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Giant Interactive Announces Fourth Quarter and Fiscal Year 2012 Results and Regular Dividend of US$0.42 Per ADS or Ordinary Share

SHANGHAI, Feb. 26, 2013 /PRNewswire-FirstCall/ -- Giant Interactive Group Inc. (NYSE: GA) ("Giant" or the "Company"), one of China's leading online game developers and operators, announced today its unaudited financial results for the fourth quarter and year ended December 31, 2012.

Fourth Quarter 2012 Highlights as Compared to Third Quarter 2012 ("QoQ") and Fourth Quarter 2011 ("YoY"):

  • Net revenue was RMB571.7 million (US$91.8 million), up 5.2% QoQ and up 15.5% YoY.
  • Gross profit was RMB493.2 million (US$79.2 million), up 5.4% QoQ and up 15.5% YoY. Gross profit margin for the fourth quarter 2012 was 86.3%.
  • Net income attributable to the Company's shareholders was RMB82.7 million (US$13.3 million), down 73.5% QoQ and down 66.4% YoY, primarily due to an impairment charge related to the Company's investment in Five One Network Development Co., Ltd ("51.com"). The margin of net income attributable to the Company's shareholders for the fourth quarter 2012 was 14.5%.
  • Basic and diluted earnings per American Depositary Share ("ADS") which represents one ordinary share, were RMB0.35 (US$0.06) and RMB0.34 (US$0.05), respectively, compared to basic and diluted earnings per ADS of RMB1.32 and RMB1.28, respectively, for the third quarter 2012, and basic and diluted earnings per ADS of RMB1.05 and RMB1.05, respectively, for the fourth quarter 2011.
  • Non-GAAP net income attributable to the Company's shareholders was RMB350.0 million (US$56.2 million), up 2.2% QoQ and up 35.8% YoY. The margin of non-GAAP net income attributable to the Company's shareholders was 61.2%.
  • Basic and diluted non-GAAP earnings per ADS were RMB1.47 (US$0.24) and RMB1.43 (US$0.23), respectively, compared to basic and diluted non-GAAP earnings per ADS of RMB1.45 and RMB1.41, respectively, for the third quarter 2012, and basic and diluted non-GAAP earnings per ADS of RMB1.09 and RMB1.09, respectively, for the fourth quarter 2011.
  • Active Paying Accounts ("APA") for online games was 2,300,000, up 2.6% QoQ and up 6.1% YoY.
  • Average Revenue Per User ("ARPU") for online games was RMB238, flat QoQ and up 7.4% YoY.
  • Average Concurrent Users ("ACU") for online games was 702,000, up 1.1% QoQ and up 5.1% YoY.
  • Peak Concurrent Users ("PCU") for online games was 2,370,000, up 1.8% QoQ and up 1.3% YoY.

Please refer to "Use of Non-GAAP Financial Measures" commencing on page 10 for a reconciliation between net income attributable to the Company's shareholder on a GAAP and non-GAAP basis.

Fiscal Year 2012 Highlights as Compared to Fiscal Year 2011:

  • Net revenue increased 20.1% to RMB2,151.9 million (US$345.4 million).
  • Gross profit increased 21.4% to RMB1,863.5 million (US$299.1 million).
  • Gross profit margin was 86.6% as compared to 85.6% for fiscal year 2011.
  • Net income attributable to the Company's shareholders increased 12.9% to RMB993.7 million (US$159.5 million).
  • Net income attributable to the Company's shareholders as a percentage of net revenue was 46.2%.
  • Basic and diluted earnings per ADS increased 10.8% and 9.0%, respectively, to RMB4.20 (US$0.67) and RMB4.13 (US$0.66), respectively.
  • Non-GAAP net income attributable to the Company's shareholders increased 24.7% to RMB1,354.3 million (US$217.4 million).
  • Non-GAAP net income attributable to the Company's shareholders as a percentage of net revenue was 62.9%.
  • Basic and diluted non-GAAP earnings per ADS increased 22.2% and 20.1%, respectively, to RMB5.72 (US$0.92) and RMB5.62 (US$0.90), respectively.

Please refer to "Use of Non-GAAP Financial Measures" commencing on page 10 for a reconciliation between net income attributable to the Company's shareholders on a GAAP and non-GAAP basis.

Mr. Yuzhu Shi, Giant's Chairman and Chief Executive Officer commented, "2012 marked another year of strong growth. We have grown quarter over quarter for the past twelve consecutive quarters, and once again, following the impressive 34% annual revenue growth in 2011, we delivered a 20% annual growth in our total net revenue in 2012. Such growth was primarily driven by the continued growth of our flagship game ZT Online 2 and contribution from its newly launched micro-client version. We are especially proud of our achievements in 2012, as much of our resources were allocated to build up our webgame business in addition to continued development of new MMOs. Yet, through solid execution and prudent spending, we not only delivered top and bottom line growth, but also maintained high margins. While we continue to provide new content for ZT Online 2 and expect continued growth in 2013, we have also made significant progress in diversifying our MMO game portfolio."

Mr. Shi continued, "In 2013, we will debut our next self-developed 3D MMO flagship game, World of Xianxia. This game has gone through various testing and has received positive results. The official closed beta testing and large scale marketing campaign will begin in the second quarter of 2013. We anticipate World of Xianxia to become our primary growth driver for 2013."

"For our webgames offerings, after a year of intense development and preparation, two webgames are set for commercial launch in the first half of 2013 and are expected to become major growth drivers for 2013."

"In 2013, mobile game development will be our new major strategic focus. Mobile is the future of online access and we plan to keep delivering the best game experiences regardless of how the games are delivered, whether through PCs, tablets, or mobile phones. We have spent considerable amount of time analyzing the differences between PC and mobile gamers including their game-playing habits and preferences. The study will help us to better apply our leading game design experience to our future mobile game development. Furthermore, we started building our internal mobile game development team last year with an aim to produce a few high quality mobile games in 2013. Not only will we allocate sufficient resources to build a best-in-class mobile game development team, but we will also actively seek merger and acquisition and partnership opportunities to maximize our mobile game offerings."

"In addition to our home market, we plan to further expand our horizon internationally. We will continue to work with our overseas business partners to export our existing and pipeline games in PC, web or mobile format, whichever is most suitable to the local market. We will also actively seek opportunities to license and publish major foreign titles in China, to partner with other game companies to jointly develop new games, or to invest in foreign game companies."

Mr. Shi concluded, "Our long-term business objective remains firmly in delivering shareholder value, through execution of our multi-year plan to (a) broaden our user base through producing innovative and high quality games, (b) expand our distribution channels through leveraging our strong relationships with Internet platforms, and (c) increase our geographic footprint through our overseas business partners. In light of our strong business fundamentals and healthy cash flow, our Board of Directors has declared a cash dividend of US$0.42 per ordinary share or ADS for fiscal year 2012. This dividend implied a 50% pay-out of our earnings per share/ADS, excluding the impairment charge related to our investment in 51.com, formerly a China-based social networking company which transitioned into an online game developer and operator in recent years. Commencing in 2013, we plan to pay dividends semi-annually. Given our strong game pipeline and solid execution of business strategies, we are confident that we will maintain our growth trends and reach new levels of success in 2013."

Fourth Quarter Fiscal and Fiscal Year 2012 Unaudited Financial Results

Net Revenue. Net revenue for the fourth quarter 2012 was RMB571.7 million (US$91.8 million), representing a 5.2% increase from RMB543.2 million in the third quarter 2012, and a 15.5% increase from RMB494.8 million in the fourth quarter 2011.

Revenue from online games in the fourth quarter 2012 totaled RMB555.7 million (US$89.2 million), representing a 6.1% increase from RMB523.8 million in the third quarter 2012, and an 18.3% increase from RMB469.6 million in the fourth quarter 2011.The sequential as well as the year-over-year increases in online game net revenue were primarily due to the continued growth of ZT Online 2 and the contribution from its newly launched micro-client version.

For the fiscal year 2012, revenue from online games increased 22.0% to RMB2,075.0 million (US$333.1 million), from RMB1,701.3 million in fiscal year 2011.

APA for online games in the fourth quarter 2012 was 2,300,000, representing a 2.6% sequential increase and a 6.1% increase compared to the fourth quarter 2011. The sequential and year-over-year increases in APA were mainly due to the growth of the ZT Online franchise. ARPU for online games in the fourth quarter 2012 was RMB238, nearly flat compared to the third quarter of 2012 and up 7.4% compared to the fourth quarter 2011. The year-over-year increase in ARPU was mainly due to ZT Online 2 users spending more as they progress through the game. ACU for online games in the fourth quarter 2012 was 702,000, representing a 1.1% sequential increase and a 5.1% increase over the fourth quarter 2011. PCU for online games in the fourth quarter 2012 was 2,370,000, representing a 1.8% sequential increase and a 1.3% increase over the fourth quarter 2011. The sequential and year-over-year increases in ACU and PCU were mainly due to the continued popularity of the ZT Online franchise.

Cost of Services. Cost of services for the fourth quarter 2012 was RMB78.5 million (US$12.6 million), representing a 4.5% increase from the third quarter 2012 and a 15.9% increase from the fourth quarter 2011. The sequential increase in cost of services was mainly due to the year-end bonuses accrued for related personnel, while the year-over-year increase was mainly due to the overall growth of our business operations.

Cost of services increased 12.1% to RMB 288.4 million (US$46.3 million) for the fiscal year 2012, from RMB257.2 million in 2011. This increase was primarily attributable to the growth of our business.

Gross Profit and Gross Margin. Gross profit for the fourth quarter 2012 was RMB493.2 million (US$79.2 million), representing a 5.4% increase from the third quarter 2012 and a 15.5% increase from the fourth quarter 2011. Gross margin for the fourth quarter 2012 was 86.3%, which remained flat compared with the third quarter 2012 and the fourth quarter 2011.

Gross profit increased 21.4% to RMB1,863.5 million (US$299.1 million) for the fiscal year 2012, from RMB1,535.0 million in 2011, driven by the increase in net revenue. Gross margin for the fiscal year 2012 was 86.6%, compared with 85.6% in 2011.

Operating Expenses. Total operating expenses for the fourth quarter 2012 were RMB159.2 million (US$25.6 million), representing a 12.3% increase from RMB141.7 million in the third quarter 2012 and an 18.7% increase from RMB134.1 million in the fourth quarter 2011. As a percentage of revenue, total operating expenses were 27.8% for the fourth quarter 2012, compared to 26.1% in the third quarter 2012 and 27.1% in the fourth quarter 2011. The sequential increase in operating expenses was mainly due to the increase in R&D expenses, while the year-over-year increase in operating expenses was mainly attributable to the increase in R&D and G&A expenses and less government financial incentive, partially offset by less sales and marketing spending in the fourth quarter 2012 as compared to the fourth quarter 2011.

For the fiscal year 2012, total operating expenses increased 22.4% to RMB558.3 million (US$89.6 million) from RMB456.2 million in fiscal year 2011. The increase was primarily due to the increase in R&D and G&A expenses, partially offset by the decrease in sales and marketing expenses and higher government incentive in 2012 as compared to 2011.

Research and product development ("R&D") expenses for the fourth quarter 2012 were RMB 96.5 million (US$15.5 million), representing a 26.9% increase from RMB76.1 million in the third quarter 2012 and a 39.5% increase from RMB69.2 million in the fourth quarter 2011. As a percentage of revenue, R&D expenses were 16.9% for the fourth quarter 2012, compared to 14.0% in the third quarter 2012 and 14.0% in the fourth quarter 2011. The sequential increase in R&D expenses was mainly attributable to increased headcount allocated to our new products and increased cash compensation for our R&D employees including pay raises and performance based bonuses. The year-over-year increase was primarily due to increased headcount allocated to our new products, increased cash compensation and share-based compensation expenses related to restricted shares granted at the end of November 2011.

For the fiscal year 2012, R&D expenses increased 42.0% to RMB326.8 million (US$52.5 million) from RMB230.2 million in 2011. This increase was primarily attributable to the expansion of our R&D department to accommodate additional product development, increased cash compensation including regular pay raises and performance based bonuses, and increased share-based compensation expenses related to restricted shares granted at the end of November 2011.

Sales and marketing ("S&M") expenses for the fourth quarter 2012 were RMB38.9 million (US$6.2 million), representing a 4.0% increase from RMB37.4 million in the third quarter 2012, and a 29.7% decrease from RMB55.3 million in the fourth quarter 2011. As a percentage of revenue, S&M expenses were 6.8% in the fourth quarter 2012, compared to 6.9% in the third quarter 2012 and 11.2% in the fourth quarter 2011. The sequential increase in S&M expenses was minimal. The year-over-year decrease in S&M expenses was primarily due to the large scale marketing related to the open beta testing of ZT Online 2 and Elsword in the fourth quarter of 2011, while in the fourth quarter of 2012, marketing spending for these games reverted back to the normal scale.

For fiscal year 2012, S&M expenses were RMB146.5 million (US$23.5 million), down 13.8% from RMB170.0 million for fiscal year 2011, mainly due to higher marketing expenses incurred in 2011, which related to the commercial launch of ZT Online 2 and Elsword.

General and administrative ("G&A") expenses for the fourth quarter 2012 were RMB34.2 million (US$5.5 million), representing a 10.7% decrease from RMB38.3 million in the third quarter 2012, and a 24.7% increase from RMB27.4 million in the fourth quarter 2011. As a percentage of revenue, G&A expenses were 6.0% in the fourth quarter 2012, compared to 7.0% in the third quarter 2012 and 5.5% in the fourth quarter 2011. The sequential decrease in G&A expenses was mainly due to higher reimbursements related to our ADR program in the fourth quarter 2012, while the year-over-year increase was mainly attributable to the share-based compensation expenses related to the restricted shares granted at the end of November 2011 and fewer reimbursements related to our ADR program during the fourth quarter 2012 as compared to the fourth quarter 2011.

For fiscal year 2012, G&A expenses increased 43.4% to RMB148.7 million (US$23.9 million) from RMB103.7 million in fiscal year 2011. This increase was primarily the result of the share-based compensation expenses related to the restricted shares granted at the end of November 2011 and fewer reimbursements related to our ADR program in fiscal year 2012 as compared to fiscal year 2011.

Government Financial Incentives. The government financial incentives, which mainly relate to the refund of business tax, value-added tax, and enterprise income tax from the Shanghai municipal government, was RMB10.4 million (US$1.7 million) in the fourth quarter 2012. The Company records such government financial incentive as a reduction in operating expenses.

The total financial incentive received for fiscal year 2012 increased to RMB63.6 million (US$10.2 million) from RMB47.7 million in 2011.

Interest Income. Interest income for the fourth quarter 2012 was RMB26.6 million (US$4.3 million), representing a 15.1% decrease from RMB31.3 million in the third quarter 2012, and a 83.1% increase from RMB14.5 million in the fourth quarter 2011. The sequential decrease in interest income was mainly due to the maturity of certain short-term investments in the fourth quarter 2012, while the year-over-year increase was due to the growing cash balance and higher returns on certain short-term investments.

For the fiscal year 2012, interest income decreased to RMB105.8 million (US$17.0 million) from RMB141.6 million in fiscal year 2011. This decrease was primarily attributable to the lower interest income earned from a lower cash balance in 2012 compared to 2011, which was caused by the payment of a special cash dividend of US$3.00 per ADS or ordinary share in September 2011.

Income Tax. Income tax expense for the fourth quarter 2012 was RMB28.7 million (US$4.6million), compared to income tax expense of RMB30.9 million in the third quarter 2012 and income tax expense of RMB39.9 million in the fourth quarter 2011. The sequential decrease in income tax expense was slight, while the year-over-year decrease was primarily due to the start of tax holiday periods in 2012 for certain profitable subsidiaries of the Company.

Income tax expense for fiscal year 2012 decreased to RMB124.2 million (US$19.9 million), compared to RMB352.4 million for fiscal year 2011. The decrease in income tax expense was mainly due an one-time withholding tax accrued in the second quarter 2011 in connection with the repatriation of cash for a special cash dividend paid in September 2011, partially offset by the recognition of RMB63.0 million in deferred tax assets (an increase in deferred tax asset on the balance sheet and a corresponding income tax benefit on the income statement).

Investment Income (Loss). During the fourth quarter 2012, we recorded an impairment charge of RMB240.7 million (US$38.6 million), which relates to our 2008 investment in 51.com, a Chinese online social networking service provider, as the decline in the fair value of this investment was determined to be other-than-temporary. This investment loss resulted from 51.com's lower than expected core business revenue and operating cash flow, and delay in its R&D activities and planned promotion campaigns of its newly launched games.

Net Income Attributable to the Company's Shareholders. Net income attributable to the Company's shareholders for the fourth quarter 2012 was RMB82.7 million (US$13.3 million), representing a 73.5% decrease from RMB311.7 million in the third quarter 2012, and a 66.4% decrease from RMB246.4 million in the fourth quarter 2011. The sequential and year-over-year decreases in net income attributable to the Company's shareholders was primarily due to the investment loss which relates to our investment in 51.com in 2008, partially offset by the Company's general business growth. The margin of net income attributable to the Company's shareholders for the fourth quarter 2012 was 14.5%, compared to 57.4% in the previous quarter and 49.8% in the fourth quarter 2011.

Fiscal year 2012 net income attributable to the Company's shareholders was RMB993.7 million (US$159.5 million), a 12.9% increase from RMB880.0 million in 2011. Fiscal year 2012 net income attributable to the Company's shareholders as a percentage of net revenue decreased to 46.2% from 49.1% in 2011, which was primarily due to the investment loss related to 51.com.

Non-GAAP net income attributable to the Company's shareholders for the fourth quarter 2012 was RMB350.0 million (US$56.2 million) representing a 2.2% increase from RMB342.5 million in the third quarter 2012, and a 35.8% increase from RMB257.7 million in the fourth quarter 2011. The margin of non-GAAP net income attributable to the Company's shareholders was 61.2%, compared to 63.0% in the previous quarter and 52.1% in the fourth quarter of 2011. Please refer to "Use of Non-GAAP Financial Measures" commencing on page 10 for a reconciliation between net income attributable to the Company's shareholder on a GAAP and non-GAAP basis.

For fiscal year 2012 non-GAAP net income attributable to the Company's shareholders was RMB1,354.3million (US$217.4 million) representing a 24.7% increase from RMB1,086.3 million in fiscal year 2011. The increase was due to the growth of the Company's game operations. The margin of non-GAAP net income attributable to the Company's shareholders was 62.9% for the fiscal year 2012, compared to 60.6% in the fiscal year 2011.

Cash and Cash Equivalents and Short-Term Investments. As of December 31, 2012, the Company's cash and cash equivalents and short-term investments totaled RMB2,682.4 million (US$430.6 million), compared to RMB2, 337.7 million as of September 30, 2012. The sequential increase was primarily due to the growth of the Company's game operations.

Goodwill. The Company recorded RMB77.1 million of goodwill in the fourth quarter 2012 associated with the reacquisition of a controlling equity interest in Beijing Huayi Giant Information Technology Co., Ltd. ("Beijing Huayi Giant") from Huayi Brothers Media Corporation ("Huayi"), which was previously sold to Huayi in December 2010. Upon the completion of the reacquisition, Beijing Huayi Giant became a consolidated subsidiary of the Company.

Investment in Equity Investees. In September 2011, the Company invested in Yunfeng e-Commerce Funds for the purpose of purchasing shares of the Alibaba Group. Based on the Company's best estimation relying on public information available as of December 31, 2012, the Company increased the carrying value of its investment in Yunfeng e-Commerce Funds from RMB310.7 million to RMB353.5 million (US$56.7 million), and recorded a cumulative unrealized holding gain of approximately RMB45.5 million (US$7.3 million) within Accumulated Other Comprehensive Income on the Consolidated Balance Sheets, and also within Unrealized Holding Income/(Loss), as a component of Other Comprehensive Income/(Loss) on the Consolidated Statements of Operations and Comprehensive Income. Further adjustments to such investment in Yunfeng e-Commerce Funds may be recorded based on information available after this release and before issuance of Form 20-F by the Company. However, if there are any adjustments recorded to Investment in equity investees and Other comprehensive income (loss), then the effects of which will have no impact on Net income attributable to the Company's shareholders and Earnings per share.

Cash Dividend. The Company announced a cash dividend of US$0.42 per ADS or ordinary share on its outstanding shares. The ordinary cash dividend is payable to shareholders of record at the close of trading on May 20, 2013 (Eastern Time). The total cash payment will be approximately US$100.5 million. Commencing in 2013, the Company intends to pay regular cash dividends semi-annually. The payment amounts and dates are subject to, among other things, approval by the Board of Directors and compliance with applicable laws.

Business Highlights and Outlook

Existing Games

ZT Online 1 Series - During the fourth quarter 2012, the Company held several ZT Online player killing ("PK") tournaments to celebrate the 8th anniversary of the game, which received positive feedback from gamers. The Company updated gameplays and introduced a new PK system to encourage player enthusiasm and online interactions. For ZT Online Classic Edition, the Company also added new gameplays and skills, and optimized the maps within the game. For ZT Online Green Edition, the Company held a large-scale PK tournament and introduced several new functions, having drawn immense attention from gamers.

ZT Online 2 - In October 2012, the Company launched part 2 of the second expansion pack for ZT Online 2, which included two new professions. In December 2012, the Company launched a large annual PK tournament, which ran throughout the Chinese New Year holiday and will end by the end of March 2013. The Company will add new maps, functions and other gameplays to the game by the end of the first quarter 2013. The micro-client version has shown strong performance on Qihoo 360's platform by attracting new players and contributing incremental revenue.

Elsword - During the fourth quarter 2012, upon the anniversary of the commercial launch of the game, the Company ran various online promotional activities as well as adding new professions to the game. In 2013, the Company will continue to introduce new professions, new dungeons and other new content to keep the gamers engaged.

Allods Online - Gamers who enjoy playing western-style MMOs have welcomed Allods Online. The game has shown fairly steady performance throughout the fourth quarter 2012. In the first quarter 2013, the Company plans to release a new expansion pack.

Pipeline Games

World of Xianxia - On November 30, 2012, unlimited closed beta testing began for World of Xianxia, with the goal of testing gamers' acceptance of the innovative GvG (Group vs. Group) social structure and its unique virtual item system. Having received positive feedback, the game is ready for a formal launch. During the first quarter 2013, the Company plans to add new professions and maps. Official closed beta testing with large scale marketing campaign is scheduled to begin in April 2013. The Company expects World of Xianxia to become its latest flagship game.

Webgames - Genesis of the Empire is an action role playing game ("ARPG") based on the Three Kingdoms era of ancient Chinese history. The Sky is an ARPG incorporating certain core gameplays from the ZT Online series. The Company expects to commercially launch these two games in the first half of 2013.

Glorious Mission - Glorious Mission is the Company's first self-developed first person shooter ("FPS") game and is currently the only game in the world that is playable from the perspective of the Chinese military, the People's Liberation Army ("PLA"). During the third quarter 2012, the Company released an upgraded single-player campaign version of the game based on the version which the Company delivered to the PLA in June 2011, and has attracted over one million downloads. The development team is currently working on the online version and is targeting the first half of 2013 for an engineering testing.

First Quarter 2013 Guidance -The Company expects total revenue for the first quarter 2013 to be approximately the same as total revenue for the fourth quarter 2012, due to the first quarter typically being a weak season in our business because many gamers travel during the Chinese New Year holiday, and because of the lack of new game launches.

Conference Call

Giant's senior management will host a conference call on February 26, 2013 at 8:00 pm (US Eastern Time)/5:00 pm (US Pacific Time), which is 9:00 am on February 27, 2013 (Beijing Time) to discuss the 2012 fourth quarter and fiscal year financial results and recent business activities.

The conference call may be accessed using the following numbers:

US:

+1-866-519-4004

China:

400-620-8038

Hong Kong:

800-930-346

International:

+65-6723-9381

Passcode:

Giant

Please dial in approximately 10 minutes before the scheduled time of this call.

A replay of the conference call will be available starting from 11:00 pm (US Eastern Time) on February 26, 2013 to 11:00 pm (US Eastern Time) on March 5, 2013 using the following numbers:

US:

+1-855-452-5696

Outside US:

+61-2-8199-0299

Passcode:

97691588

A live webcast of the conference call and replay will be available on the investor relations page of Giant Interactive Group's website at http://www.ga-me.com/earningsannouncements.php.

Currency Convenience Translation

This earnings press release contains translations of certain Renminbi (RMB) amounts into US dollars (US$) at the rate of US$1.00 to RMB6.2301, which was the noon buying rate as of December 31, 2012 in the City of New York for cable transfers in Renminbi per US dollar as certified for customs purposes by the Federal Reserve Bank of New York. The Company makes no representation that the Renminbi or US dollar amounts referred to in this release could have been, or could be, converted into US dollars at such rate or at all.

Use of Non-GAAP Financial Measures

The Company has reported net income attributable to the Company's shareholders for the period indicated below on a non-GAAP basis excluding non-cash share-based compensation, accrued withholding tax associated with the repatriation of cash for the special dividend, recognition of additional deferred tax assets, foreign exchange gains on the payment of a special dividend and the impairment charge related to the Company's 51.com investment. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the performance of the Company as well as when planning and forecasting future periods.

In addition, during the fourth quarter of fiscal year 2012, the Company recorded an investment loss of RMB240.7 million (US$38.6 million) related to the investment in 51.com in 2008, as the decline in its fair value was determined to be other-than-temporary. This investment loss resulted from lower than expected core business revenue and operating cash flow from 51.com, and delay in its R&D activities as well as promotion campaign of newly launched games.

We do not believe that these charges are indicative of future operating results. We believe that investors benefit from excluding these charges from our operating results to facilitate a more meaningful evaluation of current operating performance and comparisons of past operating performance.

Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with non-GAAP results in the attached financial information.

The table below sets forth the reconciliation of GAAP measures to non-GAAP measures for the indicated periods:

Giant Interactive Group Inc.

Reconciliation of GAAP to Non-GAAP (Unaudited)


Three months ended


December 31,


September 30,


December 31,


December 31,


2011


2012


2012


2012


(RMB)


(RMB)


(RMB)


( US$ )









GAAP net income attributable to the          
    Company's shareholders:

246,445,824


311,659,943


82,690,299


13,272,707









Share-based compensation

11,206,516


30,827,515


26,554,599


4,262,308

Impairment of 51 investment





240,725,709


38,639,140

Non-GAAP net income attributable to the
    Company's shareholders :
  

257,652,340


342,487,458


349,970,607


56,174,155

Non-GAAP earnings per share:
















Basic

1.09


1.45


1.47


0.24

Diluted

1.09


1.41


1.43


0.23









Weighted average ordinary shares:
















Basic

235,584,292


236,534,154


238,308,804


238,308,804

Diluted

235,584,292


243,395,859


243,966,387


243,966,387










For the year ended




December 31,


December 31,


December 31,




2011


2012


2012




(RMB)


(RMB)


(US$)











GAAP net income attributable to the
    Company's shareholders
:

879,966,874


993,720,006


159,503,059











Share-based compensation

29,335,180


119,892,890


19,244,136



Accrued withholding tax associated with

259,647,915







    the repatriation of cash for the special








    dividend








Recognizing additional deferred tax assets

(63,240,829)







Foreign exchange gains for the payment of the

(19,437,460)







    special dividend








Impairment of 51 investment



240,725,709


38,639,140











Non-GAAP net income attributable to the Company's shareholders :

1,086,271,680


1,354,338,605


217,386,335



Non-GAAP earnings per share:
















Basic

4.68


5.72


0.92



Diluted

4.68


5.62


0.90











Weighted average ordinary shares:
















Basic

232,004,879


236,796,818


236,796,818



Diluted

232,004,879


240,821,127


240,821,127



Statement Regarding Unaudited Condensed Financial Information

The unaudited financial information set forth above is preliminary and subject to potential adjustments. Adjustments to the consolidated financial statements may be identified when audit work has been performed for the Company's year-end audit, which could result in significant differences from this preliminary unaudited condensed financial information.

About Giant Interactive Group Inc.

Giant Interactive Group Inc. (NYSE: GA) is a leading online game developer and operator in China in terms of market share, and focuses on massively multiplayer online role playing games. Currently, Giant operates multiple games, including the ZT Online 1 Series, ZT Online 2, Elsword, and Allods Online. The Company has built a nationwide distribution network to sell the prepaid game cards and game points required to play the Company's games. For more information, please visit Giant Interactive Group on the web at www.ga-me.com.

Safe Harbor Statement

Statements in this release contain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the 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 and among others, include statements regarding the Company's expectation for continued growth in 2013, the ability of World of Xianxia to become the Company's next flagship game; the ability of Genesis of the Empire and The Sky to become the Company's major growth drivers in 2013; the ability of the Company to implement its strategy in connection with webgames and mobile games, such as the expected commercial launches of Genesis of the Empire and The Sky; the ability of the Company to apply its game design experience in the development of mobile games; the ability of the Company to allocate sufficient resources and build a best-in-class mobile game development team; the ability of the Company to seek merger, acquisition and partnership opportunities for maximizing its mobile game offerings or further expand into overseas markets; the ability of the Company to continue to pay dividends based on future cash flows; the timetable for testing and release of new games and expansion packs in the Company's game pipeline, and the Company's expectation that total revenue in the first quarter 2013 will be approximately the same as total revenue in the fourth quarter 2012. These forward-looking statements are not historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. Our actual results and financial condition and other circumstances may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Among the factors that could cause the Company's actual results to differ from what the Company currently anticipates may include a deterioration in the performances of the ZT Online 1 Series and ZT Online 2, unexpected delays in developing expansion packs or in the timetable for testing and launching our games, our dependence on ZT Online Franchise, which currently account for the majority of our historical net revenues, failure of our webgames, MMO pipeline games, first FPS game or other diversification or distribution efforts to grow as successful as expected, failure of World of Xianxia to become the Company's latest flagship game, inability of World of Xianxia, Genesis of the Empire, and The Sky to become drivers for revenue growth, the Company's total revenue in the first quarter 2013 not at least matching the Company's total revenue in fourth quarter 2012, our uncertainties with respect to the PRC legal and regulatory environments and the volatility of the markets in which the Company operates. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 20-F for the fiscal year 2011, as filed with the Securities and Exchange Commission on April 23, 2012 and in our amended annual report on Form 20-F/A for fiscal year 2011, as filed with the Securities and Exchange Commission on September 26, 2012; both of which are available on the Securities and Exchange Commission's website at www.sec.gov. For additional information on these and other important factors that could adversely affect our business, financial condition, results of operations and prospects, see "Risk Factors" beginning on page 6 of our annual report for fiscal year 2011. Our actual results of operations for the fourth quarter of and full year 2012 are not necessarily indicative of our operating results for any future periods. Any projections in this release are based on limited information currently available to the Company, which is subject to change. Although such projections and the factors influencing them will likely change, the Company undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this press release. Such information speaks only as of the date of this release.

 

GIANT INTERACTIVE GROUP INC.

CONSOLIDATED BALANCE SHEETS

 


Audited


Unaudited


Unaudited


Unaudited


December 31 ,


September 30,


December 31,


December 31,


2011


2012


2012


2012


(RMB)


(RMB)


(RMB)


( US$ )

ASSETS                                                                                          








Current assets:








Cash and cash equivalents

950,321,028


1,017,685,858


1,943,061,530


311,882,880

Prepayments and other current assets

111,951,828


179,988,925


236,446,037


37,952,206

Accounts receivable

13,692,673


12,082,488


12,106,819


1,943,278

Due from related parties

3,410,114


15,516,480


7,370,022


1,182,970

Inventories

317,019


562,208


333,195


53,481

Deferred tax assets

179,779,122


164,684,388


157,885,822


25,342,422

Short-term investments

919,774,660


1,319,976,950


739,314,900


118,668,224









Total current assets

2,179,246,444


2,710,497,297


3,096,518,325


497,025,461

Non-current assets:








Property and equipment, net

349,667,907


343,946,307


340,242,374


54,612,667

Intangible assets, net

26,448,716


28,831,697


32,799,853


5,264,739

Due from research and development entity partners

7,637,000


12,637,000


7,637,000


1,225,823

Goodwill

22,201,960


22,201,960


99,316,001


15,941,317

Investment in equity investees

351,400,224


346,657,534


354,166,222


56,847,598

Long-term investment

29,495,239


39,331,600


48,331,600


7,757,757

Available-for-sale securities

386,851,118


345,966,664


78,740,916


12,638,788

Held-to-maturity securities

100,000,000


190,000,000


190,000,000


30,497,103

Deferred tax assets

17,100,182


23,666,048


25,345,455


4,068,226

Other assets

81,182,192


35,987,666


25,541,335


4,099,667









Total non-current assets

1,371,984,538


1,389,226,476


1,202,120,756


192,953,685









Total assets

3,551,230,982


4,099,723,773


4,298,639,081


689,979,146









LIABILITIES AND

SHAREHOLDER'S EQUITY








Current liabilities:








Payables and accrued expenses

171,610,885


172,464,838


238,594,085


38,296,991

Advances from distributors

82,327,669


88,701,101


93,468,209


15,002,681

Due to related parties

540,345


1,145,433


598,953


96,139

Deferred revenue

529,204,385


502,029,007


486,024,501


78,012,311

Unrecognized tax benefit

44,451,522


47,579,967


47,579,967


7,637,111

Tax payable

38,561,157


32,646,444


48,121,958


7,724,107

Deferred tax liabilities

148,219,632


112,482,669


112,282,639


18,022,606









Total current liabilities

1,014,915,595


957,049,459


1,026,670,312


164,791,946









Non-current liabilities:








Deferred tax liabilities

14,882,313


25,228,303


32,311,676


5,186,382









Total non-current liabilities

14,882,313


25,228,303


32,311,676


5,186,382









Total liabilities

1,029,797,908


982,277,762


1,058,981,988


169,978,328









Shareholders' equity








Ordinary shares

(Par value US$0.0000002 per share; 500,000,000 
      shares authorized as at Dec 31, 2011, Sep 30,
      2012 and Dec 31, 2012 respectively; 273,110,626
      shares issued and 235,234,959 shares outstanding 
      at Dec 31,2011 , 273,110,626 shares issued and 
      236,479,772 shares outstanding at Sep 30, 2012,
      273,110,626 shares issued and 239,252,672 shares
      outstanding at Dec 31, 2012)

430


430


430


69

Additional paid-in capital

4,350,262,526


4,483,677,511


4,456,659,188


715,343,123

Statutory reserves

14,125,819


14,125,819


48,596,713


7,800,310

Accumulated other comprehensive loss

(401,229,786)


(408,478,961)


(392,313,594)


(62,970,674)

Retained earnings

655,013,363


1,119,740,300


1,087,615,133


174,574,266

Treasury stock

(2,122,524,316)


(2,145,387,206)


(2,006,420,168)


(322,052,642)









Total Giant Interactive Group Inc.'s equity

2,495,648,036


3,063,677,893


3,194,137,702


512,694,452









Non controlling interests

25,785,038


53,768,118


45,519,391


7,306,366









Total shareholders' equity

2,521,433,074


3,117,446,011


3,239,657,093


520,000,818









Total liabilities and shareholders' equity

3,551,230,982


4,099,723,773


4,298,639,081


689,979,146

GIANT Interactive Group Inc .

CONSOLIDATED statements of operations AND COMPREHENSIVE INCOME


Three months ended


December 31


September 30


December 31


December 31


2011


2012


2012


2012


(RMB)


(RMB)


(RMB)


( US$ )


Unaudited


Unaudited


Unaudited


Unaudited

Net revenue:                                           








Online games

469,614,866


523,808,979


555,672,075


89,191,518

Licensing revenues

14,333,706


14,550,927


10,032,855


1,610,384

Other revenue, net

10,898,184


4,869,426


5,963,877


957,268









Total net revenue

494,846,756


543,229,332


571,668,807


91,759,170









Cost of services

(67,711,021)


(75,139,809)


(78,505,482)


(12,600,999)









Gross profit

427,135,735


468,089,523


493,163,325


79,158,171









Operating (expenses) income:








Research and product development

(69,199,217)


(76,055,754)


(96,545,750)


(15,496,661)

Sales and marketing

(55,258,951)


(37,388,125)


(38,870,216)


(6,239,100)

General and administrative

(27,430,720)


(38,290,384)


(34,208,506)


(5,490,844)

Government financial incentives

17,746,000


10,000,000


10,430,000


1,674,130









Total operating expenses

(134,142,888)


(141,734,263)


(159,194,472)


(25,552,475)









Income from operations

292,992,847


326,355,260


333,968,853


53,605,696









Interest income

14,497,627


31,266,605


26,552,367


4,261,949

Other income, net

8,441,963


6,578,424


9,269,933


1,487,927

Investment income(loss)

666,667


-


(243,937,113)


(39,154,606)

















Income before income tax expenses

316,599,104


364,200,289


125,854,040


20,200,966









Income tax expense

(39,880,797)


(30,860,090)


(28,686,961)


(4,604,575)

Share of loss of equity investee

(5,591,915)


(1,179,641)


(424,473)


(68,133)









Net Income

271,126,392


332,160,558


96,742,606


15,528,258









Net income attributable to non controlling interests

(24,680,568)


(20,500,615)


(14,052,307)


(2,255,551)









Net income attributable to the Company's shareholders

246,445,824


311,659,943


82,690,299


13,272,707









Other comprehensive income
    (loss)
, net of tax








Foreign currency translation (loss) gain

(4,075,051)


2,119,300


(2,853,565)


(458,029)

Unrealized holding (losses) income

(8,879,464)


(1,133,685)


19,018,933


3,052,749









Total other comprehensive income
    (loss), net of tax

(12,954,515)


985,615


16,165,368


2,594,720









Comprehensive income

233,491,309


312,645,558


98,855,667


15,867,427

Earnings per share:
















Basic

1.05


1.32


0.35


0.06

Diluted

1.05


1.28


0.34


0.05









Weighted average ordinary shares:
















Basic

235,584,292


236,534,154


238,308,804


238,308,804

Diluted

235,584,292


243,395,859


243,966,387


243,966,387

GIANT INTERACTIVE GROUP INC.

CONSOLIDATED statements of operations AND COMPREHENSIVE INCOME


For the year ended


December 31


December 31


December 31


2011


2012


2012


(RMB)


(RMB)


( US$ )


Audited


Unaudited


Unaudited

Net revenue:






Online games

1,701,343,096


2,074,950,188


333,052,469

Licensing revenues

54,537,719


52,186,105


8,376,447

Other revenue, net

36,336,494


24,758,274


3,973,977







Total net revenue

1,792,217,309


2,151,894,567


345,402,893







Cost of services

(257,246,446)


(288,361,076)


(46,285,144)







Gross profit

1,534,970,863


1,863,533,491


299,117,749







Operating (expenses) income:






Research and product development

(230,209,370)


(326,792,503)


(52,453,813)

Sales and marketing

(169,981,540)


(146,452,268)


(23,507,210)

General and administrative

(103,727,165)


(148,708,274)


(23,869,324)

Government financial incentives

47,746,000


63,644,000


10,215,566







Total operating expenses

(456,172,075)


(558,309,045)


(89,614,781)







Income from operations

1,078,798,788


1,305,224,446


209,502,968







Interest income

141,587,341


105,833,413


16,987,434

Other income, net

43,558,342


34,844,307


5,592,897

Investment income(loss)

3,047,619


(243,626,993)


(39,104,829)







Income before income tax expenses

1,266,992,090


1,202,275,173


192,978,470







Income tax expenses

(352,378,221)


(124,203,884)


(19,936,098)

Share of loss of an equity investee

(8,218,001)


(6,117,163)


(981,872)







Net income

906,395,868


1,071,954,126


172,060,500







Net income attributable to non-controlling interest

(26,428,994)


(78,234,120)


(12,557,442)







Net income attributable to the Company's shareholders

879,966,874


993,720,006


159,503,058







Other comprehensive loss, net of tax






Foreign currency translation

(84,727,808)


2,745,239


440,641

Unrealized holding (losses) income

(15,997,558)


6,170,954


990,506







Total other comprehensive income (loss), net
of tax

(100,725,366)


8,916,193


1,431,147







Comprehensive income

779,241,508


1,002,636,199


160,934,205













Earnings per share:












Basic

3.79


4.2


0.67

Diluted

3.79


4.13


0.66







Weighted average ordinary shares:












Basic

232,004,879


236,796,818


236,796,818

Diluted

232,004,879


240,821,127


240,821,127

  

SOURCE Giant Interactive Group Inc.

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