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Perfect World (PWRD) Announces First Quarter 2010 Unaudited Financial Results

BEIJING, May 17 /PRNewswire-Asia/ — Perfect World Co., Ltd. (Nasdaq: PWRD) (“Perfect World” or the “Company”), a leading online game developer and operator based in China, today announced its unaudited financial results for the first quarter ended March 31, 2010.

    (Logo: http://photos.prnewswire.com/prnh/20090416/CNTH023LOGO )

    First Quarter 2010 Highlights(1)
    -- Total revenues were RMB625.0 million (USD91.6 million), an increase of
       2.8% from 4Q09 and 47.0% from 1Q09
    -- Gross profit was RMB537.9 million (USD78.8 million), an increase of
       2.2% from 4Q09 and 45.9% from 1Q09
    -- Operating profit was RMB323.2 million (USD47.3 million), an increase of
       16.9% from 4Q09 and 40.3% from 1Q09.  Non-GAAP operating profit(2) was
       RMB344.9 million (USD50.5 million), an increase of 15.6% from 4Q09 and
       40.3% from 1Q09
    -- Net income attributable to the Company's shareholders was RMB305.2
       million (USD44.7 million), an increase of 12.7% from 4Q09 and 41.6%
       from 1Q09.  Non-GAAP net income attributable to the Company's
       shareholders(2) was RMB327.0 million (USD47.9 million), an increase of
       11.7% from 4Q09 and 41.6% from 1Q09
    -- Basic and diluted earnings per ADS(3) were RMB6.12 (USD0.90) and
       RMB5.75 (USD0.84), respectively, as compared to RMB5.44 and RMB5.09,
       respectively, in 4Q09, and RMB4.14 and RMB3.96, respectively, in 1Q09.
       Non-GAAP basic and diluted earnings per ADS(2) were RMB6.56 (USD0.96)
       and RMB6.16 (USD0.90), respectively, as compared to RMB5.88 and RMB5.50,
       respectively, in 4Q09, and RMB4.43 and RMB4.25, respectively, in 1Q09
    -- Established a wholly-owned subsidiary in Europe to expand the Company's
       overseas operating capabilities

       (1) The U.S. dollar (USD) amounts disclosed in this press release,
           except for those transaction amounts that were actually settled in
           U.S. dollars, are presented solely for the convenience of the
           reader.  The conversion of Renminbi (RMB) into USD in this release
           is based on the noon buying rate in The City of New York for cable
           transfers in RMB per USD as certified for customs purposes by the
           Federal Reserve Bank of New York as of March 31, 2010, which was
           RMB6.8258 to USD1.00.  The percentages stated in this press release
           are calculated based on the RMB amounts.
       (2) As used in this press release, non-GAAP operating profit, non-GAAP
           net income attributable to the Company's shareholders and non-GAAP
           earnings per ADS are defined to exclude share-based compensation
           charge from operating profit, net income attributable to the
           Company's shareholders and earnings per ADS, respectively.  See
           "Non-GAAP Financial Measures" and "Reconciliation of GAAP and Non-
           GAAP Results" at the end of this press release.
       (3) Each ADS represents five ordinary shares.

“We are pleased to announce our first quarter 2010 results,” commented Mr. Michael Chi, Chairman and Chief Executive Officer of Perfect World. “Our first quarter results came in line with our previous expectations as our games continued to perform well. Although we experienced some technical complications during some major updates on a recently launched new game, we have solved the problems and are working on a soon-to-be launched major expansion pack with a lot of enhanced content to further drive the user base. This was a valuable experience for us, and we will try our best to avoid similar issues in future developments for both new and existing games. Despite this occurrence and the adverse seasonality factors, we continued to grow the popularity of some of our existing games to deliver sequential growth.”

“We continue to focus on investing in our R&D team to further strengthen our game development capabilities. By doing so, we are able to deliver a strong and sustainable pipeline of notably differentiated games that span the 3D, 2.5D and 2D market segments. Our specialized game engines and production studios allow us to remain highly competitive in the industry as we build franchises that include flagship titles in each of these market segments.”

“Our overseas expansion continues to progress and we are quite satisfied with the development so far. We continued to sign new licensing agreements with various overseas game operators and are strengthening our penetration worldwide. Our U.S. operations are also progressing well. We recently launched ‘Battle of the Immortals’ in North America through our wholly-owned subsidiary in the U.S. The initial feedback has been very positive. Furthermore, in April, we acquired C&C Media Co., Ltd. (“C&C Media”), our long-term Japanese operation partner, to capture the growth opportunities in Japan and further expand our overseas operating capabilities.”

“As a part of our growth strategy, we continuously monitor the market for acquisition opportunities that will generate synergies with our core business. I am excited to announce some recent developments on this front. We recently made a strategic investment to acquire a majority stake in Runic Games, Inc. (“Runic Games”), a top-tier game development studio based in the U.S., to further strengthen our R&D capabilities. By collaborating more closely with Runic’s professional team, we seek to combine their creativity and expertise in game development with our deep understanding of the online game market to create global titles. We also exercised an option to increase our stake in Chengdu Ye Net Science and Technology Development Co., Ltd. (“Ye Net”), a web game developer and operator. Through enhanced control, we believe we will have greater flexibility to generate valuable synergies between the web game business and our core business.”

“We are excited about the prospects that our industry presents and believe we are well-positioned to capture future opportunities. We will continue to dedicate our strong resources to longer-term projects to effectively lengthen the life cycle of both new and existing games that meet the expectations from game players around the world. Our long-term oriented management team is committed to driving the sustainable growth of our Company while increasing value for our shareholders.”

First Quarter 2010 Financial Results

Total Revenues

Total revenues were RMB625.0 million (USD91.6 million) in 1Q10, an increase of 2.8%, or RMB17.1 million, from RMB607.9 million in 4Q09, and an increase of 47.0%, or RMB199.9 million, from RMB425.1 million in 1Q09.

Online game operation revenues were RMB569.7 million (USD83.5 million) in 1Q10, an increase of 5.2%, or RMB27.9 million, from RMB541.8 million in 4Q09, and an increase of 51.0%, or RMB192.5 million, from RMB377.2 million in 1Q09. The sequential growth in online game operation revenues was primarily attributable to the continued popularity of some of the Company’s existing games and a series of successful in-game promotions and marketing activities.

The aggregate average concurrent users (ACU) for games under operation in mainland China was approximately 993,000 in 1Q10, as compared to 1,157,000 in 4Q09 and 615,000 in 1Q09. The active paying customers (APC) for games operated in mainland China under the item-based revenue model was approximately 1,670,000 in 1Q10, as compared to 2,188,000 in 4Q09 and 1,464,000 in 1Q09. The average revenue per active paying customer (ARPU) for games operated in mainland China under the item-based revenue model was RMB306 in 1Q10, as compared to RMB223 in 4Q09 and RMB244 in 1Q09. ACU and APC decreased by 14.2% and 23.7%, respectively, from 4Q09. This was mainly due to some technical complications that occurred during some major updates on a recently launched new game, as well as the adverse seasonality factors and more aggressive anti-cheating efforts adopted by the Company. However, the Company still managed to increase ARPU by 37.2% from 4Q09 through a series of successful promotions.

Overseas licensing revenues were RMB53.4 million (USD7.8 million) in 1Q10, as compared to RMB61.7 million in 4Q09 and RMB48.0 million in 1Q09. The decrease from 4Q09 was mainly attributed to a decline in usage-based royalty fees due to adverse seasonality in certain overseas markets, and a decrease in initial license fees as the Company did not commercially launch any game in overseas market in 1Q10.

Film, television and other revenues were RMB2.0 million (USD0.3 million) in 1Q10, as compared to RMB4.5 million in 4Q09 and Nil in 1Q09.

Cost of Revenues

The cost of revenues was RMB87.1 million (USD12.8 million) in 1Q10, as compared to RMB81.5 million in 4Q09 and RMB56.4 million in 1Q09.

The online game related cost was RMB87.1 million (USD12.8 million) in 1Q10, as compared to RMB79.8 million in 4Q09 and RMB56.4 million in 1Q09. The increase from 4Q09 was mainly due to an increase in staff related cost and depreciation expense.

The film, television and other cost was RMB24.9 thousand (USD3.6 thousand) in 1Q10, as compared to RMB1.7 million in 4Q09 and Nil in 1Q09.

Gross Profit and Gross Margin

Gross profit was RMB537.9 million (USD78.8 million) in 1Q10, an increase of 2.2%, or RMB11.5 million, from RMB526.4 million in 4Q09, and an increase of 45.9%, or RMB169.2 million, from RMB368.7 million in 1Q09. Gross margin was 86.1% in 1Q10, as compared to 86.6% in 4Q09 and 86.7% in 1Q09.

Operating Expenses

Operating expenses were RMB214.8 million (USD31.5 million) in 1Q10, as compared to RMB249.8 million in 4Q09 and RMB138.3 million in 1Q09. The decrease in operating expenses from 4Q09 was mainly attributed to lower sales and marketing expenses, and was partially offset by higher general and administrative expenses and R&D expenses.

Sales and marketing expenses decreased by 34.1%, or RMB42.5 million, from RMB124.7 million in 4Q09 to RMB82.2 million (USD12.0 million) in 1Q10. This was largely due to lower advertising and promotional expenses as the Company did not launch new game in 1Q10. In addition, the decrease from 4Q09 was also attributable to the special charge of approximately RMB17.5 million in 4Q09 associated with a change in the estimated useful lives of certain intangible assets acquired from InterServ which are related to outsourcing services.

R&D expenses increased by 1.2%, or RMB0.9 million, from RMB76.9 million in 4Q09 to RMB77.8 million (USD11.4 million) in 1Q10. The increase from 4Q09 was primarily due to an increase in staff cost as the Company continued to expand its R&D talent pool.

General and administrative expenses increased by 13.5%, or RMB6.5 million, from RMB48.3 million in 4Q09 to RMB54.8 million (USD8.0 million) in 1Q10. The increase from 4Q09 was mainly due to an increase in professional service expenses.

Operating Profit

Operating profit was RMB323.2 million (USD47.3 million) in 1Q10, an increase of 16.9%, or RMB46.6 million, from RMB276.5 million in 4Q09, and an increase of 40.3%, or RMB92.8 million, from RMB230.4 million in 1Q09. Non-GAAP operating profit was RMB344.9 million (USD50.5 million) in 1Q10, an increase of 15.6%, or RMB46.5 million, from RMB298.5 million in 4Q09, and an increase of 40.3%, or RMB99.1 million, from RMB245.8 million in 1Q09.

Total Other Income

Total other income was RMB10.5 million (USD1.5 million) in 1Q10, as compared to RMB11.8 million in 4Q09 and RMB5.0 million in 1Q09.

Income Tax Expense

Income tax expense was RMB28.7 million (USD4.2 million) in 1Q10, as compared to RMB17.5 million in 4Q09 and RMB19.9 million in 1Q09. Beijing Perfect World Software Co., Ltd. (“PW Software”), the Company’s wholly-owned subsidiary, is qualified as a high and new technology enterprise and was entitled to a tax exemption in 2007, 2008 and 2009 and enjoys a 50% reduction of its applicable corporate income tax rate in 2010. The corporate income tax applied to PW Software in 1Q10 caused the increase in income tax expense from 4Q09. If PW Software will continue to be qualified as high and new technology enterprise from 2011 to 2012, it will continue to be entitled to a 50% reduction of its applicable corporate income tax rate from 2011 to 2012.

Net Income Attributable to the Company’s Shareholders

Net income attributable to the Company’s shareholders was RMB305.2 million (USD44.7 million) in 1Q10, an increase of 12.7%, or RMB34.3 million, from RMB270.8 million in 4Q09, and an increase of 41.6%, or RMB89.7 million, from RMB215.4 million in 1Q09. Non-GAAP net income attributable to the Company’s shareholders was RMB327.0 million (USD47.9 million) in 1Q10, an increase of 11.7%, or RMB34.2 million, from RMB292.8 million in 4Q09, and an increase of 41.6%, or RMB96.1 million, from RMB230.9 million in 1Q09.

Basic and diluted earnings per ADS were RMB6.12 (USD0.90) and RMB5.75 (USD0.84), respectively, in 1Q10, as compared to RMB5.44 and RMB5.09, respectively, in 4Q09, and RMB4.14 and RMB3.96, respectively, in 1Q09. Non- GAAP basic and diluted earnings per ADS were RMB6.56 (USD0.96) and RMB6.16 (USD0.90), respectively, in 1Q10, as compared to RMB5.88 and RMB5.50, respectively, in 4Q09, and RMB4.43 and RMB4.25, respectively, in 1Q09.

Cash and Cash Equivalents

As of March 31, 2010, the Company had RMB1,876.9 million (USD275.0 million) of cash and cash equivalents, as compared to RMB1,567.2 million as of December 31, 2009. The increase was mainly due to net cash inflow generated from the Company’s online game operations.

Recent Developments

Acquisition of C&C Media Co., Ltd.

In April 2010, the Company acquired C&C Media, a Japanese online game operator, to capture the growth opportunities in Japan and expand the Company’s overseas operating capabilities. C&C Media is currently operating six games in Japan, including four games developed by Perfect World.

Investment in Runic Games, Inc.

In May 2010, the Company acquired a majority stake in Runic Games, a specialized developer of PC-based entertainment software in the U.S., at the consideration of approximately US$8.4 million. Runic Games has a team of experienced developers, including leads on “Diablo,” “Diablo II,” “Diablo II: Lord of Destruction,” “Fate,” “Hellgate: London” and “Mythos.” Runic Games has developed and released a single-player action-RPG “Torchlight,” and is currently developing the MMORPG version of “Torchlight.” This strategic investment will allow the Company to further enhance its strong R&D capabilities, and leverage Runic Games’ creative and professional development team to create global titles through enhanced control and a closer collaboration.

Investment in Chengdu Ye Net Science and Technology Development Co., Ltd.

In April 2010, Chengdu Perfect World Network Technology Co., Ltd. (“Chengdu PW Network”), an entity controlled by the Company, exercised an option to acquire an additional stake in Ye Net, a web game developer and operator. Following the completion of the transaction, the Company’s effective equity stake in Ye Net will be increased to 80%. This investment provides the Company with enhanced control and greater flexibility in generating synergies between the web game business and the Company’s core business.

Business Outlook

Based on the Company’s current operations, total revenues for the second quarter of 2010 are expected to be between RMB594 million and RMB625 million, representing an increase of 14% to 20% on a year-over-year basis, and a flat to mild decline on a sequential basis. In order to lengthen the life cycle of the Company’s existing games to maintain sustainable growth, the Company decided to decelerate some of the in-game promotions and monetization activities in the second quarter to further nurture the games and grow user base. In addition, this also reflects the impact of suspending game services in response to the one-day national mourning on April 21, 2010 for earthquake victims in Yushu, Qinghai Province.

Non-GAAP Financial Measures

To supplement the financial measures prepared in accordance with generally accepted accounting principals in the United States, or GAAP, this press release presents non-GAAP operating profit, non-GAAP net income attributable to the Company’s shareholders and non-GAAP earnings per ADS by excluding share-based compensation charge from operating profit, net income attributable to the Company’s shareholders and earnings per ADS, respectively. The Company believes these non-GAAP financial measures are important to help investors understand the Company’s operating and financial performance, compare business trends among different reporting periods on a consistent basis and assess the Company’s core operating results, as they exclude certain expenses that are not expected to result in cash payments. The use of the above non-GAAP financial measures has certain limitations. Share-based compensation charge has been and will continue to be incurred and is not reflected in the presentation of the non-GAAP financial measures. It should be considered in the overall evaluation of our results. None of the non-GAAP measures is a measure of net income attributable to the Company’s shareholders, operating profit, operating performance or liquidity presented in accordance with GAAP. We compensate for these limitations by providing the relevant disclosure of our share-based compensation charge in our reconciliations to the most directly comparable GAAP financial measures, which should be considered when evaluating our performance. 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. Reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP financial measure are set forth at the end of this release.

Conference Call

Perfect World will host a conference call and live webcast at 8:00 am Eastern Daylight Time (8:00 pm, Beijing time) on Monday, May 17, 2010.

    The dial-in details for the live conference call are as follows:

    -- U.S. Toll Free Number:                1-866-519-4004
    -- International Dial-in Number:         +65-6723-9381
    -- Mainland China Toll Free Number:      10-800-819-0121
    -- Hong Kong Toll Free Number:           80-093-0346
    -- U.K. Toll Free Number:                080-8234-6646
    Conference ID: PWRD

A live and archived webcast of the conference call will be available on the Investor Relations section of Perfect World’s website at http://www.pwrd.com .

A telephone replay of the call will be available after the conclusion of the conference call through 10:00 am Eastern Daylight Time, May 24, 2010.

    The dial-in details for the replay are as follows:

    -- U.S. Toll Free Number:                1-866-214-5335
    -- International Dial-in Number:         +61-2-8235-5000
    Conference ID: 7973 (PWRD)

About Perfect World Co., Ltd. ( http://www.pwrd.com )

Perfect World Co., Ltd. (NASDAQ: PWRD) is a leading online game developer and operator based in China. Perfect World primarily develops online games based on proprietary game engines and game development platforms. The Company’s strong technology and creative game design capabilities, combined with extensive knowledge and experiences in the online game market, enable it to frequently introduce popular games that are designed to cater to changing customer preferences and market trends promptly. The Company’s current portfolio of self-developed online games includes massively multiplayer online role playing games (“MMORPGs”): “Perfect World,” “Legend of Martial Arts,” “Perfect World II,” “Zhu Xian,” “Chi Bi,” “Pocketpet Journey West,” “Battle of the Immortals” and “Fantasy Zhu Xian;” and an online casual game: “Hot Dance Party.” While a substantial portion of the revenues are generated in China, the Company’s games have been licensed to leading game operators in a number of countries and regions in Asia, Europe and South America. The Company also generates revenues from game operations in North America and Japan. The Company plans to continue to explore new and innovative business models and remains deeply committed to maximizing shareholder value over time.

Safe Harbor Statements

This press release contains forward-looking statements. These statements constitute forward-looking statements under the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the management’s quotations and “Business Outlook” contain forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include, but are not limited to, our limited operating history, our ability to develop and operate new games that are commercially successful, the growth of the online game market and the continuing market acceptance of our games and in-game items in China and elsewhere, our ability to protect our intellectual property rights, our ability to respond to competitive pressure, our ability to maintain an effective system of internal control over financial reporting, changes of the regulatory environment in China, and economic slowdown in China and/or elsewhere. Further information regarding these and other risks is included in Perfect World’s filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. All information provided in this press release and in the attachments is as of May 17, 2010, and Perfect World does not undertake any obligation to update any forward- looking statement as a result of new information, future events or otherwise, except as required under applicable law.

    For further information, please contact:

    Perfect World Co., Ltd.
     Vivien Wang
     Investor Relations Officer
     Tel:   +86-10-5885-1813
     Fax:   +86-10-5885-6899
     Email: ir@pwrd.com
     http://www.pwrd.com

    Christensen Investor Relations
     Kathy Li
     Tel:   +1-480-614-3036
     Fax:   +1-480-614-3033
     Email: kli@christensenir.com

     Roger Hu
     Tel:   +86-10-5971-2001
     Fax:   +86-10-5971-2001
     Email: rhu@christensenir.com

                           Perfect World Co., Ltd.
                    Unaudited Consolidated Balance Sheets

                                   December 31,      March 31,      March 31,
                                       2009            2010           2010
                                        RMB             RMB            USD
    Assets
      Current assets
        Cash and cash equivalents 1,567,165,156   1,876,900,991    274,971,577
        Restricted cash               5,033,996       5,047,708        739,504
        Short-term investments       30,000,000              --             --
        Accounts receivable, net     90,435,732      63,408,486      9,289,532
        Due from related parties        159,100         159,100         23,309
        Prepayment and other
         assets                      54,262,066      72,924,572     10,683,666
        Deferred tax assets           3,048,654       3,464,697        507,588
      Total current assets        1,750,104,704   2,021,905,554    296,215,176
      Non current assets
        Equity investments           30,471,237      28,964,386      4,243,369
        Film and television
         cost                        14,508,195      16,625,800      2,435,729
        Property, equipment, and
         software, net              244,069,532     249,285,971     36,521,136
        Construction in progress    771,265,335     784,651,843    114,953,829
        Intangible assets, net       36,930,233      54,796,424      8,027,839
        Goodwill                    116,256,000     116,256,000     17,031,850
        Prepayments and other
         assets                      42,516,514      56,700,243      8,306,754
        Deferred tax assets           2,895,739       2,857,116        418,576
    Total assets                  3,009,017,489   3,332,043,337    488,154,258

    Liabilities and Shareholders'
     Equity
      Current liabilities
        Accounts payable             92,131,878      69,967,910     10,250,507
        Advances from customers      88,944,437     104,008,285     15,237,523
        Salary and welfare payable   99,629,630      45,207,092      6,622,973
        Taxes payable                35,503,484      45,865,801      6,719,476
        Accrued expenses and other
         liabilities                 40,055,495      83,923,838     12,295,092
        Due to related party          5,650,616       5,657,757        828,878
        Deferred revenues           280,584,152     280,307,267     41,065,848
        Deferred tax liabilities     22,488,342      23,921,819      3,504,618
      Total current liabilities     664,988,034     658,859,769     96,524,915
      Deferred revenues              28,479,618      25,967,324      3,804,290
    Total liabilities               693,467,652     684,827,093    100,329,205
    Shareholders' Equity
      Ordinary shares (US$0.0001
       par value, 10,000,000,000
       shares authorized, 49,171,190
       Class A ordinary shares issued
       and outstanding, 199,957,195
       Class B ordinary shares issued
       outstanding as of December 31,
       2009; 10,000,000,000 shares
       authorized, 44,171,190 Class A
       ordinary shares issued and
       outstanding, 206,132,945 Class
       B ordinary shares issued and
       outstanding as of March 31,
       2010)                            198,506         199,309         29,199
      Additional paid-in capital    381,099,428     407,572,908     59,710,643
      Statutory reserves            181,563,507     181,563,507     26,599,594
      Accumulated other
       comprehensive loss           (65,453,442)    (65,238,302)    (9,557,605)
      Retained earnings           1,799,851,169   2,105,015,331    308,391,007
    Total Perfect World
     Shareholders' Equity         2,297,259,168   2,629,112,753    385,172,838
    Non-controlling interests        18,290,669      18,103,491      2,652,215
    Total Shareholders' Equity    2,315,549,837   2,647,216,244    387,825,053
    Total Liabilities and
     Shareholders' Equity         3,009,017,489   3,332,043,337    488,154,258

                           Perfect World Co., Ltd.
               Unaudited Consolidated Statements of Operations

                                       Three months ended
                        March 31,   December 31,     March 31,     March 31,
                          2009         2009            2010          2010
                           RMB          RMB             RMB           USD
    Revenues
      Online game
       operation
       revenues        377,173,678  541,773,555     569,713,235    83,464,683
      Overseas
       licensing
       revenues         47,968,592   61,651,444      53,377,895     7,820,020
      Film, television
       and other
       revenues                 --    4,474,322       1,952,484       286,045
    Total Revenues     425,142,270  607,899,321     625,043,614    91,570,748
    Cost of revenues
      Online game
       related cost    (56,442,843) (79,781,617)    (87,105,440)  (12,761,206)
      Film, television
       and other cost           --   (1,735,088)        (24,887)       (3,646)
    Total cost of
     revenues          (56,442,843) (81,516,705)    (87,130,327)  (12,764,852)
    Gross profit       368,699,427  526,382,616     537,913,287    78,805,896
    Operating expenses
      Research and
       development
       expenses        (56,958,268) (76,912,046)    (77,808,074)  (11,399,114)
      Sales and
       marketing
       expenses        (50,924,583)(124,655,400)    (82,159,508)  (12,036,612)
      General and
       administrative
       expenses        (30,438,140) (48,280,933)    (54,795,477)   (8,027,700)
    Total operating
     expenses         (138,320,991)(249,848,379)   (214,763,059)  (31,463,426)
    Operating profit   230,378,436  276,534,237     323,150,228    47,342,470
    Other income/
     (expenses)
      Investment loss     (625,045)  (1,279,762)     (1,506,851)     (220,758)
      Interest income    3,274,619    5,169,231       5,258,399       770,371
      Others, net        2,359,971    7,874,430       6,766,026       991,243
    Total other income   5,009,545   11,763,899      10,517,574     1,540,856
    Profit before tax  235,387,981  288,298,136     333,667,802    48,883,326
      Income tax
       expense         (19,942,929) (17,534,886)    (28,690,818)   (4,203,290)
    Net income         215,445,052  270,763,250     304,976,984    44,680,036
      Add: Net loss
       attributable to
       non-controlling
       interests                --       86,162         187,178        27,422
    Net income
     attributable to
     the Company's
     shareholders      215,445,052  270,849,412     305,164,162    44,707,458
    Net earnings per
     share, basic             0.83         1.09            1.22          0.18
    Net earnings per
     share, diluted           0.79         1.02            1.15          0.17
    Net earnings per
     ADS, basic               4.14         5.44            6.12          0.90
    Net earnings per
     ADS, diluted             3.96         5.09            5.75          0.84

    Shares used in
     calculating basic
     net earnings per
     share             260,412,419  248,945,580     249,384,104   249,384,104
    Shares used in
     calculating
     diluted net
     earnings
     per share         271,768,450  265,982,221     265,565,857   265,565,857

    Total share-based
     compensation cost
     included in:
      Cost of revenues  (1,079,899)  (1,149,174)     (1,693,246)     (248,066)
      Research and
       development
       expenses         (6,976,521) (11,363,609)     (9,404,410)   (1,377,774)
      Sales and
       marketing
       expenses         (1,595,196)  (1,602,599)     (2,271,910)     (332,842)
      General and
       administrative
       expenses         (5,766,248)  (7,839,431)     (8,423,397)   (1,234,053)

                           Perfect World Co., Ltd.
               Unaudited Consolidated Statements of Cash Flows

                                        Three months ended
                       March 31,     December 31,   March 31,      March 31,
                         2009           2009          2010           2010
                          RMB            RMB           RMB            USD

    Cash flows from
     operating
     activities:
    Net income        215,445,052    270,763,250   304,976,984     44,680,036
    Adjustments for:
      Share-based
       compensation
       cost            15,417,864     21,954,813    21,792,963      3,192,735
      Depreciation and
       amortization
       expense          9,370,560     32,447,920    17,836,399      2,613,085
      Exchange loss        49,792        113,749       261,907         38,370
      Investment loss     625,045      1,279,762     1,506,851        220,758
      Loss from disposal
       of property,
       equipment, and
       software            67,569        399,425       116,071         17,005
      Changes in assets
       and liabilities:
        Accounts
         receivable   (19,038,659)    48,265,298    26,856,675      3,934,581
        Current
         prepayments
         and other
         assets        (6,622,458)     9,939,338   (16,375,737)    (2,399,094)
        Deferred tax
         assets           (75,319)    (3,573,707)     (395,925)       (58,004)
        Film and
         television
         cost                  --    (14,508,195)   (2,117,605)      (310,235)
        Due from/to
         related
         parties               --       (565,138)        7,141          1,046
        Non-current
         prepayments
         and other
         assets         1,050,366        747,629   (14,499,468)    (2,124,215)
        Accounts
         payable       11,651,065      1,582,299   (20,794,672)    (3,046,481)
        Advances from
         customers     (2,690,605)   (26,140,988)   15,065,334      2,207,116
        Salary and
         welfare
         payable      (25,700,751)    21,649,640   (54,413,418)    (7,971,728)
        Taxes payable  35,855,955      8,812,168    10,371,267      1,519,421
        Accrued
         expenses
         and other
         liabilities    5,868,313     (1,137,447)   43,930,792      6,435,992
        Deferred
         revenues      26,784,532      3,303,923    (2,592,055)      (379,744)
        Deferred tax
         liabilities  (18,139,092)     2,741,097     1,433,477        210,009
        Deferred
         government
         grants                --     (1,450,000)           --             --
    Net cash provided
     by operating
     activities       249,919,229    376,624,836   332,966,981     48,780,653
    Cash flows from
     investing
     activities:
      Purchase of
       property,
       equipment,
       and software   (14,221,383)   (48,302,540)  (35,135,276)    (5,147,422)
      Purchase of
       intangible
        assets                 --     (1,313,235)  (20,492,670)    (3,002,237)
      Decrease of
       restricted
        cash          135,361,200             --            --             --
      Cash paid for
       business
       acquisitions,
       net of cash
       acquired      (154,554,000)            --            --             --
      Purchase of
       short-term
       investments    (40,000,000)            --            --             --
      Maturities
       of short-term
       investments             --     40,000,000    30,000,000      4,395,089
      Decrease in loan
       receivable              --      3,780,000            --             --
    Net cash used
     in investing
     activities       (73,414,183)    (5,835,775)  (25,627,946)    (3,754,570)
    Cash flows from
     financing
     activities:
      Exercise of
       share options      334,433      2,304,395     2,306,091        337,849
      Repurchase of
       Company
       shares        (523,583,215)            --            --             --
    Net cash (used
     in) / provided
     by financing
     activities      (523,248,782)     2,304,395     2,306,091        337,849

    Effect of
     exchange rate
     changes on
     cash and cash
     equivalents          110,412         87,971        90,709         13,289
    Net (decrease) /
     increase in
     cash            (346,633,324)   373,181,427   309,735,835     45,377,221

    Cash and cash
     equivalents,
     beginning
     of the period  1,333,075,731  1,193,983,729 1,567,165,156    229,594,356
    Cash and cash
     equivalents,
     end of the
     period           986,442,407  1,567,165,156 1,876,900,991    274,971,577
    Supplemental
     disclosures
     of cash flow
     information:
    Cash paid during
     the period for
     income taxes      (2,575,784)   (16,849,182)  (14,420,198)    (2,112,602)

                           Perfect World Co., Ltd.
                 Reconciliation of GAAP and Non-GAAP Results

                                            Three months ended
                             March 31,    December 31,  March 31,   March 31,
                               2009          2009         2010        2010
                                RMB           RMB          RMB         USD

    GAAP operating profit   230,378,436   276,534,237  323,150,228  47,342,470
    Share based compensation
     charge                  15,417,864    21,954,813   21,792,963   3,192,735
    Non-GAAP operating
     profit                 245,796,300   298,489,050  344,943,191  50,535,205

    GAAP net income
     attributable to the
     Company's shareholders 215,445,052   270,849,412  305,164,162  44,707,458
    Share based compensation
     charge                  15,417,864    21,954,813   21,792,963   3,192,735
    Non-GAAP net income
     attributable to the
     Company's shareholders 230,862,916   292,804,225  326,957,125  47,900,193

    GAAP net earnings per
     ADS
     - Basic                       4.14          5.44         6.12        0.90
     - Diluted                     3.96          5.09         5.75        0.84

    Non-GAAP net earnings
     per ADS
     - Basic                       4.43          5.88         6.56        0.96
     - Diluted                     4.25          5.50         6.16        0.90

    ADSs used in calculating
     net earnings per ADS
     - Basic                 52,082,484    49,789,116   49,876,821  49,876,821
     - Diluted               54,353,690    53,196,444   53,113,171  53,113,171
Tuesday, May 18th, 2010 Uncategorized
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