SHANGHAI, China, Aug. 17 /PRNewswire-FirstCall/ -- Focus Media Holding Limited , China's leading multi-platform digital media company, today announced its unaudited financial results for the second quarter ended June 30, 2008.
Highlights for second quarter 2008: -- Total revenues grew 106.8% year-over-year and 31.1% quarter-over- quarter to $211.7 million. -- GAAP net income for the second quarter was $36.1 million or $0.28 per fully diluted ADS. -- Focus Media provides gross margin, operating margin, net income and earnings per ADS on a non-GAAP basis that exclude non-cash share-based compensation expense, acquired intangible assets amortization expense and one-time items to enable investors to better assess the Company's operating performance. The non-GAAP measures are described below and reconciled to the corresponding GAAP measure in the section below titled "Use of non-GAAP Financial Measures". Net income excluding non- cash share-based compensation expenses, amortization of acquired intangible assets resulting from acquisitions and one-time charges relating to our discontinued operations (non-GAAP) for the second quarter was $57.5 million or $0.44 per fully diluted ADS, exceeding company guidance of $54 million to $55 million. -- In the second quarter of 2008, digital out-of-home advertising revenue was $135.4 million, up 76.2% year-over-year and 24.4% quarter-over- quarter. -- Advertising service revenue from our commercial location network, grew 58.9% year-over-year and 29.9% quarter-over-quarter to $81.1 million. -- Advertising service revenue from our in-store network, including revenues from CGEN Digital Media Company Limited ("CGEN"), was $17.0 million, an increase of 135.0% year-over-year and a slight decrease from $17.3 million in the previous quarter, as we continued to make effort to optimize the combined in-store network coverage during the integration of CGEN acquisition. -- Advertising service revenue from our in-elevator poster frame network grew 101.2% year-over-year and 27.9% quarter-over-quarter to $37.3 million. -- Internet advertising revenue was $76.1 million in the second quarter of 2008, up 201.7% year-over-year and 53.6% quarter-over-quarter.
"We saw strong revenue and earnings growth in the second quarter of 2008. As a result of our focus on core businesses, our operating cash flow increased significantly from the previous quarter. Although our business was negatively impacted by the earthquake in May, business conditions rebounded quickly in June. In addition, we expanded our network capacity significantly in the second quarter. For example, the total installed base of digital poster frames exceeded 25,000 units as of June 30, 2008 and is well on its way towards our goal of a 50,000 to 60,000 installation base by the year end," said Dr. Tan Zhi, CEO of Focus Media. "While we continue to see strong advertising demand from consumer goods advertisers in China, in particular, non-Olympic-sponsor advertisers are increasing their advertising spending in the later half of the year after the Olympic Games. Our large scale and highly effective media coverage of high-end urban consumers in China differentiates us from competition. Our outlook for the remainder of 2008 and 2009 is getting stronger."
Second Quarter Financial Results
For the second quarter of 2008, Focus Media reported total revenues from continuing operations of $211.7 million, an increase of 106.8% compared to $102.4 million for the second quarter of 2007, and an increase of 31.1% compared to $161.6 million for the first quarter of 2008.
Our total digital out-of-home advertising revenue was $135.4 million in the second quarter of 2008, an increase of 76.2% from $76.9 million in the second quarter of 2007, and a sequential increase of 24.4% from $108.9 million in the first quarter of 2008. In the second quarter of 2008, commercial location advertising revenue was $81.1 million, contributing 59.9% of total digital out-of-home advertising revenue. Advertising service revenue from our in-store network was $17.0 million, or 12.6% of total digital out-of-home advertising revenue. Advertising service revenue from our in-elevator poster frame network placed primarily in the elevators of residential buildings was $37.3 million in the second quarter of 2008, or 27.5% of total digital out-of- home advertising revenue.
As of June 30, 2008, the total installed base of LCD displays and digital frames in our commercial location network was 123,140 nationwide, including 117,440 displays through our directly owned networks, and 5,700 displays through our regional distributors. The total number of displays installed in our in-store network including CGEN was 58,493 as of June 30, 2008, decreasing slightly from 61,420 as of March 31, 2008 due to our continuing effort to optimize the combined in-store network coverage during the integration of CGEN following our acquisition of it. The total number of non-digital frames available for sale on our poster frame network was 250,966 as of June 30, 2008 and in addition, as of June 30, 2008, we had 25,019 digital frames installed in our poster frame network.
Internet advertising service revenue was $76.1 million in the second quarter of 2008, an increase of 201.7% compared to $25.2 million for the second quarter of 2007, and an increase of 53.6% compared to $49.6 million for the first quarter of 2008.
Gross profit for the second quarter of 2008 was $89.4 million, representing an increase of 61.5% compared to $55.3 million in the second quarter of 2007 and a 36.5% increase compared to $65.5 million in the first quarter of 2008. In the second quarter 2008, GAAP gross margin for the company was 42.2%, increasing from 40.5% in the first quarter of 2008. Excluding non-cash share-based compensation expense of $0.4 million and acquisition-related intangible asset amortization expense of $7.2 million in the cost of revenues, gross margin (non-GAAP) was 45.8% in the second quarter of 2008. In the second quarter of 2008, excluding non-cash share-based compensation expense and acquisition-related intangible asset amortization expense, our digital out-of-home gross margin (non-GAAP) improved to 56.4% from 53.5% in the first quarter of 2008, and our Internet advertising gross margin (non-GAAP) improved to 26.9% from 26.3% in the previous quarter.
In the second quarter of 2008, operating expenses totaled $46.1 million, including $3.3 million in acquired intangible asset amortization resulting from acquisitions and non-cash share-based compensation expense of $10.0 million. Selling and marketing expenses in the second quarter totaled $27.4 million, including $3.3 million in acquired intangible asset amortization and $4.6 million in share compensation expense. General and administrative expense in the second quarter was $20.7 million, including $5.4 million in share compensation expense. Our operating margin in the second quarter of 2008 was 20.4% compared to 16.3% in the previous quarter. Excluding non-cash share-based compensation expense and acquired intangible asset amortization expense, our operating margin (non-GAAP) was 30.3% in the second quarter 2008 compared to 28.2% in the first quarter of 2008.
Total intangible amortization expense in the second quarter of 2008 resulting from historical acquisitions was $10.4 million. Non-cash share- based compensation expense was $10.4 million in the second quarter of 2008. Total income tax expense was $8.8 million. We incurred an additional $0.6 million net expenses relating to the restructuring of our mobile handset advertising business.
Net income for the second quarter of 2008 was $36.1 million. Net income excluding non-cash share-based compensation expense, acquired intangible assets amortization expense resulting from acquisitions and the non-recurring impairment charge resulted from the restructuring of mobile handset advertising business in the second quarter of 2008 (non-GAAP) was $57.5 million, or $0.44 per fully diluted ADS.
Second quarter 2008 operating cash flow was $45.3 million. Our capital expenditure was $29.9 million, mostly for purchase of digital frames and our LED equipments in Beijing Central Business District (CBD) area. In the second quarter of 2008, we incurred $11.7 million in cash outflow, representing the cash held by our wireless subsidiaries upon disposal, which amount has been fully provided in the impairment charges resulting from wireless handset advertising business in the first quarter of 2008. Day sales outstanding ("DSO") was 124 days in the second quarter. As of June 30, 2008, the company had cash and cash equivalents of $361.5 million.
BUSINESS OUTLOOK
The Company estimates its total revenues for the third quarter of 2008 will range from $225 million to $235 million. Third quarter 2008 net income excluding share-based compensation expenses and amortization of intangible assets resulting from acquisitions (non-GAAP) is expected to be between $70 million and $72 million or $0.53 to $0.54 per fully diluted ADS based on 133 million average total ADS-equivalent-shares outstanding.
ANNOUNCEMENTS
Diana Chen, our Chief Operating Officer, has recently left the company due to personal reasons. Diana was responsible for tier-II market development for our commercial locations network and has contributed tremendously to the growth of Focus Media during the last 3 years. Because we have recently appointed several regional managers to manage the operations in the tier-II markets, we will not seek to fill the COO vacancy in the near future.
Focus Media will hold an Investor Day meeting on Friday September 5, 2008 at the New York Marriott Marquis, 1535 Broadway (between 45th and 46th Streets), New York City, to provide general updates on the Company's business. Presentations by Focus Media's management team are scheduled to begin at 9:00 a.m. and conclude by approximately 12:00 p.m. New York local time.
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, non-GAAP gross margin, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per fully diluted ADS, all excluding non-cash share-based compensation and acquired intangible asset amortization expense resulting from acquisitions. 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.
Focus Media Holding Ltd. Reconciliation of GAAP to Non-GAAP (U.S. Dollar in thousands, except share data) (Unaudited) 1. Reconciliation of GAAP gross profit, gross margin to non-GAAP gross profit and gross margin. Three months ended June 30, 2008 GAAP (a) (b) Non-GAAP Gross profit Commercial location 50,658 420 1,900 52,978 network In-store network (1,408) - 882 (526) In-elevator poster frame network 21,647 - 2,348 23,995 Digital out-of-home 70,897 420 5,130 76,447 Internet Advertising 18,466 - 2,044 20,510 Others 9 - - 9 Total 89,372 420 7,174 99,692 Gross margin Commercial location 62.5% 0.5% 2.3% 65.3% network In-store network (8.3%) 0.0% 5.2% (3.1%) In-elevator poster frame network 58.0% 0.0% 6.3% 64.3% Digital out-of-home 52.3% 0.3% 3.8% 56.4% Internet Advertising 24.3% 0.0% 2.7% 26.9% Others 5.3% 0.0% 0.0% 5.3% Total 42.2% 0.2% 3.4% 45.8% Three months ended March 31, 2008 GAAP (a) (b) Non-GAAP Gross profit Commercial location network 35,240 304 1,962 37,506 In-store network 28 - 857 885 In-elevator poster frame network 17,533 - 2,348 19,881 Digital out-of-home 52,801 304 5,167 58,272 Internet Advertising 10,872 - 2,164 13,036 Others 1,787 - - 1,787 Total 65,460 304 7,331 73,095 Gross margin Commercial location network 56.4% 0.5% 3.1% 60.1% In-store network 0.2% 0.0% 5.0% 5.1% In-elevator poster frame network 60.1% 0.0% 8.0% 68.1% Digital out-of-home 48.5% 0.3% 4.7% 53.5% Internet Advertising 21.9% 0.0% 4.4% 26.3% Others 57.8% 0.0% 0.0% 57.8% Total 40.5% 0.2% 4.5% 45.2% (a) To adjust share-based compensation expenses (b) To adjust amortization of acquisition related intangible assets 2. Reconciliation of net income, earnings per ADS and operating margin from GAAP to non-GAAP: Three months ended Six months ended 2008-6-30 2007-6-30 2008-3-31 2008-6-30 2007-6-30 GAAP net income / (loss) attributable to shareholders $36,132 $37,715 $(53,810) $(17,678) $54,007 Amortization of acquired intangible assets 10,428 2,672 10,680 21,108 4,604 Share-based compensation 10,421 4,919 8,624 19,045 9,436 Net loss from discontinued operations 562 - 79,322 79,884 - Non-GAAP net income $57,543 $45,306 $44,816 $102,359 $68,047 GAAP income/(loss) per ADS - basic $0.29 $0.33 $(0.42) $(0.14) $0.48 GAAP income/(loss) per ADS - diluted $0.28 $0.32 $(0.41) $(0.13) $0.47 Non-GAAP income per ADS - basic $0.45 $0.39 $0.35 $0.80 $0.61 Non-GAAP income per ADS - diluted $0.44 $0.38 $0.34 $0.78 $0.59 Shares used in calculating diluted GAAP / Non-GAAP income per ADS 128,339,961 115,701,282 128,049,333 128,193,487 112,102,181 Shares used in calculating diluted GAAP / Non-GAAP income per ADS 130,776,141 119,385,064 131,394,654 131,057,713 115,473,182 GAAP income from operations $43,290 $32,518 $26,310 $69,600 $52,608 Amortization of acquired intangible assets 10,428 2,336 10,680 21,108 4,604 Share-based compensation 10,421 4,919 8,624 19,045 9,436 Non-GAAP income from operations $64,139 $39,773 $45,614 $109,753 $66,648 Non-GAAP operating margin 30.3% 38.8% 28.2% 29.4% 39.0% TODAY'S CONFERENCE CALL
The Company will host a conference call to discuss the second quarter 2008 results at 9:00 p.m. U.S. Eastern Standard Time on August 17, 2008 (6:00 p.m. U.S. Pacific Time on August 17, 2008 and 9:00 a.m. Beijing/Hong Kong Time on August 18, 2008). The dial-in details for the live conference call are set forth below: U.S. Toll Free Number +1-866-270-6057, Hong Kong dial-in number +852-3002-1672, International dial-in number +1-617-213-8891; Pass code: 41966091.
A replay of the call will be available from August 18, 2008 until August 25, 2008 (US Eastern Standard Time). The dial-in details for the replay are set forth below: U.S. Toll Free Number +1-888-286-8010, International dial-in number +1-617-801-6888; Pass code 74725216. A live and archived web cast of this call will be available on the Focus Media web site at http://ir.focusmedia.cn/
ABOUT FOCUS MEDIA HOLDING LIMITED
Focus Media Holding Limited is China's leading multi- platform digital media company, operating the largest out-of-home advertising network in China using audiovisual digital displays, based on the number of locations and number of flat-panel television displays in our network, and is also a leading provider of mobile handset advertising and Internet marketing solutions in China. Through Focus Media's multi-platform digital advertising network, the company reaches urban consumers at strategic locations and point- of-interests over a number of media formats, including audiovisual television displays in buildings and stores, advertising poster frames and other new and innovative media, such as outdoor light-emitting diode or LED digital billboard, mobile handset advertising networks and Internet advertising platforms. As of June 30, 2008, Focus Media's digital out-of-home advertising network had approximately 123,100 LCD display/digital frames in its commercial location network, approximately 58,500 LCD displays in its in-store network and approximately 275,900 advertising in-elevator poster and digital frames, installed in over 90 cities throughout China, and approximately 200 outdoor LED billboard displays in Shanghai. For more information about Focus Media, please visit our website at ir.focusmedia.cn.
SAFE HARBOR: FORWARD-LOOKING STATEMENTS
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 Business Outlook section and quotations from management in this press release, as well as Focus Media's strategic and operational plans, contain forward-looking 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. 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, F-6 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.
Focus Media Holding Limited UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (U.S. Dollars in thousands) 2008-6-30 2007-12-31 ASSETS Current assets Cash and cash equivalents $361,515 $450,416 Investment in equity securities and bank notes 48,476 90,145 Accounts receivables, net 321,361 206,102 Inventories 1,891 1,654 Prepaid expenses and other current assets 26,080 58,885 Deposit paid for acquisition of subsidiaries 43,815 40,402 Amount due from related parties 6,057 5,092 Rental deposits 38,524 28,763 Total current assets $847,719 $881,459 Rental deposits 5,872 5,302 Equipment, net 156,175 95,478 Acquired intangible assets, net 190,609 155,717 Goodwill 1,123,414 943,398 Other long term assets 44,330 58,183 Total assets $2,368,119 $2,139,537 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $97,592 $50,379 Accrued expenses and other current liabilities 206,805 190,313 Income taxes payable 29,462 21,391 Amount due to related parties 22,767 12,977 Deferred tax liabilities 14,966 1,227 Total liabilities of discontinued operations 7,536 - Total current liabilities $379,128 $276,287 Deferred tax liabilities 9,807 6,393 Total liabilities $388,935 $282,680 Minority interests 3,423 1,913 Shareholders' equity Ordinary shares 33 32 Additional paid in capital 1,679,870 1,581,580 Retained earnings 219,041 236,718 Accumulated other comprehensive income 76,817 36,614 Total shareholders' equity $1,975,761 $1,854,944 Total liabilities and shareholders' equity $2,368,119 $2,139,537 Focus Media Holding Limited UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (U.S. Dollar in thousands, except share data) Three months ended Six months ended 2008-6-30 2007-6-30 2008-3-31 2008-6-30 2007-6-30 Gross revenues (note 4): Digital out- of-home: Commercial locations $87,110 $55,368 $68,131 $155,241 $90,286 In-store network 18,797 7,998 19,077 37,874 15,324 In-elevator poster frame network 40,763 20,347 31,841 72,604 34,201 Internet advertising 78,858 26,418 51,450 130,308 26,418 Other revenue 171 305 3,090 3,261 686 Total gross revenues 225,699 110,436 173,589 399,288 166,915 Less: Sales taxes 13,956 8,043 12,026 25,982 13,190 Total revenues 211,743 102,393 161,563 373,306 153,725 Cost of revenues (note 5): Digital out- of-home Commercial locations 30,456 18,055 27,215 57,671 30,953 In-store network 18,428 5,187 17,243 35,671 10,214 In-elevator poster frame network 15,666 5,265 11,646 27,312 10,011 Internet advertising 57,659 18,405 38,696 96,355 18,405 Total advertising service costs 122,209 46,912 94,800 217,009 69,583 Other costs 162 138 1,303 1,465 303 Total cost of revenues 122,371 47,050 96,103 218,474 69,886 Gross profit 89,372 55,343 65,460 154,832 83,839 Operating expenses: General and administrative (note 5) 20,702 11,290 18,568 39,270 19,868 Selling and marketing (note 5) 27,392 12,656 22,412 49,804 21,994 Other operating (income)/ expenses, net (2,012) (1,121) (1,830) (3,842) (2,377) Total operating expenses 46,082 22,825 39,150 85,232 39,485 Income from operations 43,290 32,518 26,310 69,600 44,354 Interest income, net 1,150 1,934 2,347 3,497 4,650 Other income (expenses), net 2,017 (55) 223 2,240 15 Income before tax and minority interests 46,457 34,397 28,880 75,337 49,019 Income tax expense - Current 9,647 2,472 5,749 15,396 3,437 - Deferred (882) (500) (713) (1,595) (625) Total income taxes 8,765 1,972 5,036 13,801 2,812 Income before minority interests 37,692 32,425 23,844 61,536 46,207 Minority Interests 999 13 198 1,197 (18) Net income from continued operations 36,693 32,412 23,646 60,339 46,225 (Net loss)/ income from discontinued operations (616) 5,649 (76,852) (77,468) 8,256 Income tax (55) 346 604 549 474 Net income/ (loss) from discontinued operations (561) 5,303 (77,456) (78,017) 7,782 Net income/ (loss) attributed to shareholders $36,132 $37,715 $(53,810) $(17,678) $54,007 Income from continued operations - basic $0.29 $0.28 $0.18 $0.47 $0.41 Income from continued operations - diluted $0.28 $0.27 $0.18 $0.46 $0.40 Income from discontinued operations - basic $(0.00) $0.05 $(0.60) $(0.61) $0.07 Income from discontinued operations - diluted $(0.00) $0.05 $(0.60) $(0.60) $0.07 Income per ADS - basic $0.28 $0.33 $(0.42) $(0.14) $0.48 Income per ADS - diluted $0.28 $0.32 $(0.41) $(0.13) $0.47 Shares used in calculating basic income per ADS 128,339,961 115,701,282 128,049,333 128,193,487 112,102,181 Shares used in calculating diluted income per ADS 130,776,141 119,385,064 131,394,654 131,057,713 115,473,182 Focus Media Holding Limited UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS (U.S. Dollar in thousands) Three months ended Six months ended 2008-6-30 2007-6-30 2008-6-30 2007-6-30 Operating activities: Net income/(loss) $36,132 $37,715 $(17,678) $54,007 Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Minority interest 999 13 1,197 (18) Impairment provisions for discontinued operations (2,267) - 77,054 - Bad debt provision 2,018 1,620 3,433 2,416 Share based compensation 10,421 4,919 19,045 9,436 Depreciation and amortization 7,081 4,269 13,563 8,108 Amortization of acquired intangible assets 10,428 2,672 21,109 4,604 Changes in assets and liabilities, net of effects of acquisitions (19,533) (21,754) (64,828) (21,983) Net cash provided by operating activities 45,279 29,454 52,895 56,570 Investing activities: Purchase of equipment and other long term assets (29,947) (15,274) (48,742) (25,265) Acquisition of an intangible asset - (105) (1,767) (105) Purchase of subsidiaries, net of cash acquired (19,155) (4,514) (104,145) (56,774) Disposal of subsidiaries (11,694) - (11,694) - Deposits paid to acquire subsidiaries - (15,198) (13,369) (35,268) Sales /(purchase) of equity securities and bank notes 82,428 - 44,741 - Investment in debt securities - (18,735) - (40,715) Net cash provided /(used) in investing activities 21,632 (53,826) (134,976) (158,127) Financing activities: Proceeds from issuance of ordinary shares, net of issuance costs 2,843 3,063 7,347 120,258 Proceeds from short-term debts - - 370 - Capital injection from minority shareholders - - 214 97 Repayment of short- term debts (370) (656) (30,412) (3,771) Net cash provided by/(used in) financing activities 2,473 2,407 (22,481) 116,584 Effect of exchange rate changes (3,837) 4,994 15,661 7,955 Net (decrease) increase in cash and cash equivalents 65,547 (16,971) (88,901) 22,982 Cash and cash equivalents, beginning of period 295,968 204,563 450,416 164,610 Cash and cash equivalents, end of period $361,515 $187,592 $361,515 $187,592 Supplemental disclosure of cash flow information: Income taxes paid $7,156 $297 $8,946 $577 Interest paid - - - - Supplemental disclosure of non-cash investing activity: Acquisition of subsidiaries: Value of ordinary share consideration $71,927 $11,769 $71,927 $166,050 Accounts payable $17,401 $1,129 $17,401 $1,129 Notes: Note 1: Basic income per ADS is computed by dividing income attributable to holders of ordinary shares by the weighted average number of ADS outstanding during the year/period. Diluted income per ADS reflects the potential dilution that could occur if securities or other contracts to issue ADS were exercised or converted into ADS. Note 2: The conversion of Renminbi ("RMB") amounts into USD amounts is based on the rate of USD1 = RMB6.8591 on June 30, 2008 for balance sheet accounts which dominated in RMB. Note 3: Following the restructuring of our mobile handset advertising business, we have disposed of, or have determined to dispose of, 9 subsidiaries, which were mainly focusing on the push based mobile advertising business. Each of these subsidiaries represented a component of an entity as defined by SFAS No.144 "Accounting for the impairment or Disposal of Long-lived Assets". As such, we have classified these subsidiaries as a discontinued operation for all periods presented. Revenue related to discontinued operations was approximately $0.4 million, $10.9 million and $11.3 million for each of the three months ended June 30, 2008, 2007 and March 31, 2008, respectively. Note 4: Details of net revenues are as follows (U.S. Dollars in thousands): Three months ended Six months ended 2008-6-30 2007-6-30 2008-3-31 2008-6-30 2007-6-31 Gross revenues (note 4): Gross Advertising Service Revenue: Digital out-of-home: Commercial locations - Unrelated parties $86,452 $55,321 $67,754 $154,206 $87,734 - Related parties 658 47 377 1,035 2,552 Total Commercial Locations 87,110 55,368 68,131 155,241 90,286 In-store Network - Unrelated parties 18,797 7,998 19,077 37,874 14,009 - Related parties - - - - 1,315 Total in-store network 18,797 7,998 19,077 37,874 15,324 In-elevator Poster Frame Network - Unrelated parties 40,763 20,249 31,841 72,604 34,103 - Related parties - 98 - - 98 Total In-elevator Poster Frame Network 40,763 20,347 31,841 72,604 34,201 Internet advertising - Unrelated parties 77,394 26,088 51,079 128,473 26,088 - Related parties 1,464 330 371 1,835 330 Total internet advertising 78,858 26,418 51,450 130,308 26,418 Gross Advertising Services Revenue: 225,528 110,131 170,499 396,027 166,229 Less: Sales taxes: Digital out-of-home: Commercial locations: 5,996 4,308 5,676 11,672 7,582 In-store Network 1,777 754 1,806 3,583 1,442 In-elevator Poster Frame Network 3,450 1,799 2,662 6,112 2,984 Internet advertising 2,733 1,182 1,882 4,615 1,182 Total sales taxes: 13,956 8,043 12,026 25,982 13,190 Net Advertising Service Revenue 211,572 102,088 158,473 370,045 153,039 Add: Other revenue: 171 305 3,090 3,261 686 Net revenues: $211,743 $102,393 $161,563 $373,306 $153,725 Note 5: Share-based compensation expense is comprised of the following (U.S. Dollars in thousands): Three months ended Six months ended 2008-6-30 2007-6-30 2008-3-31 2008-6-30 2007-6-31 Cost of revenues $420 $284 $304 $724 $565 Selling and marketing 4,573 2,084 4,577 9,150 4,145 General and administrative 5,428 2,551 3,743 9,171 4,726 Sub-total $10,421 $4,919 $8,624 $19,045 $9,436 Note 6: The Company has performed a preliminary purchase price allocation on its acquisition of CGEN, which occurred in the first quarter of 2008 based on an internal valuation performed by management. The purchase price allocation will be finalized once management has assessed the pending results of independent third party valuations. Note 7: Earnings per ADS is based on the new conversion ratio of 1 ADS to 5 ordinary shares, effective as of April 11, 2007. The comparative numbers haven been adjusted to reflect the conversion. Note 8: The $0.6 million loss from discontinued operations resulting from mobile handset advertising business restructuring includes 1) additional impairment loss of acquired intangibles and goodwill of $6.0 million resulting from our discontinue WAP advertising business; 2) loss from the operation of discontinued business in the second quarter of 2008 amounting to $4.9 million; 3) increase in estimated fair value of the recoverable amount by $2.4 million; and 4) reduction in the estimated cost to sell by $ 7.7 million. Focus Media Holding Ltd. Reconciliation of GAAP to Non-GAAP (U.S. Dollar in thousands, except percentages, share and per-share data) (Unaudited) 1. Reconciliation of GAAP gross profit, gross margin to non-GAAP gross profit and gross margin. Three months ended June 30, 2008 GAAP (a) (b) Non-GAAP Gross profit Commercial location 50,658 420 1,900 52,978 network In-store network (1,408) - 882 (526) In-elevator poster 21,647 - 2,348 23,995 frame network Digital out-of-home 70,897 420 5,130 76,447 Internet Advertising 18,466 - 2,044 20,510 Others 9 - - 9 Total 89,372 420 7,174 96,966 Gross margin Commercial location 62.5% 0.5% 2.3% 65.3% network In-store network (8.3%) 0.0% 5.2% (3.1%) In-elevator poster 58.0% 0.0% 6.3% 64.3% frame network Digital out-of-home 52.3% 0.3% 3.8% 56.4% Internet Advertising 24.3% 0.0% 2.7% 26.9% Others 5.3% 0.0% 0.0% 5.3% Total 42.2% 0.2% 3.4% 45.8% Three months ended March 31, 2008 GAAP (a) (b) Non-GAAP Gross profit Commercial location network 35,240 304 1,962 37,506 In-store network 28 - 857 885 In-elevator poster frame network 17,533 - 2,348 19,881 Digital out-of-home 52,801 304 5,167 58,272 Internet Advertising 10,872 - 2,164 13,036 Others 1,787 - - 1,787 Total 65,460 304 7,331 73,095 Gross margin Commercial location network 56.4% 0.5% 3.1% 60.1% In-store network 0.2% 0.0% 5.0% 5.1% In-elevator poster frame network 60.1% 0.0% 8.0% 68.1% Digital out-of-home 48.5% 0.3% 4.7% 53.5% Internet Advertising 21.9% 0.0% 4.4% 26.3% Others 57.8% 0.0% 0.0% 57.8% Total 40.5% 0.2% 4.5% 45.2% (a) To adjust share-based compensation expenses (b) To adjust amortization of acquisition related intangible assets 2. Reconciliation of net income, earnings per ADS and operating margin from GAAP to non-GAAP: Three months ended Six months ended 2008-6-30 2007-6-30 2008-3-31 2008-6-30 2007-6-30 GAAP net income / (loss) attributable to shareholders $36,132 $37,715 $(53,810) $(17,678) $54,007 Amortization of acquired intangible assets 10,428 2,672 10,680 21,108 4,604 Share-based compensation 10,421 4,919 8,624 19,045 9,436 Loss from impairment of discontinued operations (Note 8) 562 - 79,322 79,884 - Non-GAAP net income $57,543 $45,306 $44,816 102,359 $68,047 GAAP income/(loss) per ADS - basic $0.28 $0.33 $(0.42) $(0.14) $0.48 GAAP income/(loss) per ADS - diluted $0.28 $0.32 $(0.41) $(0.13) $0.47 Non-GAAP income per ADS - basic $0.45 $0.39 $0.35 $0.80 $0.61 Non-GAAP income per ADS - diluted $0.44 $0.38 $0.34 $0.78 $0.59 Shares used in calculating diluted GAAP / Non-GAAP income per ADS 128,339,961 115,701,282 128,049,333 128,193,487 112,102,181 Shares used in calculating diluted GAAP / Non-GAAP income per ADS 130,776,141 119,385,064 131,394,654 131,057,713 115,473,182 GAAP income from operations $43,290 $32,518 $26,310 $69,600 $52,608 Amortization of acquired intangible assets 10,428 2,336 10,680 21,108 4,604 Share-based compensation 10,421 4,919 8,624 19,045 9,436 Non-GAAP income from operations $64,139 $39,773 $45,614 $109,753 $66,648 Non-GAAP operating margin 30.3% 38.8% 28.2% 29.4% 39.0%
