32.9 30.2 9%
3 months 3 months Growth
ended ended %
Dec 31, Sep 30,
2008 2007
In US millions
Advertising:
Television (1) -- -- --
Print/Online 9.8 15.5 -37%
Outdoor/Other (2) 7.5 7.4 2%
BTL Marketing 14.0 5.6 149%
Research 1.6 1.5 5%
Subtotal: 32.9 30.0 10%
12 months 12 months Growth
ended ended %
Dec 31, Dec 31,
2008 2007
In US millions
Advertising:
Television (1) -- 14.1 -100%
Print/Online 44.0 33.1 33%
Outdoor/Other (2) 29.4 17.0 73%
BTL Marketing 34.9 9.9 252%
Research 5.9 5.0 17%
Subtotal: 114.2 79.1 44%
(1) Television represents buying and selling of television advertising
airtime in certain television channels. This business was moved to
Broadcast Group in 2008.
(2) The Company divested its Hong Kong based outdoor advertising business,
Convey Advertising Company, Ltd. ("Convey"), which contributed $21.4
million net revenue in full year 2008.
Broadcast Group
Net revenue for the Broadcast Group for the fourth quarter of 2008 was $12.5 million, down 3% year-on-year from $12.9 million in the fourth quarter of 2007 or down 31% sequentially from $18.1 million in the third quarter of 2008. The sequential decrease in Broadcast Group is mainly due to the economic downturn and seasonality of the drama business within Production. Net revenue for the Broadcast Group for full year 2008 was $55.3 million, up 54% from $35.9 million in full year 2007.
Chart 6: Revenue breakdown of the Broadcast Group
3 3 3 3 12 12
months months Growth months months Growth months months Growth
ended ended % ended ended % ended ended %
Dec 31, Dec 31, Dec 31, Sep 30, Dec 31, Dec 31,
2008 2007 2008 2008 2008 2007
In US
millions
Broadcast:
Television 5.1 3.7 38% 5.1 6.1 -16% 23.5 13.3 76%
Radio 2.5 2.1 17% 2.5 2.7 -9% 9.5 5.6 71%
Mobile 4.5 5.3 -15% 4.5 3.3 37% 13.1 9.3 41%
Production 0.4 1.8 -75% 0.4 6.0 -92% 9.2 7.7 20%
Subtotal: 12.5 12.9 -3% 12.5 18.1 -31% 55.3 35.9 54%
Print Group
Net revenue for the Print Group for the fourth quarter of 2008 was $4.0 million, down 26% year-on-year from $5.4 million in the fourth quarter of 2007 or up 34% sequentially from $3.0 million in the third quarter of 2008. Net revenue for the Print Group for full year 2008 was $16.5 million, down 17% from $19.8 million in full year 2007.
Chart 7: Revenue breakdown of the Print Group
3 3 3 3 12 12
months months Growth months months Growth months months Growth
ended ended % ended ended % ended ended %
Dec 31, Dec 31, Dec 31, Sep 30, Dec 31, Dec 31,
2008 2007 2008 2008 2008 2007
In US
millions
Print:
Newspaper 2.5 2.6 -5% 2.5 1.5 71% 9.0 9.3 -3%
Magazines 1.5 2.8 -46% 1.5 1.5 0% 7.5 10.5 -29%
Subtotal: 4.0 5.4 -26% 4.0 3.0 34% 16.5 19.8 -17%
Gross Profit
Gross profit for the fourth quarter of 2008 was $18.6 million, compared to $18.6 million in the fourth quarter of 2007, or down 1% sequentially from $18.7 million in the third quarter of 2008. Gross profit for the full year 2008 was $71.5 million, up 36% from $52.7 million in full year 2007. Adjusted gross profit (non-GAAP), defined as gross profit before amortization of intangible assets from acquisitions, for the fourth quarter of 2008 was $20.4 million, down 1% year-on-year from $20.5 million in the fourth quarter of 2007 or down 1% sequentially from $20.5 million in the third quarter of 2008. Adjusted gross profit (non-GAAP), for the full year 2008 was $78.9 million, up 34% from $58.7 million in full year 2007. We provide adjusted gross profit to break out the amortization of intangible assets from acquisitions charged within the cost of revenue. Charts 8 and 9 provide the breakdown of adjusted gross profit by business group.
Chart 8: Reconciliation for adjusted gross profit by business group for
the fourth quarter of 2008
In US millions Advertising Broadcast Print Total
Gross Profit 13.4 1.7 3.5 18.6
Amortization of intangible assets
from acquisitions(1) 0.2 1.4 0.2 1.8
Adjusted gross profit 13.6 3.1 3.7 20.4
(1) Amortization of intangible assets from acquisitions includes assets
such as client database and brand names.
Chart 9: Reconciliation for adjusted gross profit by business group for
full year 2008
In US millions Advertising Broadcast Print Total
Gross Profit 43.1 17.3 11.1 71.5
Amortization of intangible assets
from acquisitions(1) 1.1 5.6 0.7 7.4
Adjusted gross profit 44.2 22.9 11.8 78.9
(1) Amortization of intangible assets from acquisitions includes assets
such as client database and brand names.
Operating Expenses
Operating expenses were composed of selling and marketing expenses, general and administrative expenses, impairment charges and loss on disposal of subsidiaries ("disposal loss"). Operating expenses for the fourth quarter of 2008 including the impairment charges and disposal loss were $261.8 million. Excluding the impairment charges of $233.0 million and disposal loss of $4.7 million, operating expenses were $24.1 million (non-GAAP), up 92% year-on-year and 52% sequentially. The year-on-year and sequential increase is mainly due to an increase in selling and marketing expenses in line with increased revenue, an increase in share-based compensation expenses and costs for Sarbanes-Oxley compliance. Operating expenses for full year 2008 including the impairment charges and disposal loss were $313.7 million. Excluding the impairment charges of $233.0 million and disposal loss of $4.7 million, operating expenses were $76.0 million (non-GAAP), up 94% over full year 2007. The increase is mainly due to an increase in selling and marketing expenses in line with increased revenue, an increase in share-based compensation expenses and costs for Sarbanes-Oxley compliance.
Selling and marketing expenses for the fourth quarter of 2008 were $8.7 million, up 49% year-on-year from $5.8 million in the fourth quarter of 2007 or up 141% sequentially from $3.6 million in the third quarter of 2008. Selling and marketing expenses for full year 2008 were $22.9 million, up 54% from $14.9 million in full year 2007.
General and administrative expenses for the fourth quarter of 2008 were $15.4 million, up 128% year-on-year from $6.7 million in the fourth quarter of 2007, or up 26% sequentially from $12.2 million in the third quarter of 2008. General and administrative expenses for full year 2008 were $53.0 million, up 118% from $24.3 million in full year 2007. Included in the general and administrative expenses for the full year and fourth quarter 2008 were share-based compensation expenses of $12.3 million and $4.4 million respectively.
Due to repositioning of the business to sports and entertainment and the economic downturn, the Company has recorded one-time charges of $245.6 million in the fourth quarter of 2008. This is composed of asset impairment charges of $233.0 million, write down of principal protected note of $8.5 million and others of $4.1 million. Please refer to Chart 13 for details. The asset impairment charges are driven mainly by goodwill and intangible assets write down of $206.4 million in connection with the impairment test conducted at year-end. The fair value of the reporting units, calculated based on the future discounted cash flow, is less than their carrying values, including goodwill.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA (non-GAAP), defined as earnings before one time items, other income, interest income and expense, taxes, depreciation, amortization of intangible assets from acquisitions and share-based compensation expenses, for the fourth quarter of 2008 was $5.2 million, down 47% year-on-year from $9.9 million in the fourth quarter of 2007 or down 45% sequentially from $9.5 million in the third quarter of 2008.
Chart 10: Adjusted EBITDA by business group for the fourth quarter of
2008
In US millions Advertising Broadcast Print Total
Adjusted EBITDA by
business group 8.3 0.9 1.3 10.5
Less: net head office expenses (5.3)
Adjusted EBITDA 5.2
Adjusted EBITDA (non-GAAP), for full year 2008 was $28.4 million, up 4% from $27.4 million in full year 2007.
Chart 11: Adjusted EBITDA by business group for full year 2008
In US millions Advertising Broadcast Print Total
Adjusted EBITDA by
business group 28.0 14.0 5.7 47.7
Less: net head office expenses (19.3)
Adjusted EBITDA 28.4
Net Income and Adjusted Net Income (non-GAAP)
Net loss for the fourth quarter of 2008 including one-time items was $251.5 million. Excluding the one-time items of $245.6 million, net loss was $5.9 million (non-GAAP). Net loss for the full year 2008 including one-time items was $274.9 million. Excluding the one-time items of $263.3 million, net loss was $11.6 million (non-GAAP).
Adjusted net income (non-GAAP), defined as net income before one-time items, amortization of intangible assets from acquisitions, share-based compensation expenses and imputed interest, for the fourth quarter of 2008 was $3.3 million, down 61% year-on-year from $8.6 million in the fourth quarter of 2007 or down 55% sequentially from $7.4 million in the third quarter of 2008.
Adjusted net income (non-GAAP), for full year 2008 was $19.8 million, down 32% from $29.1 million in full year 2007.
Outlook for 2009
We expect to issue full year guidance at or before the first quarter report.
Other Corporate Development
Repositioning and Name Change
Since the Company has been growing its media capabilities beyond finance with a particular focus on sports and entertainment, on December 5, 2008, the Board of Directors made a decision to reposition the Company and change its name to Xinhua Sports & Entertainment Limited. On January 15, 2009, the name change was approved by shareholders at an Extraordinary General Meeting, and the name change became effective following registration with the Company Registry of the Cayman Islands on February 15, 2009. The Company is also changing its trading symbol on NASDAQ from "XFML" to "XSEL" effective March 2, 2009.
Conference Call Information
Following the earnings announcement, XFMedia's senior management will host a conference call on February 23, 2009 at 8:00pm (New York) / February 24, 2009 at 9:00am (Beijing) to review the results and discuss recent business activities.
Interested parties may dial into the conference call at:
(US) +1 800 510 0146 or +1 617 614 3449 (UK) +44 207 365 8426
(Mainland China) + 86 10 800 130 0399
(Asia Pacific) +852 3002 1672
Passcode: 64854718
A telephone replay will be available two hours after the call for one week at:
(US Toll Free) +1 888 286 8010
(International) +1 617 801 6888
Passcode: 63418060
A real-time webcast and replay will be also available at:
http://www.xfmedia.cn/earnings-webcast
About XFMedia
XFMedia (NASDAQ: XFML) is a leading media group in China with nationwide access to the upwardly mobile demographic. Through its synergistic business groups, Broadcast, Print, and Advertising, XFMedia offers a total solution empowering clients at every stage of the media process and connecting them with their target audience. Its unique platform covers a wide range of media assets, including television, radio, newspaper, magazine, outdoor, online and other media assets.
Headquartered in Beijing, the Company has offices and affiliates in major cities of China including Beijing, Shanghai, Guangzhou, Shenzhen and Hong Kong. For more information, please visit http://www.xfmedia.cn .
Safe Harbor
This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. 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. Among other things, the outlook for first quarter and full year 2009 and quotations from management in this announcement, as well as XFMedia's strategic and operational plans, contain forward-looking statements. XFMedia may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, 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 XFMedia's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: our growth strategies; our future business development, results of operations and financial condition; our ability to attract and retain customers; competition in the Chinese advertising and media market; changes in our revenues and certain cost or expense items as a percentage of our revenues; the outcome of ongoing, or any future, litigation or arbitration, including those relating to copyright and other intellectual property rights; the expected growth of the Chinese advertising and media market; and Chinese governmental policies relating to advertising and media. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. XFMedia does not undertake any obligation to update any forward-looking statement, except as required under applicable law.
Non-GAAP Financial Measures
To supplement XFMedia's consolidated financial results under U.S. GAAP, XFMedia also provides the following non-GAAP financial measures: adjusted gross profit, adjusted EBITDA and adjusted net income. XFMedia has adopted these measures "adjusted gross profit", defined as gross profit excluding amortization of intangible assets from acquisitions, "adjusted EBITDA", by defining adjusted EBITDA as earnings before one time items, other income, interest income and expense, taxes, depreciation, amortization of intangible assets from acquisitions and share-based compensation expenses, and "adjusted net income", by defining adjusted net income as net income before one-time items, amortization of intangible assets from acquisitions, share-based compensation expenses and imputed interest. XFMedia believes that these non-GAAP financial measures provide investors with another method for assessing XFMedia's underlying operational and financial performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial results under U.S. GAAP. For more information on these non-GAAP financial measures, please refer to Chart 12 of this release.
XFMedia believes these non-GAAP financial measures are useful to management and investors in assessing the performance of the Company and assist management in its financial and operational decision making. A limitation of using non-GAAP measures which exclude share-based compensation expenses is that share-based compensation expenses have been and will continue to be a significant recurring expense in our business. A limitation of using non-GAAP adjusted gross profit, adjusted EBITDA and adjusted net income is that they do not include all items that impact our net income for the period. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.
The following is a reconciliation of our non-GAAP financial results:
Chart 12: Reconciliation of non-GAAP financial results
3 3 3 12 12
months months months months months
ended ended ended ended ended
Dec Dec Sep Dec Dec
31, 31, 30, 31, 31,
2008 2007 2008 2008 2007
In US millions
Income (loss) from operations (242.2) 6.0 3.5 (240.6) 15.8
One time items* 238.7 -- 0.5 239.8 (2.3)
Depreciation 0.7 0.6 0.8 2.8 1.7
Amortization of intangible assets from
acquisitions 3.6 2.7 3.4 14.1 9.1
Share-based compensation expenses 4.4 0.6 1.3 12.3 3.1
Adjusted EBITDA 5.2 9.9 9.5 28.4 27.4
Net income (loss) (251.5) 4.2 (15.9) (274.9) 28.0
One time items* 245.6 -- 17.0 263.3 (16.9)
Amortization of intangible assets from
acquisitions 3.6 2.7 3.4 14.1 9.1
Share-based compensation expenses 4.4 0.6 1.3 12.3 3.1
Imputed interest 1.2 1.1 1.6 5.0 5.8
Adjusted net income 3.3 8.6 7.4 19.8 29.1
* Please refer to Chart 13 for the breakdown.
Chart 13: Breakdown of one time items
3 3 3 12 12
months months months months months
ended ended ended ended ended
Dec Dec Sep Dec Dec
31, 31, 30, 31, 31,
2008 2007 2008 2008 2007
In US millions
Impairment charges:
Goodwill and Intangible assets(1) 206.4 -- -- 206.4 --
Accounts receivable (2) 9.4 -- -- 9.4 --
Content production costs 3.1 -- -- 3.1 --
Investments 1.3 -- -- 1.3 --
Property and equipment 2.4 -- -- 2.4 --
Other assets (3) 10.4 -- -- 10.4 --
Total impairment charges 233.0 -- -- 233.0 --
Loss on disposal of subsidiaries (4) 4.7 -- -- 4.7 --
One-time legal and professional
fees(income) 1.0 -- 0.5 2.1 (2.3)
One time items recorded in
adjusted EBITDA 238.7 -- 0.5 239.8 (2.3)
Provision for principal
protected note (5) 8.5 -- 16.5 25.0 --
Deferred tax credit (2.0) -- -- (2.0)(12.3)
Others 0.4 -- -- 0.5 (2.3)
One time items recorded in adjusted
net income 245.6 -- 17.0 263.3 (16.9)
1. The impairment charges were mainly driven by the Company's
repositioning in sports and entertainment and the economic downturn.
2. The Company made specific provision on a majority of account
receivables aged over 180 days as visibility for settlement is
uncertain due to the economic downturn. As a result, specific provision
for doubtful debts increased by $9.4 million in the fourth quarter of
2008.
3. Other assets mainly represent an $8.5 million write off of a promissory
note issued by Sino Investment in connection with the acquisition of
37% equity of Upper Step by the Company from Sino Investment in 2007.
Challenging economic conditions have resulted in a slowdown in the
economy and impaired the ability of the issuer to pay the principal and
accrued interest. Sino Investment was in default of its interest
payments as of December 31, 2008 and the Company recorded a provision
for the full amount of the note.
4. Loss on the disposal of subsidiaries represents a non-cash loss arising
from disposal of 85% interests in Convey. On December 31, 2008, the
Company disposed of 85% of its investment in Convey to its previous
owner for approximately $85.0 million, retaining the remaining 15% as
investment. Since the purchase price was to be paid by seven
installments, the Company applied a discount rate to arrive at the
present value of the cash flows. The actual sum of consideration
receivable is contingent on the finalization of the 2008 earnout
payable by the Company to the previous owner, based on a multiple of
net income of Convey for the period from July 1, 2008 to June 30, 2009
("2008 Earn Out Period") and will be offset against the installment
receivable in the third quarter of 2009 pursuant to the terms of the
sales agreement. Should the actual net income of Convey for the 2008
Earn Out Period be lower or higher than the one currently estimated by
the Company, there would be favorable or unfavorable impact on the loss
on disposal of Convey and the range of potential impact on such loss
would be from a reduction of loss of approximately $11 million (i.e.
become a gain on disposal of $7 million) to an additional loss of
approximately $29 million.
5. A partial provision of $16.5 million was taken in third quarter of 2008
against the principal protected note based on a recovery analysis
report on Lehman Brothers Holdings Inc ("LBHI") issued by a third
party credit rating firm after the LBHI bankruptcy. In this quarter,
the Company impaired the remaining value of $8.5 million of the
principal protected note.
Net income and adjusted net income per ADS are shown in Chart 14 and 15:
Chart 14: Net income and adjusted net income per ADS(1) for 2007 fourth
quarter and 2008 fourth and third quarter results
3 months 3 months 3 months
ended ended ended
Dec 31, Dec 31, Sep 30,
In US dollars 2008 2007 2008
Net income (loss) per ADS - basic ($3.58) $0.06 ($0.24)
Net income (loss) per ADS - diluted ($3.58) $0.06 ($0.24)
Weighted average number of ADS -
basic 70.4 million 64.8 million 68.2 million
Weighted average number of ADS -
diluted 70.4 million 72.1 million 68.2 million
Adjusted net income per ADS - basic $0.04 $0.13 $0.10
Adjusted net income per ADS - diluted $0.04 $0.12 $0.10
Weighted average number of ADS -
basic 70.4 million 64.8 million 68.2 million
Weighted average number of ADS -
diluted 72.2 million 72.1 million 71.8 million
1. For computation of the net income (loss) per ADS and adjusted net
income per ADS, the amount attributable to holders of common shares
should be used and accordingly, dividends on convertible preference
shares of $0.6 million were taken into account.
Chart 15: Net income and adjusted net income per ADS(1) for 2008 and 2007
12 months ended 12 months ended
In US dollars Dec 31, 2008 Dec 31, 2007
Net income (loss) per ADS - basic ($4.08) $0.46
Net income (loss) per ADS - diluted ($4.08) $0.42
Weighted average number of ADS -
basic 67.9 million 58.2 million
Weighted average number of ADS -
diluted 67.9 million 68.2 million
Adjusted net income per ADS - basic $0.26 $0.48
Adjusted net income per ADS - diluted $0.25 $0.43
Weighted average number of ADS -
basic 67.9 million 58.2 million
Weighted average number of ADS -
diluted 72.4 million 68.2 million
1. For computation of the net income (loss) per ADS and adjusted net
income per ADS, the amount attributable to holders of common shares
should be used and accordingly, dividends on convertible preference
shares of $2 million in the full year 2008 were taken into account.
Condensed Consolidated Balance Sheet
(In U.S. dollars) Dec 31, 2008 Dec 31, 2007
Unaudited (Note 1)
Assets
Current assets: 54,088,842 44,436,087
Cash and cash equivalents
Short term deposit 2,940,051 --
Restricted cash (Note 2) 37,510,000 47,252,191
Accounts receivable (Note 3) 44,762,902 45,706,766
Prepaid program expenses 2,324,253 5,389,250
Consideration receivable (Note 4) 36,970,590 --
Other current assets 14,902,170 16,272,798
Total current assets 193,498,808 159,057,092
Content production costs, net -- 8,855,896
Property and equipment, net 6,590,790 9,191,959
Intangible assets, net (Note 5) 200,528,583 233,505,913
Goodwill (Note 6) 46,992,724 180,125,488
Investment (Note 7) 13,508,239 500,000
Principal protected note (Note 8) -- 24,909,929
Deposits for investments 14,174,566 25,634,000
Consideration receivable (Note 4) 28,285,035 --
Other long-term assets 4,671,591 9,021,936
Total assets 508,250,336 650,802,213
Liabilities, mezzanine equity and
shareholders' equity
Current liabilities:
Bank borrowings (Note 8) 36,374,198 33,780,188
Bank overdrafts -- 960,157
Other current liabilities 69,900,342 44,473,366
Total current liabilities 106,274,540 79,213,711
Deferred tax liabilities 31,679,491 37,741,579
Long term payables, non-current
portion 101,505,496 65,150,610
Total liabilities 239,459,527 182,105,900
Minority Interests 2,565,177 2,060,745
Mezzanine equity: 30,605,591 --
Series B convertible preferred shares
Shareholders' equity: 104,302 90,061
Class A common shares and nonvested
shares
Class B common shares -- 7,442
Additional paid-in capital 481,318,345 439,516,974
(Deficits) retained earnings (252,968,439) 23,903,560
Accumulated other
comprehensive income 7,165,833 3,117,531
Total shareholders' equity 235,620,041 466,635,568
Total liabilities, mezzanine equity
and shareholders' equity 508,250,336 650,802,213
Condensed Consolidated Statement of Operations
3 months 3 months 3 months
ended ended ended
Dec 31, Dec 31, Sep 30,
(in U.S. Dollars) 2008 2007 2008
Unaudited Unaudited Unaudited
Net revenues:
Advertising services 32,378,588 32,427,419 27,484,357
Content production 1,102,455 1,776,291 7,807,840
Advertising sales 15,913,009 13,834,490 15,696,762
Publishing services 39,732 436,503 61,757
Total net revenues 49,433,784 48,474,703 51,050,716
Cost of revenues:
Advertising services 20,905,713 22,137,944 19,349,359
Content production 1,826,626 593,496 4,192,846
Advertising sales 7,501,974 6,922,148 8,457,096
Publishing services 595,161 238,480 334,708
Total cost of revenues 30,829,474 29,892,068 32,334,009
Operating expenses:
Selling and distribution 8,656,662 5,794,457 3,587,917
General and administrative 15,387,212 6,740,401 12,186,200
Impairment charges (Note 9) 232,987,157 -- --
Loss on disposal of subsidiaries 4,720,705 -- --
Total operating expenses 261,751,736 12,534,858 15,774,117
Other operating income 941,365 -- 550,797
(Loss) income from operations (242,206,061) 6,047,777 3,493,387
Other income (expenses) (Note 10) (10,723,757) (660,440) (18,578,516)
(Loss) Income before provision for
income taxes and minority interest (252,929,818) 5,387,337 (15,085,129)
Provision for income taxes
(Note 11) (1,546,363) 719,289 571,824
Net (loss) income before minority
interest (251,383,455) 4,668,048 (15,656,953)
Minority interest 97,192 510,928 217,192
Net (loss) income (251,480,647) 4,157,120 (15,874,145)
Dividend on redeemable convertible
preferred shares (600,000) -- (600,000)
Net (loss) income attributable
to holders of common shares (252,080,647) 4,157,120 (16,474,145)
Net (loss) income per share:
Basic - Common shares (1.79) 0.03 (0.12)
Basic - American Depositary
Shares (3.58) 0.06 (0.24)
Diluted - Common shares (1.79) 0.03 (0.12)
Diluted - American Depositary
Shares (3.58) 0.06 (0.24)
Condensed Consolidated Statement of Operations
12 months ended 12 months ended
(in U.S. Dollars) Dec 31, 2008 Dec 31, 2007
Unaudited (Note 1)
Net revenues:
Advertising services 107,891,719 86,681,143
Content production 12,371,911 7,680,580
Advertising sales 65,355,685 39,281,540
Publishing services 411,637 1,195,427
Total net revenues 186,030,952 134,838,690
Cost of revenues:
Advertising services 74,735,032 58,047,996
Content production 7,521,948 3,707,062
Advertising sales 30,756,279 19,490,013
Publishing services 1,479,005 854,020
Total cost of revenues 114,492,264 82,099,091
Operating expenses:
Selling and distribution 22,945,933 14,876,682
General and administrative 53,012,487 24,348,827
Impairment charges (Note 9) 232,987,157 --
Loss on disposal of subsidiaries 4,720,705 --
Total operating expenses 313,666,282 39,225,509
Other operating income 1,499,381 2,261,788
(Loss) income from operations (240,628,213) 15,775,878
Other income (expenses) (Note 10) (31,248,876) 1,340,111
(Loss) Income before provision for
income taxes and minority interest (271,877,089) 17,115,989
Provision for income taxes (Note 11) 2,354,442 (12,225,650)
Net (loss) income before
minority interest (274,231,531) 29,341,639
Minority interest 640,468 1,302,634
Net (loss) income (274,871,999) 28,039,005
Dividend on redeemable convertible
preferred shares (2,000,000) (1,338,333)
Net (loss) income attributable to
Holders of common shares (276,871,999) 26,700,672
Net (loss) income per share:
Basic - Common shares (2.04) 0.23
Basic - American Depositary Shares (4.08) 0.46
Diluted - Common shares (2.04) 0.21
Diluted - American Depositary Shares (4.08) 0.42
Condensed Consolidated Statement of Cash Flow
3 months 3 months 3 months
ended ended ended
Dec 31, Dec 31, Sep 30,
(in U.S. Dollars) 2008 2007 2008
Unaudited Unaudited Unaudited
Net cash provided by operating
activities 5,736,274 14,696,170 3,196,632
Net cash used in investing
activities (22,449,084) (43,368,652) (10,874,537)
Net cash provided by (used in)
financing activities 25,826,648 (3,165,011) (4,217,299)
Effect of exchange rate changes (360,000) 922,837 156,411
Net increase (decrease) in cash and
cash equivalents 8,753,838 (30,914,656) (11,738,793)
Cash and cash equivalents, as at
beginning of the period 45,335,004 75,350,743 57,073,797
Cash and cash equivalents, as at
end of the period 54,088,842 44,436,087 45,335,004
12 months ended 12 months ended
(in U.S. Dollars) Dec 31, 2008 Dec 31, 2007
Unaudited (Note 1)
Net cash provided by operating
activities 14,981,597 20,293,223
Net cash used in investing activities (54,466,218) (164,921,628)
Net cash provided by (used in)
financing activities 46,521,449 151,258,756
Effect of exchange rate changes 2,615,927 1,452,189
Net increase (decrease) in cash and
cash equivalents 9,652,755 8,082,540
Cash and cash equivalents, as at
beginning of the period 44,436,087 36,353,547
Cash and cash equivalents, as at end
of the period 54,088,842 44,436,087
Notes to Financial Information
1) 2007 condensed consolidated balance sheet, statement of operations and statement of cash flow
Information was extracted from the audited financial statements included in Form 20-F of the Company filed with the Securities and Exchange Commission on May 19, 2008.
2) Restricted cash
Restricted cash is US dollar cash deposits pledged for the RMB loan facilities granted by banks for RMB working capital purposes.
3) Accounts receivables and debtors turnover
Debtors turnover for the third quarter and fourth quarter of 2008 were 97 days and 95 days respectively. Our business groups generally granted 90 days to 180 days average credit period to major customers, which is in line with the industry practices in the PRC. Due to economic downturn, the Company made specific provision on a majority of account receivables aged over 180 days. As a result, specific provision for doubtful debts increased by $9.4 million in the fourth quarter of 2008.
4) Consideration receivable
As of December 31, 2008, the Company recorded current and non-current consideration receivable of $37.0 million and $28.3 million respectively. This represents the consideration receivable for the disposal of 85% shareholding of Convey due to the Company's repositioning in sports and entertainment.
On December 31, 2008, the Company disposed of 85% of its investment in Convey to its previous owner for approximately $85.0 million, retaining the remaining 15%. Since the purchase price is to be paid by seven installments, the Company applied a discount rate to arrive at the present value of the cash flows. The actual sum of consideration receivable is contingent on the finalization of the 2008 earnout payable by the Company to the previous owner, based on a multiple of net income of Convey for the period from July 1, 2008 to June 30, 2009 ("2008 Earn Out Period") and will be offset against the installment receivable in the third quarter of 2009 pursuant to the terms of the sales agreement. Should the actual net income of Convey for the 2008 Earn Out Period be lower or higher than the one currently estimated by the Company, there would be favorable or unfavorable impact on the loss on disposal of Convey and the range of potential impact on such loss would be from a reduction of loss of approximately $11 million (i.e. become a gain on disposal of $7 million) to an additional loss of approximately $29 million.
5) Intangible assets
Net book value on intangible assets as of December 31, 2008 was $200.5 million. It mainly represents the carrying value of the long-term advertising agreements for the Broadcast and Print Groups. The net book value of the intangible assets were primarily composed of a $99.1 million advertising license agreement for our TV business and a $74.3 million exclusive advertising agreement for our newspaper business. For the fourth quarter and full year 2008, the Company recorded an impairment charge of $25.6 million.
6) Goodwill
As of December 31, 2008, net book value of goodwill was $47.0 million. For the fourth quarter and full year 2008, the Company recorded an impairment charge of $180.8 million.
7) Investment
Net book value for investment as of December 31, 2008 was $13.5 million. It represents the remaining 15% interest in Convey upon disposal of our 85% shareholding. For the fourth quarter and full year 2008, the Company recorded an impairment charge of $1.3 million which is composed of $0.5 million and $0.8 million for impairment charge made on 19% and 15% shareholding in Hyperlink E-data International Limited and Convey respectively.
8) Principal protected note
In October 2007, the Company purchased from UBS Financial Services, Inc. a $25.0 million principal protected note issued by Lehman Brothers Holdings Inc., which matured in January 2009. In August 2008, the Company borrowed $14.0 million from UBS AG using the principal protected note as collateral. On September 15, 2008, Lehman Brothers filed for bankruptcy, and, after the Company refused to post additional collateral for the Loan, on September 25, 2008, UBS AG filed a demand for arbitration with the American Arbitration Association against the Company seeking repayment of the Loan. On October 28, 2008, the Company filed its defense to the demand as well as a cross claim against UBS Financial Services, Inc. for an amount in excess of $25.0 million. At December 31, 2008, the Company has taken full provision of $25.0 million against the principal protected note. (see note 10)
9) Impairment charges
Driven mainly by the Company's repositioning in sports and entertainment and the economic downturn, the Company recorded a one-time asset impairment charge of $233.0 million for the fourth quarter and full year 2008. The following table is a summary:
US millions
Accounts receivable 9.4
Goodwill & Intangible assets 206.4
Content production costs 3.1
Investments 1.3
Property, plant and equipment 2.4
Other assets 10.4
233.0
10) Other income (expenses)
Other income (expenses) include net interest income (expenses) and net other income (expenses). Other income (expenses) for the fourth quarter include a provision of $8.5 million against the principal protected note driven mainly by the economic downtown. Other income (expenses) for full year 2008 include a provision of $25.0 million against the principal protected note.
A partial provision of $16.5 million was taken in third quarter of 2008 against the principal protected note based on a recovery analysis report on Lehman Brothers Holdings Inc ("LBHI") issued by a third party credit rating firm after the LBHI bankruptcy. In this quarter, the Company impaired the remaining value of $8.5 million of the principal protected note.
11) Provision for income taxes
Provision for income taxes include deferred tax credits of $0.7 million and $1.8 million in the third quarter and fourth quarter of 2008. For the fourth quarter and full year 2008, the Company recorded a deferred tax credit of $2.0 million relating to the impairment of certain assets.
