Focus Media giving away cash?
I am becoming obsessed by the disclosures about the businesses Focus Media disposed of in 2009. The full disclosure is in this post - and an explanation as to why Focus Media's accounting must be wrong is in this post.
But to summarize - Focus Media disposed of seven businesses in 2009.
All businesses were disposed of at a loss.
Six of these businesses were given away for no consideration at all. In one consideration of a low single digit number of millions of dollars was paid.
A majority of these businesses were given back to their original owners.
A majority of these businesses are in British Virgin Islands subsidiaries.
And the accounting for these transactions is messed up.
That said, the cash flow statement from the latest 20F provides more information.
Here is a section from the cash flow statement:
Year
2009
2010
2011
Investing activities:Purchase of equipment$(10,654,598) $(18,692,608) $(38,918,317) Cash of disposed subsidiary(27,315,949) (40,805,068) — Proceeds from sale of a subsidiary— 116,872,231 7,296,097 Purchase of subsidiaries and earn-out payment paid to acquire subsidiaries, net of cash acquired(92,411,545) (40,186,684) (13,228,135) Investment in an equity method investee— — (61,003,263) Deposit refunded to acquire subsidiaries329,516 — — Proceeds from disposal of fixed assets196,115 471,128 671,950 Increase in restricted cash— — (199,346,126) Cash paid for short-term investments(29,257,303) (137,551,150) (1,124,033,872) Sale of short-term investments865,589 29,290,296 1,044,680,415
Net cash used in investing activities$(158,248,175) $(90,601,855) $(383,881,251)
I want you to notice the highlighted line...
In those susbsidiaries disposed of in 2009 there was embedded 27,315,949 dollars in cash.
These subsidiaries were given away.
If you interpret the accounts literally this company has been giving away cash.
I have a handful of explanations for this behaviour but plausibility is becoming strained. Perhaps Focus Media's investor relations department can help (I have sent them this post in advance but have received no reply).
Anyone else with an explanation could you please put it in the comments.
John