ChinaCast Education Reports Strong Fourth Quarter and Full Year 2010 Financial Results

Full Year 2010 Highlights:

-- Total revenues increased 53% to $77.9 million

-- Adjusted net income (non-GAAP) increased 43% to $27.1 million

-- Adjusted diluted EPS (non-GAAP) of $0.56

-- Adjusted EBITDA (non-GAAP) increased 42% to $41.7 million

Mar 16, 2011, 22:44 ET from ChinaCast Education Corporation

BEIJING, March 16, 2011 /PRNewswire-Asia-FirstCall/ -- ChinaCast Education Corporation (the "Company" or "ChinaCast") (Nasdaq: CAST), a leading for-profit, post-secondary and e-learning services provider in China, today announced its financial results for the fourth quarter ended December 31, 2010.

Full Year 2010 Highlights(1):

  • Total revenues increased 53% to $77.9 million
  • Gross profit increased 28% to $37.4 million; Gross profit margin was 48%
  • Net income decreased 20% to $10.9 million; Net income margin was 14%
  • Diluted EPS of $0.22
  • Before a one-time, non-cash impairment charge of $9.1 million
    • Net income increased 47% to $19.9 million; Net income margin was 26%
    • Diluted EPS of $0.41
  • Adjusted net income (non-GAAP) increased 43% to $27.1 million; Adjusted net income (non-GAAP) margin was 35%
  • Adjusted diluted EPS of $0.56
  • Adjusted EBITDA (non-GAAP) increased 42% to $41.7 million; Adjusted EBITDA margin (non-GAAP) was 54%
  • Cash, cash equivalents and term deposits was $143.7 million
  • Total equity was $269.8 million

Fourth Quarter 2010 Highlights:

  • Total revenues increased 56% to $25.7 million
  • Gross profit increased 28% to $10.2 million; Gross profit margin was 40%
  • Net income decreased 279% to ($5.1) million
  • Diluted EPS of ($0.10)
  • Before a one-time, non-cash impairment charge of $9.1 million
    • Net income increased 42% to $4.0 million; Net income margin was 16%
    • Diluted EPS of $0.08
  • Adjusted net income (non-GAAP) increased 31% to $6.1 million; Adjusted net income (non-GAAP) margin was 23.5%
  • Adjusted diluted EPS (non-GAAP) of $0.12
  • Adjusted EBITDA (non-GAAP) increased 29% to $10.2 million; Adjusted EBITDA margin (non-GAAP) was 40%

(1) See financial tables below and the GAAP to non-GAAP reconciliation attached to this press release.  The US dollar figures presented in this release are derived from the corresponding RMB figures from the Company’s Form 10-K for the period ended December 31, 2010, and are based on the historical exchange rate of US$1.0 = 6.8 RMB at December 31, 2009, and US$1.0 = 6.6 RMB at December 31, 2010.

"I am pleased to report another successful year of robust growth while achieving key strategic objectives which we believe pave a clear path for future growth," commented Ron Chan, Chairman and Chief Executive Officer.  "First and foremost, we acquired our third accredited university, Hubei Industrial University Business College ("HIUBC"), bringing our total university enrollment to over 32,000 students and adding degree programs in computer engineering, industrial design and law to our curriculum. This expands our geographic presence to central China and further solidifies our position as a leading nationwide operator of accredited universities in China. We also launched our international degree programs by signing inaugural partnerships with two renowned U.S. universities, Seton Hall and The University of North Carolina at Greensboro. These agreements cover both undergraduate and graduate degree programs and provide us with a conduit to capitalize on the burgeoning demand for international degree programs in China. Finally, we successfully commenced our e-learning joint venture with China University of Petroleum ("CUP") which will further expand our vocational training business. We are leveraging our existing technology and infrastructure to quickly scale this high growth, high margin business. With private post-secondary education services expanding with the rise in consumer spending power, we believe ChinaCast Education is poised for long term earnings growth."

Added Antonio Sena, Chief Financial Officer, "During the fourth quarter, we were able to achieve double-digit organic growth in our TUG business augmented by the acquisition of our third university, HIUBC.  We also decided to incur a one-time, non-cash impairment charge which related to a write-down of non-current receivables.

"Additionally, we are pleased to report a 170% increase in our operating cash flow to $53.7 million in 2010 from $19.9 million in 2009.  Our total cash balance as of year end 2010, is now $143.5 million, which places us in a strong position to capitalize on future acquisitions and/or share repurchase opportunities.  The educational market in China continues its strong growth, and we are optimistic about our prospects for continued strong financial growth in 2011."

Full Year 2010 Financial Results

ChinaCast is organized into two business segments, the Traditional University Group and the E-Learning Services Group.  The TUG offers fully-accredited bachelor and diploma degree programs to students from three universities in China:  the Foreign Trade and Business College ("FTBC") campus in Chongqing, the Lijiang College ("LJC") campus in Guilin and Hubei Industrial University Business College ("HIUBC") in Wuhan.  The ELG encompasses the Company's E-learning education service businesses.

Total Revenues – Total revenues for the year increased 53% to $77.9 million from $51.0 million in 2009.  TUG revenue for the year increased 110% to $46.4 million from $22.1 million in 2009 primarily due to the acquisition of LJC and HIUBC.  ELG revenue for the year increased 9% to $31.5 million from $28.9 million in the 2009 primarily due to an increase in equipment sales.

Cost of Sales – Cost of sales for the year increased 87% to $40.5 million from $21.7 million in 2009 primarily due to the acquisition of LJC and HIUBC.

Gross Profit and Gross Margin – Gross profit for the year increased 28% to $37.4 million from $29.3 million in 2009.   Gross profit margin for the year was 48% compared to 57% in 2009 primarily due to the increase in percentage of total revenue attributed to the TUG business which has a lower gross margin than the ELG business and the increase in equipment sales.  The gross profit margin of the TUG business for the year was 27% compared to 29% in 2009.  The gross profit margin of the ELG business for the year was 79% compared to 78% in 2009.

Share Based Compensation – Share based compensation for the year decreased 50% to $1.2 million from $2.4 million in 2009.

Amortization of Acquired Intangible Assets – Amortization of acquired intangible assets for the year increased 97% to $6.0 million from $3.0 million in 2009 primarily due to the acquisition of LJC and HIUBC.

Operating Expenses – Operating expenses for the year increased 107% to $21.0 million from $10.2 million in 2009 due to a one-time, non-cash impairment charge of $9.1 million against a non-current receivable. Before this impairment charge, operating expenses increased 17% to $11.9 million from $10.2 million in 2009 primarily due to an increase in administration expenses due to the acquisition of LJC and HIUBC but partially offset by a one-time gain of $1.4 million due to an adjustment in the purchase price of the acquisition of LJC.

Operating Income and Operating Income Margin – Operating income for the year decreased 14% to $16.4 million from $19.1 million in 2009 due to a one-time, non-cash impairment charge of $9.1 million against a non-current receivable. Before this impairment charge, operating income for the year increased 33% to $25.4 million from $19.1 million in 2009.  Operating income margin for the year was 21% compared to 38% in 2009 primarily due to the impairment charge and increase in percentage of total revenue attributed to the TUG business which has a lower operating income margin than the ELG business.  The operating income margin of the TUG business for the year was 22% compared to 27% in 2009 primarily due to the acquisition of LJC and HIUBC.  The operating income margin of the ELG business for the year was 48% compared to 56% in 2009 primarily due to the increase in equipment sales.

Income Taxes – Income taxes for the year increased 33% to $5.8 million from $4.4 million for the year 2009.

Net Income and Net Income Margin – Net income attributable to the Company for the year decreased to $10.9 million from $13.5 million in 2009 due to a one-time, non-cash impairment charge of $9.1 million. Net income margin 14% compared to 27% in 2009.  Before this impairment charge, net income increased 47% to $19.9 million from $13.5 million in 2009.

Diluted EPS - Diluted earnings per share for the year were $0.22 compared to $0.36 in 2009 due a one-time, non-cash impairment charge of $9.1 million.  The weighted average number of shares used in the computation was 48,767,142for the fourth quarter of 2010 and 37,167,694 for the fourth quarter of 2009.  

Adjusted Net Income and Adjusted Net Income Margin - Adjusted net income excluding share based compensation expenses, one-time, non-cash impairment charges and amortization of acquired intangible assets (non-GAAP) for the year increased 43% to $27.1 million from $19.0 million in 2009.  Adjusted net income margin excluding share based compensation expenses, non-cash impairment charges and amortization of acquired intangible assets (non-GAAP) for the year was 35% compared to 37% in 2009.  

Adjusted Diluted EPS - Adjusted diluted earnings per share excluding share based compensation expenses, non-cash impairment charges and amortization of acquired intangible assets (non-GAAP) for the year were $0.56 compared to $0.53.  

Adjusted EBITDA and Adjusted EBITDA Margin – Adjusted EBITDA (non-GAAP) for the year increased 42% to $41.7 million from $29.4 million in 2009.  Adjusted EBITDA margin (non-GAAP) for the year was 54% compared to 58% in 2009 primarily due to the large increase in percentage of total revenue attributed to the TUG business which has a lower adjusted EBITDA margin (non-GAAP) than the ELG business.

Cash and Bank Balances together with Term Deposits - Cash and bank balances together with term deposits was $143.7 million as of December 31, 2010.  Total equity was $269.8 million.

Fourth Quarter 2010 Financial Results

Total Revenues – Total revenues for the quarter increased 56% to $25.7 million from $16.5 million in the fourth quarter of 2009.  TUG revenue for the quarter increased 80% to $16.0 million from $8.9 million in the fourth quarter of 2009, primarily due to the acquisition of HIUBC in the third quarter of 2010.  TUG total student enrollment for the quarter increased 60% to approximately 32,700 from approximately 20,400 in the fourth quarter of 2009.  TUG average revenue per student for the quarter increased 12% to $489 per quarter compared to $436 per quarter in the fourth quarter of 2009.  ELG revenue for the quarter increased 28% to $9.7 million from $7.6 million in the fourth quarter of 2009 primarily due to equipment sales.  ELG total number of post-secondary students enrolled in courses using the Company's distance learning platform in the quarter increased to 143,000 compared to 138,000 in the fourth quarter of 2009.  ELG total number of subscribing schools for K-12 distance learning services for the quarter remained stable year-over-year at 6,500.  

Cost of Sales – Cost of sales for the quarter increased 83% to $15.6 million from $8.5 million in the fourth quarter of 2009 primarily due to the acquisition of HIUBC and ELG equipment sales.

Gross Profit and Gross Margin – Gross profit for the quarter increased 28% to $10.2 million from $8.0 million in the fourth quarter of 2009.   Gross profit margin for the quarter was 40% compared to 48% in the fourth quarter of 2009 primarily due to the increase in equipment sales and the increase in percentage of total revenue attributed to the TUG business which has a lower gross margin than the ELG business.  The gross profit margin of the TUG business for the quarter was 23% compared to 22% in the fourth quarter of 2009 primarily due to the acquisition of HIUBC.  The gross profit margin for the ELG business was 66% compared to 79% in the fourth quarter of 2009 primarily due to the increase in equipment sales.

Share Based Compensation – Share based compensation for the quarter decreased 60% to $0.2 million from $0.5 million in the fourth quarter of 2009.

Amortization of Acquired Intangible Assets – Amortization of acquired intangible assets for the quarter increased 44% to $1.9 million from $1.3 million in the fourth quarter of 2009 primarily due to the acquisition of HIUBC.

Operating Expenses –Operating expenses for the quarter increased 265% to $14.2 million compared to $3.9 million in 2009 due to one-time, non-cash impairment charge of US$9.1 million. Before the impairment charge, operating expenses increased 31% to $5.1 million from $3.9 million in the fourth quarter of 2009.

Operating Income and Operating Income Margin –Operating income loss for the quarter was $4.0 million compared to operating income of $4.1 million in the fourth quarter of 2009 due to a one-time, non-cash impairment charge of $9.1 million. Before the impairment charge, operating income increased 24% to $5.1 million from $4.1 million in the fourth quarter of 2009.  The operating income margin of the TUG business for the quarter was 13% compared to 11% in the fourth quarter of 2009 primarily due to the acquisition of HIUBC.  The operating income margin of the ELG business for the quarter was 31% compared to 41% in the fourth quarter of 2009 primarily due to the increase in equipment sales.

Income Taxes – Income taxes for the quarter increased 28% to $1.7 million from $1.3 million in the fourth quarter of 2009.

Net Income and Net Income Margin – Net income attributable to the Company for the quarter decreased 279% to ($5.1) million from $2.8 million for the fourth quarter of 2009 due to a one-time, non-cash impairment charge of $9.1 million. Net income margin for the quarter was (19.7%) compared to 17% in the fourth quarter of 2009 to 16% this quarter.  Before the impairment charge, net income for the quarter increased 42% to $4.0 million from $2.8 million in the fourth quarter of 2009.

Diluted EPS - Diluted losses per share for the quarter were $0.10 compared to earnings of $0.07 in the fourth quarter of 2009..  The weighted average number of shares used in the computation was 50,521,366 for the fourth quarter of 2010 and 40,538,186 for the fourth quarter of 2009.  

Adjusted Net Income and Adjusted Net Income Margin - Adjusted net income excluding share based compensation, non-cash impairment charges and amortization of acquired intangible assets (non-GAAP) for the quarter increased 31% to $6.1 million from $4.6 million in the fourth quarter of 2009.  Adjusted net income margin (non-GAAP) for the quarter was 24% compared to 28% in the fourth quarter of 2009.

Adjusted Diluted EPS - Adjusted diluted earnings per share excluding share based compensation expenses, non-cash impairment charges and amortization of acquired intangible assets (non-GAAP) for the quarter were $0.12 compared to $0.12 in the fourth quarter of 2009.

Adjusted EBITDA and Adjusted EBITDA Margin – Adjusted EBITDA (non-GAAP) for the quarter increased 29% to $10.2 million from $7.9 million in the fourth quarter of 2009.  Adjusted EBITDA margin (non-GAAP) for the quarter was 40% compared to 48% in the fourth quarter of 2009.

Financial Outlook for 2011

For the full year ending December 31, 2011, the Company provides the following guidance:

  • Total net revenue will be between $94 million to $96 million (a year-on-year increase of 21% to 23%)
  • Adjusted net income excluding share based compensation, amortization of intangibles, gain on disposal of property and equipment, and impairment expenses (non-GAAP) will be between $32 million to $34 million (a year-on-year increase of 18% to 25%)
  • Adjusted EBITDA excluding share based compensation (non-GAAP) will be between $50 million to $52 million (a year-on-year increase of 20% to 25%)  

This is the Company's current and preliminary view, which is subject to change.

Conference Call Information

ChinaCast's management team will host an earnings conference call at 8:00 am ET, Thursday, March 17, 2011.  The dial-in details for the earnings conference call are as follows:

Earnings Call Telephone Numbers:

US/Canada Toll Free:  +877-303-9226

International:  +1-760-666-3566

A replay of the earnings conference call will be available at the following numbers:

Replay Telephone Numbers:

US/Canada Toll Free:  +1-800-642-1687

International:  +1-706-645-9291

Replay Pass Code:  48374657

The replay will be available starting at 10:00 am ET, Thursday, March 17, 2011, through 11:59 pm ET, Thursday, March 31, 2011.

Additionally, a live and archived version of the earnings call will be available at www.chinacasteducation.com.  Please access the website approximately 10 minutes prior to the start time in order to download and install any necessary software.

About ChinaCast Education Corporation

Established in 1999, ChinaCast Education Corporation is a leading for-profit, post-secondary education and e-Learning services provider in China. The Company provides post-secondary degree and diploma programs through its three universities in China: The Foreign Trade and Business College of Chongqing Normal University, the Lijiang College of Guangxi Normal University and Hubei Industrial University Business College. These universities offer fully accredited, career-oriented bachelor's degree and diploma programs in business, economics, law, IT/computer engineering, hospitality and tourism management, advertising, language studies, art and music. The Company provides its e-Learning services to post-secondary institutions, K-12 schools, government agencies and corporate enterprises via its nationwide satellite/fiber broadband network. These services include interactive distance learning applications, multimedia education content delivery, English language training and vocational training courses. The Company is listed on NASDAQ Global Select Market with the ticker symbol CAST.

Safe Harbor Statement

This press release may contain statements that are forward-looking, as that term is defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of future performance, statements of management's plans and objectives, future contracts, and forecasts of trends and other matters. These projections, expectations and trends are dependent on certain risks and uncertainties including such factors, among others, as growth in demand for education services, smooth and timely implementation of new training centers and other risk factors listed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Forward-looking statements speak only as of the date of this filing, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as "anticipate'", "estimate", "expect", "believe," "will likely result," "outlook," "project" and other words and expressions of similar meaning. No assurance can be given that the results in any forward-looking statements will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which statements are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: adjusted net income, adjusted net-income margin, adjusted EPS (basic and diluted), adjusted EBITDA and adjusted EBITDA margin. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures" included at the end of this release.

We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results."  These non-GAAP financial measures exclude from our operating performance not only non-cash charges, such as stock-based compensation, but also discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance and liquidity as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.  The accompanying tables have more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

Contact:

ChinaCast Education

Michael Santos, President-International

+1-202-361-3403

mjsantos@chinacasteducation.com

HC International

Ted Haberfield, Executive Vice President

+1-760-755-2716

thaberfield@hcinternational.net

CONSOLIDATED BALANCE SHEETS

(In thousands, except share-related data)

As of December 31,

2009

2010

2010

RMB

RMB

US$

Assets

Current assets:

 Cash and cash equivalents

327,628

244,403

37,031

 Term deposits

507,000

704,000

106,667

 Accounts receivable, net of allowance for doubtful accounts of RMB nil and nill as of December 31, 2009 and 2010

53,828

59,420

9,003

 Inventory

1,386

993

150

 Prepaid expenses and other current assets

19,178

48,221

7,306

 Amounts due from related parties

6,388

3,438

521

 Deferred tax assets - current

1,010

2,972

450

 Assets held for sale

34

-

-

 Current portion of prepaid lease payments for land use right

3,246

3,986

604

Total current assets

919,698

1,067,433

161,732

Non-current deposits and prepayments

14,550

7,388

1,119

Property and equipment, net

516,938

763,926

115,746

Prepaid lease payments for land use rights - non-current

144,818

177,544

26,901

Acquired intangible assets, net

71,286

100,816

15,275

Long-term investments

3,101

3,000

455

Non-current advances to related party

99,727

-

-

Goodwill

503,771

774,083

117,285

Total assets

2,273,889

2,894,190

438,513

Liabilities and equity

Current liabilities:

 Accounts payable (including accounts payable of the

   consolidated VIE without recourse to ChinaCast

   Education Corporation of RMB719 and RMB1,635 as

   of December 31, 2009 and December 31, 2010, respectively)

16,061

48,602

7,364

 Accrued expenses and other current liabilities (including accrued

   expenses and other liabilities of the consolidated VIE without recourse

   to ChinaCast Education Corporation of RMB16,740 and RMB17,502

   as of December 31, 2009 and December 31, 2010, respectively)

214,316

279,973

42,420

 Deferred revenues

156,645

262,824

39,822

 Income taxes payable (including income taxes payable of

   the consolidated VIE without recourse to ChinaCast Education

 Corporation of RMB2,293 and RMB4,844 as of December 31, 2009

   and December 31, 2010, respectively)

68,731

99,461

15,070

 Current portion of long-term bank borrowings(including

current portion of long-term bank borrowings of the consolidated

VIE without recourse to ChinaCast Education Corporation of nil

as of December 31, 2009 and December 31, 2010)

104,400

170,000

25,758

 Current portion of capital lease obligation (including current

portion of capital lease obligation of the consolidated VIE without

recourse to ChinaCast Education Corporation of nil as of December

31, 2009 and December 31, 2010)

1,323

-

-

 Other borrowings(including other borrowings of the consolidated

VIE without recourse to ChinaCast Education Corporation of nil as

of December 31, 2009 and December 31, 2010)

200

1,500

227

 Liabilities held for sale

1,315

-

-

Total current liabilities

562,991

862,360

130,661

CONSOLIDATED BALANCE SHEETS - continued

(In thousands, except share-related data)

As of December 31,

2009

2010

2010

RMB

RMB

US$

Long-term bank borrowings(including long-term bank

Borrowings of the consolidated VIE without recourse to

ChinaCast Education Corporation of nil as of December 31,

2009 and December 31, 2010)

134,000

90,000

13,636

Deferred tax liabilities - non-current(including deferred tax

liabilities – non-current of the consolidated VIE without recourse                      

to ChinaCast Education Corporation of nil as of December 31,

2009 and December 31, 2010)

30,923

51,503

7,803

Unrecognized tax benefits - non-current (including unrecognized

 tax benefits of the consolidated VIE without recourse to ChinaCast

 Education Corporation of RMB5,257 and RMB5,799 as of

 December 31, 2009 and December 31, 2010, respectively)

62,457

109,933

16,657

Total non-current liabilities

227,380

251,436

38,096

Total liabilities

790,371

1,113,796

168,757

Commitments and contingencies (Note 24)

Equity:

 Ordinary shares (US$0.0001 par value; 100,000,000 shares

   authorized; 45,170,698 and 49,778,952 shares issued

   and outstanding in 2009 and 2010, respectively)

33

36

5

 Additional paid-in capital

1,290,651

1,510,527

228,868

 Statutory reserve

39,139

47,671

7,223

 Accumulated other comprehensive loss

(6,055)

(3,194)

(484)

 Retained earnings

136,583

199,862

30,282

Total ChinaCast Education Corporation shareholders' equity

1,460,351

1,754,902

265,894

Noncontrolling interest

23,167

25,492

3,862

Total equity

1,483,518

1,780,394

269,756

Total liabilities and equity

2,273,889

2,894,190

438,513

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPERHENSIVE INCOME

(In thousands, except share-related data)

For the years ended December 31,

2008

2009

2010

2010

RMB

RMB

RMB

US$

Revenues:

 Service

253,702

337,940

495,808

75,122

 Equipment

28,912

8,607

18,203

2,758

282,614

346,547

514,011

77,880

Cost of revenues:

 Service

(97,730)

(139,046)

(249,440)

(37,794)

 Equipment

(29,122)

(8,455)

(17,952)

(2,720)

(126,852)

(147,501)

(267,392)

(40,514)

Gross profit

155,762

199,046

246,619

37,366

Operating (expenses) income:

 Selling and marketing expenses (including share-based

   compensation of RMB1,626, RMB1,640 and RMB406

   for 2008, 2009 and 2010, respectively)

(5,770)

(4,649)

(2,995)

(454)

 General and administrative expenses (including

   share-based compensation of RMB14,225, RMB14,566

   and RMB7,439 for 2008, 2009 and 2010, respectively)

(67,704)

(69,641)

(84,437)

(12,793)

 Foreign exchange loss

(1,162)

(87)

(974)

(148)

Impairment loss of non-current advance

-

-

(59,842)

(9,067)

 Management service fee

6,463

5,128

-

-

Change in fair value of contingent consideration

-

-

9,417

1,427

Other operating income

56

210

324

49

Total operating expenses, net

(68,117)

(69,039)

(138,507)

(20,986)

Income from operations

87,645

130,007

108,112

16,380

Impairment loss on cost method investment

(8,500)

(436)

-

-

Gain on disposal of cost method investment

-

-

2,123

322

Interest income

19,461

8,317

14,103

2,137

Interest expense

(2,575)

(7,988)

(13,679)

(2,073)

Income before provision for income taxes, earnings in

 equity investments

96,031

129,900

110,659

16,766

Provision for income taxes

(24,381)

(29,949)

(38,573)

(5,844)

Net income before earnings in equity investments

71,650

99,951

72,086

10,922

Earnings in equity investments

(441)

(1,687)

(101)

(15)

Income from continuing operations, net of tax

71,209

98,264

71,985

10,907

Discontinued operations

Loss from discontinued operations, net of taxes of

   RMBnil for 2008, 2009 and 2010

(21,025)

(74)

-

-

Gain on termination of discontinued operation, net of

taxes of RMBnil for 2008, 2009 and 2010

-

1,228

1,280

194

Net (loss) income on discontinued operation

(21,025)

1,154

1,280

194

Net income

50,184

99,418

73,265

11,101

Less: Net income attributable to noncontrolling interest

(7,517)

(7,339)

(1,454)

(220)

Net income attributable to ChinaCast Education Corporation

42,667

92,079

71,811

10,881

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the years ended December 31,

2008

2009

2010

2010

RMB

RMB

RMB

US$

Cash flows from operating activities:

 Net income

50,184

99,418

73,265

11,101

 Adjustments to reconcile net income to net cash provided by

  operating activities:

   Depreciation

16,565

29,489

53,126

8,049

   Amortization of acquired intangible assets

16,280

20,596

39,470

5,980

   Amortization of land use rights

1,908

2,639

3,534

535

   Share-based compensation

15,851

16,206

7,845

1,189

   (Gain) loss on disposal of property and equipment

(37)

1,364

684

104

   Earnings in equity investments

441

1,687

101

15

   Write-down of inventory

262

276

-

-

 Gain on termination of discontinued operation

-

-

(1,280)

(194)

  Gain on disposal of acquired intangible assets

-

(1,552)

-

-

   Impairment loss on cost method investment

8,500

436

-

-

   Impairment loss on acquired intangible assets

14,500

-

-

-

   Impairment loss of non-current advance

-

-

59,842

9,067

   Gain on disposal of subsidiary

-

(1,228)

-

-

   Gain on disposal of cost method investment

-

-

(2,123)

(322)

   Change in fair value of contingent consideration-prior year

-

-

(9,417)

(1,427)

 Changes in assets and liabilities:

   Accounts receivable

1,927

(20,298)

(4,790)

(726)

   Inventory

334

(243)

393

60

   Prepaid expenses and other current assets

(1,566)

(8,910)

(21,086)

(3,195)

   Non-current deposits and prepayments

1,746

(1,491)

8,162

1,237

   Amounts due from related parties

760

(3,900)

2,950

447

   Accounts payable

(11,163)

4,594

6,136

930

   Accrued expenses and other current liabilities

22,813

(11,669)

(2,839)

(430)

   Deferred revenues

51,172

(16,287)

103,426

15,671

   Amounts due to related parties

1,127

(1,127)

-

-

   Income taxes payable

13,844

18,137

25,175

3,814

   Deferred tax assets

-

(270)

(1,413)

(214)

   Deferred tax liabilities

(2,266)

(3,463)

(8,423)

(1,276)

   Unrecognized tax benefits

9,883

10,683

19,833

3,005

Net cash provided by operating activities

213,065

135,087

352,571

53,420

Cash flows from investing activities:

 Purchase of cost method investment

(3,000)

-

 Advances to related party

(26,294)

(20,309)

-

-

 Repayment from advances to related party

35,991

32,611

-

-

 Deposits for business acquisition

(19,000)

-

-

-

 Return of deposit for business acquisition

19,000

-

-

-

 Purchase of property and equipment

(56,351)

(41,280)

(100,377)

(15,209)

 Purchase of subsidiaries, net of cash acquired

(465,507)

(221,887)

(340,260)

(51,555)

 Term deposits

227,768

(138,000)

(197,000)

(29,848)

 Advance from disposal of intangible assets

-

1,000

-

-

 Disposal of intangible assets

-

6,000

-

-

 Disposal of property and equipment

244

51

-

-

 Deposit for investment

-

(3,000)

-

-

 Cash contribution from minority interest

20,000

3,030

 Acquisition of brand name usage right

-

-

-

-

 Net cash spent on disposal of discontinued operation

-

(683)

-

-

Net cash used in investing activities

(287,149)

(385,497)

(617,637)

(93,582)

CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

(In thousands)

For the years ended December 31,

2008

2009

2010

2010

RMB

RMB

RMB

US$

Cash flows from financing activities:

 Deferred consideration paid for acquisition of subsidiary

-

(4,150)

(20,540)

(3,112)

 Proceeds from share offering, net of issuance costs

64,236

297,351

232,971

35,299

 Other borrowings raised

5,998

10,850

93,500

14,167

 Bank borrowings raised

-

70,000

136,000

20,606

 Bank borrowings repaid

(168,400)

(25,515)

 Guarantee deposit paid

-

(3,000)

(1,000)

(151)

 Repayment of other borrowings

(11,501)

(11,747)

(92,200)

(13,970)

 Repayment of capital lease obligation

-

-

(1,323)

(200)

 Exercise of warrants and issuance of restricted shares

   of common stock, net of issuance costs (Note 18)

98,510

-

Net cash provided by (used in) financing activities

155,941

358,113

179,008

27,124

Effect of foreign exchange rate changes

(336)

(189)

2,833

428

Net (decrease) increase in cash and cash equivalents

81,521

107,514

(86,058)

(13,038)

Less: cash and cash equivalents in assets held for sale

-

(17)

-

-

Cash and cash equivalents at beginning of the year

138,610

220,131

327,628

49,641

Cash and cash equivalents at end of the year

220,131

327,628

244,403

37,031

Non-cash investing and financing activities:

 Payable assumed in purchase of property and equipment

23,189

49,335

30,609

4,638

 Inception of capital leases

3,784

-

-

-

 Non-current advance used to acquire NCI

-

-

40,000

6,061

 Consideration payable for acquisition of subsidiaries

4,150

30,482

78,721

11,927

 Receivable from disposal of subsidiaries

-

100

-

-

 Issuance of restricted shares of common stock for acquisition

 of additional interests in subsidiary

-

135,000

-

-

Supplemental cash flow information:

 Interest paid (net of amount capitalized of RMBRMB1,421 and

   RMB8,832 in 2009 and 2010, respectively)

2,575

7,988

13,679

2,073

 Income taxes paid

3,846

5,014

3,281

497

Non-GAAP figures

3 months ended

3 months ended

%change

31/12/2010

31/12/2009

+/(-)

US$'000

US$'000

Adjusted Net Income (Non-GAAP)

Net income attributable to ChinaCast Education Corporation

( 5,065)

2,830

(278.98)

Share-based Compensation

200

494

(59.51)

Amortization of Acquired Intangible Assets

1,854

1,289

43.83

Impairment loss on non-current advance

9,067

-

Adjusted Net Income (non-GAAP)

6,056

4,613

31.28

   Adjusted Net Margin (non-GAAP)

23.5%

28.0%

Adjusted Diluted EPS (Non-GAAP)

0.12

0.12

0.00

Adjusted EBITDA (Non-GAAP)

Net income attributable to ChinaCast Education Corporation

(5,065)

2,830

(278.98)

Depreciation

2,469

1,650

49.64

Amortization of Acquired Intangible Assets

1,854

1,289

43.83

Amortization of Land Use Rights

155

98

58.16

Share-based Compensation

200

494

(59.51)

Impairment loss on non-current advance

9,067

-

Interest Income

(574)

(205)

180.00

Interest Expense

463

353

31.16

Provision for income taxes

1,672

1,303

28.32

Earnings in equity investments

2

47

(95.74)

Net income attributable to noncontrolling interest

4

58

(93.10)

Adjusted EBITDA(non-GAAP)

10,247

7,917

29.43

   Adjusted EBITDA Margin (non-GAAP)

39.8%

48.0%

YoY

12 months ended

12 months ended

%change

31/12/2010

31/12/2009

+/(-)

US$'000

US$'000

Adjusted Net Income (Non-GAAP)

Net income attributable to ChinaCast Education Corporation

10,881

13,541

(19.64)

Share-based Compensation

1,189

2,383

(50.10)

Amortization of Acquired Intangible Assets

5,980

3,029

97.42

Impairment loss o non-current advance

9,067

-

Adjusted Net Income (non-GAAP)

27,117

18,953

43.07

   Adjusted Net Margin (non-GAAP)

34.8%

37.2%

Adjusted Diluted EPS (Non-GAAP)

0.56

0.53

5.66

Adjusted EBITDA (Non-GAAP)

Net income attributable to ChinaCast Education Corporation

10,881

13,541

(19.64)

Depreciation

8,049

4,337

85.59

Amortization of Acquired Intangible Assets

5,980

3,029

97.42

Amortization of Land Use Rights

535

388

37.89

Share-based Compensation

1,189

2,383

(50.10)

Impairment loss on non-current advance

9,067

-

Interest Income

(2,137)

(1,223)

74.73

Interest Expense

2,073

1,175

76.43

Provision for income taxes

5,844

4,404

32.70

Earnings in equity investments

15

248

(93.95)

Net income attributable to noncontrolling interest

220

1,079

(79.61)

Adjusted EBITDA(non-GAAP)

41,715

29,361

42.08

   Adjusted EBITDA Margin (non-GAAP)

53.6%

57.6%

Adjusted EBITDA (Non-GAAP)

Net income attributable to ChinaCast Education Corporation

10,881

13,541

(19.64)

Depreciation

8,049

4,337

85.59

Amortization of Acquired Intangible Assets

5,980

3,029

97.42

Amortization of Land Use Rights

535

388

37.89

Share-based Compensation

1,189

2,383

(50.10)

Impairment loss of non-current advance

9,067

-

Interest Income

(2,137)

(1,223)

74.73

Interest Expense

2,073

1,175

76.43

Provision for income taxes

5,844

4,404

32.70

Earnings in equity investments

15

248

(93.95)

Net income attributable to noncontrolling interest

220

1,079

(79.61)

Adjusted EBITDA(non-GAAP)

41,715

29,361

42.08

   Adjusted EBITDA Margin (non-GAAP)

53.6%

57.6%

SOURCE ChinaCast Education Corporation