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Shanda Posts Online Game Profits In China

Chinese online game developer Shanda Interactive Entertainment Limited has announced its unaudited consolidated financial results for the first quarter ended March 31, 2009.

Consolidated net revenues at Shanda increased 42.0% year-over-year and 9.1% quarter-over-quarter to a record high of CNY1.11 billion, and net income increased 25.0% year-over-year and 10.6% quarter-over-quarter to CNY361.0 million.

"Shanda achieved another solid quarter of growth during the first quarter of 2009, which further demonstrates the Company's leadership position in the interactive entertainment media industry," said Tianqiao Chen, chairman and CEO of Shanda. "Looking forward, we will make continuous efforts to enhance our users' interactive entertainment experience by combining our integrated service platform with our diversified content businesses."

Online games related revenues, including MMORPGs and casual games, were CNY1.06 billion in the first quarter of 2009, representing an increase of 40.3% from CNY757.4 million year-over-year and 9.3% from CNY971.7 million in the fourth quarter of 2008. Shanda's other revenues in the first quarter of 2009 increased 99.6% year-over-year and 3.1% quarter-over-quarter to CNY44.7 million.

Operating income for the first quarter of 2009 was CNY455.7 million, representing a 46.0% increase from CNY312.1 million in the first quarter of 2008 and a 10.3% increase from CNY413.1 million in the fourth quarter of 2008. Operating margin was 41.2% in the first quarter of 2009, compared with 40.0% in the first quarter of 2008 and 40.7% in the fourth quarter of 2008.

Income tax expense for the first quarter of 2009 was CNY 95.3 million, as compared with income tax expenses of CNY28.7 million in the first quarter of 2008 and CNY93.0 million in the fourth quarter of 2008. Effective as of January 1, 2008, the Chinese government adopted a new income tax law that unified the enterprise income tax payable by domestic and foreign-invested enterprises at 25%. Shanda's subsidiaries are at various stages of progress depending on the requirements of the different local tax authorities in recognition of qualification of the enterprises preferred tax treatment pursuant to "Working Guidelines for Assessment of New/High Technology Enterprises" issued by the Chinese tax authorities on July 8, 2008.

In December 2008, government recognition of certain entities as New and High Technology Enterprises was acknowledged by the local tax authority. Accordingly, these entities were entitled to a preferential tax rate, which is effective retroactively to January 1, 2008. As a result, the directors of the company, according to Shanda's press statement, believe it is appropriate to report the company's income tax provision at the new statutory income tax rate of 25%, except for entities that are still subject to tax holidays or other preferential income tax policies. The future tax benefits arising from the deductible temporary differences as of March 31, 2009 are recognized in the balance sheet to the extent it is considered recoverable upon management's periodic assessment.

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