<font> On December 22, 2008, the Company announced that it entered into a definitive agreement with SINA Corporation ("SINA") to sell substantially all of the assets of Focus Media’s digital out-of-home advertising networks, including the LCD display network, poster frame network and certain in-store networks. The transaction is subject to customary closing conditions and certain regulatory approvals. Under the terms of the agreement, upon closing, SINA will issue 47 million newly issued ordinary shares to the Company as the consideration for the acquired assets. The Company will then distribute the SINA shares to its shareholders shortly after the closing. As a result of the above transaction, these lines of business have been accounted for as discontinued operations in accordance with U.S. GAAP. The assets to be sold to SINA as a business held-for-sale in accordance with US GAAP are not depreciated or amortized nor are they subject to the same impairment analysis as assets held and used in continuing operations. Therefore, non-GAAP financial measure for discontinued operations in the first quarter of 2009 excluded not only the non-cash share-based compensation, acquired intangible asset amortization expense resulting from acquisitions, impairment charges of goodwill, acquired intangible assets and fixed assets but also depreciation expenses of fixed assets. </font>
<font> Highlights for First Quarter 2009:
-- Net revenue for continuing operations was $66.7 million, declining 24%
from $87.2 million for the fourth quarter of 2008 and declining 14%
from $78.0 million for the first quarter of 2008 and surpassing the
Company’s previous guidance of no less than $55.5 million.
-- Net revenue for discontinued operations was $64.4 million, a sequential
decrease of 39% from $104.9 million for the fourth quarter of 2008 and
decrease of 23% from $83.6 million for the first quarter of 2008 and
slightly below the Company’s previous guidance of no less than $65.7
million.
-- Net loss from continuing operations was $17.7 million, compared to net
loss from continuing operations of $424.5 million for the fourth
quarter of 2008 and net income from continuing operations of $1.0
million for the first quarter of 2008.
-- Non-GAAP net income from continuing operations was $3.3 million,
compared to non-GAAP net income from continuing operations of $5.0
million for the fourth quarter of 2008 and non-GAAP net income from
continuing operations of $10.0 million for the first quarter of 2008.
-- Net income from discontinued operations was $12.0 million, compared to
net loss from discontinued operations of $380.3 million for the fourth
quarter of 2008 and net loss from discontinued operations of $54.6
million for the first quarter of 2008. As explained in "basis of
presentation" above, discontinued operations, as the assets to be sold
to SINA as a business held-for-sale in accordance with US GAAP, are
not depreciated or amortized nor are they subject to the same
impairment analysis as assets held and used in continuing operations.
The Company historically recorded $8.8 million and $5.5 million of
depreciation expenses for the fourth quarter of 2008 and the first
quarter of 2008, respectively, in discontinued operations.
-- Non-GAAP net income from discontinued operations was $15.3 million,
compared to non-GAAP net income from discontinued operations of $42.7
million for the fourth quarter of 2008 and non-GAAP net income from
discontinued operations of $35.0 million for the first quarter of 2008.
As explained in "basis of presentation" above, discontinued operations,
as the assets to be sold to SINA as a business held-for-sale in
accordance with US GAAP, are not depreciated or amortized nor are
they subject to the same impairment analysis as assets held and used in
continuing operations. The Company has historically recorded $8.8
million and $5.5 million of depreciation for the fourth quarter of 2008
and the first quarter of 2008, respectively, in discontinued operations.
-- Net loss attributable to shareholders was $5.7 million or a loss of
$0.04 per fully diluted ADS, compared to net loss attributable to
shareholders of $802.5 million for the fourth quarter of 2008 or a loss
of $6.24 per fully diluted ADS and net loss attributable to
shareholders of $53.8 million for the first quarter of 2008 or a loss
of $0.42 per fully diluted ADS.
-- Capital expenditures were $6.0 million, all attributable to
discontinued operations.
-- Earn-out payments for continuing operations and discontinued operations
were $1.9 million and $4.5 million respectively.
-- Bad debt provision for continuing operations was $1.8 million and for
discontinued operations was $5.5 million.
-- The Company has decided to cease expansion of its digital poster frame
network in light of uncertain demand for our advertising services. We
don’t expect to renew the expansion of our digital poster frame network
in predictable future. As part of assets to be sold to SINA, in
accordance with US GAAP, the company did not perform recoverability
test for this asset. The net book value of the asset amounts to $23.6
million.
-- We plan to cease operation of our advertising platform (a boat owned
and operated by us) on Huang Pu River in compliance to a rule
promulgated by Shanghai Municipal Government. The net book value of
the boat is $12.4 million.
First Quarter 2009 balance sheet results
-- Cash and cash equivalents for continuing operations were $131.9 million,
a 7% decline from $142.4 million as of December 31, 2008.
-- Cash and cash equivalents for discontinued operations were $271.7
million, a 3% decline from $280.5 million as of December 31, 2008.
-- Accounts receivable for continuing operations was 117.3 million as of
March 31, 2009, a 13% decline from $135.3 million as of December 31,
2008, mainly due to the decline from internet division.
-- Accounts receivable for discontinued operations was 122.1 million as of
March 31, 2009, a 15% decline from $143.6 million as of December 31,
2008, mainly due to the decline from LCD display network.
First Quarter 2009 financial results
1) For Continuing operations:
</font>
<font> Advertising revenue from the movie theater and outdoor traditional billboard network was $19.2 million in the first quarter of 2009, representing a decrease of 11% from 21.6 million for the fourth quarter of 2008 and a 17% increase from $16.4 million for the first quarter of 2008. </font>
<font> Internet advertising service revenue was $47.1 million for the first quarter of 2009, a 25% decline from $62.4 million for the fourth quarter of 2008 and a slight decline of 5% from $49.6 million for the first quarter of 2008. </font>
<font> Non-GAAP gross profit for the movie theater and outdoor billboard networks for the first quarter of 2009 was $6.0 million, representing a 17% decline from $7.2 million for the fourth quarter of 2008 and a 25% increase from $4.8 million for the first quarter of 2008. </font>
<font> Non-GAAP gross profit from our Internet advertising services for the first quarter of 2009 was $10.6 million, representing a 14% decline from $12.3 million for the fourth quarter of 2008 and an 18% decline from $13.0 million for the first quarter of 2008. </font>
<font> Non-GAAP operating expense for continuing operations for the first quarter of 2009 was $12.0 million, representing a 18% decline from $14.6 million for the fourth quarter of 2008 and a 10% increase from $10.9 million for the first quarter of 2008. </font>
<font> 2) For Discontinued operations: </font>
<font> Advertising revenue from the LCD display network was $34.4 million for the first quarter of 2009, a 41% decline from $58.6 million for the fourth quarter of 2008 and a 25% decline from $45.9 million for the first quarter of 2008. </font>
<font> Advertising revenue from the in-elevator poster frame network was $23.5 million for the first quarter of 2009, a 40% decline from $39.2 million for the fourth quarter of 2008 and a 20% decline from $29.2 million for the first quarter of 2008. </font>
<font> Advertising revenue from the in-store network was $6.3 million for the first quarter of 2009, a 6% decline from $6.7 million for the fourth quarter of 2008 and an 11% increase from $5.7 million for the first quarter of 2008. </font>
<font> As of March 31, 2009, the total installed base of LCD displays and digital frames in our commercial location network was 131,219 nationwide, including 125,796 displays through our directly owned networks, and 5,423 displays through our regional distributors. The total number of non-digital frames available for sale on our in-elevator poster frame network was 288,423 as of March 31, 2009. In addition, as of March 31, 2009, we had 39,546 digital frames installed in our poster frame network. The total number of displays installed in our in-store network was 42,340 as of March 31, 2009. </font>
<font> Non-GAAP gross profit for the LCD display network for the first quarter of 2009 was $23.2 million, representing a 47% decline from $43.5 million for the fourth quarter of 2008 and a 27% decline from $31.9 million for the first quarter of 2008. As explained in "basis of presentation" above, discontinued operations, as the assets to be sold to SINA as a business held-for-sale in accordance with US GAAP, are not depreciated or amortized nor are they subject to the same impairment analysis as assets held and used in continuing operations. The depreciation expense included in cost of sales for the LCD display network in the fourth quarter of 2008 and the first quarter of 2008 was $4.8 million and $2.9 million respectively. </font>
<font> Non-GAAP gross profit for the in-elevator poster frame network for the first quarter of 2009 was $11.2 million, representing a 53% decline from $23.8 million for the fourth quarter of 2008 and a 53% decline from $19.8 million for the first quarter of 2008. As explained in "basis of presentation" above, discontinued operations, as the assets to be sold to SINA as a business held-for-sale in accordance with US GAAP, are not depreciated or amortized nor are they subject to the same impairment analysis as assets held and used in continuing operations. The depreciation expense included in cost of sales for the in-elevator poster frame network in the fourth quarter of 2008 and the first quarter of 2008 was $1.8 million and $0.7 million respectively. </font>
<font> Non-GAAP gross profit for the in-store network for the first quarter of 2009 was $2.3 million, more than tripled $0.5 million for the fourth quarter of 2008 and compared to gross loss of $1.8 million for the first quarter of 2008. As explained in "basis of presentation" above, discontinued operations, as the assets to be sold to SINA as a business held-for-sale in accordance with US GAAP, are not depreciated or amortized nor are they subject to the same impairment analysis as assets held and used in continuing operations. The depreciation expense included in cost of sales for the in-store network in the fourth quarter of 2008 and the first quarter of 2008 was $1.7 million and $1.6 million respectively. </font>
<font> Non-GAAP operating expense for discontinued operations for the first quarter of 2009 was $22.3 million, representing a 21% increase from $18.4 million for the fourth quarter of 2008 and a 34% increase from $16.6 million for the first quarter of 2008. As explained in "basis of presentation" above, discontinued operations, as the assets to be sold to SINA as a business held-for-sale in accordance with US GAAP, are not depreciated or amortized nor are they subject to the same impairment analysis as assets held and used in continuing operations. The depreciation expense included in operating expense for discontinued operations in the fourth quarter of 2008 and the first quarter of 2008 was $0.5 million and $0.3 million respectively. </font>
<font> The Company historically recorded $8.8 million and $5.5 million of depreciation expenses for the first quarter of 2008 and the fourth quarter of 2008, respectively, in discontinued operations. </font>
<font> Business Outlook for First Quarter 2009 </font>
<font> The Company provides the following guidance with respect to the second quarter ending June 30, 2009: </font>
<font> -- Net revenues from continuing operations are expected to be no less than
$69.0 million;
-- Net revenues from discontinued operations are expected to be no less
than $81.5 million.
</font>
<font> Changes of senior management </font>
<font> On January 26, 2009, the Company announced that Jason Jiang, Focus Media’s executive chairman, resumed his position as chief executive officer to replace Dr. Tan Zhi who continued with the Company as an executive director. On the same day, Focus Media further announced the appointment of Alex Deyi Yang as acting chief financial officer to replace Daniel Wu, who resigned to pursue other professional interests. </font>
<font> USE OF NON-GAAP FINANCIAL MEASURES </font>
<font> In addition to Focus Media’s consolidated financial results under GAAP, the Company also provides Non-GAAP financial measures, including Non-GAAP gross profit, Non-GAAP net income and Non-GAAP earnings per fully diluted ADS, all excluding non-cash share-based compensation, acquired intangible asset amortization expense resulting from acquisitions, impairment charges of goodwill, acquired intangible assets and fixed assets. 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 future periods. The Company computes its Non-GAAP financial measures using the same consistent method from quarter to quarter. 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. </font>
<font> Focus Media Holding Ltd.
Reconciliation of GAAP to Non-GAAP/Non-GAAP
(U.S. Dollar in thousands, except percentages, share and per-share data)
(Unaudited)
1) Reconciliation of GAAP gross profit and net income to Non-GAAP gross
profit and net income for continuing operations.
Three months ended March 31, 2009
GAAP (1) (2) (3) (4) Non-GAAP
Net revenue
Movie Theater & Outdoor
Billboard network 19,211 19,211
Internet advertising 47,129 47,129
Others 354 354
Total 66,694 66,694
Cost of sales
Movie Theater & Outdoor
Billboard network 14,164 -- (972) -- -- 13,192
Internet advertising 38,143 -- (1,564) -- -- 36,579
Others 323 -- (14) -- -- 309
Total 52,630 -- (2,550) -- -- 50,080
Gross profit
Movie Theater & Outdoor
Billboard network 5,047 -- 972 -- -- 6,019
Internet advertising 8,986 -- 1,564 -- -- 10,550
Others 31 -- 14 -- -- 45
Total 14,064 -- 2,550 -- -- 16,614
Operating expense 30,439 (4,754) (1,912) (9,271) (2,466) 12,036
Operating income (loss) (16,375) 4,754 4,462 9,271 2,466 4,578
Net income (loss) from
continuing operations (17,672) 4,754 4,462 9,271 2,466 3,281
(1). Stock-based compensation.
(2). Amortization of acquired intangible assets.
(3). Impairment charges of goodwill
(4). One-off charges from expensing IPO expenditures as a result of
termination of IPO process of Allyes.
Three months ended December 31, 2008
GAAP (1) (2) (3) (4) (5) Non-GAAP
Net revenue
Movie Theater &
Outdoor
Billboard network 21,646 21,646
Internet
advertising 62,406 62,406
Others 3,106 3,106
Total 87,158 87,158
Cost of sales
Movie Theater &
Outdoor
Billboard network 15,375 -- (976) -- -- -- 14,399
Internet
advertising 51,701 -- (1,573) -- -- -- 50,128
Others 3,504 -- (897) -- 248 -- 2,855
Total 70,580 -- (3,446) -- 248 -- 67,382
Gross profit (loss)
Movie Theater &
Outdoor
Billboard network 6,271 -- 976 -- -- -- 7,247
Internet
advertising 10,705 -- 1,573 -- -- -- 12,278
Others (398) -- 897 -- (248) -- 251
Total 16,578 -- 3,446 -- (248) -- 19,776
Operating expense 440,018 (5,261) (3,073) (222,587) (194,040) (436) 14,621
Operating income
(loss) (423,440) 5,261 6,519 222,587 193,792 436 5,155
Net income (loss)
from continuing
operations (424,481) 5,261 6,519 222,587 194,297 860 5,043
(1). Stock-based compensation.
(2). Amortization of acquired intangible assets.
(3). Impairment charges of goodwill, acquired intangible assets and fixed
assets.
(4). Loss from restructuring of CGEN in-store networks and termination of
wireless business and disposal of other subsidiaries and affiliates.
(5). Write-off of consideration receivables resulting from the sale of
previously acquired subsidiaries back to their original shareholders.
Three months ended March 31, 2008
GAAP (1) (2) Non-GAAP
Net revenue
Movie Theater & Outdoor
Billboard network 16,378 16,378
Internet advertising 49,568 49,568
Others 12,019 12,019
Total 77,965 77,965
Cost of sales
Movie Theater & Outdoor
Billboard network 12,535 -- (932) 11,603
Internet advertising 38,696 -- (2,164) 36,532
Others 9,942 -- (857) 9,085
Total 61,173 -- (3,953) 57,220
Gross profit
Movie Theater & Outdoor
Billboard network 3,843 -- 932 4,775
Internet advertising 10,872 -- 2,164 13,036
Others 2,077 -- 857 2,934
Total 16,792 -- 3,953 20,745
Operating expense 15,918 (2,837) (2,180) 10,901
Operating income (loss) 874 2,837 6,133 9,844
Net income (loss) from
continuing operations 1,000 2,837 6,133 9,970
(1). Stock-based compensation
(2). Amortization of acquired intangible assets
2) Reconciliation of GAAP gross profit and net income to Non-GAAP gross
profit and net income for discontinued operations.
Three months ended March 31, 2009
GAAP Stock-based Non-GAAP
compensation
Net revenue
LCD display network 34,432 34,432
Poster Frame network 23,538 23,538
In-store network 6,344 6,344
Others 39 39
Total 64,353 64,353
Cost of sales
LCD display network 11,521 (246) 11,275
Poster Frame network 12,345 -- 12,345
In-store network 4,052 -- 4,052
Others -- -- --
Total 27,918 (246) 27,672
Gross profit
LCD display network 22,911 246 23,157
Poster Frame network 11,193 -- 11,193
In-store network 2,292 -- 2,292
Others 39 -- 39
Total 36,435 246 36,681
Operating expense 25,368 (3,105) 22,263
Operating income (loss)
from discontinued operations 11,067 3,351 14,418
Net income (loss) from
discontinued operations 11,998 3,351 15,349
Three months ended December 31, 2008
Tax Non-
GAAP (1) (2) (3) (4) (5) effect GAAP
Net revenue
LCD display
network 58,617 58,617
Poster Frame
network 39,227 39,227
In-store network 6,739 6,739
Others 320 320
Total 104,903 104,903
Cost of sales
LCD display
network 16,305 (314) (859) -- -- -- -- 15,132
Poster Frame
network 17,655 -- (2,257) -- -- -- -- 15,398
In-store network 6,197 -- -- -- -- -- -- 6,197
Others 29 -- (10) -- -- -- -- 19
Total 40,186 (314) (3,126) -- -- -- -- 36,746
Gross profit
LCD display
network 42,312 314 859 -- -- -- -- 43,485
Poster Frame
network 21,572 -- 2,257 -- -- -- -- 23,829
In-store network 542 -- -- -- -- -- -- 542
Others 291 -- 10 -- -- -- -- 301
Total 64,717 314 3,126 -- -- -- -- 68,157
Operating
expense 423,923 (7,069) (966) (397,156) -- (365) -- 18,367
Operating income
(loss) from
discontinued
operations (359,206) 7,383 4,092 397,156 -- 365 -- 49,790
Net income
(loss) from
discontinued
operations (380,256) 7,383 4,092 397,156 13,941 1,340 (914) 42,742
(1). Stock-based compensation
(2). Amortization of acquired intangible assets
(3). Impairment charges of goodwill, acquired intangible assets and fixed
assets
(4). Loss from restructuring of CGEN in-store networks and termination of
wireless business and disposal of other subsidiaries and affiliates.
(5). Write-off of consideration receivables resulting from the sale of
previously acquired subsidiaries back to their original shareholders.
Three months ended March 31, 2008
GAAP (1) (2) (3) Non-GAAP
Net revenue
LCD display network 45,912 45,912
Poster Frame network 29,179 29,179
In-store network 5,727 5,727
Others 2,782 2,782
Total 83,600 83,600
Cost of sales
LCD display network 15,242 (304) (884) -- 14,054
Poster Frame network 11,724 -- (2,348) -- 9,376
In-store network 7,486 -- -- -- 7,486
Others 480 -- (146) -- 334
Total 34,932 (304) (3,378) -- 31,250
Gross profit (loss)
LCD display network 30,670 304 884 -- 31,858
Poster Frame network 17,455 -- 2,348 -- 19,803
In-store network (1,759) -- -- -- (1,759)
Others 2,302 -- 146 -- 2,448
Total 48,668 304 3,378 -- 52,350
Operating expense 23,232 (5,483) (1,169) -- 16,580
Operating income
(loss) from
discontinued
operations 25,436 5,787 4,547 -- 35,770
Net income (loss) from
discontinued
operations (54,612) 5,787 4,547 79,322 35,044
(1). Stock-based compensation
(2). Amortization of acquired intangible assets
(3). Impairment of disposal group
</font>
$7.43 (06/20/09)
