Youku Announces Second Quarter 2012 Unaudited Financial Results

Youku Announces Second Quarter 2012 Unaudited Financial Results

Net Revenues Increased by 96% Year-over-Year; Pending Merger with Tudou on Track

BEIJING, Aug. 6, 2012 /PRNewswire-Asia/ -- Youku Inc. (NYSE: YOKU), China's leading Internet television company ("Youku" or the "Company"), today announced its unaudited financial results for the second quarter 2012.

Second Quarter Highlights[1]




-- Net revenues were RMB387.4 million (US$61.0 million), a 96% increase
from the corresponding period in 2011.
-- Gross profit was RMB76.9 million (US$12.1 million), a 45% increase from
the corresponding period in 2011. Non-GAAP gross profit, which is herein
defined as gross profit excluding share-based compensation expenses, was
RMB79.5 million (US$12.5 million) in the second quarter of 2012, a 48%
increase from the corresponding period in 2011.
-- Net loss was RMB62.8 million (US$9.9 million), as compared to a net loss
of RMB28.1 million (US$4.4 million) for the same period in 2011.
Non-GAAP net loss, which is herein defined as net loss excluding
share-based compensation expenses and business combination related
expenses, was RMB29.3 million (US$4.6 million) in the second quarter of
2012, as compared to the non-GAAP net loss of RMB20.8 million (US$3.3
million) in the corresponding period in 2011. This increase was
primarily due to content price increase during 2011, which we amortize
using accelerated method, broadening of our content portfolio, increase
of number of employees as a result to rapid growth of our business and
our continuous and expanded investment in product development in mobile,
search, social and paid services.
-- Basic and diluted loss per ADS, each representing 18 Class A ordinary
shares, for the second quarter of 2012 amounted to RMB0.54 (US$0.09) and
RMB0.54 (US$0.09), respectively.
-- Cash, cash equivalents and short-term investments totaled RMB3.5 billion
(US$546.6 million) as of June 30, 2012.
-- Acquisition of property and equipment for the second quarter of 2012 was
RMB22.6 million (US$3.6 million), as compared to RMB18.9 million (US$3.0
million) for the same period in 2011.
-- Acquisition of intangible assets for the second quarter of 2012 was
RMB51.6 million (US$8.1 million), as compared to RMB144.2 million
(US$22.7 million) for the same period in 2011.

[1] The reporting currency of the
Company is Renminbi ("RMB"), but
for the convenience of the reader,
the amounts presented throughout
the release are in US dollars
("US$"). Unless otherwise noted,
all conversions from RMB to US$
are made at a rate of RMB6.353 to
US$1.00, the effective noon buying
rate as of June 29, 2012 in the
City of New York for cable
transfers of RMB as certified for
customs purposes by the Federal
Reserve Bank of New York. No
representation is made that the
RMB amounts could have been, or
could be, converted into US$ at
such rate.
"Despite challenging macroeconomic conditions, we recorded another quarter of strong revenue growth." said Victor Koo, Chairman and Chief Executive Officer of Youku. "We are pleased to see the continued rationalization of the online video sector and improving content and bandwidth cost structure. The planned integration with Tudou is proceeding smoothly and we are on track to realize the potential of the combination of No.1 and No.2 online video platforms in China."

Dele Liu, President of Youku, commented, "We are further cementing our leadership positions in video and continue to benefit in the structural budget shift from traditional media to online video by offering high ROI marketing solutions. We will continue to drive our edge in user experience, content management and monetization to achieve sustainable and profitable growth."





Second Quarter 2012 Results

Net revenues were RMB387.4 million (US$61.0 million) in the second quarter of 2012, representing a 96% increase from the corresponding period in 2011 and meeting the revenue guidance previously announced by the Company. The growth was primarily attributable to the increased average spending per advertiser from RMB0.9 million to RMB1.7 million and increased number of advertisers from 260 to 283, representing an increase of 89% and 9%, respectively, from the corresponding period in 2011.

Bandwidth costs as a component of cost of revenues were RMB111.9 million (US$17.6 million) in the second quarter of 2012, representing 29% of net revenues, compared to 33% in the corresponding period in 2011.

Content costs as a component of cost of revenues were RMB144.0 million (US$22.7 million) in the second quarter of 2012, representing 37% of net revenues, compared to 25% in the corresponding period in 2011. The increase was primarily due to content price increase during 2011, which we amortize using accelerated method, and broadening of our content portfolio.

Gross profit was RMB76.9 million (US$12.1 million), an increase of 45% compared to RMB52.9 million (US$8.3 million) for the same period in 2011. Non-GAAP gross profit was RMB79.5 million (US$12.5 million) in the second quarter of 2012, an increase of 48% compared to RMB53.6 million (US$8.4 million) in the corresponding period in 2011 due to operating leverage.

Operating expenses were RMB158.3 million (US$24.9 million) in the second quarter of 2012, as compared to RMB80.7 million (US$12.7 million) in the corresponding period in 2011. Non-GAAP operating expenses, which is herein defined as operating expenses excluding share-based compensation expenses and business combination related expenses, were RMB127.4 million (US$20.1 million) in the second quarter of 2012, an increase of 72% compared to RMB74.1 million (US$11.7 million) in the corresponding period in 2011. The increase was primarily due to increases in sales and marketing expenses, product development expenses and general and administrative expenses as a result of the substantial growth of our business. Detailed discussion of each component of operating expenses is as follows:

Sales and marketing expenses were RMB80.3 million (US$12.6 million) in the second quarter of 2012, as compared to RMB52.7 million (US$8.3 million) in the corresponding period in 2011. Non-GAAP sales and marketing expenses, which is herein defined as sales and marketing expenses excluding share-based compensation expenses, were RMB74.3 million (US$11.7 million) in the second quarter of 2012, an increase of 50% compared to RMB49.7 million (US$7.8 million) in the corresponding period in 2011. This increase was primarily due to increases in marketing expenses and commission expenses paid to our sales force in line with our revenue growth.

Product development expenses were RMB35.0 million (US$5.5 million) in the second quarter of 2012, as compared to RMB14.2 million (US$2.2 million) in the corresponding period in 2011. Non-GAAP product development expenses, which is herein defined as product development expenses excluding share-based compensation expenses, were RMB28.6 million (US$4.5 million) in the second quarter of 2012, an increase of 130% compared to RMB12.5 million (US$2.0 million) in the corresponding period in 2011. This increase was primarily due to an increase in salaries and benefits for our product development personnel in mobile, search, social and paid-services.

General and administrative expenses were RMB43.0 million (US$6.8 million) in the second quarter of 2012, as compared to RMB13.8 million (US$2.2 million) in the corresponding period in 2011. Non-GAAP general and administrative expenses, which is herein defined as general and administrative expenses excluding share-based compensation expenses and business combination related expenses,were RMB24.5 million (US$3.9 million) in the second quarter of 2012, representing an increase of 104% compared to RMB12.0 million (US$1.9 million) in the corresponding period in 2011. This increase was primarily due to an increase in professional fees, personnel-related expenses and tax charges.

Net loss was RMB62.8 million (US$9.9 million), as compared to a net loss of RMB28.1 million (US$4.4 million) for the same period in 2011. Non-GAAP net loss,which is herein defined as net loss excluding share-based compensation expenses and business combination related expenses,was RMB29.3 million (US$4.6 million) in the second quarter of 2012, as compared to the non-GAAP net loss of RMB20.8 million (US$3.3 million) in the corresponding period in 2011. This increase was primarily due to content price increase during 2011, which we amortize using accelerated method, broadening of our content portfolio, increase of number of employees as a result to rapid growth of our business and our continuous and expanded investment in product development in mobile, search, social and paid services.

Non-GAAP EBITDA loss, which is herein defined as net loss before income taxes, interest expenses, interest income, depreciation and amortization (excluding amortization of acquired content), further adjusted for share-based compensation expenses, business combination related expenses and other non-operating items, was RMB33.1 million (US$5.2 million) in the second quarter of 2012, as compared to RMB10.1 million (US$1.6 million) in the corresponding period in 2011. This increase was primarily due to increase in operating expenses.

Business Outlook

For the third quarter of 2012, the Company expects year-on-year growth of 70% to 80% in net revenues. This forecast reflects the Company's current and preliminary view, which is subject to change.



Recent Business Developments



Youku to Hold 2012 Annual General Meeting on August 20, 2012

On July 18, the Company announced that it will hold its 2012 annual general meeting of shareholders at Suite 3206, The Centrium, 60 Wyndham Street, Central, Hong Kong on Monday, August 20, 2012, beginning at 10:00 am (Hong Kong time). Only holders of Youku Class A shares and Youku Class B shares of record on the close of business on August 13, 2012 (Hong Kong time) (the "Youku share record date") or their proxy holders are entitled to vote at the annual general meeting or any adjournment or postponements thereof. Each Youku Class A shareholder has one vote for each Youku Class A share and each Youku Class B shareholder has three votes for each Youku Class B share held as of the close of business on the Youku share record date. Holders of record of the Company's American Depositary Shares ("ADSs") at the close of business on July 20, 2012 (New York City time) who wish to vote the Class A ordinary shares of the Company represented by the ADSs must act through Citibank, N.A., the depositary of the Company's ADS program.

Youku has filed a registration statement on Form F-4 (the "Form F-4") with the Securities and Exchange Commission (the "SEC"), which became effective at 4:30 p.m., July 17, 2012 (New York City Time). The Form F-4 includes a joint proxy statement/prospectus and was filed with the SEC in connection with the previously announced merger agreement (the "Merger Agreement"), dated March 11, 2012, by and among the Company, Tudou Holdings Limited ("Tudou") and Two Merger Sub Inc. ("Merger Sub") and the merger contemplated thereunder (the "Merger"). Pursuant to the Merger Agreement and the plan of merger attached as Annex A to the Merger Agreement, Tudou will merge with and into Merger Sub, with Tudou continuing as the surviving entity and as a wholly owned subsidiary of Youku and the combined entity will be named "Youku Tudou Inc."

The notice of the annual general meeting included in the joint proxy statement/prospectus sets forth the resolutions to be submitted to shareholders of the Company for approval and other relevant information regarding the annual general meeting, the Merger and the Merger Agreement and how to vote ordinary shares or direct Citibank, N.A. to vote the Class A ordinary shares represented by the ADSs at the annual general meeting.

Conference Call Information

Youku's management will host an earnings conference call at 8:00 a.m. U.S. Eastern Time on August 6, 2012 (8:00 p.m. Beijing/Hong Kong Time on August 6, 2012).

Interested parties may participate in the conference call by dialing one of the following numbers below and entering passcode Youku# (i.e., 96858#) starting 10-15 minutes prior to the beginning of the call.

US Toll Free Dial In: 1-866-519-4004

International Dial In: 1-718-354-1231

Mainland China Toll Free Dial In: 86-4006208038 / 86-8008190121

Hong Kong Dial In: 852-2475-0994

A replay of the call will be available by dialing 1-866-214-5335 (international 1-718-354-1232) , and entering passcode 16226822#. The replay will be available through August 13, 2012.

This call will be webcast live and the replay will be available for 12 months. Both will be available on the Investor Relations section of Youku's corporate website at http://ir.youku.com.



About Youku

Youku Inc. is China's leading Internet television company. Our Internet television platform enables users to search, view and share high-quality video content quickly and easily across multiple devices. Youku, which stands for "what's best and what's cool" in Chinese, is the most recognized online video brand in China. Youku's American depositary shares, each representing 18 of our Class A ordinary shares, are traded on NYSE under the symbol "YOKU."

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. 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 business outlook and quotations from management in this announcement, as well as Youku's strategic and operational plans, contain forward-looking statements. Youku may also make written or oral forward-looking statements in its filings with the U.S. Securities and Exchange Commission ("SEC"), 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 Youku'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 goals and strategies; our future business development, financial condition and results of operations; the expected growth of the online video market in China; our expectations regarding demand for and market acceptance of our services; our expectations regarding the retention and strengthening of our relationships with key advertisers and customers; our plans to enhance user experience, infrastructure and service offerings; competition in our industry in China; and relevant government policies and regulations relating to our industry. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and Youku does not undertake any obligation to update any forward-looking statement, except as required under applicable law.



About Non-GAAP Financial Measures



To supplement Youku's consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Youku uses the following measures defined as non-GAAP financial measures by the SEC in evaluating its business: non-GAAP gross profit or loss, non-GAAP operating expenses, non-GAAP sales and marketing expense, non-GAAP product development expenses, non-GAAP general and administrative expenses, non-GAAP loss from operations, non-GAAP net loss and non-GAAP EBITDA loss. We define non-GAAP gross profit or loss, non-GAAP sales and marketing expense and non-GAAP product development expenses as the respective nearest comparable GAAP financial measure to exclude share-based compensation expenses. We define non-GAAP operating expenses as operating expenses excluding share-based compensation expenses and business combination related expenses. We define non-GAAP general and administrative expenses as general and administrative expenses excluding share-based compensation expenses and business combination related expenses. We define non-GAAP loss from operations as loss from operations excluding share-based compensation expenses and business combination related expenses. We define non-GAAP net loss as net loss excluding share-based compensation expenses and business combination related expenses. We define non-GAAP EBITDA loss as net loss before income taxes, interest expenses, interest income, depreciation and amortization (excluding amortization of acquired content), further adjusted for share-based compensation expenses, business combination related expenses and other non-operating items. We present non-GAAP financial measures because they are used by our management to evaluate our operating performance. We also believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our consolidated results of operations in the same manner as our management and in comparing financial results across accounting periods and to those of our peer companies. A limitation of using non-GAAP financial measures is that non-GAAP measures exclude share-based compensation charges that have been and will continue to be significant recurring expenses in Youku's business for the foreseeable future.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP financial measures" at the end of this release.

For more information, please contact:



Investor Relations:

Ryan Cheung

Corporate Finance Director

Youku Inc.

Tel: (+8610) 5885-1881 x6090

Email: ryan.cheung@youku.com






YOUKU INC.
CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except for number of shares) December 31, June 30, June 30,
--------------------------------------------------
2011 2012 2012
---- ---- ----
RMB RMB US$
ASSETS (Unaudited) (Unaudited)

Current assets:
Cash and cash equivalents 2,292,538 3,215,106 506,077
Short-term investments 1,400,858 257,197 40,484
Accounts receivable, net 420,706 677,067 106,574
Intangible assets, net 16,078 18,721 2,947
Amounts due from related party 768 - -
Prepayments and other assets 16,832 45,075 7,095

Total current assets 4,147,780 4,213,166 663,177

Non-current assets:
Property and equipment, net 96,567 116,382 18,319
Long-term investment in related party 1,707 - -
Intangible assets, net 211,978 209,041 32,904
Capitalized content production costs 7,782 796 125
Amounts due from related party 65,352 - -
Prepayments and other assets 144,392 207,749 32,701
Goodwill - 61,824 9,731

Total non-current assets 527,778 595,792 93,780
------- ------- ------

TOTAL ASSETS 4,675,558 4,808,958 756,957
========= ========= =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable 57,276 109,712 17,269
Advances from customers 3,140 45,440 7,153
Amounts due to related party 2,794 - -
Accrued expenses and other liabilities 390,607 549,661 86,520
Current portion of long-term debt 9,182 11,838 1,863

Total current liabilities 462,999 716,651 112,805

Non-current liabilities:
Long-term debt 7,382 1,137 179

Total non-current liabilities 7,382 1,137 179
----- ----- ---

Total liabilities 470,381 717,788 112,984

Commitments and contingencies

Shareholders' equity:
Class A Ordinary Shares (US$0.00001 par value, 9,340,238,793 authorized, 1,395,435,339 and 1,437,039,252 issued and outstanding as of
December 31, 2011 and June 30, 2012, respectively) 93 95 15
Class B Ordinary Shares (US$0.00001 par value, 659,761,207 authorized, 659,561,893 and 659,561,893 issued and outstanding as of
December 31, 2011 and June 30, 2012, respectively) 49 49 8
Additional paid-in capital 5,185,257 5,283,356 831,632
Accumulated deficit (871,644) (1,090,617) (171,671)
Accumulated other comprehensive loss (108,578) (101,713) (16,011)
Total shareholders' equity 4,205,177 4,091,170 643,973
--------- --------- -------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 4,675,558 4,808,958 756,957
========= ========= =======







YOUKU INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended, For the Six Months Ended,
--------------------------- -------------------------
(Amounts in thousands, except for number of shares and ADS and per share and per ADS data) June 30, March 31, June 30, June 30, June 30, June 30, June 30,
-----------------------------------------------------------------------------------------
2011 2012 2012 2012 2011 2012 2012
---- ---- ---- ---- ---- ---- ----
RMB RMB RMB US$ RMB RMB US$
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)

Net revenues 197,853 270,167 387,387 60,978 325,844 657,554 103,502

Cost of revenues (Note 1) (144,945) (292,736) (310,463) (48,869) (258,916) (603,199) (94,947)
-------- -------- -------- ------- -------- -------- -------

Gross profit (loss) 52,908 (22,569) 76,924 12,109 66,928 54,355 8,555

Operating expenses:
Product development (14,192) (28,833) (35,046) (5,516) (24,786) (63,879) (10,055)
Sales and marketing (52,732) (66,406) (80,255) (12,633) (89,401) (146,661) (23,085)
General and administrative (13,759) (48,586) (43,017) (6,771) (26,333) (91,603) (14,419)
------- ------- ------- ------
Total operating expenses (80,683) (143,825) (158,318) (24,920) (140,520) (302,143) (47,559)
------- -------- -------- ------- -------- -------- -------

(Loss) profit from operations (27,775) (166,394) (81,394) (12,811) (73,592) (247,788) (39,004)

Interest income 3,190 11,603 12,375 1,948 4,246 23,978 3,774
Interest expenses (1,801) (1,151) (982) (155) (3,956) (2,133) (336)
Other, net (1,714) 3,393 4,762 750 (1,714) 8,155 1,284
------ ----- ----- --- ------ ----- -----
Total other income (expenses), net (325) 13,845 16,155 2,543 (1,424) 30,000 4,722

(Loss) profit before income taxes (28,100) (152,549) (65,239) (10,268) (75,016) (217,788) (34,282)
Income taxes - (3,576) 2,391 376 - (1,185) (187)
--- ------ ----- --- --- ------ ----

Net (loss) profit (28,100) (156,125) (62,848) (9,892) (75,016) (218,973) (34,469)
======= ======== ======= ====== ======= ======== =======

Net loss per share, basic and diluted (0.01) (0.08) (0.03) (0.00) (0.04) (0.11) (0.02)
Net loss per ADS (each ADS represents 18 class A ordinary shares), basic and diluted (0.26) (1.36) (0.54) (0.09) (0.70) (1.90) (0.30)
Shares used in computation, basic and diluted 1,966,651,063 2,066,687,393 2,079,698,573 2,079,698,573 1,931,702,933 2,073,192,979 2,073,192,979
ADSs used in computation, basic and diluted 109,258,392 114,815,966 115,538,809 115,538,809 107,316,829 115,177,387 115,177,387







The accompanying notes are an integral part of the press release



Note 1. Cost of Revenues For the Three Months Ended, For the Six Months Ended,
--------------------------- -------------------------
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2011 2012 2012 2012 2011 2012 2012
---- ---- ---- ---- ---- ---- ----
RMB RMB RMB US$ RMB RMB US$
(Amounts in thousands) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cost of revenues:
Business tax and surcharges 20,241 27,842 41,830 6,584 32,633 69,672 10,967
Bandwidth costs 66,251 113,169 111,859 17,607 122,576 225,028 35,421
Depreciation of servers and other equipment 8,919 11,689 12,731 2,005 18,031 24,420 3,843
Content costs 49,534 140,036 144,043 22,673 85,676 284,079 44,716
------ ------- ------
Total Cost of Revenues 144,945 292,736 310,463 48,869 258,916 603,199 94,947
======= ======= ======= ====== ======= ======= ======







YOUKU INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended, For the Six Months Ended
--------------------------- ------------------------
(Amounts in thousands) June 30, March 31, June 30, June 30, June 30, June 30, June 30,
---------------------
2011 2012 2012 2012 2011 2012 2012
---- ---- ---- ---- ---- ---- ----
RMB RMB RMB US$ RMB RMB US$
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss (28,100) (156,125) (62,848) (9,892) (75,016) (218,973) (34,469)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation 10,358 14,001 14,742 2,320 20,883 28,743 4,524
Bad debt expense (279) 658 1,669 263 453 2,327 366
Amortization of intangible assets and capitalized content production costs 35,390 91,183 77,338 12,173 61,913 168,521 26,527
Amortization of long-term debt discounts 923 616 535 84 1,940 1,151 181
Gain on disposal of property and equipment (7) - - - (7) - -
Foreign exchange loss 1,644 189 (374) (59) 1,644 (185) (29)
Share-based compensation 7,278 23,067 26,197 4,124 12,652 49,264 7,754
Capital gain from step business combination - (3,344) - - - (3,344) (526)
Change in operating assets and liabilities:
Accounts receivable (86,113) (2,048) (232,847) (36,652) (62,852) (234,895) (36,974)
Prepayments and other assets (4,776) 11,165 19,167 3,017 (7,741) 30,332 4,775
Capitalized content production costs (*) (1,745) (5,025) (2,872) (452) (1,868) (7,897) (1,242)
Accounts payable (502) 13 (2,504) (394) (252) (2,491) (392)
Advances from customers (1,455) 28,986 (12,392) (1,951) (580) 16,594 2,612
Accrued expenses and other liabilities 62,204 9,349 83,026 13,069 32,269 92,375 14,541
Net cash (used in) provided by operating activities (5,180) 12,685 (91,163) (14,350) (16,562) (78,478) (12,352)

Cash flows from investing activities:
Acquisition of property and equipment (18,878) (10,069) (22,603) (3,558) (32,352) (32,672) (5,143)
Proceeds from short-term investments - 253,673 1,145,908 180,373 - 1,399,581 220,302
Purchase of short-term investments (1,164,888) (254,474) - - (1,229,947) (254,474) (40,056)
Proceeds from disposal of property and equipment 8 - - - 8 - -
Cash paid for acquired subsidiaries, net of cash received - (25,778) - - - (25,778) (4,058)
Acquisition of intangible assets (144,156) (50,420) (51,625) (8,126) (185,834) (102,045) (16,062)
Net cash (used in) provided by investing activities (1,327,914) (87,068) 1,071,680 168,689 (1,448,125) 984,612 154,983

Cash flows from financing activities:
Exercise of employee stock options 1,025 5,844 8,483 1,335 1,025 14,327 2,255
Principal repayments on long-term debt (7,406) (1,987) (2,956) (465) (16,772) (4,943) (778)
Proceeds from IPO and secondary offering, net of issuance costs 2,508,974 - - - 2,513,755 - -
Net cash (used in) provided by financing activities 2,502,593 3,857 5,527 870 2,498,008 9,384 1,477
Effect of exchange rate changes on cash and cash equivalents (22,802) (2,477) 9,527 1,500 (38,182) 7,050 1,110
------- ------ ----- ----- ------- ----- -----
Net (decrease) increase in cash and cash equivalents 1,146,697 (73,003) 995,571 156,709 995,139 922,568 145,218
Cash and cash equivalents at the beginning of the period 1,659,865 2,292,538 2,219,535 349,368 1,811,423 2,292,538 360,859
Cash and cash equivalents at the end of the period 2,806,562 2,219,535 3,215,106 506,077 2,806,562 3,215,106 506,077
========= ========= ========= ======= ========= ========= =======


* The investments in TV drama production by Tianshi were expensed as incurred since they did not meet the requirements of capitalization according to Accounting Standard Codification Section 926. The investments in TV drama production were RMB6,360 and RMB7,008 in Q1 2012 and Q2 2012, respectively.







Reconciliations of Non-GAAP results of operations measures to the nearest comparable GAAP financial measures (**) (Amounts in thousands of Renminbi ("RMB") and U.S. dollars ("US$"), unaudited)


1. Non-GAAP Gross Profit (Loss) For the Three Months Ended, For the Six Months Ended,
--------------------------- -------------------------
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2011 2012 2012 2012 2011 2012 2012
---- ---- ---- ---- ---- ---- ----
RMB RMB RMB US$ RMB RMB US$
Gross profit (loss) 52,908 (22,569) 76,924 12,109 66,928 54,355 8,555
Add back: share-based compensation 701 1,999 2,615 412 1,133 4,614 726
----- ----- ---
Non-GAAP gross profit (loss) 53,609 (20,570) 79,539 12,521 68,061 58,969 9,281
====== ======= ====== ====== ====== ====== =====


2. Non-GAAP Operating Expenses For the Three Months Ended, For the Six Months Ended,
--------------------------- -------------------------
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2011 2012 2012 2012 2011 2012 2012
---- ---- ---- ---- ---- ---- ----
RMB RMB RMB US$ RMB RMB US$
Operating expenses 80,683 143,825 158,318 24,920 140,520 302,143 47,559
Deduct: share-based compensation 6,577 21,068 23,582 3,712 11,519 44,650 7,028
Deduct: business combination related expenses - 17,634 7,371 1,160 - 25,005 3,936
Non-GAAP operating expenses 74,106 105,123 127,365 20,048 129,001 232,488 36,595
====== ======= ======= ====== ======= ======= ======


3. Non-GAAP Sales and Marketing Expenses For the Three Months Ended, For the Six Months Ended,
--------------------------- -------------------------
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2011 2012 2012 2012 2011 2012 2012
---- ---- ---- ---- ---- ---- ----
RMB RMB RMB US$ RMB RMB US$
Sales and marketing expenses 52,732 66,406 80,255 12,633 89,401 146,661 23,085
Deduct: share-based compensation 3,045 4,911 5,935 934 5,709 10,846 1,707
----- ----- ----- --- ----- ------ -----
Non-GAAP sales and marketing expenses 49,687 61,495 74,320 11,699 83,692 135,815 21,378
====== ====== ====== ====== ====== ======= ======


4. Non-GAAP Product Development Expenses For the Three Months Ended, For the Six Months Ended,
--------------------------- -------------------------
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2011 2012 2012 2012 2011 2012 2012
---- ---- ---- ---- ---- ---- ----
RMB RMB RMB US$ RMB RMB US$
Product development expenses 14,192 28,833 35,046 5,516 24,786 63,879 10,055
Deduct: share-based compensation 1,737 5,070 6,458 1,017 2,827 11,528 1,815
----- ----- ----- ----- ----- ------ -----
Non-GAAP product development expenses 12,455 23,763 28,588 4,499 21,959 52,351 8,240
====== ====== ====== ===== ====== ====== =====


5. Non-GAAP General and Administrative Expenses For the Three Months Ended, For the Six Months Ended,
--------------------------- -------------------------
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2011 2012 2012 2012 2011 2012 2012
---- ---- ---- ---- ---- ---- ----
RMB RMB RMB US$ RMB RMB US$
General and administrative expenses 13,759 48,586 43,017 6,771 26,333 91,603 14,419
Deduct: share-based compensation 1,795 11,087 11,189 1,761 2,983 22,276 3,506
Deduct: business combination related expenses - 17,634 7,371 1,160 - 25,005 3,936
Non-GAAP general and administrative expenses 11,964 19,865 24,457 3,850 23,350 44,322 6,977
====== ====== ====== ===== ====== ====== =====







6. Non-GAAP (Loss) Profit from Operations For the Three Months Ended, For the Six Months Ended,
--------------------------- -------------------------
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2011 2012 2012 2012 2011 2012 2012
---- ---- ---- ---- ---- ---- ----
RMB RMB RMB US$ RMB RMB US$
(Loss) profit from operations (27,775) (166,394) (81,394) (12,811) (73,592) (247,788) (39,004)
Add back: share-based compensation 7,278 23,067 26,197 4,124 12,652 49,264 7,754
Add back: business combination related expenses - 17,634 7,371 1,160 - 25,005 3,936
Non-GAAP (loss) profit from operations (20,497) (125,693) (47,826) (7,527) (60,940) (173,519) (27,314)
======= ======== ======= ====== ======= ======== =======


7. Non-GAAP Net (Loss) Profit For the Three Months Ended, For the Six Months Ended,
--------------------------- -------------------------
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2011 2012 2012 2012 2011 2012 2012
---- ---- ---- ---- ---- ---- ----
RMB RMB RMB US$ RMB RMB US$
Net (loss) profit (28,100) (156,125) (62,848) (9,892) (75,016) (218,973) (34,469)
Add back: share-based compensation 7,278 23,067 26,197 4,124 12,652 49,264 7,754
Add back: business combination related expenses - 17,634 7,371 1,160 - 25,005 3,936
Non-GAAP net (loss) profit (20,822) (115,424) (29,280) (4,608) (62,364) (144,704) (22,779)
======= ======== ======= ====== ======= ======== =======


8. Non-GAAP EBITDA (Loss) Profit For the Three Months Ended, For the Six Months Ended,
--------------------------- -------------------------
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2011 2012 2012 2012 2011 2012 2012
---- ---- ---- ---- ---- ---- ----
RMB RMB RMB US$ RMB RMB US$
Net (loss) profit (28,100) (156,125) (62,848) (9,892) (75,016) (218,973) (34,469)
Add back:
Depreciation and amortization (excluding amortization
of acquired content )*** 10,373 14,016 14,757 2,323 20,913 28,773 4,529
Interest income (3,190) (11,603) (12,375) (1,948) (4,246) (23,978) (3,774)
Interest expenses 1,801 1,151 982 155 3,956 2,133 336
Income taxes - 3,576 (2,391) (376) - 1,185 187
--- ----- ------ ---- --- ----- ---
EBITDA (Loss) Profit (19,116) (148,985) (61,875) (9,738) (54,393) (210,860) (33,191)

Adjustments:
Share-based compensation 7,278 23,067 26,197 4,124 12,652 49,264 7,754
Business combination related expenses - 17,634 7,371 1,160 - 25,005 3,936
Others, net 1,714 (3,393) (4,762) (750) 1,714 (8,155) (1,284)
----- ------ ------ ---- ----- ------ ------
Non-GAAP EBITDA (Loss) Profit (10,124) (111,677) (33,069) (5,204) (40,027) (144,746) (22,785)
======= ======== ======= ====== ======= ======== =======



** For more information on the Non-GAAP financial measures, please see the section captioned "About Non-GAAP Financial Measures" in this earnings release.
*** The amortization expense was related to an advertising license acquired in April 2010. The amortization of acquired content was not treated as a Non-GAAP adjustment.
SOURCE Youku Inc.

Youku Inc.

Web Site: http://ir.youku.com


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