LFP - Large-Format-Printing

Focus Media Reports Fourth Quarter and Full Year 2010 Results

Wednesday 09. March 2011 - Focus Media Holding Limited (Nasdaq: FMCN), China's largest out-of-home lifestyle community digital media group, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2010.

Highlights for Fourth Q uarter 20 10 :

Total net revenue for the fourth quarter of 2010 was $159.7 million, of which
Aggregate net revenue from the LCD display network (including the movie theater network), in-store network and poster frame network was $146.7 million, which exceeded by approximately 12% the mid-point of the Company’s guidance range of $130-132 million. This represented an increase of 14% from $128.4 million for the third quarter of 2010 and an increase of 45% from $100.9 million for the fourth quarter of 2009; and
Net revenue from the traditional outdoor billboard network for the fourth quarter of 2010 was $13.0 million, which exceeded by approximately 24% the mid-point of the guidance range of $10-11 million. This represented an increase of 46% from $8.9 million for the third quarter of 2010 and an increase of 30% from $10.0 million for the fourth quarter of 2009.
GAAP net income attributable to Focus Media was $47.2 million, compared to $112.7 million for the third quarter of 2010 (which included one-off income of $79.0 million resulting from the sale of our Internet business) and GAAP net loss of $57.0 million for the fourth quarter of 2009.
Non-GAAP net income attributable to Focus Media for the fourth quarter of 2010 was $58.5 million, also exceeding the mid-point of the Company’s guidance range of $52-$53 million by 11%, representing an increase of 13% from non-GAAP net income attributable to Focus Media of $51.8 million for the third quarter of 2010 and an increase of 72% from $34.1 million for the fourth quarter of 2009. Please see the below sections on “Use of Non-GAAP Financial Measures” and “Reconciliation of GAAP to non-GAAP” for more information about the non-GAAP measures referred to within this announcement.
GAAP net income attributable to Focus Media per fully diluted ADS was $0.33, compared to $0.76 per fully diluted ADS for the third quarter of 2010 and a loss of $0.42 per ADS in the fourth quarter of 2009.
Non-GAAP net income attributable to Focus Media per fully diluted ADS was $0.41, representing an increase of 17% from $0.35 per fully diluted ADS for the third quarter of 2010 and an increase of 71% from $0.24 per fully diluted ADS for the fourth quarter of 2009.

Highlights for Full Year 20 10 :

Total net revenue for full year 2010 was $516.3 million, of which
Aggregate net revenue from the LCD display network (including the movie theater network), in-store network and poster frame network was $475.4 million, representing an increase of 37% from $347.5 million for full year 2009 ; and
Net revenue from the traditional outdoor billboard network for full year 2010 was $40.9 million.
GAAP net income attributable to Focus Media was $184.3 million, compared to GAAP net loss of $213.3 million for full year 2009.
Non-GAAP net income attributable to Focus Media for full year 2010 was $177.8 million, doubling from $88.7 million for full year 2009. Please see the below sections on “Use of Non-GAAP Financial Measures” and “Reconciliation of GAAP to non-GAAP” for more information about the non-GAAP measures referred to within this announcement.
GAAP net income attributable to Focus Media per fully diluted ADS for full year 2010 was $1.26, compared to a net loss of $1.64 per ADS for full year 2009.
Non-GAAP net income attributable to Focus Media per fully diluted ADS for full year 2010 was $1.21, an 81% increase from $0.67 per fully diluted ADS for full year 2009.

Highlights for B alance S heet and C ash F low R esult s of Fourth Q uarter and Full Year 20 10 :

Cash, cash equivalents and investments in held-to-maturity debt securities was $592.0 million as of December 31, 2010, increased by 19% from $499.4 million as of September 30, 2010.
Net accounts receivable for the LCD display network (including the movie theater network), in-store network and poster frame network was $144.6 million as of December 31, 2010, a decrease of 6% from $153.6 million as of September 30, 2010. Days sales outstanding on a rolling basis was 85 days in the fourth quarter of 2010 versus 92 days for the third quarter of 2010.
Net cash inflow from operating activities in the fourth quarter of 2010 and full year of 2010 were $108.0 million and $185.2 million, respectively, representing a 49% increase from $72.3 million for the fourth quarter of 2009, and a 15% increase from $160.7 million for full year 2009.
Net cash inflow from operating activities for the fourth quarter of 2010, after deducting the purchase of equipment and subsidiaries was $87.0 million, representing an increase of 67% from $52.0 million for the fourth quarter of 2009. Net cash inflow from operating activities for full year 2010, after deducting the purchase of equipment and subsidiaries was $126.3 million, representing an increase of 119% from $57.7 million for full year 2009.
Capital expenditures were $7.1 million and $18.7 million respectively for the fourth quarter and full year of 2010, mostly attributable to high-definition upgrade in tier-1 cities and expansion in lower tier cities.
Purchase of subsidiaries paid in the fourth quarter and full year of 2010 were $13.9 million and $40.2 million, respectively, primarily attributable to the poster frame network. Of the total $40.2 million payments for purchase of subsidiaries related to historical acquisitions for full year of 2010, the cumulative earn-out payments was $36.9 million.

Jason Jiang, Chairman and Chief Executive Officer of Focus Media said, “2010 was a year of strong and robust growth through refocusing on our core businesses. We continue to see exciting opportunities ahead of us in 2011. The operating momentum continued to be strong as we step into 2011. Our core business’s value proposition to advertisers is gaining momentum as the strength and effectiveness of our core business is becoming increasingly recognized by advertisers. Meanwhile, we believe the aggressive ad price hikes of traditional TV broadcasters have presented exciting growth opportunities to us. We have seen meaningful increases in spending on our network by existing customers as well as strong momentum in new customers additions. Our focus in 2011 will continue to be augmenting our core business and improving our value propositions to advertisers by: 1) Enabling interactivity of our core media resources; 2) Restructuring of our 1st and 2nd tier cities networks A and B to create more network capacity resources; 3) Expanding our 3rd and 4th tier cities network so as to increase our utilization rates in those cities.”

Kit Low, the Company Chief Financial Officer added, “We ended 2010 on a very strong note. Not only did we register strong revenue momentum in the fourth quarter of 2010, we also achieved very strong cashflow momentum. In the fourth quarter of 2010, the Company achieved aggregate net revenue year-on-year growth in our LCD display (including the movie theater network), in-store and poster frame business of 45%, and quarter-on-quarter growth of 14%. GAAP net income attributable to Focus Media and Non-GAAP net income attributable to Focus Media for the fourth quarter of 2010 was $47.2 million and $58.5 million, respectively. In the fourth quarter of 2010, the Company generated a net cash inflow from operating activities after deducting the purchase of equipment and subsidiaries (including earn-out payments) of $87.0 million. As a result, for the year 2010 the Company achieved: 1) Cumulative net cash inflow from operating activities, after deducting the purchase of equipment and subsidiaries, of $126.3 million versus $57.7 million in 2009; 2) A Non-GAAP Return on Tangible Equity of 24% versus 13% in 2009 (note); and 3) An increase of about 500 new customer accounts, bringing our total number of customer accounts to about 4,350. We will continue our operating and financial discipline in growing cash flow and improving our Return on Tangible Equity in 2011.”

Note: Non-GAAP Return on Tangible Equity represents Non-GAAP net income attributable to Focus Media divided by total shareholders ‘ equity minus goodwill and net acquired intangible assets.

Fourth Q uarter 20 10 Financial Results

Advertising net revenue from the LCD display network (including the movie theatre network) was $97.3 million for the fourth quarter of 2010, representing an increase of 12% from $86.8 million for the third quarter of 2010 and an increase of 46% from $66.7 million for the fourth quarter of 2009.

Advertising net revenue from the poster frame network was $39.6 million for the fourth quarter of 2010, representing an increase of 23% from $32.2 million for the third quarter of 2010 and an increase of 48% from $26.8 million for the fourth quarter of 2009.

Advertising net revenue from the in-store network was $9.8 million for the fourth quarter of 2010, representing an increase of 4% from $9.4 million for the third quarter of 2010 and an increase of 32% from $7.4 million for the fourth quarter of 2009.

As of December 31, 2010, the total installed base of LCD displays in our LCD display network was 164,575 nationwide, including 157,916 displays through our directly owned networks, and 6,659 displays through our regional distributors, as compared to total LCD displays of 149,913 as of September 30, 2010. The total number of non-digital frames available for sale in our poster frame network was 300,012 as of December 31, 2010, as compared to 276,504 as of September 30, 2010. In addition, as of December 31, 2010, we had 35,810 digital frames installed in our poster frame network, as compared to 35,983 as of September 30, 2010 due to optimization of our network. The total number of displays installed in our in-store network was 48,179 as of December 31, 2010, as compared to 45,613 as of September 30, 2010.

Advertising net revenue from the traditional outdoor billboard network was $13.0 million for the fourth quarter of 2010, representing an increase of 46% from $8.9 million for the third quarter of 2010 and an increase of 30% from $10.0 million for the fourth quarter of 2009.

Non-GAAP gross profit from the LCD display network (including the movie theatre network) for the fourth quarter of 2010 was $74.4 million, representing an increase of 13% from $65.6 million for the third quarter of 2010 and an increase of 46% from $51.1 million for the fourth quarter of 2009.

Non-GAAP gross profit from the poster frame network for the fourth quarter of 2010 was $16.5 million, representing an increase of 35% from $12.2 million for the third quarter of 2010, and an increase of 53% from $10.8 million for the fourth quarter of 2009.

Non-GAAP gross profit from the in-store network for the fourth quarter of 2010 was $3.7 million, representing an increase of 9% from $3.4 million for the third quarter of 2010 and a decrease of 26% from $5.0 million for the fourth quarter of 2009 due to the Company’s settling of a rental dispute and releasing the corresponding rental liabilities accrued in the previous periods amounting to $3.1 million in the fourth quarter of 2009.

Non-GAAP gross profit from the traditional outdoor billboard network for the fourth quarter of 2010 was $3.5 million, representing a 52% increase from $2.3 million for the third quarter of 2010 and a 75% increase from $2.0 million for the fourth quarter of 2009, respectively.

Non-GAAP operating expense for the fourth quarter of 2010 was $32.7 million, an increase of 2% from $32.2 million for the third quarter of 2010 and an increase of 7% from $30.6 million for the fourth quarter of 2009.

Net cash provided by operating activities for the fourth quarter of 2010 was $108.0 million, more than tripled from $34.2 million for the third quarter of 2010.

Net cash used in investing activities for the fourth quarter of 2010 was $42.3 million. In the fourth quarter of 2010, the Company incurred capital expenditures of $7.1 million, subsidiary acquisition payments of $13.9 million and invested $21.5 million in held-to-maturity debt securities.

Business Outlook for First Quarter 20 1 1

The Company provides the following guidance with respect to the first quarter ending March 31, 2011:

Net revenues for the core business (inclusive of the LCD display network and other, the in-store network and the poster frame network) are expected to be in the range of $122-$124 million, the mid-point of which would represent year-on-year growth of 40% and quarter on quarter decline of 16% (due to seasonality). Net revenues for the non-core business (the traditional outdoor billboard network) are expected to be in the range of $10 – $11 million. The Company’s non-GAAP net income is expected to be in the range of $36-$38 million. The Company estimates the weighted average fully diluted ADS count for the quarter at 143 million, assuming no further share repurchases during the quarter.

Based on the existing business outlook, the Company expects earn-out payments remaining in 2011, spilled over from the fourth quarter of 2010, to be no more than $1.6 million.

Announced Share Repurchase Program

On August 3, 2010, Focus Media announced its intention to increase the size of its previously announced share repurchase program from $200 million to $300 million and to extend the termination date of the repurchase plan to June 2011 from February 2011. As of March 8, 2011, the Company has cumulatively spent $240 million in share repurchases.

Disposal of 49% Interest in Traditional Outdoor Billboard Division

The Company has entered into a definitive equity transfer agreement (the “Agreement”) with GBL III Limited, an entity controlled by Goldman Sachs and entities (the “Management Entities”) controlled by certain employees, directors and management members of Focus Media and Shanghai Hua Guang Chuanzhi OOH Ltd. (“OOH”), the outdoor media subsidiary of Focus Media. Under the terms of the Agreement, Goldman Sachs will acquire a 30% equity interest in OOH from Focus Media for US$21 million, and the Management Entities will purchase an aggregate 19% equity interest in OOH from Focus Media for US$13.3 million. GBL III Limited will extend a loan to the Management Entities under certain loan documents to be entered into between GBL III Limited and the Management Entities. The board of directors of the Company has approved these transactions. Upon completion of these transactions, Focus Media will hold a 51% indirect equity interest in OOH. This is part of our continued effort to divest non-core business. We believe partial stake disposal affords Focus Media to recoup a majority of the investments in OOH while retaining upside potential in the business.

Focus Media, GBL III Limited and the Management Entities will also enter into an equity holders’ agreement, pursuant to which GBL III Limited will be entitled to nominate one designee to OOH’s board of directors following completion of the transaction. The closing of the transaction is subject to customary closing conditions, including receiving certain PRC government approvals.

Foreign Currency Translation

Assets and liabilities are translated at the exchange rate as of December 31, 2010, which was $1 to RMB 6.6227. Equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the fourth of 2010, which was $1 to RMB 6.6474. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the statement of equity and comprehensive income (loss).

USE OF NON-GAAP FINANCIAL MEASURES

In addition to Focus Media’s consolidated financial results under GAAP, the Company also provides non-GAAP financial measures, including non-GAAP gross profit (cumulatively and by segment), non-GAAP operating expenses, non-GAAP operating profit (loss), non-GAAP net income and non-GAAP fully-diluted Earnings per ADR, all excluding share-based compensation expenses, amortization of acquired intangible assets, loss from disposal of previously acquired subsidiaries and equity affiliates, impairment charges of long-lived assets and goodwill, write-off of receivables from ex-shareholders of disposed business, settlement of disputed liabilities in previously disposed wireless business, impairment and termination charges related to ceasing expansion of digital poster frame networks and boat-based advertising platform, charges from expensing IPO expenditures as a result of termination of the IPO process of Allyes and the profit from the disposal of the internet business. Management uses these non-GAAP financial measures to better assess operating performance of the Company. The Company believes that these non-GAAP financial measures provide investors with another method for assessing Focus Media’s operating results in a manner that is focused on the performance of its ongoing operations. Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with non-GAAP results in the attached financial information. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the performance of Focus Media and when planning and forecasting future periods. The Company computes its non-GAAP financial measures using a consistent method from quarter to quarter, mostly including Share-based compensation, amortization of acquired intangible assets, profit or loss from disposal of previously acquired subsidiaries and impairment charges. 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.