XSEL Announces Financial Results for the Third Quarter 2009
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BEIJING, Nov. 11 /PRNewswire-Asia-FirstCall/ -- Xinhua Sports & Entertainment Limited (the "Company" or "XSEL") (Nasdaq: XSEL), a leading sports and entertainment group in China, today announced its unaudited financial results for the third quarter ended September 30, 2009.
Third Quarter 2009 Highlights
-- Net revenue was $39.6 million
-- Adjusted EBITDA (non-GAAP) was $4.6 million
-- Adjusted net income (non-GAAP) was $3.4 million
-- Adjusted net income per ADS (non-GAAP) was $0.04
-- Net loss attributable to XSEL (GAAP) was $10.6 million
-- Net loss per ADS (GAAP) was $0.14
Ms. Fredy Bush, XSEL's CEO said, "Since late 2008, we have been taking significant strategic steps each quarter to position XSEL as the leading sports media company in China. We have focused on strengthening our distribution platforms, expanding our content portfolio and divesting of non-core assets. We have a series of key strategic initiatives we hope to finalize by year end that will bring us closer to our vision in 2010."
Mr. Andrew Chang, XSEL's CFO commented, "The net loss this quarter of $10.6 million included a $7.6 million non-cash charge related to our outstanding convertible loan facility. Under the new accounting rule EITF 07-5 adopted in 2009, we are required to remeasure the conversion feature of this loan at the end of each quarter. Due to the increase in share price between the second and third quarters of 2009, the conversion feature of the loan was remeasured at $3.1 million in the second quarter of 2009 and $10.7 million in the third quarter of 2009. As a result, we were required to record a non-cash fair value charge of $7.6 million in the third quarter of 2009."
Third Quarter 2009 Financial Results
Chart 1: Summary of financial results
3 months 3 months 3 months
ended ended ended 09Q3 vs 09Q3 vs
Sep 30, Sep 30, Jun 30, 08Q3 09Q2
In US$ millions 2009 2008 2009 Growth % Growth %
Net revenue(1) 39.6 49.6 38.8 -20% 2%
Adjusted EBITDA(2) 4.6 9.5 5.7 -51% -19%
Net loss attributable
to XSEL (10.6) (15.9) (2.1) 33% -392%
One-time items(3) 8.5 17.0 (1.2) N/A N/A
Net (loss) income
attributable to
XSEL before one-time
items (2.1) 1.1 (3.3) N/A 34%
Adjusted net income(2) 3.4 7.4 2.9 -54% 17%
(1) Due to the sale of Shanghai Hyperlink Market Research Co. Ltd
("Hyperlink"), the Company's research services business, in October
2009, the results of operations were separately reported as
"discontinued operations" and comparative numbers were reclassified
accordingly.
(2) Please refer to Chart 8 (Reconciliation of non-GAAP financial results)
for details of calculation of adjusted EBITDA (non-GAAP) and adjusted
net income (non-GAAP).
(3) One-time items are those that we believe are not indicative of future
performance. Due to the adoption of EITF 07-5 in 2009, we are required
to remeasure the fair value of the conversion feature of the
convertible loan (please refer to Note (9) to financial information
for details) every quarter. The one-time items of $8.5 million in the
third quarter of 2009 mainly represent a non-cash fair value charge of
$7.6 million on the conversion feature of the loan. Given the increase
in share price between the second and third quarters of 2009, the
conversion feature of the loan was remeasured at $3.1 million in the
second quarter of 2009 and $10.7 million in the third quarter of 2009.
As a result, we recorded a non-cash fair value charge of $7.6 million
in the third quarter of 2009. The fair value of the conversion feature
may have a recurring impact in subsequent periods.
Net Revenue
Net revenue for the third quarter of 2009 was $39.6 million, down 20% year-on-year from $49.6 million in the third quarter of 2008 or up 2% sequentially from $38.8 million in the second quarter of 2009.
Net Revenue by type and business group
Chart 2: Net revenue by type and business group
In US$ millions Broadcast Advertising Print Total
Net revenue:
Advertising
services 4.2 17.8 0.4 22.4
Content production 0.1 -- -- 0.1
Advertising sales 13.6 0.1 3.3 17.0
Publishing
services -- -- 0.1 0.1
Total net revenue 17.9 17.9 3.8 39.6
Broadcast Group
Net revenue for the Broadcast Group for the third quarter of 2009 was $17.9 million, down 1% year-on-year from $18.1 million in the third quarter of 2008 or down 6% sequentially from $19.0 million in the second quarter of 2009.
Chart 3: Revenue breakdown of the Broadcast Group
3 months 3 months 3 months 3 months
ended ended ended ended
Sep 30, Sep 30, Growth Sep 30, Jun 30, Growth
In US$ millions 2009 2008 % 2009 2009 %
Broadcast:
Television 11.5 6.1 88% 11.5 11.3 2%
Radio 2.1 2.7 -23% 2.1 3.2 -35%
Mobile 4.2 3.3 27% 4.2 4.3 -2%
Production 0.1 6.0 -98% 0.1 0.2 -44%
Subtotal: 17.9 18.1 -1% 17.9 19.0 -6%
Advertising Group
Net revenue for the Advertising Group for the third quarter of 2009 was $17.9 million, down 37% year-on-year from $28.5 million in the third quarter of 2008 or up 8% sequentially from $16.6 million in the second quarter of 2009. The year-on-year decrease was primarily due to divestments and the economic downturn.
Chart 4: Revenue breakdown of the Advertising Group
3 months 3 months 3 months 3 months
ended ended ended ended
Sep 30, Sep 30, Growth Sep 30, Jun 30, Growth
In US$ millions 2009 2008 % 2009 2009 %
Advertising:
Print/Online 8.0 15.5 -49% 8.0 7.6 5%
Outdoor/Other(1) 2.3 7.4 -69% 2.3 2.2 3%
BTL Marketing 7.6 5.6 35% 7.6 6.8 12%
Subtotal(2): 17.9 28.5 -37% 17.9 16.6 8%
(1) On December 31, 2008, the Company divested its Hong Kong based outdoor
advertising business, Convey, which contributed $5.7 million to net
revenue in the third quarter of 2008.
(2) Due to the sale of Hyperlink, the Company's research services business,
in October 2009, the historical results were reported as "discontinued
operations" for all periods presented. Hyperlink contributed $1.5
million to net revenue for the Advertising Group in the third quarter
of 2008.
Print Group
Net revenue for the Print Group for the third quarter of 2009 was $3.8 million, up 27% year-on-year from $3.0 million in the third quarter of 2008 or up 17% sequentially from $3.2 million in the second quarter of 2009.
Chart 5: Revenue breakdown of the Print Group
3 months 3 months 3 months 3 months
ended ended ended ended
Sep 30, Sep 30, Growth Sep 30, Jun 30, Growth
In US$ millions 2009 2008 % 2009 2009 %
Print:
Newspaper 2.0 1.5 39% 2.0 2.0 2%
Magazines 1.8 1.5 15% 1.8 1.2 42%
Subtotal: 3.8 3.0 27% 3.8 3.2 17%
Gross Profit
Gross profit for the third quarter of 2009 was $9.2 million, down 49% year-on-year from $17.9 million in the third quarter of 2008, or down 7% sequentially from $9.9 million in the second quarter of 2009. Adjusted gross profit (non-GAAP), defined as gross profit before amortization of intangible assets from acquisitions, for the third quarter of 2009 was $10.6 million, down 46% year-on-year from $19.6 million in the third quarter of 2008, or down 6% sequentially from $11.3 million in the second quarter of 2009. The year-on-year decrease of both gross profit and adjusted gross profit was a result of the factors previously described in the net revenue section. We provide the adjusted gross profit metric to break out the amortization of intangible assets from acquisitions charged within the cost of revenue. Chart 6 (Reconciliation for adjusted gross profit by business group) provides the breakdown of adjusted gross profit by business group. Due to the sale of Hyperlink, the Company's research services business, in October 2009, the results of operations were separately reported as "discontinued operations" and comparative numbers were reclassified accordingly.
Chart 6: Reconciliation for adjusted gross profit by business group
In US$ millions Advertising Broadcast Print Total
Gross Profit 5.0 1.5 2.7 9.2
Amortization of intangible assets
from acquisitions(1) -- 1.2 0.2 1.4
Adjusted gross profit 5.0 2.7 2.9 10.6
(1) Amortization of intangible assets from acquisitions includes
intangible assets such as trademarks, license rights, exclusive
advertising rights, licensing agreement, customer relationships and
non-compete agreements.
Operating Expenses
Operating expenses are comprised of selling and distribution expenses and general and administrative expenses. Operating expenses for the third quarter of 2009 were $10.4 million, down 31% year-on-year from $15.1 million in the third quarter of 2008, or up 13% sequentially from $9.1 million in the second quarter of 2009. The year-on-year decrease was due to implementation of cost cutting initiatives, divestments and a decrease in share-based compensation expenses.
Selling and distribution expenses for the third quarter of 2009 were $3.9 million, up 11% year-on-year from $3.5 million in the third quarter of 2008, or up 10% sequentially from $3.5 million in the second quarter of 2009.
General and administrative expenses for the third quarter of 2009 were $6.5 million, down 44% year-on-year from $11.6 million in the third quarter of 2008, or up 15% sequentially from $5.6 million in the second quarter of 2009. General and administration expenses for the third quarter of 2009 included $0.4 million of share-based compensation expenses.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA (non-GAAP), defined as net income (loss) attributable to XSEL before one-time items, other income (expense), taxes, depreciation, amortization of intangible assets from acquisitions, net income (loss) attributable to non-controlling interests and share-based compensation expenses, for the third quarter of 2009 was $4.6 million, down 51% year-on-year from $9.5 million in the third quarter of 2008, or down 19% sequentially from $5.7 million in the second quarter of 2009. The year-on-year decrease was mainly due to divestments and economic downturn.
We provide the adjusted EBITDA metric because it allows management, investors and others to evaluate and compare our core operating results without the impact of certain non-cash items or one-time items that we believe are not indicative of future performance.
Chart 7: Adjusted EBITDA by business group
In US$ millions Advertising Broadcast Print Total
Adjusted EBITDA by
business group 3.4 1.0 1.7 6.1
Less: net head office
expenses -- -- -- (1.5)
Adjusted EBITDA -- -- -- 4.6
Net Loss attributable to XSEL and Adjusted Net Income (non-GAAP)
Net loss attributable to XSEL for the third quarter of 2009 was $10.6 million, compared to a net loss of $15.9 million in the third quarter of 2008 and a net loss of $2.1 million in the second quarter of 2009. The primary reason for the sequential increase in net loss attributable to XSEL was a non-cash fair value charge of $7.6 million on the conversion feature of the convertible loan (please refer to Note (9) to financial information for details) in the third quarter of 2009. Due to the adoption of EITF 07-5 in 2009, we are required to remeasure the fair value of the conversion feature of the loan every quarter. Given the increase in share price between the second and third quarters of 2009, the conversion feature of the loan was remeasured at $3.1 million in the second quarter of 2009 and $10.7 million in the third quarter of 2009. As a result, we recorded a non-cash fair value charge of $7.6 million in the third quarter of 2009. The fair value of the conversion feature may have a recurring impact in subsequent periods.
Adjusted net income (non-GAAP), defined as net income (loss) attributable to XSEL before one-time items, amortization of intangible assets from acquisitions, share-based compensation expenses and imputed interest, for the third quarter of 2009 was $3.4 million, down 54% year-on-year from $7.4 million in the third quarter of 2008, or up 17% sequentially from $2.9 million in the second quarter of 2009. The year-on-year decrease was mainly due to divestments.
We provide the adjusted net income metric because it allows management, investors and others to evaluate our net income without the impact of possible add backs, deductions and certain material non-cash items or one-time items that we believe are not indicative of future performance.
Other Corporate Developments
On September 28, 2009, XSEL announced the licensing of the exclusive China distribution rights to the movie "More Than A Game" from Lionsgate Film. The movie stars LeBron James of the Cleveland Cavaliers and will be distributed later this year by China Film Group Corporation, the dominant film entertainment company in China.
On September 30, 2009, XSEL announced the signing of an additional agreement with Ultimate Fighting Championship, expanding on our exclusive television rights in China to include rights on mobile and internet platforms.
On October 20, 2009, the Company completed the disposal of the entire equity interests in Hyperlink, the Company's research services business, to INTAGE Inc., a Japan-based market research company, for a purchase price of 1,050,000,000 Japanese Yen (approximately US$10.7 million). The proceeds from the disposal were not reflected in the balance sheet for the third quarter of 2009.
On October 29, 2009, the Company sold 5,514,705 ADS at a price of $1.36 per ADS in a registered direct offering to several select institutional investors, representing gross proceeds of $7.5 million. Investors also received two series of warrants to purchase up to an aggregate of 14,889,703 class A common shares of the Company (equivalent to approximately 7,444,851 ADS). The Series A warrants to purchase up to 3,860,293 class A common shares (equivalent to approximately 1,930,146 ADS) have an initial exercise price of $0.975 per common share ($1.95 per ADS) and are exercisable at any time commencing six months after the closing date and on or prior to the fifth anniversary of this date. The Series B warrants to purchase up to 11,029,410 class A common shares (equivalent to 5,514,705 ADS) have an initial exercise price of $0.68 per common share ($1.36 per ADS) and are exercisable at any time commencing on the closing date and on or prior to the six month anniversary of the closing date.
On November 3, 2009, XSEL shareholders approved the election of Zheng Jingsheng and Harry Nam to serve on the board of directors.
Due to repositioning of the business to focus on the sports and entertainment sector, the Company has sold or may sell certain other non-core segments of its business which may give rise to potential significant non-cash impairment charges on goodwill and intangible assets.
Conference Call Information
Following the earnings announcement, XSEL's senior management will host a conference call on November 11, 2009 at 8:00PM (New York) / November 12, 2009 at 9:00AM (Beijing) to review the results and discuss recent business activities.
Interested parties may dial into the conference call at:
(US) +1 866 711 8198 or +1 617 597 5327
(UK) +44 207 365 8426
(Mainland China) + 86 10 800 130 0399
(Hong Kong) +852 3002 1672
Passcode: 95247814
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: 74590319
A real-time webcast and replay will be also available at: http://www.xsel.com/en/investor-relations/webcast/
Contacts:
Media Contact
Ms. Joy Tsang
XSEL
Tel: +86-10-8567-6050, +86-136-2179-1577
Email: joy.tsang@xsel.com
IR Contact
Mr. Edward Liu
XSEL
Tel: +86-10-8567-6061
Email: edward.liu@xsel.com
Mr. Howard Gostfrand
American Capital Ventures
Tel: +1-305-918-7000, toll free +1-877-918-0774
Email: info@amcapventures.com
About XSEL
Xinhua Sports & Entertainment Limited ("XSEL;" NASDAQ: XSEL) is a leading sports and entertainment media company in China. Catering to a vast audience of young and upwardly mobile customers, XSEL is well-positioned in China with its unique content and access. Through its key international partnerships, XSEL is able to offer its target audience the content they demand - premium sports and quality entertainment. Through its Chinese partnerships, XSEL is able to deliver this content across a broad range of platforms, including television, the internet, mobile phones and other multimedia assets in China. Along with its integrated advertising resources, XSEL offers a total solution empowering clients at every stage of the media, process linking advertisers with China's young and upwardly mobile demographic.
Headquartered in Beijing, the Company employs more than 1,000 people and has offices and affiliates in major cities throughout China including Beijing, Shanghai, Guangzhou, Shenzhen and Hong Kong. The Company's American Depository Shares are listed on the NASDAQ Global Market (NASDAQ: XSEL). For more information, please visit http://www.xsel.com .
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 other similar statements. Among other things, the quotations from management in this announcement, as well as XSEL's strategic and operational plans, contain forward-looking statements. XSEL 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 XSEL'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 markets; 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. XSEL does not undertake any obligation to update any forward-looking statement, except as required under applicable law.
Non-GAAP Financial Measures
To supplement XSEL's consolidated financial results under U.S. GAAP, XSEL also provides the following non-GAAP financial measures: "adjusted gross profit" defined as gross profit excluding amortization of intangible assets from acquisitions; "adjusted EBITDA" defined as net income (loss) attributable to XSEL before one time items, other income (expense), taxes, depreciation, amortization of intangible assets from acquisitions, net income (loss) attributable to non-controlling interests and share-based compensation expenses; and "adjusted net income" defined as net income (loss) attributable to XSEL before one-time items, amortization of intangible assets from acquisitions, share-based compensation expenses and imputed interest. XSEL believes that these non-GAAP financial measures provide investors with another method for assessing XSEL'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 8 (Reconciliation of non-GAAP financial results) of this release.
XSEL 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 provide additional details on the reconciliation 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 8: Reconciliation of non-GAAP financial results
3 months 3 months 3 months
ended ended ended
Sep 30, Sep 30, Jun 30,
In US millions 2009 2008 2009
Net loss attributable to XSEL (10.6) (15.9) (2.1)
One-time items(1) 1.1 0.6 --
Amortization of intangible assets from
acquisitions 2.2 3.4 2.2
Share-based compensation expenses 0.4 1.3 0.6
Depreciation 0.5 0.8 0.6
Other expenses 11.3 18.6 4.0
Provision for income taxes 0.1 0.5 0.3
Net (loss) income attributable to
non-controlling interests (0.4) 0.2 0.1
Adjusted EBITDA 4.6 9.5 5.7
Net loss attributable to XSEL (10.6) (15.9) (2.1)
One-time items(1) 8.5 17.0 (1.2)
Amortization of intangible assets from
acquisitions 2.2 3.4 2.2
Share-based compensation expenses 0.4 1.3 0.6
Imputed interest(2) 2.9 1.6 3.4
Adjusted net income 3.4 7.4 2.9
(1) One-time items are those that we believe are not indicative of future
performance. The one-time items of $1.1 million added back to adjusted
EBITDA for the third quarter of 2009 mainly represent certain one-time
legal and professional fees. The one-time items of $8.5 million added
back to adjusted net income for the third quarter of 2009 mainly
represent a non-cash fair value charge of $7.6 million on the
conversion feature of the convertible loan (please refer to Note (9)
to financial information for details). Due to the adoption of EITF
07-5 in 2009, we are required to remeasure the fair value of the
conversion feature of the loan every quarter. Given the increase in
share price between the second and third quarters of 2009, the
conversion feature of the loan was remeasured at $3.1 million in the
second quarter of 2009 and $10.7 million in the third quarter of 2009.
As a result, we recorded a non-cash fair value charge of $7.6 million
in the third quarter of 2009. The fair value of the conversion feature
may have a recurring impact in subsequent periods.
(2) Imputed interest for the third quarter of 2009 is related to
intangible assets from long-term contracts and the convertible loan.
Net income (loss) and adjusted net income per ADS are shown in Chart 9:
Chart 9: Net income (loss) and adjusted net income per ADS(1)
3 months 3 months 3 months
ended ended ended
Sep 30, Sep 30, Jun 30,
In US dollars 2009 2008 2009
Net income (loss) per ADS - basic from
continuing operations $(0.14) $(0.24) $(0.04)
Net income (loss) per ADS - basic from
discontinued operations $0.00 $0.00 $0.00
Net income (loss) per ADS - basic $(0.14) $(0.24) $(0.04)
Net income (loss) per ADS - diluted from
continuing operations $(0.14) $(0.24) $(0.04)
Net income (loss) per ADS - diluted from
discontinued operations $0.00 $0.00 $0.00
Net income (loss) per ADS - diluted $(0.14) $(0.24) $(0.04)
77.6 68.2 76.0
Weighted average number of ADS - basic million million million
77.6 68.2 76.0
Weighted average number of ADS - diluted million million million
Adjusted net income per ADS - basic from
continuing operations $0.04 $0.10 $0.03
Adjusted net income per ADS - basic from
discontinued operations $0.00 $0.00 $0.00
Adjusted net income per ADS - basic $0.04 $0.10 $0.03
Adjusted net income per ADS - diluted from
continuing operations $0.04 $0.10 $0.03
Adjusted net income per ADS - diluted from
discontinued operations $0.00 $0.00 $0.00
Adjusted net income per ADS - diluted $0.04 $0.10 $0.03
77.6 68.2 76.0
Weighted average number of ADS - basic million million million
77.8 71.8 76.0
Weighted average number of ADS - diluted million million 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. Accordingly, dividends on Series B redeemable
convertible preference shares of $0.6 million were taken into account
for the second and third quarter of 2009, and the third quarter of
2008.
Condensed Consolidated Balance Sheet
(In U.S. dollars) Sep 30, 2009 Dec 31, 2008
Unaudited As adjusted
(Note 1) (Note 1)
Assets
Current assets:
Cash and cash equivalents 14,002,591 54,088,842
Short term deposit -- 2,940,051
Restricted cash (Note 2) 35,680,000 37,510,000
Accounts receivable, net of allowance for
doubtful debts (Note 3) 40,970,893 44,762,902
Prepaid program expenses 3,472,816 2,324,253
Consideration receivable from disposal of
subsidiaries (Note 4) 45,640,000 36,970,590
Other current assets 28,908,548 14,902,170
Assets held for sale (Note 5) 8,191,672 --
Total current assets 176,866,520 193,498,808
Content production cost, net 18,507,436 --
Property and equipment, net 5,765,973 6,590,790
Intangible assets, net (Note 6) 280,091,343 200,528,583
Goodwill 92,142,169 46,992,724
Investment 13,508,239 13,508,239
Deposits for investments (Note 7) 15,161,676 14,174,566
Consideration receivable from disposal of
subsidiaries (Note 4) 26,756,293 28,285,035
Other long-term assets 8,912,919 4,671,591
Total assets 637,712,568 508,250,336
Liabilities, mezzanine equity and total equity
Current liabilities:
Bank borrowings (Note 8) 40,884,849 36,374,198
Other current liabilities 100,982,675 69,900,342
Liabilities held for sale (Note 5) 1,246,447 --
Total current liabilities 143,113,971 106,274,540
Deferred tax liabilities 35,380,746 31,679,491
Convertible loan (Note 9) 64,971,085 33,200,000
Long-term liabilities, non-current portion 127,211,464 68,305,496
Total liabilities 370,677,266 239,459,527
Mezzanine equity:
Series B redeemable convertible preferred
shares 32,485,591 30,605,591
XSEL shareholders' equity:
Class A common shares 122,024 104,302
Additional paid-in capital 495,857,809 481,318,345
Accumulated deficits (270,753,657) (252,968,439)
Accumulated other comprehensive income 6,428,006 7,165,833
Total 231,654,182 235,620,041
Non-controlling interests 2,895,529 2,565,177
Total equity 234,549,711 238,185,218
Total liabilities, mezzanine equity and total
equity 637,712,568 508,250,336
Condensed Consolidated Statement of Operations
3 months 3 months 3 months 9 months
ended ended ended ended
(In U.S. Dollars) Sep 30, 2009 Sep 30, 2008 Jun 30, 2009 Sep 30, 2009
Unaudited Unaudited Unaudited Unaudited
As adjusted
(Note 1) (Note 1) (Note 1) (Note 1)
Net revenues:
Advertising
services 22,328,133 25,996,728 21,166,243 57,737,317
Content
production 117,123 7,807,840 207,980 1,203,316
Advertising
sales 16,989,967 15,696,762 17,300,285 43,545,017
Publishing
services 115,137 61,757 133,522 347,771
Total net
revenues 39,550,360 49,563,087 38,808,030 102,833,421
Cost of revenues:
Advertising
services 16,915,624 18,698,951 15,261,154 42,202,851
Content
production 174,292 4,192,846 249,872 756,337
Advertising
sales 13,184,356 8,457,096 13,204,429 31,902,114
Publishing
services 82,740 334,708 221,450 506,785
Total cost of
revenues 30,357,012 31,683,601 28,936,905 75,368,087
Operating expenses:
Selling and
distribution 3,908,095 3,533,088 3,538,980 10,719,637
General and
administrative
(Note 3) 6,459,019 11,575,614 5,609,771 19,482,856
Total operating
expenses 10,367,114 15,108,702 9,148,751 30,202,493
Other operating
income 1,436,564 520,057 1,515,604 3,364,316
Operating income
from continuing
operations 262,798 3,290,841 2,237,978 627,157
Other expenses
(Note 10) 11,342,931 18,571,876 3,984,469 16,516,181
Loss from
continuing
operations before
provision for
income taxes (11,080,133) (15,281,035) (1,746,491) (15,889,024)
Provision for
income taxes 147,956 518,027 298,022 829,639
Net loss from
continuing
operations (11,228,089) (15,799,062) (2,044,513) (16,718,663)
Discontinued
operations
(Note 5):
Income from
discontinued
operations 285,994 195,906 58,566 376,287
Provision for
income taxes 57,236 53,797 28,961 108,421
Discontinued
operations, net
of taxes 228,758 142,109 29,605 267,866
Net loss (10,999,331) (15,656,953) (2,014,908) (16,450,797)
Net (loss) income
attributable to
non-controlling
interests (418,687) 217,192 135,029 (585,579)
Net loss
attributable to
XSEL (10,580,644) (15,874,145) (2,149,937) (15,865,218)
Dividend declared
on Series B
redeemable
convertible
preferred shares 640,000 600,000 640,000 1,920,000
Net loss
attributable to
holders of common
shares (11,220,644) (16,474,145) (2,789,937) (17,785,218)
Net income (loss)
per share:
Basic and diluted
from continuing
operations -
Common shares (0.07) (0.12) (0.02) (0.12)
Basic and diluted
from discontinued
operations -
Common shares 0.00 0.00 0.00 0.00
Basic and diluted
- Common shares (0.07) (0.12) (0.02) (0.12)
Basic and diluted
from continuing
operations -
American
Depositary Shares (0.14) (0.24) (0.04) (0.23)
Basic and diluted
from discontinued
operations -
American
Depositary Shares 0.00 0.00 0.00 0.00
Basic and diluted
- American
Depositary Shares (0.14) (0.24) (0.04) (0.23)
Condensed Consolidated Statement of Cash Flow
3 months 3 months 3 months 9 months
ended ended ended ended
(In U.S. Dollars) Sep 30, 2009 Sep 30, 2008 Jun 30, 2009 Sep 30, 2009
Unaudited Unaudited Unaudited Unaudited
Net cash (used in)
provided by
operating
activities (450,019) 3,196,632 625,814 2,275,276
Net cash (used in)
provided by
investing
activities (5,515,755) 4,983,018 (8,431,705) (28,025,014)
Net cash used in
financing
activities (12,339,519) (20,074,854)(20,089,469) (12,412,944)
Effect of exchange
rate changes (3,529) 156,411 42,705 (24,925)
Net decrease in
cash and cash
equivalents (18,308,822) (11,738,793)(27,852,655) (38,187,607)
Cash and cash
equivalents, as
at beginning of
the period 32,329,314 57,073,797 59,274,949 54,088,842
Less: Cash and
cash equivalents
at end of period
from discontinued
operations (17,901) -- 907,020 (1,898,644)
Cash and cash
equivalents, as
at end of the
period 14,002,591 45,335,004 32,329,314 14,002,591
Notes to Financial Information
1) Condensed consolidated financial information
Effective from January 1, 2009, the Company adopted Statement of Financial Accounting Standards No. 160, "Non-controlling Interest in Consolidated Financial Statements - An amendment of Accounting Research Bulletin No. 51" ("SFAS No. 160"), which changed the accounting for and the reporting of minority interest, now referred to as non-controlling interests, in our condensed consolidated financial information. The adoption of SFAS No. 160 resulted in the reclassification of amounts previously attributable to minority interest to a separate component of shareholders' equity titled "Non-controlling Interests" in the accompanying condensed consolidated balance sheet. Additionally, net loss attributable to non-controlling interests was shown separately from net loss in the accompanying condensed consolidated statement of operations. Prior period financial information has been reclassified to conform to the current period presentation as required by SFAS No. 160. In addition, due to the sale of Hyperlink, the Company's research services business, in October 2009, the historical operating results were reported as "discontinued operations" for all periods presented in the accompanying condensed consolidated statement of operations.
2) Restricted cash
Restricted cash was US dollar cash deposits pledged for the RMB loan facilities granted by banks for RMB working capital purposes.
3) Accounts receivable, net of allowance for doubtful debts and debtors turnover
Debtors turnover for the second quarter and third quarter of 2009 were 81 days and 89 days respectively. Our business groups generally grant 90 days to 180 days as the average credit period to major customers, which is in line with the industry practices in the PRC. The Company recorded a recovery of doubtful debts of $3.0 million in general and administrative expenses in 2009 and accordingly wrote back the allowance for doubtful debts previously provided in prior periods.
4) Consideration receivable from disposal of subsidiaries
On September 30, 2009, the Company recorded current and non-current consideration receivable from disposal of subsidiaries of $45.6 million and $26.8 million respectively. This represented the consideration receivable for the disposal of our 85% shareholding of Convey in December 2008.
5) Assets and liabilities held for sale and discontinued operations
On September 30, 2009, the Company recorded assets and liabilities held for sale of $8.2 million and $1.2 million respectively. Due to the sale of Hyperlink, the Company's research services business, in October 2009, the results of operations were separately reported as "discontinued operations" and its assets and liabilities have been reclassified as "assets and liabilities held for sale". Such sale was completed on October 20, 2009.
6) Intangible assets
The carrying value of intangible assets on September 30, 2009 was $280.1 million. This mainly represented the carrying value of the long-term advertising agreements for the Broadcast and Print groups. The carrying value of the intangible assets were composed of a $183.2 million advertising license agreement for our TV business, a $73.2 million exclusive advertising agreement for our newspaper business and $23.7 million of other intangible assets.
7) Deposits for investments
The Company has paid a deposit of $10 million and an advance of $5.2 million to provide advertising services to the pay channels in the PRC. These amounts are refundable unless certain closing conditions are met. On September 30, 2009, there were uncertainties as to whether these closing conditions can be met.
8) Bank borrowings
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 bank borrowings. 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. On October 1, 2009, the Company settled this dispute with UBS Financial Services and UBS AG without further financial impact.
9) Convertible loan
The Company entered into a secured convertible loan facility for up to $80.0 million from Patriarch Partners LLC, a global investment firm based in New York and currently one of our major shareholders. As of September 30, 2009, the Company had drawn $57.8 million through this loan facility (the "convertible loan"). In 2009, the Company was required to adopt EITF Issue 07-5, "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock" ("EITF 07-5") which applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative for purposes of determining whether that instrument or embedded feature is indexed to an entity's own stock. EITF 07-5 states that an entity shall evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock using the two-step approach of 1) Evaluating the instrument's contingent exercise provisions, if any; and 2) Evaluating the instrument's settlement provisions. After the adoption of EITF 07-5, the conversion feature of the convertible loan was measured at fair value. The change in fair value was recorded in the other income (expenses) in the consolidated statements of operations. The Company recorded convertible loan of $65.0 million on September 30, 3009 and a non-cash fair value charge on convertible loan of $7.6 million for the third quarter of 2009.
10) Other expenses
Other income (expense) includes net interest income (expense) and net other income (expense). The Company recorded a non-cash fair value charge on convertible loan of $7.6 million in other expenses, in accordance with EITF 07-5, for the third quarter of 2009.
SOURCE Xinhua Sports & Entertainment Limited
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