BEIJING, May 10 /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 fourth
quarter and full year ended December 31,
2009.
Fourth Quarter 2009 Highlights
-- Net revenue was $26.7 million (excluding discontinued operations)
-- Adjusted EBITDA (non-GAAP) was $(6.7) million
-- Adjusted net loss (non-GAAP) was $7.0 million
-- Net loss attributable to XSEL (GAAP) was $295.7 million
-- The Company recorded exceptional items from continuing operations and
discontinued operations of $185.1 million and $98.2 million
respectively
Full Year 2009 Highlights
-- Net revenue was $99.2 million (excluding discontinued operations)
-- Adjusted EBITDA (non-GAAP) was $4.9 million
-- Adjusted net income (non-GAAP) was $0.1 million
-- Net loss attributable to XSEL (GAAP) was $311.6 million
Fredy Bush, XSEL's CEO said,
"Over the past year, in our continued endeavor of repositioning the
Company to focus on sports media, a number of non-core businesses
have been sold or closed, including market research, radio,
magazines and production operations, and the broadcast advertising
assets have been restructured. The Company's remaining assets in
broadcast and advertising continue to provide a solid base for
expansion in the area of sports media. Under broadcast, the Company
continues its operations in one free-to-air TV channel, 5 cable TV
channels, and mobile phones. With the newly acquired business in
internet broadband distribution, XSEL continues to have access to a
broad distribution network to reach China's viewers as well as mobile phone and
internet users interested in XSEL's content offering in sports and
entertainment, and our sports content offerings remain strong.
Under the Advertising Group, XSEL continues to be a market leader
in below-the-line marketing services and internet property
advertising.
In October 2009, new regulations
governing television advertising times and scope of advertising
were announced which had a significant impact on China's entire television market, including
our broadcast business, in the fourth quarter of 2009. Under the
new regulations, the time allowed for brand advertisements in each
hour and the amount of time allotted for infomercials has been cut
substantially. We estimate it will be 2011 before we can fully
recover from this unexpected regulatory change, but we are taking
steps to offset the impact and rebuild the business around these
rules. We have already successfully raised the price on our rate
card for branded advertisements by 30% as a result of the smaller
supply of advertising minutes.
Also in the broadcast area, Power Sports, China's first ever nationwide high definition
cable sports channel, will be launched on May 20, 2010. XSEL will exclusively bring the
very best in international fight programming to the high definition
sports channel. XSEL will provide the channel with domestic and
international fight content, promote the channel throughout the
country and secure all sponsorship and advertising. The channel
will focus on high energy male oriented programming including fight
and contact sports. Power Sports will broadcast domestic and
international martial arts, mixed martial arts, boxing, taekwondo,
wrestling, sanda, kickboxing, kendo, sumo, karate, as well as
documentaries and reality shows relating to fight sports and the
upcoming NFL and NHL seasons. As a cable channel, Power Sports is
not subject to the new television advertising regulations.
In the first quarter of 2010, we acquired NuBB, China's top broadband sports internet portal
with 8.5 million registered users, 1.5 million daily click-throughs
to sports video highlights, and over 18 million monthly unique
visitors. NuBB is a key part of our plan to enhance our online
distribution and penetration of sports media. We have also entered
into an agreement to acquire China Sports Media, the largest sports
media rights distributor in this market.
As a result of this acquisition, Mr. L.C. Chang has joined our management team as
Company President. Mr. Chang previously served as Executive
Vice-President and Chief Marketing Officer of Sina.com responsible
for its global operations, brand integration, marketing and online
media sales. Mr. Allen Hsu has also
joined the XSEL board as an independent director. Mr. Hsu is
Chairman of Pac-Link Management Corporation, a Taiwan-based venture capital firm founded in
1998.
The Company is continuing the repositioning of its business and
moving ahead with its sports media strategy. Accordingly, the
Company has engaged Houlihan Lokey
as an adviser to restructure its convertible loan as well as to
advise on continued repositioning of the Company, and has engaged
Deutsche Bank as its financial adviser to assist in assessing fund
raising options."
Fourth Quarter and Full Year 2009 Financial Results
Chart 1: Summary of 2008 fourth quarter and 2009 fourth and third
quarter results
3 months 3 months 3 months 09Q4 vs 09Q4 vs
ended ended ended 08Q4 09Q3
Dec 31, Dec 31, Sep 30, Growth Growth
In US millions 2009 2008 2009 % %
Net revenue(1) 26.7 35.8 30.3 -25% -12%
Adjusted EBITDA
(non- GAAP)(2) (6.7) 5.2 4.6 N/A N/A
Net loss
attributable to
XSEL (295.7) (251.5) (10.6) -18% -2,695%
Exceptional
items(3) 283.3 245.6 8.5 N/A N/A
Net loss
attributable to
XSEL before
exceptional items
(non- GAAP) (12.4) (5.9) (2.1) -112% -474%
Adjusted net
(loss) income
(non- GAAP)(2) (7.0) 3.3 3.4 N/A N/A
(1) The amount represents net revenue of the continuing operations,
excluding net revenues of discontinued operations. Due to the sale of
Shanghai Hyperlink Market Research Co., Ltd. ("Hyperlink"), Beijing
Shiji Guangnian Advertising Co., Ltd. ("Shiji Guangnian") and
Guangzhou Singshine Communication Co., Ltd. ("SSC") in 2009, and the
planned sale of Beijing JinGuan XinCheng Advertising Co., Ltd.
("XinCheng") and Beijing EWEO Advertising Co., Ltd. ("EWEO") in 2010
as well as the closure of EconWorld Media Ltd. ("EconWorld"), Beijing
Century Media Culture Co., Ltd. ("Century Media"), Upper Step Holdings
Limited ("Upper Step"), Beijing Perspective Orient Movie and
Television Intermediary Co., Ltd. ("Perspective") and Small World
Television Limited ("Small World") in 2010, the results of operations
were separately reported as "discontinued operations" and comparative
numbers were reclassified accordingly.
(2) Please refer to Chart 11 (Reconciliation of non-GAAP financial results)
for details of calculation of adjusted EBITDA (non-GAAP) and adjusted
net income (non-GAAP).
(3) Please refer to Chart 12 for the breakdown.
Chart 2: Summary of full year 2009 and 2008 results
12 months 12 months
ended ended Growth
In US millions Dec 31, 2009 Dec 31, 2008 %
Net revenue(1) 99.2 121.5 -18%
Adjusted EBITDA
(non- GAAP)(2) 4.9 28.4 -83%
Net loss
attributable to
XSEL (311.6) (274.9) -13%
Exceptional
items(3) 290.6 263.3 N/A
Net loss
attributable to
XSEL before
exceptional items
(non- GAAP) (21.0) (11.6) -80%
Adjusted net
income (non-
GAAP)(2) 0.1 19.8 -100%
(1) The amount represents net revenue of the continuing operations,
excluding net revenues of discontinued operations. Due to the sale of
Hyperlink, Shiji Guangnian and SSC in 2009, and the planned sale of
XinCheng and EWEO in 2010 as well as the closure of EconWorld, Century
Media, Upper Step, Perspective and Small World in 2010, the results of
operations were separately reported as "discontinued operations" and
comparative numbers were reclassified accordingly.
(2) Please refer to Chart 11 (Reconciliation of non-GAAP financial results)
for details of calculation of adjusted EBITDA (non-GAAP) and adjusted
net income (non-GAAP).
(3) Please refer to Chart 12 for the breakdown.
The Company had impairment and write-off charges of $202.4 million in relation to the continuing
operations for the year ended December 31,
2009, primarily consisting of (i) impairment of goodwill,
intangible assets as well as television program and film right of
$71.4 million, $84.2 million and $14.2
million respectively, which was principally the result of
the release of Rule 61 ("Rule 61") in October 2009 by the State Administration of
Radio, Film and Television, which substantially cuts the time
allowed for brand advertisements in each hour and the amount of
time allotted for infomercials, the loss of major customers to
competitors in the Advertising Group and the failure to renew an
agency contract for internet property advertising; and (ii)
provision of $25.6 million on the
consideration receivable from the disposal of the 85% shareholding
of Convey, driven by the uncertain visibility for settlement
determined during the fourth quarter of 2009.
The Company did not meet certain financial covenants contained
in the secured convertible loan facility from Patriarch Partners
LLC ("Patriarch") for the quarter ended December 31, 2009. Accordingly, as Patriarch has
the right to require the Company to repay the outstanding balance
of $57.8 million, the convertible
loan was reclassified as a current liability in the Balance Sheet.
The Company might not have enough cash to repay the above mentioned
convertible loan, if it is called, or to settle other payment
obligations in the next 12 months. However, the management of the
Company is taking a number of actions to address this situation.
These actions include the engagement by the Company of Houlihan Lokey as adviser to restructure the
convertible loan as well as to advise on continued repositioning of
the Company, the engagement of Deutsche Bank as its financial
adviser to assist in assessing fund raising options, and the
planned sale of XinCheng and EWEO.
After the current round of repositioning, the Company's
remaining assets in broadcast and advertising divisions continue to
provide a solid base for expansion in the area of sports media.
Under broadcast, the Company continues its operation in one
free-to-air TV channel, 5 cable pay-TV channels, and mobile. With
the newly acquired business in internet broadband distribution,
XSEL continues to have access to a broad distribution network to
reach China viewers as well as
mobile phone and internet users who are interested in XSEL's
content offering in sports and entertainment. Under the Advertising
Group, XSEL continues to be a market leader in below-the-line
marketing services and internet property advertising.
Net Revenue
Net revenue for the fourth quarter of 2009 was $26.7 million, down 25% year-on-year from
$35.8 million in the fourth quarter
of 2008 or down 12% sequentially from $30.3
million in the third quarter of 2009. The year-on-year
decrease was primarily due to the divestment of non-core businesses
and the sequential decrease was primarily due to impact of Rule 61
on the broadcast business and the underperformance of internet
advertising sales business for the Advertising Group.Net revenue
for the full year 2009 was $99.2
million, down 18% from $121.5
million in the full year 2008. The decrease was primarily
due to the divestment of non-core businesses.
Net Revenue by type and business group
Chart 3: Net revenue by type and business group for
the fourth quarter of 2009
In US$ millions Broadcast Advertising Total
Net revenue:
Advertising
services 4.3 17.3 21.6
Advertising
sales 4.8 0.3 5.1
Total net
revenue 9.1 17.6 26.7
Chart 4: Net revenue by type and business group for
full year 2009
In US$ millions Broadcast Advertising Total
Net revenue:
Advertising
services 16.3 61.7 78.0
Advertising
sales 20.8 0.4 21.2
Total net
revenue 37.1 62.1 99.2
Broadcast Group
Net revenue for the Broadcast Group for the fourth quarter of
2009 was $9.1 million, up 100%
year-on-year from $4.5 million in the
fourth quarter of 2008 or down 27% sequentially from $12.4 million in the third quarter of 2009. The
year-on-year increase was primarily due to the acquisition of
additional broadcast advertising rights and the sequential decline
was primarily due to Rule 61. Net revenue for the Broadcast Group
for the full year 2009 was $37.1
million, up 182% from $13.2
million in the full year 2008. The increase was primarily
due to the acquisition of additional broadcast advertising
rights.
Due to the adoption of Rule 61 issued in October 2009 which strictly controls the
advertising time and the scope of advertisements in television, the
Company estimated that the operation of Upper Step and Perspective
would generate significant negative cash flow in coming years, and
accordingly these groups ceased operations at the end of 2009.
Chart 5: Revenue breakdown of the Broadcast Group
3 3 3 3 12 12
months months months months months months
ended ended ended ended ended ended
Dec Dec Dec Sep Dec Dec
In US 31, 31, Growth 31, 30, Growth 31, 31, Growth
millions 2009 2008 % 2009 2009 % 2009 2008 %
Broadcast(1):
Television 4.8 - N/A 4.8 8.2 -41% 20.8 - N/A
Mobile 4.3 4.5 -6% 4.3 4.2 1% 16.3 13.2 24%
Subtotal: 9.1 4.5 100% 9.1 12.4 -27% 37.1 13.2 182%
(1) Due to the sale of Shiji Guangnian and SSC in 2009 and the closure of
Century Media, Upper Step, Perspective and Small World in 2010, the
historical results were reported as "discontinued operations" for all
periods presented.
Advertising Group
Net revenue for the Advertising Group for the fourth quarter of
2009 was $17.6 million, down 44%
year-on-year from $31.3 million in
the fourth quarter of 2008 or down 1% sequentially from
$17.9 million in the third quarter of
2009. The year-on-year decrease was primarily due to the divestment
of non-core businesses. Net revenue for the Advertising Group for
the full year 2009 was $62.1 million,
down 43% from $108.3 million in the
full year 2008. The decrease was primarily due to the divestment of
non-core businesses.
Chart 6: Revenue breakdown of the Advertising Group
3 3 3 3 12 12
months months months months months months
ended ended ended ended ended ended
Dec Dec Dec Sep Dec Dec
In US$ 31, 31, Growth 31, 30, Growth 31, 31, Growth
millions 2009 2008 % 2009 2009 % 2009 2008 %
Advertising:
Print
/Online 6.1 9.8 -38% 6.1 8.0 -24% 23.7 44.0 -46%
Outdoor
/Other(1) 3.0 7.5 -59% 3.0 2.3 33% 9.3 29.4 -68%
BTL
Marketing 8.5 14.0 -39% 8.5 7.6 12% 29.1 34.9 -17%
Subtotal (2): 17.6 31.3 -44% 17.6 17.9 -1% 62.1 108.3 -43%
(1) On December 31, 2008, the Company divested its Hong Kong based outdoor
advertising business, Convey Advertising Company Ltd. ("Convey"),
which contributed $5.3 million and $21.4 million to net revenue in the
fourth quarter and full year 2008, respectively.
(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.
Gross Profit
Gross profit (loss) for the fourth quarter of 2009 was
$(1.4) million, down from
$13.0 million in the fourth quarter
of 2008, or down sequentially from $5.5
million in the third quarter of 2009. Gross profit for the
full year 2009 was $13.8 million,
down 66% from $40.8 million in full
year 2008. Adjusted gross profit (loss) (non-GAAP) for the fourth
quarter of 2009 was $(0.8) million,
down year-on-year from $14.0 million
in the fourth quarter of 2008 or down sequentially from
$6.2 million in the third quarter of
2009. Adjusted gross profit (non-GAAP) for the full year 2009 was
$15.9 million, down 64% from
$44.8 million in full year 2008. The
gross loss and adjusted gross loss for the fourth quarter of 2009
was mainly due to the divestments, the impact of Rule 61 and the
underperformance of the internet advertising sales business, which
led to a decline in net revenue while certain cost of revenues are
fixed. The year-on-year decrease of both gross profit and adjusted
gross profit was a result of the factors previously described in
the net revenue section.
We provide the adjusted gross profit metric to break out the
amortization of intangible assets from acquisitions charged within
the cost of revenue. Charts 7 and 8 (Reconciliation for adjusted
gross profit by business group) provide the breakdown of adjusted
gross profit by business group. Due to the sale of Hyperlink, Shiji
Guangnian and SSC in 2009, and the planned sale of XinCheng and
EWEO in 2010, as well as the closure of EconWorld, Century Media,
Upper Step, Perspective and Small World in 2010, the results of
operations were separately reported as "discontinued operations"
and comparative numbers were reclassified accordingly.
Chart 7: Reconciliation for adjusted gross profit by
business group for the fourth quarter of 2009
In US$ millions Advertising Broadcast Total
Gross Profit 0.6 (2.0) (1.4)
Amortization of intangible
assets from acquisitions(1) - 0.6 0.6
Adjusted gross profit 0.6 (1.4) (0.8)
(1) Amortization of intangible assets from acquisitions includes license
rights, exclusive advertising rights and licensing agreement.
Chart 8: Reconciliation for adjusted gross profit by
business group for full year 2009
In US$ millions Advertising Broadcast Total
Gross Profit 14.1 (0.3) 13.8
Amortization of intangible
assets from acquisitions(1) - 2.1 2.1
Adjusted gross profit 14.1 1.8 15.9
(1) Amortization of intangible assets from acquisitions includes license
rights, exclusive advertising rights and licensing agreement.
Operating Expenses
Operating expenses were composed of selling and distribution
expenses, general and administrative expenses, impairment and
write-off charges and loss on disposal of subsidiaries. Operating
expenses for the fourth quarter of 2009 including impairment and
write-off charges were $213.6
million. Excluding impairment and write-off charges of
$202.4 million, operating expenses
were $11.2 million (non-GAAP), down
46% year-on-year and up 66% sequentially. The year-on-year decrease
is mainly due to a decrease in selling and distribution expenses in
line with decreased revenue and a decrease in share-based
compensation expense. The sequential increase is primarily due to a
one-time increase in legal and professional fees and the specific
provisions on accounts receivable made in the fourth quarter of
2009. Operating expenses for the full year 2009 including
impairment and write-off charges were $235.7
million. Excluding impairment and write-off charges of
$202.4 million, operating expenses
were $33.2 million (non-GAAP), down
41% over the full year 2008. The decrease is mainly due to a
decrease in selling and distribution expenses in line with
decreased revenue, a decrease in share-based compensation expenses
and collection of accounts receivable previously recorded as
doubtful debts.
Selling and distribution expenses for the fourth quarter of 2009
were $2.0 million, down 56%
year-on-year from $4.5 million in the
fourth quarter of 2008, or up 4% sequentially from $1.9 million in the third quarter of 2009.
Selling and distribution expenses for the full year 2009 were
$7.7 million, down 28% year-on-year
from $10.7 million in the full year
2008.
General and administrative expenses for the fourth quarter of
2009 were $9.2 million, down 43%
year-on-year from $16.1 million in
the fourth quarter of 2008, or up 90% sequentially from
$4.9 million in the third quarter of
2009. The sequential increase is primarily due to a one-time
increase in legal and professional fees and the specific provisions
on accounts receivable made in the fourth quarter of 2009. General
and administrative expenses for the full year 2009 were
$25.5 million, down 44% year-on-year
from $45.6 million in the full year
2008.
The general and administrative expenses for the full year and
fourth quarter 2009 included share-based compensation expenses of
$2.4 million and $0.5 million respectively.
The Company recorded exceptional items (net of tax) from
continuing operations of $185.1
million in the fourth quarter of 2009. This is mainly
composed of impairment and write-off charges of $202.4 million, the net deferred tax credit of
$3.9 million resulting from the
impairment of intangible assets, a change in fair value on the
convertible loan of $5.9 million and
a net gain on settlement of a litigation case of $13.5 million. Please refer to Chart 12 for
details.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA (non-GAAP) for the fourth quarter of 2009 was
$(6.7) million, down year-on-year
from $5.2 million in the fourth
quarter of 2008 or down sequentially from $4.6 million in the third quarter of 2009.
Adjusted EBITDA (non-GAAP) for full year 2009 was $4.9 million, down 83% from $28.4 million in the full year 2008. The
sequential decrease of adjusted EBITDA was mainly due to the impact
of Rule 61 on the broadcast business and the underperformance in
the internet advertising sales business. The year-on-year decrease
was mainly due to the divestment of non-core businesses.
We provide the adjusted EBITDA metric because it allows
management, investors and others to evaluate and compare our core
operating results without the impact of impairment and write off
charges, and certain non-cash items that we believe are not
indicative of future performance. See
Chart 11 for the non-GAAP reconciliation of the adjusted
EBITDA.
Chart 9: Adjusted EBITDA by business group for the fourth
quarter of 2009
In US$ millions Advertising Broadcast Print Total
Adjusted EBITDA by
business group (1.9) (4.0) 2.0 (3.9)
Less: net head office
expenses - - - (2.8)
Adjusted EBITDA - - - (6.7)
Chart 10: Adjusted EBITDA by business group for full year 2009
In US$ millions Advertising Broadcast Print Total
Adjusted EBITDA by
business group 6.3 2.1 7.3 15.7
Less: net head office
expenses - - - (10.8)
Adjusted EBITDA - - - 4.9
Net Loss attributable to XSEL and Adjusted Net Income
(non-GAAP)
Net loss for the fourth quarter of 2009 including exceptional
items was $295.7 million. Excluding
the exceptional items of $283.3
million, net loss was $12.4
million (non-GAAP). Net loss for the full year 2009
including exceptional items was $311.6
million. Excluding the exceptional items of $290.6 million, net loss was $21.0 million (non-GAAP).
Adjusted net income (loss) (non-GAAP) for the fourth quarter of
2009 was $(7.0) million, down
year-on-year from $3.3 million in the
fourth quarter of 2008, or down sequentially from $3.4 million in the third quarter of 2009.
Adjusted net income (non-GAAP) for full year 2009 was $0.1 million, down 100% year-on-year from
$19.8 million in the full year 2008.
The sequential decrease was mainly due to the impact of Rule 61 on
the broadcast business and the underperformance in the internet
advertising sales business. The year-on-year decrease was mainly
due to the divestment of non-core businesses.
We provide the adjusted net income metric because it allows
management, investors and others to evaluate our net income without
the impact of certain exceptional and non-cash items that we
believe are not indicative of future performance. See Chart 11 for the non-GAAP reconciliation of
the adjusted net income (loss).
Other Corporate Developments
On December 4, 2009, the Company
entered into an agreement to acquire China Sports Media ("CSM"),
China's leading sports media
rights distributor. CSM has popular domestic, Asia, and other content including the China
Basketball Association (CBA), China Soccer League (CSL), AFC
Champions League, Soccer's World Cup Qualifiers, AFC Asian Cup,
Mission Hills Golf World Cup, FIFA Club World Cup, FIVB Volleyball
World Championships and others.
On March 11, 2010, the Company
completed the acquisition of NuCom Online Corporation ("NuCom").
NuCom is a leading sports media company which owns China's largest sports portal, NuBB (
http://sports.nubb.com/ ). As a result of the transaction,
shareholders of NuCom including KPCB China and NBA China have
become shareholders of XSEL and Mr. Allen
Hsu has joined XSEL as a new independent director of the
board.
On May 20, 2010, China's first ever nationwide high definition
cable sports channel, Power Sports, will be launched. XSEL will
exclusively bring the very best in international fight programming
to the high definition sports channel. XSEL will provide the
channel with domestic and international fight content, promote the
channel throughout the country and secure all sponsorship and
advertising. The channel will focus on high energy male oriented
programming including fight and contact sports. As a cable channel,
Power Sports is not subject to the new television advertising
regulations.
Conference Call Information
Following the earnings announcement, XSEL's senior management
will host a conference call on May 10,
2010 at 8:00PM (New York) /
May 11, 2010 at 8:00AM (Beijing) to review the results and
discuss recent business activities.
Interested parties may dial into the conference call at:
(US) +1 800 510 0178 or +1 617 614 3450
(UK) +44 207 365 8426
(Mainland China) + 86 10 800 130 0399
(Hong Kong) +852 3002 1672
Passcode: 11315182
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: 39523661
A real-time webcast and replay will be also available at:
http://www.xsel.com/earnings-webcast .
For more information, please contact:
Media Contact
Ms. Joy Tsang, XSEL
Tel: +86 10 8567 6050
+86 136 2179 1577
Email: joy.tsang@xsel.com
IR Contact
Mr. Graham Earnshaw, XSEL
Tel: +86 10 8567 6062
Email: graham.earnshaw@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
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 has offices and affiliates in major cities throughout
China including 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", which is defined as gross profit excluding
amortization of intangible assets from acquisitions; "adjusted
EBITDA", which is defined as net income (loss) attributable to XSEL
before exceptional 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
(loss)", which is defined as net income (loss) attributable to XSEL
before exceptional 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 11 (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 adjusted gross
profit, adjusted EBITDA and adjusted net income (loss) 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 11: Reconciliation of non-GAAP financial results
3 3 3 12 12
months months months months months
In US millions ended ended ended ended ended
31- 31- 30- 31- 31-
Dec-09 Dec-08 Sep-09 Dec-09 Dec-08
Net loss
attributable to
XSEL (295.7) (251.5) (10.6) (311.6) (274.9)
Discontinued
operations, net of
taxes 101.6 70.3 0.4 100.1 66.3
Exceptional items(1) 206.4 169.0 0.8 207.3 170.2
Amortization of
intangible assets
from acquisitions 1.3 2.4 1.3 4.7 9.1
Share-based
compensation
expenses 0.5 4.4 0.5 2.4 12.3
Depreciation 0.2 0.4 0.2 1.1 1.4
Other (income)
expenses (14.8) 10.8 10.2 (2.1) 27.3
Provision for
income taxes (4.5) (1.2) 0.1 (4.1) 1.7
Net (loss) income
attributable to
non-controlling
interests (1.6) 0.1 (0.4) (2.2) 0.6
Adjusted EBITDA -
continuing
operations (6.6) 4.7 2.5 (4.4) 14.0
Discontinued
operations (0.1) 0.5 2.1 9.3 14.4
Adjusted EBITDA (6.7) 5.2 4.6 4.9 28.4
Net loss
attributable to
XSEL (295.7) (251.5) (10.6) (311.6) (274.9)
Discontinued
operations, net of
taxes 101.6 70.3 0.4 100.1 66.3
Exceptional items(1) 185.1 175.7 8.4 192.3 193.5
Amortization of
intangible assets
from acquisitions 1.3 2.4 1.3 4.7 9.1
Share-based
compensation
expenses 0.5 4.4 0.5 2.4 12.3
Imputed interest(2) 1.8 - 1.9 6.0 0.1
Adjusted net
(loss) income -
continuing
operations (5.4) 1.3 1.9 (6.1) 6.4
Discontinued
operations (1.6) 2.0 1.5 6.2 13.4
Adjusted net
(loss) income (7.0) 3.3 3.4 0.1 19.8
(1) Exceptional items are those that we believe are not indicative of
future performance. Please refer to Chart 12 for the breakdown.
(2) Imputed interest for 2009 is related to intangible assets from
long-term contracts and the convertible loan.
Chart 12: Breakdown of exceptional items
3 months 3 months 3 months 12 months 12 months
ended ended ended ended ended
Dec 31, Dec 31, Sep 30, Dec 31, Dec 31,
In US millions 2009 2008 2009 2009 2008
Goodwill(1) 71.4 137.4 - 71.4 137.4
Intangible
assets(1) 84.2 11.9 84.2 11.9
Consideration
receivable(2) 25.6 - - 25.6 -
Television
program and film
right(1) 14.2 - - 14.2 -
Content
production
costs(1) 2.1 - - 2.1 -
Property and
equipment 0.5 2.1 - 0.5 2.1
Other assets (3) 4.4 8.5 - 4.4 8.5
Impairment and
write off
charges -
continuing
operations 202.4 159.9 - 202.4 159.9
Accounts
receivable(4) 2.5 3.3 - 2.5 3.3
Loss on disposal
of subsidiaries
- 4.7 - - 4.7
One-time legal
and professional
fees(5) 1.0 1.1 0.8 1.8 2.3
Other expenses 0.5 - - 0.6 -
Exceptional
items recorded
in adjusted
EBITDA -
continuing
operations 206.4 169.0 0.8 207.3 170.2
Provision for
principal
protected note - 8.5 - - 25.0
Investments 2.0 1.3 - 2.0 1.3
Settlement of
UBS case(6) (13.5) - (13.5) -
Fair value
change on
convertible
loan(7) (5.9) - 7.6 0.4 -
Deferred tax
credit(8) (3.9) (3.1) - (3.9) (3.0)
Exceptional
items recorded
in adjusted net
income -
continuing
operations 185.1 175.7 8.4 192.3 193.5
Discontinued
operations 98.2 69.9 0.1 98.3 69.8
Total
exceptional
items 283.3 245.6 8.5 290.6 263.3
(1) The impairment and write-off charges were mainly driven by the
Company's repositioning in sports and entertainment, the impact of the
new regulations on television advertising and divestments of non-core
businesses and future cash flow forecast impacted by loss of certain
customers and contracts.
(2) Provision of $25.6 million was made on the consideration receivable
from the disposal of the 85% shareholding of Convey, in the fourth
quarter and full year 2009, driven by the uncertainty for settlement.
The Company is in discussions with the purchasers of Convey on a
settlement for the outstanding consideration receivable.
(3) Other assets for the fourth quarter and full year 2009 mainly
represented provision on other receivable due to divestments.
(4) The Company made specific provisions on accounts receivable aged over
180 days as visibility for settlement is uncertain.
(5) One-time legal and professional fees for full year 2009 mainly
represented $1.2 million legal fee in relation to the litigation case
with UBS Financial Services and UBS AG ("UBS case").
(6) On October 1, 2009, the Company settled UBS case with a $13.5 million
net gain.
(7) Due to the adoption of an authoritative guidance in 2009, the Company
recorded a non-cash fair value gain of $5.9 million on convertible
loan in the fourth quarter of 2009 (please refer to Note (9) to
financial information for details).
(8) In relation to the impairment of intangible assets, the Company
recorded a net deferred tax credit of $3.9 million in the fourth
quarter and full year 2009.
Net income (loss) and adjusted net income (loss) per ADS are
shown in Charts 13 and 14:
Chart 13: Net income (loss) and adjusted net income (loss) per ADS(1)
for 2008 fourth quarter and 2009 fourth and third quarter results
3 months 3 months 3 months
ended ended ended
Dec 31, Dec 31, Sep 30,
In US dollars 2009 2008 2009
Net income (loss) per ADS - basic and
diluted from continuing operations (2.26) (2.58) (0.13)
Net income (loss) per ADS - basic and
diluted from discontinued operations (1.18) (1.00) (0.01)
Net income (loss) per ADS - basic and
diluted (3.44) (3.58) (0.14)
Weighted average number of ADS - basic 86.3 70.4 77.6
million million million
Weighted average number of ADS -
diluted 86.3 70.4 77.6
million million million
Adjusted net income (loss) per ADS -
basic from continuing operations (0.07) 0.06 0.02
Adjusted net income (loss) per ADS -
basic from discontinued operations (0.02) (0.02) 0.02
Adjusted net income (loss) per ADS -
basic (0.09) 0.04 0.04
Adjusted net income (loss) per ADS -
diluted from continuing operations (0.07) 0.06 0.02
Adjusted net income (loss) per ADS -
diluted from discontinued operations (0.02) (0.02) 0.02
Adjusted net income (loss) per ADS -
diluted (0.09) 0.04 0.04
Weighted average number of ADS - basic 86.3 70.4 77.6
million million million
Weighted average number of ADS -
diluted 86.3 72.2 77.8
million million million
(1) For computation of the net income (loss) per ADS and adjusted net
income (loss) 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 third and fourth quarters of 2009, and the fourth quarter of
2008.
Chart 14: Net income (loss) and adjusted net income (loss) per
ADS(1) for 2009 and 2008
12 months 12 months
ended ended
Dec 31, Dec 31,
In US dollars 2009 2008
Net income (loss) per ADS - basic and
diluted from continuing operations (2.71) (3.10)
Net income (loss) per ADS - basic and
diluted from discontinued operations (1.27) (0.98)
Net income (loss) per ADS - basic and
diluted (3.98) (4.08)
78.9 67.9
Weighted average number of ADS - basic million million
Weighted average number of ADS - 78.9 67.9
diluted million million
Adjusted net income (loss) per ADS -
basic from continuing operations (0.11) 0.06
Adjusted net income (loss) per ADS -
basic from discontinued operations 0.08 0.20
Adjusted net income(loss) per ADS -
basic (0.03) 0.26
Adjusted net income (loss) per ADS -
diluted from continuing operations (0.11) 0.06
Adjusted net income (loss) per ADS -
diluted from discontinued operations 0.08 0.19
Adjusted net income (loss) per ADS -
diluted (0.03) 0.25
Weighted average number of ADS - basic 78.9 67.9
million million
Weighted average number of ADS -
diluted 78.9 72.4
million million
(1) For computation of the net income (loss) per ADS and adjusted net
income (loss) per ADS, the amount attributable to holders of common
shares should be used. Accordingly, dividends on Series B redeemable
convertible preference shares of $2.0 million and $2.6 million were
taken into account for full year 2008 and full year 2009, respectively.
Condensed Consolidated Balance Sheet
Condensed Consolidated Balance Sheet
(In U.S. dollars) December 31, 2009 December 31, 2008
Unaudited As adjusted
(Note 2) (Note 2)
Assets
Current assets:
Cash and cash
equivalents 13,229,958 54,088,842
Short term deposit 29,075 2,940,051
Restricted cash (Note 3) 40,430,000 37,510,000
Accounts receivable, net of
allowance for doubtful debts (Note 4) 20,300,859 44,762,902
Prepaid program expenses 1,598,271 2,324,253
Consideration receivable from
disposal of subsidiaries (Note 5) 20,000,000 36,970,590
Other current assets 14,771,511 14,902,170
Assets held for sale (Note 6) 42,737,129 --
Total current assets 153,096,803 193,498,808
Television program and film right,
net 4,359,421 --
Property and equipment, net 1,997,068 6,590,790
Intangible assets, net (Note 7) 19,298,292 200,528,583
Goodwill 7,238,016 46,992,724
Cost method investment 11,508,239 13,508,239
Deposits for investments (Note 8) 16,372,089 14,174,566
Consideration receivable from
disposal of subsidiaries (Note 5) 27,319,579 28,285,035
Other long-term assets 3,601,271 4,671,591
Total assets 244,790,778 508,250,336
Liabilities, mezzanine equity and
total equity
Current liabilities:
Bank borrowings 31,261,643 36,374,198
Convertible loan (Note 9) 59,379,289 --
Other current liabilities 87,590,529 69,900,342
Liabilities held for sale (Note 6) 22,083,374 --
Total current liabilities 200,314,835 106,274,540
Deferred tax liabilities -- 31,679,491
Convertible loan (Note 9) -- 33,200,000
Long-term liabilities, non-current
portion 67,165,144 68,305,496
Total liabilities 267,479,979 239,459,527
Mezzanine equity:
Series B redeemable
convertible preferred shares 33,765,591 30,605,591
XSEL shareholders' equity:
Class A common shares 133,854 104,302
Additional paid-in capital 502,770,593 481,318,345
Accumulated deficits (567,309,972) (252,968,439)
Accumulated other comprehensive
income 6,635,783 7,165,833
Total (57,769,742) 235,620,041
Non-controlling interests 1,314,950 2,565,177
Total equity (56,454,792) 238,185,218
Total liabilities, mezzanine equity
and total equity 244,790,778 508,250,336
Condensed Consolidated Statement of Operations
3 months 3 months 3 months
ended Dec 31, ended Dec 31, ended Sep 30,
(In U.S. Dollars) 2009 2008 2009
Unaudited Unaudited Unaudited
As adjusted
(Note 2) (Note 2) (Note 2)
Net revenues:
Advertising services 21,624,181 30,515,582 21,984,732
Advertising sales 5,087,619 5,312,018 8,273,807
Total net revenues 26,711,800 35,827,600 30,258,539
Cost of revenues:
Advertising services 20,479,300 20,486,452 16,465,801
Advertising sales 7,652,755 2,298,597 8,283,136
Total cost of revenues 28,132,055 22,785,049 24,748,937
Operating expenses:
Selling and distribution 1,975,552 4,508,540 1,895,453
General and administrative (Note4) 9,202,163 16,110,828 4,851,601
Impairment and write-off charges
(Note 10) 202,412,663 159,937,499 --
Loss on disposal of subsidiaries -- 4,720,705 --
Total operating expenses 213,590,378 185,277,572 6,747,054
Other operating income 85,295 775,719 874,404
Operating loss from continuing
operations (214,925,338) (171,459,302) (363,048)
Other income (expenses) (Note 11) 14,770,065 (10,822,566) (10,188,101)
Loss from continuing operations
before provision for income
taxes (200,155,273) (182,281,868) (10,551,149)
Provision for income taxes (4,453,738) (1,195,675) 23,204
Net loss from continuing
operations (195,701,535) (181,086,193) (10,574,353)
Discontinued operations (Note 6):
Loss from discontinued
operations (Note 12) (124,314,741) (70,647,951) (242,990)
Provision for income taxes (22,724,128) (350,689) 181,988
Discontinued operations, net of
taxes (101,590,613) (70,297,262) (424,978)
Net loss (297,292,148) (251,383,455) (10,999,331)
Net (loss) income attributable to
non-controlling interests (1,582,025) 97,192 (418,687)
Net loss attributable to XSEL (295,710,123) (251,480,647) (10,580,644)
Dividend declared on Series B
redeemable convertible preferred
shares 640,000 600,000 640,000
Net loss attributable to holders
of common shares (296,350,123) (252,080,647) (11,220,644)
Net income (loss) per share:
Basic and diluted from continuing
operations - Common shares (1.13) (1.29) (0.07)
Basic and diluted from
discontinued operations - Common
shares (0.59) (0.50) 0.00
Basic and diluted - Common shares (1.72) (1.79) (0.07)
Basic and diluted from continuing
operations - American Depositary
Shares (2.26) (2.58) (0.13)
Basic and diluted from
discontinued operations -
American Depositary Shares (1.18) (1.00) (0.01)
Basic and diluted - American
Depositary Shares (3.44) (3.58) (0.14)
(In U.S. Dollars) 12 months 12 months
ended Dec 31, ended Dec 31,
2009 2008
Unaudited
As adjusted
(Note 2) (Note 2)
Net revenues:
Advertising services 78,015,908 99,574,984
Advertising sales 21,214,830 21,911,519
Total net revenues 99,230,738 121,486,503
Cost of revenues:
Advertising services 61,887,919 71,229,714
Advertising sales 23,554,486 9,482,952
Total cost of revenues 85,442,405 80,712,666
Operating expenses:
Selling and distribution 7,707,793 10,683,499
General and administrative (Note4) 25,529,712 45,604,488
Impairment and write-off charges
(Note 10) 202,412,663 159,937,499
Loss on disposal of subsidiaries -- 4,720,705
Total operating expenses 235,650,168 220,946,191
Other operating income 2,065,434 1,251,405
Operating loss from continuing
operations (219,796,401) (178,920,949)
Other income (expenses) (Note 11) 2,085,759 (27,307,484)
Loss from continuing operations
before provision for income
taxes (217,710,642) (206,228,433)
Provision for income taxes (4,057,045) 1,728,361
Net loss from continuing
operations (213,653,597) (207,956,794)
Discontinued operations (Note 6):
Loss from discontinued
operations (Note 12) (122,272,111) (65,648,657)
Provision for income taxes (22,182,763) 626,080
Discontinued operations, net of
taxes (100,089,348) (66,274,737)
Net loss (313,742,945) (274,231,531)
Net (loss) income attributable to
non-controlling interests (2,167,604) 640,468
Net loss attributable to XSEL (311,575,341) (274,871,999)
Dividend declared on Series B
redeemable convertible preferred
shares 2,560,000 2,000,000
Net loss attributable to holders
of common shares (314,135,341) (276,871,999)
Net income (loss) per share:
Basic and diluted from continuing
operations - Common shares (1.36) (1.55)
Basic and diluted from
discontinued operations - Common
shares (0.63) (0.49)
Basic and diluted - Common shares (1.99) (2.04)
Basic and diluted from continuing
operations - American Depositary
Shares (2.71) (3.10)
Basic and diluted from
discontinued operations -
American Depositary Shares (1.27) (0.98)
Basic and diluted - American
Depositary Shares (3.98) (4.08)
Condensed Consolidated Statement of Cash Flow
3 months 3 months 3 months
ended Dec 31, ended Dec 31, ended Sep 30,
(In U.S. Dollars) 2009 2008 2009
Unaudited Unaudited Unaudited
Net cash (used in) provided by
operating activities (300,010) 5,736,274 (450,019)
Net cash used in investing
activities (1,406,080) (18,496,566) (5,515,755)
Net cash (used in) provided by
financing activities (593,065) 21,874,130 (12,339,519)
Effect of exchange rate changes 15,997 (360,000) (3,529)
Net (decrease) increase in cash and
cash equivalents (2,283,158) 8,753,838 (18,308,822)
Cash and cash equivalents, as at
beginning of the period 14,002,591 45,335,004 32,329,314
Discontinued operations 1,510,525 -- (17,901)
Cash and cash equivalents, as at
end of the period 13,229,958 54,088,842 14,002,591
(In U.S. Dollars) 12 months 12 months
ended Dec 31, ended Dec 31,
2009 2008
Unaudited Unaudited As adjusted
(Note 2) (Note 2)
Net cash (used in) provided by
operating activities 1,975,266 14,981,597
Net cash used in investing
activities (29,431,094) (18,808,288)
Net cash (used in) provided by
financing activities (13,006,009) 10,863,519
Effect of exchange rate changes (8,928) 2,615,927
Net (decrease) increase in cash and
cash equivalents (40,470,765) 9,652,755
Cash and cash equivalents, as at
beginning of the period 54,088,842 44,436,087
Discontinued operations (388,119) --
Cash and cash equivalents, as at
end of the period 13,229,958 54,088,842
Notes to Financial Information
1) General
The Company incurred a net loss of $311.6
million during the year ended December 31, 2009 and as of that date, the
Company's current liabilities exceeded its current assets by
$47.2 million, its total liabilities
exceeded its total assets by $22.7
million, and its net shareholders' deficiency was
$57.8 million. The Company had cash
or cash equivalents of $13.2 million
as of December 31, 2009.
As of December 31, 2009, the
Company did not meet certain financial covenants contained in the
secured convertible loan facility from Patriarch. Accordingly, as
Patriarch has the right to require the Company to repay the
outstanding balance of $57.8 million,
the Convertible Loan was reclassified as a current liability in the
Balance Sheet.
The Company might not have enough cash to repay the above
mentioned Convertible Loan, if it is called, or to settle other
payment obligations in the next 12 months. However, the management
of the Company is taking a number of actions to address this
situation in order to restore the Company to a sound financial
position with an appropriate business strategy going forward. These
actions include:
-- The Company has engaged Houlihan Lokey as adviser to restructure the
convertible loan as well as to advise on strategic options for the
Company.
-- The Company has engaged Deustche Bank as its financial adviser to
assist in assessing its fund raising options.
-- The management is actively seeking buyers for one of its subsidiaries.
-- The Company is adopting various cost-saving strategies.
-- The Company continues its repositioning of its business to sports and
entertainment, and is moving ahead with its sports media strategy.
The condensed consolidated financial information has been
prepared assuming the Company will continue as a going concern.
2) Condensed consolidated financial information
Effective from January 1, 2009,
the Company adopted an authoritative guidance 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 the authoritative guidance
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 an authoritative guidance. In addition, due to the sale
of Hyperlink, Shiji Guangnian and SSC in 2009 and the planned sale
of XinCheng and EWEO in 2010, and the closure of EconWorld, Century
Media, Upper Step, Perspective and Small World in 2010, the
historical operating results were reported as "discontinued
operations" for all periods presented in the accompanying condensed
consolidated statement of operations.
3) Restricted cash
Restricted cash was mainly US dollar cash deposits pledged for
the RMB loan facilities granted by banks for RMB working capital
purposes.
4) Accounts receivable, net of allowance for doubtful debts and
debtors turnover
Debtors turnover for the third quarter and fourth quarter of
2009 were 89 days and 95 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.
5) Consideration receivable from disposal of subsidiaries
At December 31, 2009, the Company
had a current and non-current consideration receivable from
disposal of subsidiaries of $20.0
million and $27.3 million
respectively. This represented the consideration receivable for the
disposal of the 85% shareholding of Convey in December 2008, net of $25.6 million write-off charges recorded in the
fourth quarter of 2009.
6) Assets and liabilities held for sale and discontinued
operations
On December 31, 2009, the Company
recorded assets and liabilities held for sale of $42.7 million and $22.1
million, respectively. Due to the planned sale of XinCheng
and EWEO in 2010, 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". In addition, due to the sale of Hyperlink, Shiji
Guangnian and SSC in 2009 as well as the closure of EconWorld,
Century Media, Upper Step, Perspective and Small World in 2010, the
historical operating results were also reported as "discontinued
operations" for all periods presented in the accompanying condensed
consolidated statement of operations.
7) Intangible assets
The carrying value of intangible assets on December 31, 2009 was $19.3 million. This represented the carrying
value of the long-term advertising license agreement for our TV
business of the Broadcast Group.
8) Deposits for investments
The Company has paid a deposit of $11.1
million and an advance of $5.3
million to provide services to cable channels in the PRC
acquired by the Company. These amounts are refundable unless
certain closing conditions are met. The acquisition is expected to
complete in the second quarter of 2010.
9) Convertible loan
The Company entered into a secured convertible loan facility for
up to $80.0 million from Patriarch, a
global investment firm based in New
York and currently one of our major shareholders. As of
December 31, 2009, the Company had
drawn $57.8 million through this loan
facility (the "convertible loan"). In 2009, the Company was
required to adopt an authoritative guidance 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. The authoritative guidance 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 the authoritative
guidance, 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 the convertible loan of
$59.4 million on December 31, 3009 and a non-cash fair value gain
on the convertible loan of $5.9
million for the fourth quarter of 2009.
10) Impairment and write-off charges
The Company recorded impairment and write-off charges of
$202.4 million for the fourth quarter
and full year 2009. The following table is a summary:
US millions
Goodwill 71.4
Intangible assets 84.2
Consideration receivable 25.6
Television program and
film right 14.2
Content production costs 2.1
Property and equipment 0.5
Other assets 4.4
202.4
11) Other income (expenses)
Other income (expense) includes net interest income (expense)
and net other income (expense). The Company recorded a non-cash
fair value gain (loss) on convertible loan of $5.9 million and $(0.4)
million in other income for the fourth quarter and full year
2009, respectively. A non-cash net gain of $13.5 million from the settlement of the
litigation case with UBS Financial Services and UBS AG as well as
$2.0 million impairment charge on
investment was also recorded in other income for the fourth quarter
and the full year 2009.
12) Loss from discontinued operations
Loss from discontinued operations included a net gain on
disposal of subsidiaries of $4.1
million in the fourth quarter and full year 2009. This
represented the net gain from the disposal of Hyperlink, Shiji
Guangnian and SSC in 2009.
SOURCE Xinhua Sports &
Entertainment Limited