EX-99.2 7 h03865exv99w2.htm EX-99.2 EX-99.2
Exhibit 99.2
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On October 5, 2009, ChinaCast Communication Holdings Limited (the “Purchaser”), a subsidiary of Company, completed the acquisition (the “Acquisition”) of East Achieve Limited (“East Achieve”), the holding company which owns 100% of Lijiang College, from Xie Jiqing who holds 100% of the equity interest in East Achieve for a total purchase price of RMB365,000,000 (or approximately $53.7 million). RMB295,000,000 (or approximately $43.4 million) of the purchase price has been paid and the remaining RMB70,000,000 (or approximately $10.3 million) will be paid within 30 days of August 31, 2010. The source of the cash used for the acquisition is from working capital of the Company.
East Achieve owns 100% of the equity interest in Shanghai Xijiu Information Technology Co., Ltd. (“Xijiu”), which in turn owns 100% of the equity interest in China Lianhe Biotechnology Co., Ltd. (“Lianhe”). As a result of the consummation of the acquisition, the Purchaser now holds 100% of the equity interest in Lianhe. Lijiang College is jointly sponsored by Lianhe and Guangxi Normal University. Lijiang College was founded in 2001 as an independent, accredited college affiliated with Guangxi Normal University, which is located in the city of Guilin in Southwestern China. The university has 415 full-time and part-time instructors and offers fully accredited bachelor degree and diploma courses in tourism, hospitality, language studies, computer engineering, economics, law, music, art and physical education. After the Acquisition, East Achieve, Xijiu and Lianhe are holding companies with no other business. Before the Acquisition, as part of a reorganization (the “Reorganization”), Xijiu and Lianhe has disposed of all assets and liabilities not related to the operations of Lijiang College and Xijiu purchased the entire interest in Lianhe, which was accounted for using the purchase method of accounting.
The following unaudited pro forma combined condensed financial statements reflect the acquisition using the purchase method of accounting. The pro forma adjustments are based upon available information and assumptions that the Company believes are reasonable. The pro forma adjustments are preliminary and have been prepared to illustrate the estimated effect of the acquisition. Consequently, the amounts reflected in the unaudited pro forma combined condensed financial statements are subject to change, and the final amounts may differ substantially.
The unaudited pro forma combined condensed balance sheet as of September 30, 2009 gives effect to the Acquisition as if it was completed on that date, and was derived from the historical unaudited balance sheet of East Achieve as of September 30, 2008, combined with ChinaCast’ historical unaudited balance sheet as of September 30, 2009.
The unaudited pro forma combined condensed statement of operations for the year ended December 31, 2008 illustrates the effect of the acquisition of East Achieve as if the Acquisition and the Reorganization had occurred on January 1, 2008, and was derived from the historical audited statement of operations for East Achieve for the year ended December 31, 2008, combined with ChinaCast’s historical audited statement of operations for the year ended December 31, 2008.
The unaudited pro forma combined condensed statement of operations for the nine months ended September 30, 2009 illustrates the effect of the acquisition of East Achieve as if the Acquisition and the Reorganization had occurred on January 1, 2009 and combines the historical unaudited statement of operations of ChinaCast for the nine months ended September 30, 2009 and the historical unaudited statement of operations of East achieve through the date of acquisition.
The pro forma combined condensed financial statements should be read in conjunction with the historical audited financial statements and notes thereto of ChinaCast contained in its 2008 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 16, 2009, the historical unaudited financial statements and notes thereto of ChinaCast contained in its September 30, 2009 Quartely Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2009 and the historical audited financial statements and notes thereto of East Achieve which are included as Exhibit 99.1 to this Current Report on Form 8-K. The unaudited pro forma combined condensed financial statements do not include any pro forma adjustments relating to costs of integration that the combined company may incur as such adjustments.
The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the acquisition had occurred as of the date or during the period presented nor is it necessarily indicative of future operating results or financial position.

 

 

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
September 30, 2009
                                         
    Historical   Historical   Pro Forma           Pro Forma
    ChinaCast   East Achieve   Adjustments   Notes   Combined
    RMB   RMB   RMB           RMB
    (In thousands, except share-related data)
Assets
                                        
Cash and cash equivalents
     398,312       72,726       (265,000 )     (a )     206,038  
Term deposits
     280,000       —       —               280,000  
Accounts receivable, net
     55,670       23,873       —               79,543  
Inventory
     1,705       —       —               1,705  
Prepaid expenses and other current assets
     6,468       6,577       —               13,045  
Amount due from related parties
     2,088       —       —               2,088  
                     
 
                                        
Total current assets
     744,243       103,176       (265,000 )             582,419  
                     
 
                                        
Non-current assets:
                                        
Non-current deposits
     3,818       —       —               3,818  
Property and equipment, net
     261,940       254,854       —               516,794  
Land use rights, net
     119,810       16,747       —               136,557  
Acquired intangible assets, net
     19,497       34,305       —       (c )     53,802  
Deposit for investments
     103,000       —       (100,000 )     (a )     3,000  
Long term investments
     3,854       —       —               3,854  
Non-current advances to a related party
     97,606       —       —               97,606  
Goodwill
     311,332       117,318       129,550       (b )     558,200  
                     
 
                                        
Total assets
     1,665,100       526,400       (235,450 )             1,956,050  
                     
 
                                        
Liabilities, minority interest and shareholders’ equity
                                        
Current liabilities:
                                        
Account payable
     18,054       7,295       —               25,349  
Deferred revenue
     90,751       106,899       —               197,650  
Accrued expenses and other current liabilities
     107,492       80,718       —               188,210  
Amount due to a related party
     528       —       —               528  
Income tax payable
     64,009       6,038       —               70,047  
Current portion of bank borrowings
     94,400       —       —               94,400  
Current portion of capital lease obligation
     1,289       —       —               1,289  
Other borrowings
     580       —       —               580  
                     
 
                                        
Total current liabilities
     377,103       200,950       —               578,053  
                     
 
                                        
Long-term bank borrowings
     54,000       90,000       —               144,000  
Capital lease obligation, net of current portion
     1,313       —       —               1,313  
Deferred tax liabilities
     19,214       —       —               19,214  
Unrecognized tax benefits
     50,403       —       —               50,403  
                     
 
                                        
Total non-current liabilities
     124,930       90,000       —               214,930  
 
                                        
Total liabilities
     502,033       290,950       —               792,983  
                     
 
                                        
Shareholders’ equity:
                                        
Ordinary shares
     29       —       —               29  
Additional paid-in capital
     989,945       236,412       (236,412 )     (d )     989,945  
Statutory reserve
     28,117       —       —               28,117  
Accumulated other comprehensive loss
     (6,159 )     —       —               (6,159 )
Retained earnings (Accumulated deficit)
     128,361       (962 )     962       (d )     128,361  
                     
 
                                        
Total Company shareholders’ equity
     1,140,293       235,450       (235,450 )             1,140,293  
                     
 
                                        
Noncontrolling interest
     22,774       —       —               22,774  
 
                                        
Total shareholders’ equity
     1,163,067       —       —               1,163,067  
                     
 
                                        
Total liabilities, minority interest and shareholders’ equity
     1,665,100       526,400       (235,450 )             1,956,050  
                     

 

 

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
                                         
    Historical   Historical   Pro Forma           Pro Forma
    ChinaCast   East Achieve   Adjustments   Notes   Combined
    RMB   RMB   RMB           RMB
    (In thousands, except share-related data)
Revenues:
                                        
Service
     229,886       6,970       72,721       (e )     309,577  
Equipment
     6,065       —       —               6,065  
                     
 
                                        
 
     235,951       6,970       72,721               315,642  
                     
 
                                        
Cost of revenues:
                                        
Service
     (85,188 )     (5,972 )     (62,142 )     (e ) (f)     (153,302 )
Equipment
     (6,001 )     —       —               (6,001 )
                     
 
                                        
 
     (91,189 )     (5,972 )     (62,142 )             (159,303 )
                     
 
                                        
Gross profit
     144,762       998       10,579               156,339  
                     
 
                                        
Operating (expenses) income:
                                        
Selling and marketing expenses
     (3,640 )     —       —               (3,640 )
General and administrative expenses
     (44,472 )     (74 )     (70 )     (e )     (44,616 )
Foreign exchange loss
     65       —       —               65  
Management service fee
     3,806       —       —               3,806  
Other operating income(loss)
     387       —       —               387  
                     
 
                                        
Total operating expenses, net
     (43,854 )     (74 )     (70 )             (43,998 )
                     
 
                                        
Income from operations
     100,908       924       10,509               112,341  
Interest income
     6,923       27       (3,945 )     (e ) (g)     3,005  
Interest expense
     (5,591 )     (447 )     (5,392 )             (11,430 )
                     
 
                                        
Income before provision for income taxes and loss in equity investments
     102,240       504       1,172               103,916  
Provision for income taxes
     (21,090 )     (215 )     (2,357 )     (e )     (23,662 )
                     
 
                                        
Income before loss in equity investments
     81,150       289       (1,185 )             80,254  
(Loss)gain in equity investments
     (1,370 )     —       —               (1,370 )
                     
 
                                        
Net income
     79,780       289       (1,185 )             78,884  
                     
 
                                        
Less: Net income attributable to noncontrolling interest
     (6,945 )     —       —               (6,945 )
                     
 
                                        
Net income (loss) attributable to the Company
     72,835       289       (1,185 )             71,939  
                     
 
                                        
Net income per share
                                        
Basic
     2.03                               2.01  
 
                                        
 
                                        
Diluted
     2.03                               2.00  
 
                                        
 
                                        
Weighted average shares used in computation:
                                        
Basic
     35,813,325                               35,813,325  
 
                                        
 
                                        
Diluted
     35,945,264                               35,945,264  
 
                                        
 
                                        

 

 

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2008
                                         
    Historical   Historical   Pro Forma           Pro Forma
    ChinaCast   East Achieve   Adjustments   Notes   Combined
    RMB   RMB   RMB           RMB
    (In thousands, except share-related data)
Revenues:
                                        
Service
     257,126       —       90,720       (e )     347,846  
Equipment
     28,912       —       —               28,912  
                     
 
                                        
 
     286,038       —       90,720               376,758  
                     
 
                                        
Cost of revenues:
                                        
Service
     (118,860 )     —       (85,397 )     (e )(g)     (204,257 )
Equipment
     (29,122 )     —       —               (29,122 )
                     
 
                                        
 
     (147,982 )     —       (85,397 )             (233,379 )
                     
 
                                        
Gross profit
     138,056       —       5,323               143,379  
                     
 
                                        
Operating (expenses) income:
                                        
Selling and marketing expenses
     (7,096 )     —       —               (7,096 )
General and administrative expenses
     (69,679 )     (269 )     (69 )     (e )     (70,017 )
Foreign exchange loss
     (1,162 )     (5 )     —               (1,167 )
Management service fee
     6,463       —       —               6,463  
Other operating income
     37       —       24       (e )     61  
                     
 
                                        
Total operating expenses, net
     (71,437 )     (274 )     (45 )             (71,756 )
                     
 
                                        
Income from operations
     66,619       (274 )     5,278               71,623  
Impairment loss on cost method investment
     (8,500 )     —       —               (8,500 )
Interest income
     19,462       1       (10,400 )     (e )(f)     9,063  
Interest expense
     (2,575 )     (566 )     (8,906 )     (e )     (12,047 )
                     
 
                                        
Income before provision for income taxes and loss in equity investments
     75,006       (839 )     (14,028 )             60,139  
Provision for income taxes
     (24,381 )     —       (1,615 )     (e )     (25,996 )
                     
 
                                        
Net income before loss in equity investments
     50,625       (839 )     (15,643 )             34,143  
Loss in equity investments
     (441 )     —       —               (441 )
                     
 
                                        
Net income (loss)
     50,184       (839 )     (15,643 )             33,702  
                     
 
                                        
Less: Net income attributable to noncontrolling interest
     (7,517 )     —       —               (7,517 )
 
                                        
Net income (loss) attributable to the Company
     42,667       (839 )     (15,643 )             26,185  
                     
 
Net income per share
                                        
Basic
     1.40                               0.86  
 
                                        
 
                                        
Diluted
     1.39                               0.85  
 
                                        
 
                                        
Weighted average shares used in computation:
                                        
Basic
     30,442,992                               30,442,992  
 
                                        
 
                                        
Diluted
     30,691,742                               30,691,742  
 
                                        
 
                                        

 

 

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
     The unaudited pro forma combined condensed statements of operations for the year ended December 31, 2008 and the nine months ended September 30, 2009 were prepared by combining the Company’s historical statements of operations for the year ended December 31, 2008 and the nine months ended September 30, 2009 with East Achieve’s historical results for the year ended December 31, 2008 and the period from January 1, 2009 to September 30, 2009, respectively, giving effect to the acquisition as though it was completed on January 1, 2008 and January 1, 2009 respectively. Certain historical information of East Achieve has been reclassified to conform to the presentation of the Company’s historical statements.
1.   Acquisition
     On October 5, 2009, ChinaCast Communication Holdings Limited (the “Purchaser”), a subsidiary of Company, completed the acquisition (the “Acquisition”) of East Achieve Limited (“East Achieve”), the holding company which owns 100% of Lijiang College, from Xie Jiqing who holds 100% of the equity interest in East Achieve for a total purchase price of RMB365,000,000 (or approximately $53.7 million). RMB295,000,000 (or approximately $43.4 million) of the purchase price has been paid and the remaining RMB70,000,000 (or approximately $10.3 million) will be paid within 30 days of August 31, 2010. The source of the cash used for the acquisition is from working capital of the Company.
     East Achieve owns 100% of the equity interest in Shanghai Xijiu Information Technology Co., Ltd. (“Xijiu”), which in turn owns 100% of the equity interest in China Lianhe Biotechnology Co., Ltd. (“Lianhe”). As a result of the consummation of the acquisition, the Purchaser now holds 100% of the equity interest in Lianhe. Lijiang College is jointly sponsored by Lianhe and Guangxi Normal University. Lijiang College was founded in 2001 as an independent, accredited college affiliated with Guangxi Normal University, which is located in the city of Guilin in Southwestern China. The university has 415 full-time and part-time instructors and offers fully accredited bachelor degree and diploma courses in tourism, hospitality, language studies, computer engineering, economics, law, music, art and physical education. After the Acquisition, East Achieve, Xijiu and Lianhe are holding companies with no other business. Before the Acquisition, as part of a reorganization (the “Reorganization”), Xijiu and Lianhe had disposed of all assets and liabilities not related to the operations of Lijiang College and Xijiu purchased the entire interest in Lianhe, which was accounted for using the purchase method of accounting.
     The Company has completed a preliminary allocation of the purchase price to the fair value of assets acquired and liabilities assumed at the date of acquisition included as adjustment notes 2(b). It is possible that the purchase price allocation will be adjusted upon finalization of the accounting for the acquired assets.
     The amortizable intangible includes RMB34.3 million of acquired customer relationship. Useful lives of 47 months have been assigned to the customer relationship intangible. The identifiable intangible assets and goodwill are not deductible for tax purposes.

 

 

2.   Pro forma adjustments made by ChinaCast in connection with the preparation of the unaudited pro forma combined condensed balance sheet as of September 30, 2009 and the unaudited pro forma combined condensed statement of operations for the year ended December 31, 2008 and nine months ended September 30, 2009 are as follows:
  (a)   To reduce cash and cash equivalent on the RMB265 million of cash and RMB100 million of deposit for investment utilized by the Company to fund the acquisition
 
  (b)   Purchase price allocation:
 
      The purchase price for the acquisition amounted to RMB365 million. The estimated purchase price has been preliminarily allocated as follows based on the assets and liabilities acquired as of September 30, 2009:
 
      Estimated fair value of net tangible assets acquired and liabilities assumed:
                 
    RMB        
Cash
     72,726          
Other current assets
     30,450          
Fixed asset and land use rights
     271,601          
Deferred revenue
     (106,899 )        
Other current liabilities
     (94,051 )        
Bank loan
     (90,000 )        
 
                
 
                
 
             83,827  
Intangible assets acquired (customer relationship)
             34,305  
Goodwill
             246,868  
 
                
 
                
Total purchase price
             365,000  
 
                
  (c)   To record intangible assets obtained in the transaction based upon the preliminary allocation of the purchase price
 
  (d)   To eliminate East Achieve’s common stock, additional paid-in-capital and retained earnings
 
  (e)   To record the revenue and expenses of Lijiang College assuming the completion of the Reorganization at period beginning
 
  (f)   To reduce interest income on the RMB365 million of cash utilized by the Company to fund the acquisition
 
  (g)   To record the amortization of expense of intangible assets obtained in the transaction based upon the preliminary allocation of the purchase price