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Shanda Reports Third Quarter 2011 Unaudited Results
Dec 01, 2011 (06:12 PM EST)


- Net Revenues Increased 28.0% YoY to US$279.0 Million

- Non-GAAP Diluted Earnings per ADS were US$0.18

SHANGHAI, Dec. 1, 2011 /PRNewswire-Asia/ -- Shanda Interactive Entertainment Limited (NasdaqGS: SNDA), or Shanda, a leading interactive entertainment media company in China, today announced its unaudited consolidated financial results for the third quarter ended September 30, 2011.

Third Quarter 2011 Highlights (1)

  • Consolidated net revenues increased 3.7% quarter-over-quarter and increased 28.0% year-over-year to RMB1,773.1 million (US$279.0 million).
  • Shanda Games' revenues increased 2.4% quarter-over-quarter and increased 23.4% year-over-year to RMB1,352.8 million (US$212.9 million).
  • Shanda Online's revenues increased 11.7% quarter-over-quarter and increased 35.2% year-over-year to RMB344.1 million (US$54.1 million).
  • Other revenues increased 8.7% quarter-over-quarter and increased 44.0% year-over-year to RMB439.0 million (US$69.1 million).
  • Non-GAAP operating income was RMB145.1 million (US$22.8 million), compared with RMB137.6 million in the second quarter of 2011 and RMB191.1 million in the third quarter of 2010.
  • Non-GAAP net income attributable to ordinary shareholders was RMB65.9 million (US$10.3 million), compared with RMB63.6 million in the second quarter of 2011 and RMB139.8 million in the third quarter of 2010. Non-GAAP earnings per diluted ADS were RMB1.18 (US$0.18), compared with RMB1.10 in the second quarter of 2011 and RMB2.38 in the third quarter of 2010.

"We continued to expand the scope of our business segments in the third quarter of 2011 as we integrated our diverse content portfolio and invested in our future growth," said Tianqiao Chen, Chairman, Chief Executive Officer and President of Shanda. "As we focus on developing cutting-edge technologies and make the strategic decisions that are necessary to support our long term growth, we believe these efforts will enhance our strength, competitiveness and adaptability as we continue to evolve into a leading global interactive entertainment media group."

Conference Call and Webcast Notice

Shanda will host a conference call at 10:00 a.m. on December 2, 2011 Beijing/Hong Kong time (9:00 p.m. on December 1, 2011 Eastern Time), to present an overview of the Company's financial performance and business operations. A live webcast of the conference call will be available on the Company's corporate website at http://www.snda.com .

Third Quarter 2011 Financial Results

Net Revenues. Net revenues were RMB1,773.1 million (US$279.0 million), representing an increase of 3.7% from RMB1,709.8 million in the second quarter of 2011 and an increase of 28.0% from RMB1,385.1 million in the third quarter of 2010. The quarter-over-quarter increase was primarily driven by an increase in revenues from Shanda Games, Shanda Online and other businesses.

Shanda Games' revenues were RMB1,352.8 million (US$212.9 million), representing an increase of 2.4% from RMB1,320.5 million in the second quarter of 2011 and an increase of 23.4% from RMB1,096.3 million in the third quarter of 2010.

Shanda Online's revenues were RMB344.1 million (US$54.1 million), representing an increase of 11.7% from RMB308.0 million in the second quarter of 2011 and an increase of 35.2% from RMB254.4 million in the third quarter of 2010.

Other revenues, including Ku6 Media, literature business, social network games, and other businesses were RMB439.0 million (US$69.1 million), representing an increase of 8.7% from RMB403.8 million in the second quarter of 2011 and an increase of 44.0% from RMB304.8 million in the third quarter of 2010.

Gross Profit. Consolidated gross profit was RMB972.8 million (US$153.1 million), representing an increase of 3.3% from RMB941.4 million in the second quarter of 2011 and an increase of 17.9% from RMB824.8 million in the third quarter of 2010. Gross margin was 54.9% in the third quarter of 2011, compared with 55.1% in the second quarter of 2011 and 59.5% in the third quarter of 2010.

Shanda Games' gross profit was RMB829.8 million (US$130.6 million), representing an increase of 3.6% from RMB800.7 million in the second quarter of 2011 and an increase of 28.3% from RMB646.9 million in the third quarter of 2010. Shanda Games' gross margin was 61.3% in the third quarter of 2011, compared with 60.6% in the second quarter of 2011 and 59.0% in the third quarter of 2010.

Shanda Online's gross profit was RMB229.4 million (US$36.1 million), representing an increase of 3.3% from RMB221.9 million in the second quarter of 2011 and an increase of 18.4% from RMB193.8 million in the third quarter of 2010. Shanda Online's gross margin was 66.7% in the third quarter of 2011, compared with 72.1% in the second quarter of 2011 and 76.2% in the third quarter of 2010.

Other businesses' gross profit was RMB7.6 million (US$1.2 million), representing an increase of 6753.6% from RMB0.1 million in the second quarter of 2011 and a decrease of 82.8% from RMB44.2 million in the third quarter of 2010. Other businesses' gross margin was 1.7% in the third quarter of 2011, compared with 0.03% in the second quarter of 2011 and 14.5% in the third quarter of 2010.

Operating Income. Operating income was RMB88.9 million (US$14.0 million), compared with RMB82.8 million in the second quarter of 2011 and RMB148.0 million in the third quarter of 2010. Operating margin was 5.0% in the third quarter of 2011, compared with 4.8% in the second quarter of 2011 and 10.7% in the third quarter of 2010.

Non-GAAP Operating Income. Non-GAAP operating income was RMB145.1 million (US$22.8 million), compared with RMB137.6 million in the second quarter of 2011 and RMB191.1 million in the third quarter of 2010. Non-GAAP operating margin was 8.2% in the third quarter of 2011, compared with 8.1% in the second quarter of 2011 and 13.8% in the third quarter of 2010.

Share-based compensation was RMB56.2 million (US$8.8 million) in the third quarter of 2011, compared with RMB54.8 million in the second quarter of 2011 and RMB43.1 million in the third quarter of 2010.

Income Tax Expense. Income tax expense was RMB95.5 million (US$15.0 million), compared with RMB84.1 million in the second quarter of 2011 and RMB86.6 million in the third quarter of 2010.

Net Income. Net income was RMB74.9 million (US$11.8 million), compared with RMB0.6 million in the second quarter of 2011 and RMB133.0 million in the third quarter of 2010.

Net Income Attributable to Ordinary Shareholders. Net income was RMB9.7 million (US$1.5 million), compared with RMB8.8 million in the second quarter of 2011 and RMB96.7 million in the third quarter of 2010. Earnings per diluted ADS in the third quarter of 2011 were RMB0.18 (US$0.02), compared with RMB0.16 in the second quarter of 2011 and RMB1.64 in the third quarter of 2010.

Non-GAAP Net Income Attributable to Ordinary Shareholders. Non-GAAP net income was RMB65.9 million (US$10.3 million), compared with RMB63.6 million in the second quarter of 2011 and RMB139.8 million in the third quarter of 2010. Non-GAAP earnings per diluted ADS in the third quarter of 2011 were RMB1.18 (US$0.18), compared with RMB1.10 in the second quarter of 2011 and RMB2.38 in the third quarter of 2010.

Share Repurchase Program. During the third quarter of 2011, Shanda repurchased an aggregate of 1,093,167 ADSs.

Recent Business Highlights

On October 17, 2011, Shanda announced that its Board of Directors has received a preliminary non-binding proposal letter from Mr. Tianqiao Chen, Chairman of the Board, Chief Executive Officer and President of Shanda, to acquire all of the outstanding ordinary shares of the Company not currently owned, legally or beneficially, by Mr. Tianqiao Chen, his wife Ms. Qian Qian Chrissy Luo, who is also a non-executive director of Shanda and his brother Mr. Danian Chen, who is also the Chief Operating Officer and a director of Shanda (together, the "Buyer Group"), for US$41.35 per American Depositary Share, each representing two ordinary shares, or $20.675 per ordinary share in cash.

On November 22, 2011, Shanda announced that it has entered into an Agreement and Plan of Merger, dated November 22, 2011 with Premium Lead Company Limited ("Parent") and New Era Investment Holding Ltd. pursuant to which Parent will acquire Shanda (the "Transaction") for US$20.675 per ordinary share or US$41.35 per American Depositary Share. This represents a 26.6% premium over the Company's 30 trading day volume-weighted average price as quoted by NASDAQ on October 14, 2011, the last trading day prior to the Company's announcement on October 17, 2011 that it had received a "going private" proposal. The Transaction values Shanda's equity at approximately US$2.3 billion on a fully diluted basis.

*Please visit Shanda's website (http://www.snda.com) for details about these and other announcements.

(1) The conversion of Renminbi (RMB) into U.S. dollars in this release is based on RMB6.3549 to US$1.00 as published by the People's Bank of China on September 30, 2011. The percentages stated in this press release are calculated based on the RMB amounts.

Note to the Financial Information

The unaudited financial information disclosed above is preliminary. Adjustments to these preliminary financial statements may be identified during the audit, which could result in significant differences from this preliminary unaudited financial information.

Non-GAAP Financial Measures

To supplement the financial measures prepared in accordance with generally accepted accounting principles in the United States, or GAAP, this press release includes non-GAAP financial measures of adjusted operating income, adjusted net income and adjusted earnings per ADS, each of which is adjusted to exclude share-based compensation. The Company believes these non-GAAP financial measures are important to help investors understand the Company's current financial performance and future prospects, compare business trends among different reporting periods on a consistent basis and assess the Company's core operating results. These non-GAAP financial measures should be considered in addition to financial measures prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, financial measures prepared in accordance with GAAP. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP financial measure, please see the financial statements included with this press release.

Safe Harbor Statement

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. Forward-looking statements are not historical facts but instead represent only the Company's beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company's control. It is possible that the Company's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Statements in this announcement that are not historical facts, including but not limited to statements regarding the continuous growth of the Company, the success of any acquisitions or investments by the Company or any subsidiaries, the introduction of expansion packs to existing titles, the introduction and timing of new game titles, the success of our online literature platform, the success of our online video operations, and the signing and development of successful artist for our music business, represent only the Company's current expectations, assumptions, estimates and projections and are forward-looking statements.  Important risks and uncertainties that could cause the Company's actual results to be materially different from expectations include but are not limited to the risk that there are delays in the localization and/or development of the games to be released in 2011, the risk that such games are not well received by users in China, the risk that the games fail to be commercialized or the commercialized results fail to meet the expectations of end users, the risk that our contract writers do not deliver appealing literature products, the risk that our online video website fails to attract advertisers or content providers, the risk that we fail to sign popular music artists or fail to continue to successfully promote our existing artists, the risk that the laws and regulations in the PRC continue to prohibit or restrict offering of wireless valued added products, the risk that the Company fails to deliver continuous growth in 2011, and the risks set forth in the Company's filings with the U.S. Securities and Exchange Commission, including the Company's annual report on Form 20-F. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, except as required under applicable laws.

About Shanda Interactive Entertainment Limited

Shanda Interactive Entertainment Limited (Nasdaq: SNDA) ("Shanda") is a leading interactive entertainment media company in China, offering a broad array of online entertainment content on an integrated service platform to a large and diverse user base. Shanda offers its high quality entertainment content through its subsidiaries and affiliates, including Shanda Games, Cloudary, Ku6 Media, and various other online community and business units. The broad variety of content ranges from massively multi-player online role-playing games (MMORPGs) and advanced casual games, to social network games, e-sports, literature, film, television, music, and video etc. By providing a centralized platform through which Shanda can deliver its own content as well as third-party content, Shanda allows its users to interact with thousands of other users while enjoying some of the best entertainment content available in China today. Shanda: "Interaction enriches your life". For more information about Shanda, please visit http://www.snda.com.

Contact

Shanda Interactive Entertainment Limited
Dahlia Wei, IR Associate Director
Elyse Liao, IR Senior Manager
Phone: +86-21-6058-8688 (Shanghai)
         +852-2851-0177 (Hong Kong)
Email: IR@snda.com

Christensen Investor Relations
China:
Christian Arnell
Phone: +86-10-5826-4939
Email: carnell@christensenir.com

United States:
Linda Bergkamp
Phone: +1-480-614-3004
Email: lbergkamp@ChristensenIR.com

SHANDA INTERACTIVE ENTERTAINMENT LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(in millions)








As of December 31, 2010


As of September 30, 2011








RMB


RMB


US$

ASSETS







Current assets:






    Cash and cash equivalents

5,550.2


5,294.6


833.2

    Restricted cash

5.4


903.5


142.2

    Short-term investments

2,257.9


2,791.7


439.3

    Marketable securities

16.9


16.5


2.6

    Accounts receivable

260.3


286.4


45.1

    Inventories

130.8


147.4


23.2

    Due from related parties

-


14.5


2.3

    Deferred licensing fees and related costs

48.3


32.8


5.2

    Prepayments and other current assets

425.7


338.9


53.3

    Deferred tax assets

115.6


134.9


21.2

Total current assets

8,811.1


9,961.2


1,567.6








Time deposit with maturity over one year

1,215.3


-


-

Investments at equity and cost

237.5


324.5


51.1

Other investments

41.6


38.1


6.0

Property, equipment and software

715.4


858.6


135.1

Intangible assets

2,020.3


1,529.0


240.6

Goodwill


1,142.9


1,097.7


172.7

Long-term deposits


62.8


47.2


7.4

Long-term prepayments


390.4


381.8


60.1

Long-term assets

235.6


480.4


75.6

Non-current deferred tax assets

19.8


22.7


3.6

Total assets


14,892.7


14,741.2


2,319.8








LIABILITIES AND EQUITY






Current liabilities:






Accounts payable

415.6


408.3


64.3

Licensing fees payable

247.0


158.3


24.9

Taxes payable

211.1


199.2


31.3

Deferred revenue

729.6


590.6


92.9

Due to related parties

3.1


-


-

Short term loan

0.0


1,389.7


218.7

Other payables and accruals

826.9


895.8


141.1

Deferred tax liabilities

93.9


50.0


7.9

Convertible debt within one year

1,052.8


-


-

Total current liabilities

3,580.0


3,691.9


581.1








Non-current deferred tax liabilities

389.9


358.4


56.4

Non-current income tax liabilities

9.4


9.4


1.5

Long-term liabilities

49.3


74.3


11.7

Non-current deferred revenue

76.3


42.6


6.7

Total liabilities

4,104.9


4,176.6


657.4







Redeemable non-controlling interests

25.3


41.6


6.5







Equity






Ordinary shares

9.8


9.6


1.5

Additional paid-in capital

6,976.7


6,660.0


1048.0

Statutory reserves

207.6


220.7


34.7

Accumulated other comprehensive loss

(191.1)


(308.1)


(48.5)

Retained earnings

1,704.7


1,611.3


253.6

Total Shanda shareholder' equity

8,707.7


8,193.5


1,289.3

Non-controlling interests

2,054.8


2,329.5


366.6

Total equity

10,762.5


10,523.0


1,655.9

Total liabilities and shareholders' equity

14,892.7


14,741.2


2,319.8




SHANDA INTERACTIVE ENTERTAINMENT LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except for share and per share data)












For the three months period ended,



September 30,


June 30,


September 30,



2010


2011


2011



RMB


RMB


RMB


US$

Net revenues









Shanda Games


1,096.3


1,320.5


1,352.8


212.9

Shanda Online


254.4


308.0


344.1


54.1

Others


304.8


403.8


439.0


69.1

Elimination


(270.4)


(322.5)


(362.8)


(57.1)

Total


1,385.1


1,709.8


1,773.1


279.0










Cost of services









Shanda Games


(449.4)


(519.8)


(523.0)


(82.3)

Shanda Online


(60.6)


(86.1)


(114.7)


(18.0)

Others


(260.6)


(403.7)


(431.4)


(67.9)

Elimination


210.3


241.2


268.8


42.3

Total


(560.3)


(768.4)


(800.3)


(125.9)










Gross profit









Shanda Games


646.9


800.7


829.8


130.6

Shanda Online


193.8


221.9


229.4


36.1

Others


44.2


0.1


7.6


1.2

Elimination


(60.1)


(81.3)


(94.0)


(14.8)

Total overall gross profit margin


824.8


941.4


972.8


153.1










Operating expenses:









Product development


(185.3)


(250.8)


(265.1)


(41.7)

Sales and marketing


(206.9)


(222.0)


(218.0)


(34.3)

General and administrative


(284.6)


(385.8)


(400.8)


(63.1)

Total operating expenses


(676.8)


(858.6)


(883.9)


(139.1)










Income from operations


148.0


82.8


88.9


14.0










Interest (expenses)/income, net


21.4


31.7


40.9


6.4

Other income/(expenses), net


54.7


(21.2)


43.9


6.9

Income before income tax expenses, equity in loss of affiliates


224.1


93.3


173.7


27.3










Income tax expense


(86.6)


(84.1)


(95.5)


(15.0)

Equity in loss of affiliates


(4.5)


(8.6)


(3.3)


(0.5)

Net income


133.0


0.6


74.9


11.8

Less: Net income(loss) attributable to non-controlling interests and redeemable preferred shares issued by a subsidiary

(36.3)


8.2


(65.2)


(10.3)

Net income attributable to Shanda Interactive Entertainment Limited

96.7


8.8


9.7


1.5










Earnings per share:









Basic


0.84


0.08


0.09


0.01

Diluted


0.82


0.08


0.09


0.01

Earnings per ADS:









Basic


1.68


0.16


0.18


0.02

Diluted


1.64


0.16


0.18


0.02

Weighted average ordinary shares outstanding:









Basic


115,073,616


112,973,774


111,822,819


111,822,819

Diluted


117,493,819


115,018,676


112,618,275


112,618,275

Weighted average ADS outstanding:









Basic


57,536,808


56,486,887


55,911,410


55,911,410

Diluted


58,746,910


57,509,338


56,309,138


56,309,138










Reconciliation from Non-GAAP measures to GAAP measures:







Non-GAAP operating income


191.1


137.6


145.1


22.8

Share-based compensation cost


(43.1)


(54.8)


(56.2)


(8.8)

GAAP operating income


148.0


82.8


88.9


14.0










Non-GAAP net income attributable to Shanda Interactive Entertainment Limited

139.8


63.6


65.9


10.3

Share-based compensation cost


(43.1)


(54.8)


(56.2)


(8.8)

GAAP net income attributable to Shanda Interactive Entertainment Limited

96.7


8.8


9.7


1.5










Non-GAAP diluted earnings per ADS


2.38


1.10


1.18


0.18

Share-based compensation cost per ADS


(0.74)


(0.94)


(1.00)


(0.16)

GAAP diluted earnings per ADS


1.64


0.16


0.18


0.02




SHANDA INTERACTIVE ENTERTAINMENT LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except for share and per share data)







For the nine months period ended,


September 30,


September 30,


2010 (Adjusted(1)

 

2011


RMB


RMB

US$

Net revenues





Shanda Games

3,352.2


3,925.9

617.8

Shanda Online

756.4


953.4

150.0

Others

745.6


1,249.4

196.6

Elimination

(812.2)


(1,014.9)

(159.7)

Total

4,042.0

 

5,113.8

804.7






Cost of services





Shanda Games

(1,385.7)


(1,534.2)

(241.4)

Shanda Online

(163.0)


(284.1)

(44.7)

Others

(647.6)


(1,151.3)

(181.2)

Elimination

647.3


720.0

113.3

Total

(1,549.0)


(2,249.6)

(354.0)






Gross profit





Shanda Games

1,966.5


2,391.7

376.4

Shanda Online

593.4


669.3

105.3

Others

98.0


98.1

15.4

Elimination

(164.9)


(294.9)

(46.4)

Total

2,493.0


2,864.2

450.7






Operating expenses:





Product development

(461.6)


(762.7)

(120.0)

Sales and marketing

(525.3)


(661.6)

(104.1)

General and administrative

(787.9)


(1,120.1)

(176.3)

Total operating expenses

(1,774.8)


(2,544.4)

(400.4)






Income from operations

718.2


319.8

50.3






Interest (expenses)/income, net

22.6


107.8

17.0

Other income, net

111.7

 

70.9

11.1

Income before income tax expenses, Equity in loss of affiliates

852.5


498.5

78.4






Income tax expense

(251.0)


(274.3)

(43.1)

Equity in loss of affiliates

(8.7)

 

(19.0)

(3.0)

Net income from continuing operations

592.8


205.2

32.3






Discontinued operations: (1)





Net loss from discontinued operations, net of tax

*0.0


-

-

Gain from disposal of discontinued operations, net of tax

30.6

 

-

-

Net income from discontinued operations, net of tax

30.6

 

-

-






Net income

623.4

 

205.2

32.3






Less: Net income attributable to non-controlling interests and redeemable preferred shares issued by a subsidiary

(134.9)


(101.2)

(15.9)

Net income attributable to Shanda Interactive Entertainment Limited

488.5

 

104.0

16.4






Earnings per share:





Basic

3.99


0.93

0.15

Diluted

3.89


0.91

0.14

Earnings per ADS:





Basic

7.98


1.86

0.30

Diluted

7.78


1.82

0.28

Weighted average ordinary shares outstanding:





Basic

122,475,431


112,447,879

112,447,879

Diluted

125,642,321


114,344,335

114,344,335

Weighted average ADS outstanding:





Basic

61,237,716


56,223,940

56,223,940

Diluted

62,821,161


57,172,168

57,172,168






Reconciliation from Non-GAAP measures to GAAP measures:





Non-GAAP operating income

870.1


478.8

75.3

Share-based compensation cost

(151.9)

 

(159.0)

(25.0)

GAAP operating income

718.2

 

319.8

50.3






Non-GAAP net income attributable to Shanda Interactive Entertainment Limited

640.4


263.0

41.4

Share-based compensation cost

(151.9)


(159.0)

(25.0)

GAAP net income attributable to Shanda Interactive Entertainment Limited

488.5

 

104.0

16.4






Non-GAAP diluted earnings per ADS

10.20


4.60

0.72

Share-based compensation cost per ADS

(2.42)


(2.78)

(0.44)

GAAP diluted earnings per ADS

7.78

 

1.82

0.28


(1) Reflects the disposition of the discontinued operation of Huayi Music in accordance U.S. GAAP.



SOURCE Shanda Interactive Entertainment Limited