- Annual and Transition Report (foreign private issuer) (20-F)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
20-F
(Mark
One)
o
|
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
OR
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended December 31, 2009
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from__________ to ____________
OR
o
|
SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
Date
of event requiring this shell company report_______________
Commission
file number: 001-33858
ChinaEdu
Corporation
(Exact
name of Registrant as specified in its charter)
Not
Applicable
(Translation
of Registrant’s Name into English)
Cayman
Islands
(
Jurisdiction of
incorporation or organization)
ChinaEdu
Corporation
4
th
Floor-A, GeHua
Building
No.
1 QinglongHutong, Dongcheng District
Beijing,
100007 People’s Republic of China
(Address
of principal executive offices)
Lily
Liu
Chief
Financial Officer
ChinaEdu
Corporation
4th
Floor-A, GeHua Building
No.
1 QinglongHutong, Dongcheng District
Beijing,
100007 People’s Republic of China
Telephone:
86-10-84186655
Email:
ir@chinaedu.net
(Name,
Telephone, E-mail and/or Facsimile number and Address of Company Contact
Person)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
|
|
Name of Each Exchange
On Which Registered
|
American Depositary Shares, each
representing
three
Ordinary Shares, par value US$0.01 per share
|
|
The
NASDAQ Stock Market LLC (NASDAQ Global Market)
|
Ordinary
Shares, par value US$0.01 par value per share
|
|
The
NASDAQ Stock Market LLC (NASDAQ Global
Market)*
|
*
|
Application made for listing, not
for trading, but only in connection with the registration of the American
Depositary Shares pursuant to requirements of the Securities and Exchange
Commission.
|
Securities
registered or to be registered pursuant to Section 12(g) of the
Act:
None
(Title of
Class)
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:
None
(Title of
Class)
Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual
report.
55,247,329 Ordinary
Shares, par value $0.01 per Ordinary Share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
o
No
þ
If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
Yes
o
No
þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
þ
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer
o
Accelerated
filer
þ
Non-accelerated
filer
o
Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
U.S.
GAAP
þ
|
International
Financial Reporting Standards
|
Other
o
|
|
as
issued by the International Accounting Standards Board
o
|
|
If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow.
Item
17
o
Item
18
o
If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
þ
TABLE
OF CONTENTS
INTRODUCTION
|
|
1
|
FORWARD-LOOKING
STATEMENTS
|
|
2
|
|
|
|
|
PART
I
|
|
4
|
Item
1.
|
Identity
of Directors, Senior Management and Advisers
|
|
4
|
Item
2.
|
Offer
Statistics and Expected Timetable
|
|
4
|
Item
3.
|
Key
Information
|
|
4
|
Item
4.
|
Information
on the Company
|
|
32
|
Item
4A.
|
Unresolved
Staff Comments
|
|
56
|
Item
5.
|
Operating
and Financial Review and Prospects
|
|
57
|
Item
6.
|
Directors,
Senior Management and Employees
|
|
82
|
Item
7.
|
Major
Shareholders and Related Party Transactions
|
|
90
|
Item
8.
|
Financial
Information
|
|
93
|
Item
9.
|
The
Offering and Listing
|
|
94
|
Item
10.
|
Additional
Information
|
|
95
|
Item
11.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
|
101
|
Item
12.
|
Description
of Securities Other than Equity Securities
|
|
101
|
|
|
|
|
PART
II
|
|
104
|
Item
13.
|
Defaults,
Dividend Arrearages and Delinquencies
|
|
104
|
Item
14.
|
Material
Modifications to the Rights of Security Holders and Use of
Proceeds
|
|
104
|
Item
15.
|
Controls
and Procedures
|
|
105
|
Item
16A.
|
Audit
Committee Financial Expert
|
|
106
|
Item
16B.
|
Code
of Ethics
|
|
107
|
Item
16C.
|
Principal
Accountant Fees and Services
|
|
107
|
Item
16D.
|
Exemptions
from the Listing Standards for Audit Committees
|
|
107
|
Item
16E.
|
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
|
|
107
|
Item
16F.
|
Change
in Registrant’s Certifying Accountant
|
|
108
|
Item
16G.
|
Corporate
Governance
|
|
109
|
|
|
|
|
PART
III
|
|
109
|
Item
17.
|
Financial
Statements
|
|
109
|
Item
18.
|
Financial
Statements
|
|
109
|
Item
19.
|
Exhibits
|
|
109
|
INTRODUCTION
Unless
otherwise indicated and except where the context otherwise requires, references
in this annual report on Form 20-F to:
|
·
|
“we,” “us,” “our company” or
“our” refers to ChinaEdu Corporation, its predecessor entities and
subsidiaries;
|
|
·
|
“China” or “PRC” refers to the
People’s Republic of China, excluding Taiwan, Hong Kong and
Macau;
|
|
·
|
“shares,” “ordinary shares,” or
“common shares” refers to our common
shares;
|
|
·
|
“ADSs” refers to our American
Depositary Shares, each of which represents three common shares, and
“ADRs” refers to the American Depositary Receipts that evidence our
ADSs;
|
|
·
|
“RMB” or “Renminbi” refers to the
legal currency of China; and
|
|
·
|
“$,” “dollars,” “US$” or “U.S.
dollars” refers to the legal currency of the United
States.
|
FORWARD-LOOKING
STATEMENTS
This
annual report contains forward-looking statements that involve risks and
uncertainties. All statements other than statements of historical facts are
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from those expressed or implied by
the forward-looking statements.
You can
identify these forward-looking statements by words or phrases such as “may,”
“will,” “expect,” “is expected to,” “anticipate,” “aim,” “estimate,” “intend,”
“plan,” “believe,” “is/are likely to” or other similar expressions. We have
based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect
our financial condition, results of operations, business strategy and financial
needs. These forward-looking statements include:
|
·
|
our anticipated growth
strategies;
|
|
·
|
our future business development,
results of operations and financial
condition;
|
|
·
|
expected changes in our revenues
and certain cost and expense
items;
|
|
·
|
our ability to increase student
enrollments and course fees and expand program, service and product
offerings;
|
|
·
|
competition in the language
training, test preparation, primary and secondary education, educational
content, software and other technology development and online education
markets;
|
|
·
|
risks associated with our
offering of new educational programs, services and products and the
expansion of our geographic
reach;
|
|
·
|
risks associated with our
existing development projects, including
construction delays or cost
overruns with respect to our pending campus construct
ion projects and the build out of
our learning center
s
network, which may increase
project costs, and the failure of the newly developed schools or learning
centers to perform as expected
;
|
|
·
|
the expected increase in
expenditures on education in
China;
|
|
·
|
PRC laws, regulations and
policies relating to private education and providers of private
educational services, including recent changes in the government
regulatory environment related to our international curriculum programs;
and
|
|
·
|
general economic, business and
other market conditions in the PRC and worldwide, including the ability of
the general global economy to recover timely from the current economic
downturn.
|
You
should read thoroughly this annual report and the documents that we refer to
herein with the understanding that our actual future results may be materially
different from and/or worse than what we expect. We qualify all of our
forward-looking statements by these cautionary statements. Other sections of
this annual report include additional factors which could adversely impact our
business and financial performance. Moreover, we operate in an evolving
environment. New risk factors emerge from time to time and it is not possible
for our management to predict all risk factors, nor can we assess the impact of
all factors on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
You
should not rely upon forward-looking statements as predictions of future events.
The forward-looking statements made in this annual report relate only to events
or information as of the date on which the statements are made in this annual
report. We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
PART
I
Item
1. Identity of Directors, Senior Management and Advisers
Not
applicable.
Item
2. Offer Statistics and Expected Timetable
Not
applicable.
Item
3. Key Information
A.
Selected Financial
Data
Selected Condensed Consolidated Financial Data
The
following selected condensed consolidated statement of operations data for the
three years ended December 31, 2007, 2008 and 2009 and selected condensed
consolidated balance sheet data as of December 31, 2008 and 2009 have been
derived from our audited consolidated financial statements included in this
annual report. These consolidated financial statements have been audited by
Deloitte Touche Tohmatsu CPA Ltd., an independent registered public accounting
firm. The report of Deloitte Touche Tohmatsu CPA Ltd. on our audited
consolidated financial statements for the three years ended December 31, 2007,
2008 and 2009 and as of December 31, 2008 and 2009 is included in this annual
report. The selected condensed consolidated statement of operations
data for the years ended December 31, 2005 and 2006 and selected
consolidated balance sheet data as of December 31, 2005, 2006 and 2007 have been
derived from our audited consolidated financial statements, which are not
included in this annual report. Our audited consolidated financial statements
are prepared and presented in accordance with generally accepted accounting
principles in the United States, or U.S. GAAP. The historical results are not
necessarily indicative of results to be expected in any future period.
The selected condensed
consolidated financial data should be read in conjunction with, and are
qualified in their entirety by reference to, our consolidated financial
statements and related notes and “Item 5. Operating and Financial Review and
Prospects—A. Operating Results” included elsewhere in this annual
report.
|
|
Years ended December 31,
|
|
|
|
2005
|
|
|
2006
(1)
|
|
|
2007
(1)
|
|
|
2008
(1)
|
|
|
2009
(1)
|
|
|
2009
(1)
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(As adjusted)
|
|
|
(As adjusted)
|
|
|
(As adjusted)
|
|
|
(As adjusted)
|
|
|
|
|
|
|
|
|
|
(In
thousands, except per share data)
|
|
Condensed
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
98,527
|
|
|
|
156,845
|
|
|
|
202,185
|
|
|
|
255,388
|
|
|
|
285,178
|
|
|
|
41,779
|
|
Online
tutoring programs
|
|
|
14,390
|
|
|
|
17,384
|
|
|
|
18,013
|
|
|
|
15,436
|
|
|
|
19,584
|
|
|
|
2,869
|
|
Private
primary and secondary schools
|
|
|
8,591
|
|
|
|
10,874
|
|
|
|
13,356
|
|
|
|
19,289
|
|
|
|
30,627
|
|
|
|
4,487
|
|
International
curriculum programs
|
|
|
4,854
|
|
|
|
28,428
|
|
|
|
31,434
|
|
|
|
27,607
|
|
|
|
19,317
|
|
|
|
2,830
|
|
Net
revenue
|
|
|
126,362
|
|
|
|
213,531
|
|
|
|
264,988
|
|
|
|
317,720
|
|
|
|
354,706
|
|
|
|
51,965
|
|
Cost
of revenue
|
|
|
(53,138
|
)
|
|
|
(80,308
|
)
|
|
|
(96,349
|
)
|
|
|
(117,733
|
)
|
|
|
(138,362
|
)
|
|
|
(20,270
|
)
|
Gross
profit
|
|
|
73,224
|
|
|
|
133,223
|
|
|
|
168,639
|
|
|
|
199,987
|
|
|
|
216,344
|
|
|
|
31,695
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
(44,089
|
)
|
|
|
(48,846
|
)
|
|
|
(76,893
|
)
|
|
|
(86,908
|
)
|
|
|
(82,858
|
)
|
|
|
(12,139
|
)
|
Selling
and marketing
|
|
|
(6,116
|
)
|
|
|
(12,893
|
)
|
|
|
(14,277
|
)
|
|
|
(29,851
|
)
|
|
|
(23,688
|
)
|
|
|
(3,470
|
)
|
Research
and development
|
|
|
(11,842
|
)
|
|
|
(14,263
|
)
|
|
|
(21,021
|
)
|
|
|
(26,185
|
)
|
|
|
(30,385
|
)
|
|
|
(4,451
|
)
|
Goodwill
impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,192
|
)
|
|
|
(41,036
|
)
|
|
|
—
|
|
|
|
—
|
|
Intangible
assets impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(29,057
|
)
|
|
|
—
|
|
|
|
—
|
|
Total
operating expenses
|
|
|
(62,047
|
)
|
|
|
(76,002
|
)
|
|
|
(128,383
|
)
|
|
|
(213,037
|
)
|
|
|
(136,931
|
)
|
|
|
(20,060
|
)
|
Income
(loss) from operations
|
|
|
11,177
|
|
|
|
57,221
|
|
|
|
40,256
|
|
|
|
(13,050
|
)
|
|
|
79,413
|
|
|
|
11,635
|
|
Other
income
|
|
|
—
|
|
|
|
—
|
|
|
|
394
|
|
|
|
562
|
|
|
|
1,748
|
|
|
|
256
|
|
Interest
income
|
|
|
1,078
|
|
|
|
1,172
|
|
|
|
4,118
|
|
|
|
10,652
|
|
|
|
4,980
|
|
|
|
730
|
|
Interest
expense
|
|
|
(1,242
|
)
|
|
|
(2,279
|
)
|
|
|
(2,130
|
)
|
|
|
(1,298
|
)
|
|
|
(2
|
)
|
|
|
—
|
|
Income
(loss) before income tax provisions and noncontrolling
interest
|
|
|
11,013
|
|
|
|
56,114
|
|
|
|
42,638
|
|
|
|
(3,134
|
)
|
|
|
86,139
|
|
|
|
12,621
|
|
Income
tax provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
4,849
|
|
|
|
9,475
|
|
|
|
16,286
|
|
|
|
11,860
|
|
|
|
18,981
|
|
|
|
2,781
|
|
Deferred
|
|
|
(855
|
)
|
|
|
(2,481
|
)
|
|
|
(1,283
|
)
|
|
|
(8,387
|
)
|
|
|
306
|
|
|
|
45
|
|
Total
income tax provisions
|
|
|
3,994
|
|
|
|
6,994
|
|
|
|
15,003
|
|
|
|
3,473
|
|
|
|
19,287
|
|
|
|
2,826
|
|
Net
income (loss)
|
|
|
7,019
|
|
|
|
49,120
|
|
|
|
27,635
|
|
|
|
(6,607
|
)
|
|
|
66,852
|
|
|
|
9,795
|
|
Less: net income
contributable to the noncontrolling interests
(2)
|
|
|
9,869
|
|
|
|
23,581
|
|
|
|
25,148
|
|
|
|
36,412
|
|
|
|
32,073
|
|
|
|
4,699
|
|
Net
income (loss) attributable to ChinaEdu Corporation
shareholders
|
|
|
(2,850
|
)
|
|
|
25,539
|
|
|
|
2,487
|
|
|
|
(43,019
|
)
|
|
|
34,779
|
|
|
|
5,096
|
|
Net
income (loss) per share attributable to ChinaEdu Corporation
shareholders—basic
|
|
|
(0.18
|
)
|
|
|
0.65
|
|
|
|
0.06
|
|
|
|
(0.75
|
)
|
|
|
0.71
|
|
|
|
0.104
|
|
Net
income per preferred A share—basic
|
|
|
—
|
|
|
|
0.65
|
|
|
|
0.06
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
income per preferred B share—basic
|
|
|
—
|
|
|
|
0.65
|
|
|
|
0.06
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
income per preferred C share—basic
|
|
|
—
|
|
|
|
0.65
|
|
|
|
0.06
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
income per preferred D share—basic
|
|
|
—
|
|
|
|
—
|
|
|
|
0.06
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
income per share attributable to ChinaEdu Corporation
shareholders—diluted
|
|
|
(0.18
|
)
|
|
|
0.60
|
|
|
|
0.05
|
|
|
|
(0.75
|
)
|
|
|
0.66
|
|
|
|
0.097
|
|
Net
income (loss) per ADS attributable to ChinaEdu Corporation
shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic—ordinary
|
|
|
(0.54
|
)
|
|
|
1.95
|
|
|
|
0.18
|
|
|
|
(2.25
|
)
|
|
|
2.14
|
|
|
|
0.313
|
|
Diluted—ordinary
|
|
|
(0.54
|
)
|
|
|
1.80
|
|
|
|
0.15
|
|
|
|
(2.25
|
)
|
|
|
1.99
|
|
|
|
0.291
|
|
Weighted
average shares used in calculating ordinary basic net income (loss) per
share
|
|
|
16,243,736
|
|
|
|
39,209,606
|
|
|
|
42,147,170
|
|
|
|
57,679,504
|
|
|
|
48,844,606
|
|
|
|
48,844,606
|
|
Weighted
average shares used in calculating ordinary diluted net income (loss) per
share
|
|
|
16,243,736
|
|
|
|
42,708,213
|
|
|
|
47,322,184
|
|
|
|
57,679,504
|
|
|
|
52,519,683
|
|
|
|
52,519,683
|
|
Adjusted EBITDA
(3)
|
|
|
21,966
|
|
|
|
76,901
|
|
|
|
81,409
|
|
|
|
85,271
|
|
|
|
109,288
|
|
|
|
16,011
|
|
|
|
Years ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(In thousands)
|
|
Share-based
compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
369
|
|
|
|
468
|
|
|
|
346
|
|
|
|
474
|
|
|
|
489
|
|
|
|
72
|
|
General
and administrative
|
|
|
1,965
|
|
|
|
1,942
|
|
|
|
2,960
|
|
|
|
4,073
|
|
|
|
5,982
|
|
|
|
876
|
|
Selling
and marketing
|
|
|
—
|
|
|
|
205
|
|
|
|
222
|
|
|
|
506
|
|
|
|
676
|
|
|
|
99
|
|
Research
and development
|
|
|
44
|
|
|
|
96
|
|
|
|
115
|
|
|
|
178
|
|
|
|
269
|
|
|
|
39
|
|
Total
|
|
|
2,378
|
|
|
|
2,711
|
|
|
|
3,643
|
|
|
|
5,231
|
|
|
|
7,416
|
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible assets acquired through business combination included
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
2,097
|
|
|
|
4,182
|
|
|
|
3,954
|
|
|
|
3,956
|
|
|
|
2,977
|
|
|
|
436
|
|
Selling
and marketing
|
|
|
1,125
|
|
|
|
3,279
|
|
|
|
3,279
|
|
|
|
3,250
|
|
|
|
774
|
|
|
|
113
|
|
Total
|
|
|
3,222
|
|
|
|
7,461
|
|
|
|
7,233
|
|
|
|
7,206
|
|
|
|
3,751
|
|
|
|
549
|
|
The
following is a reconciliation of net (loss) income attributable to ChinaEdu
Corporation shareholders to adjusted EBITDA:
|
|
Years ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(As adjusted)
|
|
|
(As adjusted)
|
|
|
(As adjusted)
|
|
|
(As adjusted)
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Net
income (loss)
|
|
|
7,019
|
|
|
|
49,120
|
|
|
|
27,635
|
|
|
|
(6,607
|
)
|
|
|
66,852
|
|
|
|
9,795
|
|
Income
tax provision
|
|
|
3,994
|
|
|
|
6,994
|
|
|
|
15,003
|
|
|
|
3,473
|
|
|
|
19,287
|
|
|
|
2,826
|
|
Share-based
compensation
|
|
|
2,378
|
|
|
|
2,711
|
|
|
|
3,643
|
|
|
|
5,231
|
|
|
|
7,416
|
|
|
|
1,086
|
|
Exchange
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,433
|
|
|
|
—
|
|
|
|
—
|
|
Amortization
|
|
|
3,388
|
|
|
|
8,812
|
|
|
|
9,081
|
|
|
|
9,352
|
|
|
|
5,856
|
|
|
|
858
|
|
Depreciation
|
|
|
5,023
|
|
|
|
8,157
|
|
|
|
8,206
|
|
|
|
12,212
|
|
|
|
16,603
|
|
|
|
2,432
|
|
Interest
income and other, net
|
|
|
164
|
|
|
|
1,107
|
|
|
|
(2,382
|
)
|
|
|
(9,916
|
)
|
|
|
(6,726
|
)
|
|
|
(986
|
)
|
Goodwill
impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
16,192
|
|
|
|
41,036
|
|
|
|
—
|
|
|
|
—
|
|
Intangible
assets impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,057
|
|
|
|
—
|
|
|
|
—
|
|
Write-off
for receivables from prior shareholder
|
|
|
—
|
|
|
|
—
|
|
|
|
4,031
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Adjusted
EBITDA
(3)
|
|
|
21,966
|
|
|
|
76,901
|
|
|
|
81,409
|
|
|
|
85,271
|
|
|
|
109,288
|
|
|
|
16,011
|
|
|
|
Years ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(As adjusted)
|
|
|
(As adjusted)
|
|
|
(As adjusted)
|
|
|
(As adjusted)
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Condensed
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
155,912
|
|
|
|
148,315
|
|
|
|
497,114
|
|
|
|
353,933
|
|
|
|
203,145
|
|
|
|
29,761
|
|
Term
deposits
|
|
|
—
|
|
|
|
10,000
|
|
|
|
6,042
|
|
|
|
63,500
|
|
|
|
122,304
|
|
|
|
17,918
|
|
Accounts
receivable, net
|
|
|
4,813
|
|
|
|
12,578
|
|
|
|
1,238
|
|
|
|
14,854
|
|
|
|
28,334
|
|
|
|
4,151
|
|
Amounts
due from related parties
|
|
|
57,370
|
|
|
|
59,979
|
|
|
|
105,522
|
|
|
|
150,472
|
|
|
|
176,802
|
|
|
|
25,902
|
|
Other
current assets
|
|
|
19,168
|
|
|
|
14,346
|
|
|
|
27,013
|
|
|
|
24,237
|
|
|
|
48,545
|
|
|
|
7,112
|
|
Total
current assets
|
|
|
237,263
|
|
|
|
245,218
|
|
|
|
636,929
|
|
|
|
606,996
|
|
|
|
579,130
|
|
|
|
84,844
|
|
Property
and equipment, net
|
|
|
32,492
|
|
|
|
43,657
|
|
|
|
132,770
|
|
|
|
170,544
|
|
|
|
217,893
|
|
|
|
31,921
|
|
Acquired
intangible assets, net
|
|
|
87,889
|
|
|
|
102,836
|
|
|
|
105,852
|
|
|
|
70,377
|
|
|
|
66,621
|
|
|
|
9,760
|
|
Goodwill
|
|
|
61,207
|
|
|
|
76,509
|
|
|
|
73,319
|
|
|
|
38,155
|
|
|
|
38,155
|
|
|
|
5,590
|
|
Other
long term assets
|
|
|
9,557
|
|
|
|
28,990
|
|
|
|
31,198
|
|
|
|
32,608
|
|
|
|
34,493
|
|
|
|
5,054
|
|
Total
assets
|
|
|
428,408
|
|
|
|
497,210
|
|
|
|
980,068
|
|
|
|
918,680
|
|
|
|
936,292
|
|
|
|
137,169
|
|
Deferred
revenues
|
|
|
67,913
|
|
|
|
78,746
|
|
|
|
83,816
|
|
|
|
96,068
|
|
|
|
97,853
|
|
|
|
14,336
|
|
Accounts
payable
|
|
|
4,393
|
|
|
|
8,413
|
|
|
|
2,773
|
|
|
|
8,530
|
|
|
|
6,467
|
|
|
|
947
|
|
Accrued
expense and other current liabilities
|
|
|
20,276
|
|
|
|
21,754
|
|
|
|
42,096
|
|
|
|
51,629
|
|
|
|
68,917
|
|
|
|
10,096
|
|
Amounts
due to related parties
|
|
|
6,358
|
|
|
|
7,121
|
|
|
|
28,316
|
|
|
|
25,769
|
|
|
|
25,668
|
|
|
|
3,760
|
|
Income
taxes payable and other taxes payable
|
|
|
10,641
|
|
|
|
16,712
|
|
|
|
29,121
|
|
|
|
39,925
|
|
|
|
49,289
|
|
|
|
7,221
|
|
Acquisition
payable
|
|
|
32,125
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
current liabilities
|
|
|
141,706
|
|
|
|
132,746
|
|
|
|
186,122
|
|
|
|
221,921
|
|
|
|
248,194
|
|
|
|
36,360
|
|
Long
term debt
|
|
|
—
|
|
|
|
—
|
|
|
|
25,724
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Deferred
revenues
|
|
|
233
|
|
|
|
289
|
|
|
|
3,124
|
|
|
|
6,073
|
|
|
|
8,075
|
|
|
|
1,183
|
|
Deferred
tax liabilities
|
|
|
16,773
|
|
|
|
19,879
|
|
|
|
24,036
|
|
|
|
11,069
|
|
|
|
10,143
|
|
|
|
1,486
|
|
Unrecognized
tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
4,332
|
|
|
|
5,473
|
|
|
|
7,727
|
|
|
|
1,132
|
|
Convertible
notes
|
|
|
29,324
|
|
|
|
30,654
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
liabilities
|
|
|
188,036
|
|
|
|
183,568
|
|
|
|
243,338
|
|
|
|
244,536
|
|
|
|
274,139
|
|
|
|
40,161
|
|
Total
ChinaEdu Corporation shareholders’ equity
|
|
|
204,235
|
|
|
|
264,319
|
|
|
|
678,734
|
|
|
|
589,829
|
|
|
|
559,973
|
|
|
|
82,039
|
|
Noncontrolling
interests
(2)
|
|
|
36,137
|
|
|
|
49,323
|
|
|
|
57,996
|
|
|
|
84,315
|
|
|
|
102,180
|
|
|
|
14,969
|
|
Total
equity
|
|
|
240,372
|
|
|
|
313,642
|
|
|
|
736,730
|
|
|
|
674,144
|
|
|
|
662,153
|
|
|
|
97,008
|
|
Total liabilities and
equity
|
|
|
428,408
|
|
|
|
497,210
|
|
|
|
980,068
|
|
|
|
918,680
|
|
|
|
936,292
|
|
|
|
137,169
|
|
(1)
The amounts of share-based
compensation included in operating expenses for 2006, 2007, 2008 and 2009,
reflects the adoption of authoritative pronouncement regarding share-based
payment effective on January 1, 2006. If we had applied the fair value
recognition provisions of this pronouncement to prior periods, we would have
reported net loss of RMB8.1 million for 2005, and net loss per share (diluted)
of 0.50 for 2005.
(2) We
adopted authoritative pronouncement on noncontrolling interests in consolidated
financial statements on January 1, 2009, retrospectively.
(3)
Adjusted EBITDA represents net income (loss) before interest income, income
taxes, depreciation, amortization of intangible assets and land use rights,
share-based compensation, write-off for receivables from prior shareholder,
goodwill and intangible assets impairment charges and exchange losses. We
believe that adjusted EBITDA is useful to investors as a measure of comparative
operating performance, as it is less susceptible to variances in actual
performance resulting from depreciation, amortization and goodwill and
intangible assets impairment, and is more reflective of changes in pricing
decisions, cost controls and other factors that affect operating performance. We
also present adjusted EBITDA because we believe it is useful to investors as a
way to evaluate our ability to incur and service debt, make capital expenditures
and meet working capital requirements. Adjusted EBITDA is not intended as a
measure of our operating performance, as an alternative to net income or as an
alternative to any other performance measure in conformity with U.S. GAAP, or as
an alternative to cash flow provided by operating activities as a measure of
liquidity.
Exchange
Rate Information
The
following table sets forth the noon buying rates for U.S. dollars in effect in
The City of New York for cable transfers of Renminbi as certified for customs
purposes by the Federal Reserve Board, for the periods indicated.
|
|
Renminbi per U.S. Dollar Noon Buying Rate
|
|
Period
|
|
Average
1
|
|
|
High
|
|
|
Low
|
|
|
Period-End
|
|
2005
|
|
8.1826
|
|
|
8.0702
|
|
|
8.2765
|
|
|
8.0702
|
|
2006
|
|
7.9579
|
|
|
7.8041
|
|
|
8.0702
|
|
|
7.8041
|
|
2007
|
|
7.5806
|
|
|
7.2946
|
|
|
7.8127
|
|
|
7.2946
|
|
2008
|
|
6.9193
|
|
|
6.7800
|
|
|
7.2946
|
|
|
6.8225
|
|
2009
|
|
6.8295
|
|
|
6.8176
|
|
|
6.8470
|
|
|
6.8259
|
|
1
Annual
averages are calculated by averaging the noon buying rates on the last business
day of each month. Monthly averages are calculated using the average
of the daily rates during the relevant period.
Previous
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
December
2009
|
|
6.8275
|
|
|
6.8244
|
|
|
6.8299
|
|
|
6.8259
|
|
January,
2010
|
|
6.8269
|
|
|
6.8258
|
|
|
6.8295
|
|
|
6.8268
|
|
February,
2010
|
|
6.8285
|
|
|
6.8258
|
|
|
6.8330
|
|
|
6.8258
|
|
March,
2010
|
|
6.8262
|
|
|
6.8254
|
|
|
6.8270
|
|
|
6.8258
|
|
April,
2010
|
|
6.8256
|
|
|
6.8229
|
|
|
6.8275
|
|
|
6.8247
|
|
May,
2010
|
|
6.8275
|
|
|
6.8245
|
|
|
6.8310
|
|
|
6.8305
|
|
June,
2010 (through June 22)
|
|
6.8298
|
|
|
6.8267
|
|
|
6.8323
|
|
|
6.8267
|
|
Source:
Federal Reserve Board
On
June
22
,
2010
,
the noon buying rate was
RMB6.8267
to
$1.00.
We
publish our financial statements in Renminbi. This annual report contains
translations of Renminbi amounts into U.S. dollars at specified rates
solely for the convenience of the reader. Unless otherwise noted, all
translations from Renminbi to U.S. dollars were made at the noon buying
rate in The City of New York for cable transfers in Renminbi per
U.S. dollar as certified for customs purposes by the Federal Reserve Bank
of New York, as of December 31, 2009, which was RMB6.8259 to $1.00. We make no
representation that any Renminbi or U.S. dollar amounts could have been, or
could be, converted into U.S. dollars or Renminbi, as the case may be, at any
particular rate, the rates stated above, or at all. The PRC government imposes
control over its foreign currency reserves in part through direct regulation of
the conversion of RMB into foreign exchange and through restrictions on foreign
trade.
Since
July 2005, the Renminbi is no longer pegged solely to the U.S. dollar.
Instead, its value is measured against a basket of currencies, determined by the
People’s Bank of China, against which it can rise or fall by as much as 0.3%
each day. The Renminbi may appreciate or depreciate significantly in value
against the U.S. dollar in the future. See “—D. Risk Factors—Risks Related
to the People’s Republic of China—The fluctuation of the Renminbi may materially
and adversely affect your investment.”
B.
|
Capitalization and
Indebtedness
|
Not
applicable.
C.
|
Reasons for the Offer
and Use of Proceeds
|
Not
applicable.
Investing
in our securities involves a high degree of risk. You should carefully consider
the risks described below, in conjunction with other information and our
consolidated financial statements and related notes included elsewhere in this
annual report, before making an investment decision. Our business, financial
condition or results of operations could be affected materially and adversely by
any or all of these risks. The trading price of our ADSs could decline due to
any or all of these risks, and you may lose all or part of your
investment.
Risks
Related to Our Business
The
education sector, in which all of our businesses are conducted, and the
telecommunication sector, upon which we are heavily reliant, each are subject to
extensive regulation in China, and our ability to conduct business is highly
dependent on our compliance with these regulatory frameworks.
The
Chinese government regulates all aspects of the education sector, including
licensing of parties to perform various services, pricing of tuition and other
fees, curriculum content, standards for the operations of schools and learning
centers associated with online degree programs and foreign participation. The
Chinese laws and regulations applicable to the education and telecommunication
sectors may be in some aspects vague and uncertain, and often lack detailed
implementing regulations. These laws and regulations also are subject to change,
and new laws and regulations may be adopted, some of which may have retroactive
application or have a negative effect on our business. Moreover, there is
considerable ongoing scrutiny of the education sector and its
participants. For a discussion of the regulatory framework for the
education system and the telecommunication sectors in China, see “Item 4.
Information on the Company—B. Business Overview—Regulation.”
We must
comply with China’s extensive regulations on private and foreign participation
in the education and telecommunication sectors, and compliance with such
restrictions has caused us to adopt complex structural arrangements with our
Chinese subsidiaries and Chinese affiliated entity or variable interest entity.
If the relevant Chinese authorities decide that our structural arrangements do
not comply with these restrictions, we would be precluded from conducting some
or all of our current business and our financial condition, results of
operations and business strategy may be materially and adversely
affected.
Chinese
regulators have broad powers to regulate the tuition and other fees charged by
schools and, as a result, can adversely impact the fees we receive from the
schools to which we provide services, as well as the returns from the private
primary and secondary schools operated by our Chinese affiliated entity. While
China’s regulatory framework provides that investors in private schools are
entitled to receive a “reasonable return” on their investment, there is no clear
guidance in law as to what this term means.
Although
our corporate structure and business are designed to comply with the limitations
on foreign investment and participation in the education and telecommunication
sectors, we cannot assure you that we will not be found to be in violation of
any current or future Chinese laws and regulations. See also the risk factors
below under “Risks Related to China’s Regulation of the Education and
Telecommunication Sectors and Our Corporate Structure.” There are substantial
uncertainties regarding the interpretation and application of Chinese laws and
regulations. If we or any of our Chinese subsidiaries or Chinese affiliated
entity are found to be or to have been in violation of Chinese laws or
regulations limiting foreign ownership or participation in the education or
telecommunication sectors, the relevant regulatory authorities have broad
discretion in dealing with such violation, including but not limited
to:
|
·
|
levying
fines and confiscating illegal
income;
|
|
·
|
restricting
or prohibiting our use of the proceeds from our initial public offering to
finance our business and operations in
China;
|
|
·
|
requiring
us to restructure the ownership structure or operations of our Chinese
subsidiaries or Chinese affiliated
entity;
|
|
·
|
requiring
us to discontinue all or a portion of our business;
and/or
|
|
·
|
revoking
our business licenses.
|
Any of
these or similar actions could cause significant disruption to our business
operations or render us unable to conduct all or a substantial portion of our
business operations, and may materially and adversely affect our business,
financial condition and results of operations.
We
derive a majority of our revenue by providing services to online degree
programs, and any adverse development in this business will materially and
adversely affect our overall results of operations.
For
fiscal years ended December 31, 2007, 2008 and 2009, approximately 76.3%, 80.4%,
and 80.4%, respectively, of our net revenue was generated from services provided
to online degree programs of Chinese universities. The continued growth of this
business line depends on our ability to attract new university customers and the
ability of these universities to increase student enrollment for their online
degree programs. We face many challenges in our online degree program services
business, including:
|
·
|
our
structure for this line of business, in which services are provided to our
university customers’ online degree programs by one of our Chinese
subsidiaries and affiliated entity, may be found by Chinese regulatory
authorities to violate restrictions on entities other than universities
being responsible for online degree
programs;
|
|
·
|
the
demand for online degree programs depends on the social acceptance and
perceived attractiveness of degrees offered by these programs, which may
decline due to actual or perceived quality problems at online degree
programs and the increased availability of alternatives such as
traditional degree programs, on-the-job training and overseas
programs;
|
|
·
|
the
universities with online degree programs have primary responsibility for
these programs and their priorities and objectives may conflict with our
own objectives of growing our revenue and profits from servicing these
programs; and
|
|
·
|
each
of the universities with online degree programs has been approved by
China’s Ministry of Education, or the MOE, to operate these programs as
part of the MOE’s pilot program for online education and there is no
assurance that the MOE will not restrict, suspend or revoke this program
in the future or that any of the currently approved universities,
including our university partners, will continue to qualify for this
program.
|
A
significant factor affecting the results of our online degree program business
is the fees that our university partners are required to pay to independent
learning centers. The share of tuition revenue that we receive is after the
payment of fees to learning centers. As a result, an increase in the portion of
tuition fees paid to the learning centers will result in a decrease in the
portion of tuition fees that we receive as revenue. In 2009, majority of our
university partners paid fees to independent learning centers in amounts ranging
from 20% to 54% of the gross tuition revenues received by their online degree
programs. For fiscal years ended December 31, 2007, 2008 and 2009, the portion
of gross tuition fees that our university partners paid in aggregate to
independent learning centers was approximately 40%, 39% and 40%, respectively.
There can be no assurance that the amounts payable to independent learning
centers, as a portion of gross tuition fees, will not increase.
To the
extent any of the factors discussed above or other adverse developments occur in
the online degree program sector, our revenue and results of operations from our
online degree program services business could be adversely
affected.
Most
of our revenue comes from a limited number of customers, the loss of which could
significantly impact our revenue and results of operations.
For
fiscal years ended December 31, 2007, 2008 and 2009, 68.2%, 67.3% and 63.6%,
respectively, of our net revenue was derived from our services to our five
largest online degree program customers. Our three largest customers, Renmin
University of China, China Agricultural University and Dongbei University of
Finance and Economics, accounted for 20.2%, 13.3 % and 12.0%, respectively, of
our net revenue in 2009. These same customers accounted for 22.1%, 15.2 % and
13.3%, respectively, of our net revenue in 2008, and 21.1%, 17.3% and 14.0%,
respectively of our revenue in 2007. We will likely continue to rely on a
relatively small number of customers for a significant portion of our revenue
for the foreseeable future. If for any reason our revenue from any of our
significant customers or other online degree programs were to decline or if we
were to lose any of our significant customers, our revenue and results of
operations would be materially and adversely affected.
We
may not succeed in attracting additional university online degree programs as
customers and our growth prospects could suffer.
Although
our strategy is to increase the number of online degree programs using our
services, we may not be able to attract additional university customers.
Developing and entering into a relationship with a university requires
considerable effort on our part, and we may spend considerable time and still
may not be successful in developing a new customer. Our ability to expand our
services to additional online degree programs is dependent on our ability to
identify potential university partners who can provide course offerings that
will be attractive to the target market and to develop a mutually acceptable
arrangement with the universities for the development of a program. Some of the
universities offering online degree programs that do not utilize our services
have developed their own technology platforms, and others have entered into
service agreements with other service providers. Some of the universities we
would like to partner with may not have goals and objectives that are compatible
with ours, may be subject to long-term contracts with other service providers,
or may have cumbersome decision-making procedures that may delay or prohibit our
entering into a service relationship with them. In addition, some of these
universities are also being pursued by our competitors. As a result, we cannot
predict whether we will be successful in attracting additional universities to
which we can provide services. If we are unsuccessful in establishing new
service relationships, our strategic growth objectives may not be achieved,
thereby adversely impacting our prospects and results of
operations.
The
tuition charged by online degree programs, the secondary and vocational schools
that we provide curriculum programs to and our private primary and secondary
schools are all subject to price controls administered by the Chinese
government, and our revenue is highly dependent on the level of these tuition
charges.
In the
year ended December 31, 2009, 80.4% of our net revenue was generated by
providing services to online degree programs. Our revenue in this segment comes
primarily from service fees that are paid by universities and calculated as a
percentage of the tuition revenue of the online degree programs that we provide
services to, and the tuition charges for these programs are subject to price
controls administered by various price control offices under China’s National
Development and Reform Commission, or NDRC. Similarly, our revenue from the
curriculum programs that we offer to secondary and vocational schools is also
directly dependent on the tuition revenue of those schools, and those tuition
charges are subject to administrative price controls. The tuition charges of our
private primary and secondary schools are also subject to price controls. In
light of the substantial increase in tuitions and other education-related fees
in China in recent years, China’s price control authorities may impose stricter
price control on tuition charges in the future. If the tuition charges upon
which our revenue depends, particularly the tuition charges for online degree
programs, were to be decreased or if they were not to increase in line with
increases in our costs because of the actions of China’s administrative price
controls, our revenue and profitability could be adversely
affected.
Our
international curriculum programs, which include our Polytechnic and English
language programs, are heavily regulated, and our ability to conduct business in
this area is highly dependent on regulatory policies and our compliance with
these policies.
In April
2007, the MOE issued the Circular on Further Regulating Chinese-Foreign
Cooperative Education Programs. The circular directs the local education
authorities generally to suspend the approval of any new Chinese-foreign
cooperative polytechnic education programs until the end of 2008, and there is
no new policy currently promulgated to revoke the suspension. To
ensure the quality of the Chinese-foreign cooperative education programs, the
circular emphasizes the regulatory supervision of these programs and advises
local education authorities to closely supervise and monitor the existing
programs, especially in recruiting materials, advertisements, and issuance of
degrees and diplomas, and directs them to report and remedy any non-compliance
by existing programs of the applicable regulations. As a result of this
circular, our BCIT program has not been able to contract new schools for the
program and we do not expect it will in the near future. Although the circular
only discusses the suspension of approvals through the end of 2008, we cannot
assure you that our BCIT program will be able to contract new schools in 2010 or
at any time after that.
In
addition, in recent years our English language curriculum program, or FEC
program, has faced challenges obtaining certain regulatory approvals. In August
2004, the MOE promulgated the Announcement regarding Re-Approval of
Chinese-foreign Cooperative Educational Institutions and Programs, or the
Re-Approval Announcement, which requires Chinese-foreign cooperative educational
institutions and programs that were established before July 1, 2004 (the
effective date of the Re-Approval Announcement) to be re-approved by the MOE.
Since not all of our contracted schools obtained re-approval from the MOE, as a
result, in 2008 we mutually terminated our agreement with Western Institute of
Technology at Taranki (“WITT”), a post-secondary education institution based in
New Zealand that offers English language programs for overseas students, to
serve as the exclusive service provider for all of WITT’s English language
programs within China until September 2020. We cannot assure you that any, or
all, of the FEC contracted schools will continue to work with us in the future,
and our partner schools may face challenges obtaining re-approvals for replacing
WITT with other overseas education institutions with whom we may
partner.
As a
result of these developments, we incurred a goodwill impairment charge of
RMB16.2 million related to the international curriculum programs segment during
the year ended December 31, 2007 and an impairment charge of RMB68.2 million
related to the international curriculum programs segment during the year ended
December 31, 2008, of which RMB39.1 million was related to goodwill impairment
and RMB29.1 million was related to intangible assets impairment. In 2009, we did
not incur any impairment charges.
Our
business is subject to seasonal fluctuations, which may cause our operating
results to fluctuate from quarter to quarter. This may result in volatility and
adversely affect the price of our ADSs.
We have
experienced, and expect to continue to experience fluctuations in our revenue
and results of operations, due to a number of reasons including seasonal changes
in the number of students who are enrolled in, or served by, our businesses.
Generally, more new revenue student enrollments occur in the fall, and more
existing student enrollments occur in the spring upon selection of additional
course credits. We generally recognize revenue over the six-month period
following these enrollments. Our expenses and costs, however, do not necessarily
correspond with changes in our revenue or the number of students who are
enrolled in, or served by, our businesses. We expect quarterly fluctuations in
our revenue and results of operations to continue. These fluctuations could
result in volatility and adversely affect the price of our ADSs. As our revenue
grows, these seasonal fluctuations may become more pronounced.
If
we fail to maintain an effective system of internal control over financial
reporting, we may not be able to accurately report our financial results or
prevent fraud.
We are
subject to the reporting obligations under the U.S. federal securities laws. The
SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted
rules that now require every public reporting company to include in its annual
report management’s report on internal control over financial reporting, which
contains management’s assessment of the effectiveness of such company’s internal
control over financial reporting. In addition, certain registrants are required
to include an attestation report from an independent registered public
accounting firm on the effectiveness of such registrant’s internal control over
financial reporting.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009 and has concluded that our internal control
over financial reporting was effective as of December 31, 2009. See “Item 15.
Controls and Procedures”. Nevertheless, we cannot assure you that these measures
will continue to be effective and that any significant deficiencies and material
weakness in our internal control over financial reporting will not be identified
in the future. Moreover, if we fail to maintain the adequacy of
our internal control, we may not be able to conclude that we have effective
internal control over financial reporting. Even if we do conclude that our
internal control over financial reporting is effective, our independent
registered public accounting firm may still issue a report that is qualified if
it is not satisfied with our internal control. Furthermore, effective internal
control over financial reporting is necessary for us to produce reliable
financial reports and is important to help us to manage the company effectively
and prevent fraud. As a result, our failure to maintain effective internal
control over financial reporting could result in a loss of investor confidence
in the reliability of our financial statements, which in turn could harm our
business and negatively impact the trading price of our ADSs.
Our
limited operating history may not serve as an adequate basis to judge our future
prospects and results of operations.
We began
operations in 1999 and initiated three of our four lines of business in 2005 and
2006 through acquisitions. Our limited operating history may not provide a
meaningful basis on which to evaluate our business. For the year ended December
31, 2008, we incurred a net loss of RMB43.0 million, primarily due to goodwill
and intangible assets impairment losses related to our international curriculum
programs. We cannot assure you that we will not recognize future impairment
charges or incur future losses. We also expect that our operating expenses will
increase as we expand. Given our limited operating history and the limited
period of time that our management team has worked together, our operating
history may not provide you with a sufficient basis upon which to evaluate the
ability of our management team to address these risks. If we are not successful
in addressing any or all of these risks, our business may be materially and
adversely affected.
We
are dependent on third parties, particularly the learning centers serving online
degree programs, over which we have limited control, to perform functions that
are critical to the success of our business.
The
success of our business in providing services to online degree programs depends
in part on the actions of learning centers and universities over which we have
limited control. The learning centers, principally operated by third parties,
perform a number of essential functions for universities that operate the online
degree programs (such as marketing, enrollment, administration, tuition
collection and testing), but we have limited ability to ensure that they
adequately perform these functions or comply with the regulations and standards
applicable to them. If the learning centers upon which our online degree
programs are dependent experience regulatory compliance issues, our results of
operations and our ability to attract and retain university customers will be
adversely affected. In addition, because a university must obtain regulatory
approval, which is generally a time consuming process, to either change learning
centers or establish its own learning centers, the learning centers may demand
substantial compensation for their services.
Because
we face significant competition in several of our lines of business, we could
lose market share and may need to respond by lowering our prices, which could
materially and adversely affect our results of operations.
Along
with Guangxi Radio and TV University (“GRTU”) and Fujian Radio and TV University
(“FRTU”), we currently serve 10 university partners which are under long-term
contracts out of the 67
universities, as well as
the China Central Radio and TV University, which functions primarily as a
distance learning facility, that have been approved to offer online degree
programs in China. Our revenue from these 12 universities depends on the total
cash tuition receipts for these programs. The online degree programs of these 12
universities must compete with the online degree programs of the other 57
universities approved to offer online degree programs, as well as other
education and training programs that are seeking to enroll students. Our
learning centers network also faces competition from other third party learning
centers in their efforts to attract student enrollments. While we are trying to
enter into agreements with additional universities with respect to their online
degree programs, we face competition from other service providers and may not
succeed in our efforts.
Our
online tutoring and test preparation business competes for students with
traditional in-person tutoring services and after school programs, as well as
with companies providing online services similar to ours. Our English language
programs compete for students with other private schools with English language
programs, sister schools, online programs, after school programs and self-study
programs. Our Polytechnic programs compete for students with other
Chinese-foreign cooperative education programs, sister school programs, distance
learning programs, self-study programs and other vocational and technical
training programs. Our private primary and secondary schools compete for
recruiting students with other schools in their respective areas as well as
boarding schools that recruit students on a nationwide basis.
There are
also many new entrants seeking to participate in the education sector in China,
including for-profit and not-for-profit educational institutions from overseas
that are attracted by the education market in China. Although restrictive
regulation of the education sector in China may have limited our competition in
the past, any deregulation of this industry, or easing of restrictions on
foreign participants, could increase the competition we face in one or more
lines of business.
Certain
of our businesses face relatively low barriers to entry, which could result in
even greater competitive pressure and potential loss of market share in the
future.
Our
online tutoring business and international curriculum program business are
characterized by relatively low start-up and fixed costs, modest capital
requirements, short start-up lead times and a limited need for significant
proprietary technology. As a result, potential market entrants, both in China
and from abroad, face relatively low entry barriers to these markets. The online
tutoring business requires relatively small amounts of capital and technological
capabilities to enter. Similarly, other international programs similar to our
international curriculum programs could be initiated by one or more competitors
in cooperation with international partners. In addition, as the existing
penetration rates of these lines of business are relatively low in our markets,
competitors could acquire significant numbers of customers and establish
significant market share within a relatively short period. Increased competition
could result in loss of market share and revenue and lower profit margins, which
would in turn have a material adverse effect on our business, financial
condition and results of operations.
We have not
received permanent approval to operate our learning centers and our strategy to
develop a nationwide network of learning centers will involve substantial costs
and may not succeed.
In
February 2007, we received provisional approval from the MOE to operate 10
learning centers in the provinces of Beijing, Shanghai, and Jiangsu and Zhejiang
for a trial period of up to 18 months. Although this provisional
approval has since expired, the MOE has not ordered us to terminate operations
at our learning centers, although no assurance can be given that the MOE will
not do so.
To date,
we have also obtained provincial level approval from the Beijing, Shanghai,
Jiangsu, Zhejiang and Jiangxi provinces to operate a total of 23 learning
centers, which include the 10 that received provisional approval from the MOE in
February 2007. We have also entered into agreements to establish four
cooperative learning centers in the provinces of Jilin, Hainan, Guangdong and
Henan. Although these learning centers are not branded under the ChinaEdu name,
we derive revenue from them by contributing significantly to their
operations.
In
addition to the 27 learning centers discussed above, we have also entered into
agreements with 38 third party learning centers pursuant to which we provide
assistance applying for approval from provincial level education authorities as
well as securing additional university online degree programs. In
return, we receive a percentage of the tuition earned by these third party
learning centers.
Our
strategy to operate learning centers involves various risks and may not succeed.
These risks include those related to operating a new business in which we do not
have significant experience. To be successful in operating learning centers we
will have to obtain new contracts on acceptable terms with the university online
degree programs, all of which already have existing relationships with learning
centers. We will also have to incur substantial capital expenditures and
operating expenses and devote substantial time and other resources to establish
and staff these new learning centers. In addition to the risks of entering a new
line of business, we also face regulatory risks relating to our plan to expand
the scope of our approval to a national scope with an unlimited number of
learning centers and to convert our provisional licenses to permanent approvals.
Moreover, even in the event we are able to successfully obtain MOE approval to
operate learning centers in additional provinces, we will still need to obtain
approval from the relevant provincial level education authorities before we are
able to establish any new learning center, and there are risks relating to our
ability to obtain such provincial level approvals. Any one of these
risks could cause our expansion into the learning center business to be delayed
or unsuccessful and our business, financial condition and results of operations
could be adversely affected.
Our
ability to attract and retain customers is heavily dependent on our reputation,
which in turn relies on our maintaining a high level of service
quality.
We need
to continue to provide high quality services to our existing customers to
maintain and enhance our reputation, and we also need to attract and retain
customers for our various lines of business. All of our business lines are
highly dependent on existing and potential students perceiving our programs as
high quality and worth the investment of time and money that they require of
students. If any of the programs we operate or support experience service
quality problems, our reputation could be harmed and our results of operations
and prospects could be materially and adversely affected.
We
rely heavily on our senior management team and key personnel, and the loss of
any of their services could severely disrupt our business.
Our
future success is highly dependent on the ongoing efforts of our senior
management and other key personnel. We rely heavily on their management skills,
expertise in the education sector, strategy and marketing skills, as well as the
relationships they have with many of the educational institutions with which we
do business, and with local and national regulatory authorities. We do not
maintain key person life insurance on any of our senior executives or other key
personnel. The loss of the services of one or more of our senior executives or
other key personnel may have a material adverse effect on our business,
financial condition and results of operations. Competition for senior executives
and other key personnel in China, such as personnel engaged in software and
system development, is intense, and the pool of suitable candidates is very
limited. As a result, we may not be able to retain the services of our senior
executives or other key personnel, or attract and retain senior executives or
other key personnel in the future.
In
addition, if any member of our senior management or any of our other key
personnel joins a competitor or forms a competing company, we may lose
customers, business partners, key professionals and staff members to them. Each
of our senior executives and key personnel has entered into an employment
agreement with us that contains confidentiality and non-competition provisions.
In the event of a dispute between any of our senior executives or other key
personnel and us, however, we cannot assure you as to the extent, if any, that
these provisions may be enforceable in China due to uncertainties involving the
Chinese legal system.
If
we are unable to attract and locate qualified personnel for our various
programs, in particular qualified educators, our business may be materially and
adversely affected.
Each of
our lines of business is highly dependent on the ability to attract qualified
educators to provide services in connection with our programs and the programs
we support. The success of our programs and the programs we support, and the
differentiating factor between our programs and those of the traditional
education sector in China, rely significantly on the quality of the educators we
are able to attract to such programs. For example:
|
·
|
the
online degree programs that we serve rely to a significant degree on
professors to prepare the online
courseware;
|
|
·
|
our
international post-secondary programs rely on capable instructors within
participating colleges to take part in the training by the overseas
post-secondary institutions;
|
|
·
|
our
online tutoring program needs to attract tutors who are perceived to be
successful in preparing students for
examinations;
|
|
·
|
our
private primary and secondary schools need to attract qualified and
experienced teachers and administrators;
and
|
|
·
|
we
need to find well-qualified native English speakers to teach in the
English language programs and the international post-secondary programs
that we support and the private primary and secondary schools operated by
our Chinese affiliated entity.
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There are
considerable challenges in locating and attracting the personnel we need. There
is considerable competition in China to attract strong educators. To the extent
we have focused our market for English language programs, international
post-secondary education programs and our private primary and secondary schools
in second tier cities, we also face challenges in attracting teachers from
overseas who are willing to relocate to areas in which there are few, if any,
expatriates and the living conditions are markedly different from their home
countries. If we are unable to attract and locate well-qualified educators for
the various programs, our results of operations could be adversely
affected.
We
may not be able to successfully execute future acquisitions or efficiently
manage the businesses we have acquired to date or may acquire in the
future.
Since
2005, we have entered several new lines of business through the acquisition of
existing businesses or contractual rights. We may continue to expand, in part,
by acquiring complementary businesses. The success of our past acquisitions and
any future acquisitions will depend upon several factors,
including:
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our
ability to identify and acquire businesses on a cost-effective
basis;
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our
ability to integrate acquired personnel, operations, products and
technologies into our organization
effectively;
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our
ability to retain and motivate key personnel and to retain the customers
of the acquired businesses;
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unanticipated
problems or legal liabilities of the acquired businesses;
and
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tax
or accounting issues relating to the acquired
businesses.
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Any
acquisition may require a significant commitment of management time, capital
investment and other resources. For example, our entry into the private primary
and secondary school business, which includes our Anqing Foreign Language School
(the “Anqing School”), Pingdingshan Wellent Bilingual School (the “Pingdingshan
School”) and Jingzhou School (Southern Campus), has required us to invest
significant amounts for the acquisition of the rights to operate these schools
and for expanding facilities and upgrading the services offered by these
schools.
In the
case of the Anqing School, we had capital commitments of RMB0.7 million
outstanding associated with our acquisition as of December 31, 2009. In 2009, we
completed construction of new campus at the Anqing School and our capital
expenditures in Anqing School totaled RMB37.5 million for the year ended
December 31, 2009. We anticipated that the additional capital
expenditures associated with the contracted commitment at the Anqing School will
be approximately RMB10.0 million in 2010.
In the
case of the Pingdingshan School, we had no outstanding capital commitments
associated with our acquisition as of December 31, 2009. In 2009, we constructed
a new building and made related facility improvements. Our capital expenditures
in connection with such construction and facility improvements totaled RMB4.0
million for the year ended December 31, 2009. We anticipated that the additional
capital expenditures associated with the contracted commitment at the
Pingdingshan School will be approximately RMB1.1 million in
2010.
In the
case of the Jingzhou School (Southern Campus), we initially planned to complete
construction of a new campus by the fall 2006 recruiting season, but we have
encountered delays obtaining land-use rights for the new campus
site. Because of the ongoing delays and the uncertainty as to when
they will be resolved, we had outstanding capital commitments of approximately
RMB64.8 million as of December 31, 2009 associated with the acquisition of
Jingzhou School (Southern Campus). Delays in completing construction
of the new campus at Jingzhou School (Southern Campus) have adversely affected
revenue from this investment, and we cannot assure you that we will be able to
begin construction in the near future, or at all. If we do not fulfill these
commitments by the end of the contract term, our partner Jingzhou High School
has the right to seek compensation from us.
If we are
unable to effectively execute our acquisition strategy or integrate any acquired
business, our business, financial condition and results of operations may be
materially and adversely affected. In addition, if we use our equity securities
as consideration for acquisitions, the value of your ordinary shares or ADSs may
be diluted.
If
we are not able to respond successfully to technological or industry
developments, our business may be materially and adversely
affected.
The
market for providing services to educational institutions for their online
degree programs and the market for online tutoring services are relatively new.
These markets are characterized by rapid technological developments, the
introduction of new business models, launches of new products and services and
changes in customer needs and behavior. For example, the delivery of online
degree programs in China is still relatively new and the evolution of these
programs from relatively rudimentary systems for delivery of course content to
more robust interactive models is taking place on an ongoing basis. As high
speed Internet connections become available for more potential users, the
expectations of students for online degree programs are likely to require
continued devotion of our research and development efforts to maintain our
position as a perceived market leader in providing technology services to online
degree programs. Our online tutoring programs will likewise face expectations
from students for a more stimulating and interactive environment commensurate
with their other online experiences. Innovation by our competitors in China and
overseas may make our existing services to online degree programs and our online
tutoring programs obsolete or less competitive. To respond to these types of
developments, we may be required to undertake substantial efforts and incur
significant costs. If we do not successfully respond to these types of
developments in a timely and cost-effective manner, our business may be
materially and adversely affected.
All of
the servers used to support our business operations are currently hosted in the
same location in Beijing. We do not have a backup location, so we cannot assure
you that we will be able to operate if our server location suffers from the
effects of fire, floods, typhoons, earthquakes, power loss, telecommunications
failures, break-ins, war, terrorist acts or similar events. Any of these events
could give rise to server interruptions, breakdowns, system failures, technology
platform failures and Internet failures, which could cause the loss or
corruption of data or malfunctions of software or hardware. These types of
events could adversely affect our ability to provide our services to online
degree programs and our online tutoring programs and adversely affect our
operations. See “Item 5. Operating and Financial Review and Prospects—C.
Research and Development, Patents and Licenses, etc.—Technology.”
If
we are unable to achieve or maintain economies of scale with respect to our
various lines of business, our results of operations from these businesses may
be materially and adversely affected.
Each of
our lines of business involves a degree of upfront investment in the development
of programs or the acquisition of contract rights to provide services to
programs, and our revenue and profitability depend on the number of students in
these programs. The online degree programs to which we provide support and
services, and from which we derive most of our revenue and profits, require
considerable investments of time and resources to develop. In many
cases, these online degree programs also require that we make substantial
investments in collaborative alliances, which are the majority owned entities
that we form with certain of our university partners to provide services to
their online degree programs, as well as provide advance payments to the
universities to attract university partners. The profitability of these programs
for us depends on the ability of the programs to attract students. Similarly,
our revenue from our online tutoring programs, international programs, and
private primary and secondary schools depends on our attracting enough students
on an ongoing basis. If the programs or schools are unable to recruit enough
students to offset the development and operating costs, our results of
operations will be adversely affected.
The
demand for our online tutoring services may be impacted by parental concern of
children spending too much time on online gaming and other non-educational
online activities.
Parents
and government officials in China have expressed concern that school age
children are spending too much time on the Internet playing online games and
engaging in other non-productive online activities. As a result, parents may not
be supportive of buying computers and other computer resources or Internet
access for their children, and this could adversely affect online education
programs such as our online tutoring programs. This attitude could adversely
affect our ability to expand enrollment in our online tutoring programs and
thereby adversely affect our results of operations.
If
we are unable to prevent others from using our intellectual property or if we
are subject to intellectual property infringement claims by others, our business
may be materially and adversely affected.
Our
intellectual property has been and will continue to be subject to various forms
of infringement, theft and misappropriation. We are also susceptible to others
copying our business model and methods. Our courseware and course materials have
significant value and could be copied. We devote substantial resources to the
development of platform support and courseware for online degree programs, the
course materials and systems support for our online tutoring programs, and
implementation of the Polytechnic programs and the English language programs we
support. The legal protection of intellectual property in China is significantly
more limited than in the United States and many other countries and may afford
us little or no effective protection.
In
addition, we also could face potential claims that we have infringed the
intellectual property rights of third parties. For example, with regard to the
intellectual property rights to courseware used in online programs from which we
derive service revenue, the professors who assisted in developing the courseware
could claim that they have rights to such courseware. If such claims are brought
against us or the universities conducting the online degree programs, or if we
are required to bring litigation to protect our intellectual property, we could
face expensive litigation that could divert management resources and materially
and adversely affect our results of operations.
Our
university customers may be liable for refunds to students, which could
adversely affect our revenue.
Most
university online degree programs require students to pre-pay for a set number
of courses at the outset of their enrollment; however, these students may not
enroll in all of these courses in the same period for which they have prepaid
tuition. We receive service fees from each university for technology and support
services that we render to our university customers during a given semester to
support their online degree programs. Our contracts are typically structured so
that our service fees are based upon the cash tuition receipts of the university
during a given semester. To the extent students request that the universities
refund any unused prepaid tuition, our revenue could be adversely affected
because the universities are entitled to deduct these refunds from the cash
receipts upon which our fees are based. In 2009, the average refund rate, which
was refund expressed as a percentage of cash receipts, of the majority of the
university online degree programs that we service was approximately 1%.
Increases in this rate could increase our revenue volatility and adversely
affect the profitability of our services.
We
rely heavily on our information systems, and if we fail to further develop our
technology, or if our systems contain “bugs” or other undetected errors, our
operations may be seriously disrupted.
To
achieve our strategic objectives and to remain competitive, we must continue to
develop and enhance our technology and our use of information that is available
within our online systems. This may require us to acquire additional equipment
and software and to develop new applications within our online systems. Our
success in the development of new service offerings, such as community features
and improved student management systems, depends in large part upon our ability
to store, retrieve, process and manage substantial amounts of information. Our
online systems and the technology platform upon which online degree programs
operate, and our other databases, products and systems could contain undetected
errors or “bugs” that could adversely affect their performance. In addition, our
systems supporting online degree programs and online tutoring programs
occasionally experience peak demands during which they are unable to provide the
responsiveness expected by students enrolled in these programs. If we encounter
errors or other service quality or reliability issues, or if we are unable to
design, develop, implement and utilize information systems and the data derived
from these systems, our ability to realize our strategic objectives and our
profitability could be adversely affected, and this may cause us to lose market
share, harm our reputation and brand names, and materially and adversely affect
our business.
The
successful operation of our business depends upon the performance and
reliability of the Internet infrastructure and telecommunications networks in
China.
Our
services to online degree programs and our online tutoring programs depend on
the performance and reliability of China’s Internet infrastructure. In China,
almost all access to the Internet is maintained through state-owned
telecommunication operators under the administrative control and regulatory
supervision of China’s Ministry of Information Industry, or the MII. In
addition, the national networks in China are connected to the Internet through
international gateways controlled by the Chinese government. These international
gateways are the only channels through which a user in China can connect to the
Internet. We cannot assure you that a more sophisticated Internet infrastructure
will be developed in China. We may not have access to alternative networks in
the event of disruptions, failures or other problems with China’s Internet
infrastructure. In addition, China’s Internet infrastructure may not support the
demands associated with continued growth in Internet usage.
We rely
on China Telecommunications Corporation, or China Telecom, and China Network
Communications Corporation, or China Netcom, to provide us with data
communications capacity primarily through local telecommunications lines and
their Internet data centers that host our servers. We do not have access to
alternative services in the event of disruptions, failures or other problems
with the fixed telecommunications networks of China Telecom and China Netcom, or
if China Telecom or China Netcom otherwise fail to provide such services. Any
unscheduled service interruption could damage our reputation and result in a
decrease in our revenue. Furthermore, we have no control over the costs of the
services provided by China Telecom and China Netcom. If the prices that we pay
for telecommunications and Internet services increase significantly, our
profitability could be adversely affected. In addition, if Internet access fees
or other charges to Internet users increase, the users of our online tutoring
services may find our services less affordable, which may in turn reduce our
revenue.
Computer
viruses and “hacking” may cause delays or interruptions on our systems and may
reduce use of our services and damage our reputation and brand
names.
Our
online degree program platforms contain substantial information about students,
their attendance and performance, and the administration of the entire student
life cycle from enrollment to graduation. As such, these online systems and
records may become attractive targets for either dissatisfied students, or
hackers in general, who seek to access and modify records maintained on these
systems, or to disrupt the online degree programs. “Hacking” involves efforts to
gain unauthorized access to information or systems or to cause intentional
malfunctions, loss or corruption of data, hardware or other computer equipment.
Computer viruses and hacking may cause delays or other service interruptions on
our systems. In addition, the inadvertent transmission of computer viruses could
expose us to a material risk of loss or litigation. Hacking and computer viruses
could result in significant damage to our systems and databases, disruptions to
our business activities, including to our e-mail and other communications
systems, breaches of security and the inadvertent disclosure of confidential or
sensitive information, interruptions in access to our website and the websites
for online degree programs and our online tutoring programs, and other material
adverse effects on our operations. We may incur significant costs to protect our
systems and equipment against the threat of, and to repair any damage caused by,
computer viruses and hacking. Moreover, if a computer virus or hacking affects
our systems and is highly publicized, our reputation could be materially damaged
and usage of our services may decrease.
We
incur increased costs as a result of being a public company.
As a
public company, we incur significant legal, accounting and other expenses that
we did not incur as a private company prior to our initial public offering in
December 2007. Moreover, under the Sarbanes-Oxley Act of 2002, as well as new
rules subsequently implemented by the SEC, public companies are required to
follow certain corporate governance rules, including requirements for internal
control over financial reporting. In addition, NASDAQ has imposed additional
requirements on corporate governance practices of public companies. These rules
and regulations increase our legal and financial compliance costs and make
certain corporate activities more time-consuming and costly. It may also be
difficult for us to attract and retain qualified persons to serve on our board
of directors due to increased risks of liability to our directors under the new
rules and regulations.
Although
our results of operations, cash flows and financial condition reflected in our
consolidated financial statements include all expenses allocable to our
business, because of the additional administrative and financial obligations
associated with operating as a publicly traded company, they may not be
indicative of the results of operations that we would have achieved had we
operated as a public entity for all periods presented or of future results that
we may achieve as a publicly traded company with our current holding company
structure. Such variations may be material to our business.
Risks
Related to China’s Regulation of the Education and Telecommunication Sectors and
Our Corporate Structure
If
the Chinese authorities determine that our organizational structure for
operating our business does not comply with Chinese regulations, we could be
subject to sanctions, including being required to discontinue all or a portion
of our business.
We and
our Chinese subsidiaries are considered foreign persons or foreign invested
enterprises under Chinese laws, and, as a result, we are required to comply with
Chinese laws and regulations applicable to foreign investment, including those
restricting foreign participation in the education and telecommunications
industries. For example, foreign entities that are not educational institutions,
such as our company, cannot operate schools or education programs in China, and
all foreign persons, including foreign educational institutions, are precluded
from operating primary and middle schools in China, such as our private primary
and secondary schools. Similarly, there are limitations on the ability of
foreign parties such as our company and our Chinese subsidiaries with regard to
owning Internet content provider, or ICP, licenses, which are necessary for the
operation of our corporate website and the website for our online tutoring
business. Because of these restrictions, we have developed a corporate structure
in which we do not have an ownership interest in the entities involved in
activities in which foreign entities’ and foreign invested enterprises’
participation is prohibited, and we function as a service provider to Chinese
universities with respect to their online degree programs. For a discussion of
the limitations on foreign ownership and participation governing our businesses,
see “Item 4. Information on the Company—B. Business
Overview—Regulation—Limitations on Foreign Ownership of Our Businesses.” For a
description of our corporate structure, see “Item 4. Information on the
Company—C. Organizational Structure.”
The
Chinese laws and regulations applicable to online university degree programs
require that the university offering such a program be responsible for the
recruitment, operations, curriculum and management of the online program.
Because of these restrictions, we provide services to Chinese universities’
online degree programs either through a contractual relationship between the
university and us, or through a collaborative alliance established by the
university and us specifically to provide services to that university’s online
degree program. For some of our university partners, our services also include
the licensing of certain of our domain names for their use to operate their
online degree programs. If the relevant Chinese regulatory authorities were to
find that the services we provide to our university partners, or that our
service contract relationships, our collaborative alliance service provider
structures or both of these structures, violate the regulations requiring that
these online degree programs be controlled by the universities, our business
model might require extensive revision or be unworkable and we could be subject
to sanctions and be required to discontinue all or a portion of this business.
These developments would adversely affect our business, financial condition and
results of operations.
If
the ICP license for the operation of our business website is suspended or
revoked by the MII due to non-compliance with its requirements, we may have to
shut the website down, which could have an effect on our business and market
perception.
In July
2006, the MII issued the Notice on Strengthening Management of Foreign
Investment in Operating Value-Added Telecom Services. The notice prohibits
Chinese ICPs engaged in providing value-added telecom services from leasing,
transferring or selling their ICP licenses or providing facilities or other
resources to foreign investors operating in violation of restrictions on foreign
investment. The notice requires that Chinese ICPs must directly own the
trademarks and domain names for websites operated by them, as well as servers
and other infrastructure used to support these websites. The notice also
requires Chinese ICPs to evaluate their compliance with the notice by November
1, 2006 and correct any non-compliance. A Chinese ICP’s failure to complete the
procedures by November 1, 2006 could be the basis for revocation of its ICP
license. Due to a lack of interpretative materials from the MII, the impact of
this circular on us is unclear. Xiandai Xingye Network Technology
Co., Ltd., or Xiandai Technology, holds the ICP license for our business
website, www.chinaedu.net. We have not transferred the domain name and trademark
for www.chinaedu.net to Xiandai Technology, and we may be required to make such
transfer in the future. If we are unable to do so, the ICP license
held by Xiandai Technology could be suspended or revoked by MII. If Xiandai
Technology’s ICP license is suspended or revoked, we would have to shut down our
business website, which may have an adverse effect on our business and market
perception.
Some
of our university partners for online degree programs have not received all of
the required approvals for their websites.
Currently,
websites established by universities for their online degree programs approved
by the MOE are generally considered by the MII to be not-for-profit operations,
and therefore the MII only requires the universities to make an ICP filing,
rather than the more burdensome process of obtaining an ICP license, for the
operation of the websites related to their online degree programs. The MII
could, however, require the universities to obtain ICP licenses in the future.
Some of our university partners for online degree programs have not made the
required filing with the MII. In addition, our university partners may be
required in the future to make other filings or obtain other approvals to
maintain their online degree programs. If our university partners fail to make
these filings, or obtain these licenses or other approvals, their online degree
programs may be sanctioned or suspended, which would have a material adverse
effect on our results of operations.
Our
online tutoring business was acquired through a transaction that did not comply
with applicable Chinese regulations; we may therefore face regulatory
challenges, including fines and other sanctions, with respect to this
business.
Notwithstanding
certain restructuring activities and the acquisition of 100% of the equity
interest in Gotop Electronic, the entity that provides our online tutoring
services and the ICP services related to such online tutoring
services our initial 80% equity interest in Gotop Electronic was
originally acquired in 2005 through a separate subsidiary, Hongcheng Liye. That
acquisition required approvals from the MII, the MOE and the Ministry of
Commerce, and these approvals were not obtained. Although in 2007,
the 80% equity interest held by Hongcheng Liye was transferred
to Xiandai Technology, and we acquired the remaining 20% equity
interest in Gotop Electronic in 2008 through our affiliated entity,
Hongcheng Education, any challenge by the Chinese government to our initial
acquisition or the imposition of sanctions against us for our activities before
the restructuring could adversely affect our results of operations. In 2009, our
online tutoring business accounted for 5.5% of our net revenue. There is no
assurance that we will not be sanctioned for our non-compliance before these
corrective measures were taken. These sanctions can range from monetary fines
and penalties to suspension of our licenses or services that we provide to our
customers.
Certain
of our Chinese subsidiaries, Chinese affiliated entity and customers may face
regulatory challenges, including fines and other sanctions, as a result of their
failure to comply with certain licensing and regulatory approval
requirements.
When
Gotop Electronic, a subsidiary of Xiandai Technology, that holds the ICP license
for our online tutoring business, was approved by relevant Chinese authorities
to engage in the ICP business, its registered capital did not meet the minimum
requirement specified under Chinese law for ICP license holders. We have since
increased the registered capital of Gotop Electronic to satisfy this
requirement. See “Item 4. Information on the Company—B. Business
Overview—Regulation—Regulations on Internet Information Services.” In addition,
two of our Chinese subsidiaries, Gotop Hongcheng and Xuezhi Shidai, were
previously engaged in the sale of products and services for our online tutoring
programs which exceeded the scope of their business licenses. We have
subsequently transferred the sales activities to third party distributors and
our sales centers which have the required business licenses. There is no
assurance that we will not be sanctioned for our non-compliance before these
corrective measures were taken. These sanctions can range from monetary fines
and penalties to suspension of our licenses or services that we provide to our
customers.
Our
online tutoring business may be deemed to be engaged in “Internet publishing,”
“Internet culture activities” and “broadcasting audio-video programs through the
Internet,” which, under Chinese regulations, would require Gotop Electronic to
obtain three additional licenses, the online publication license, the Internet
culture business operation license and the license for broadcasting audio-video
programs through the Internet. At present, there is no official or
publicly-available definition of “Internet publishing” or “Internet culture
activities.” Based on verbal confirmations from the relevant regulatory
authorities, our online tutoring business currently does not fall into the scope
of “Internet publishing,” “Internet culture activities” or “broadcasting
audio-video programs through the Internet.” However, there is no assurance that
Gotop Electronic will not be required to obtain these licenses in the future as
a result of changes in interpretation of the relevant rules or changes in
position of the relevant authorities. See “Item 4. Information on the Company—B.
Business Overview—Regulation—Regulations on Online Publications” “—Regulations
on Internet Culture Activities” and “—Regulations on Broadcasting Audio-Video
Programs through the Internet or Other Information Network.” If Gotop is
required to obtain these licenses in the future and is unable to do so, we may
face regulatory challenges, including fines, suspensions of service and other
sanctions, in respect of our online tutoring business.
Our
contractual arrangements with our Chinese affiliated entity and its shareholders
may not be as effective in providing operational control and economic benefits
as direct ownership.
We rely
on our Chinese affiliated entity, Hongcheng Education, to operate our private
primary and secondary schools and to provide services to some of our university
customers. And through Xiandai Technology, which is a wholly owned subsidiary of
Hongcheng Education, we hold and maintain certain ICP licenses for operating our
websites. Hongcheng Education is owned by Chinese citizens with whom we have
entered into contractual arrangements to provide us with control over and
substantially all the economic benefits from the entity. Hongcheng Education is
our variable interest entity, but we have no direct ownership interest in it.
Our contractual arrangements with the Chinese affiliated entity and the
shareholders of the Chinese affiliated entity include technical consulting and
services agreements, loan agreements, shareholder voting rights entrustment
agreements, call option agreements, equity pledge agreements and powers of
attorney. For a description of these contractual arrangements, see “Item 4.
Information on the Company—C. Organizational Structure—Our Corporate Structure
and Contractual Arrangements.” There are considerable uncertainties regarding
the interpretation and application of Chinese laws and regulations governing
these contractual arrangements. Accordingly, we cannot guarantee that these
arrangements will not be challenged by Chinese regulatory authorities or found
to violate existing Chinese laws or regulations or new laws and regulations that
may be adopted in the future. In addition, under the State Administration of
Foreign Exchange, or SAFE, regulations, all foreign denominated loans are
required to be registered with SAFE. Our U.S. dollar loans to the shareholders
of Hongcheng Education to fund the registered capital requirements of Hongcheng
Education were not registered with the SAFE at the time they were made. As a
result, we could be subject to sanctions for these loans and these loans may not
be enforceable under Chinese laws.
Our
contractual arrangements with our Chinese affiliated entity may not be as
effective in providing us with control over them as direct ownership of the
entity would be. In addition, our Chinese affiliated entity or its shareholders
may breach the contractual arrangements we have with them. For example, our
Chinese affiliated entity may distribute dividends to its shareholders who may
decide not to remit these dividends to us in accordance with our contractual
arrangements. Moreover, our Chinese affiliated entity or its shareholders may
refuse to renew these contractual arrangements. In addition, in the event of the
death or disability of any of the shareholders of our Chinese affiliated entity,
there is uncertainty under Chinese law whether the shareholder voting rights
entrustment agreements that we have entered into with them would be enforceable
against their legal heirs or assigns. Furthermore, although our loans to
shareholders of our Chinese affiliated entity specify that they may only be
repaid with the shares of those companies held by the shareholders, it is
unclear whether this provision is enforceable under Chinese law. If disputes
under these contractual arrangements were to arise, we would have to rely on
legal remedies under Chinese law. These remedies may not always be effective,
particularly in light of uncertainties in the Chinese legal system, and may be
significantly more limited than the legal remedies available in the legal
systems of the United States and many other countries. See “—Risks Related to
the People’s Republic of China—China’s legal system has inherent uncertainties
that could materially and adversely affect us.” If we are unable to enforce our
rights, we may be unable to operate certain of our businesses through Hongcheng
Education, or we may be unable to receive all of the economic benefits to which
we are entitled from the entity.
Our
equity pledge agreements with the shareholders of our Chinese affiliated entity
may not be enforceable until they are registered with the relevant
administration for industry and commerce pursuant to the Chinese Property Rights
Law.
Under the
equity pledge agreements, the shareholders of the Chinese affiliated entity
pledged their equity interests in the entity to Hongcheng Technology, our
Chinese subsidiary. These pledges were created by recording the pledge on the
shareholder registry of the Chinese affiliated entity in accordance with the
then effective Chinese laws. However, according to the Chinese Property Rights
Law, which became effective as of October 1, 2007, these pledges may not be
enforceable until they are registered with the relevant administration for
industry and commerce. Hongcheng Technology applied for such registration, but
the application was denied as no registration procedures were yet available.
Hongcheng Technology will continue to endeavor to register these pledges when
the administration for industry and commerce implements registration procedures
in accordance with the Chinese Property Rights Law in the future. But we cannot
assure you that Hongcheng Technology will be able to register the pledges, and
if Hongcheng Technology is unable to do so, the effectiveness of the pledges may
be affected.
The
shareholders of our Chinese affiliated entity may have potential conflicts of
interest with us, which may materially and adversely affect our business and
financial condition.
The
shareholders of Hongcheng Education are Mr. Changqing Xie, one of our
officers, and Mr. Xueshan Yang, our former director. In the case of
Mr. Changqing Xie, conflicts of interests between his duties to our company
and to Hongcheng Education may arise. In the case of Mr. Xueshan Yang, a
former director of our company, he does not owe any fiduciary duty to our
company, he has not entered into any non-competition or employment agreements
with our company and he does not have any relationship with us or our business
except through these contractual arrangements and he is not our shareholders.
These individuals may breach or cause our Chinese affiliated entity and its
subsidiaries to breach or refuse to renew the existing contractual arrangements
that allow us to effectively control our Chinese affiliated entity and its
subsidiaries, and receive economic benefits from them. Currently, we do not have
existing arrangements to address potential conflicts of interest between these
individuals and our company. We cannot assure you that any or all of these
individuals will act in the best interests of our company or that conflicts of
interests will be resolved in our favor. If we cannot resolve any conflicts of
interest or disputes between us and the owners of our Chinese affiliated entity,
we would have to rely on legal proceedings, which could result in disruption of
our business and substantial uncertainty as to the outcome of any such legal
proceedings.
Our
Chinese affiliated entity and its subsidiaries may be subject to significant
limitations on its ability to operate private schools or make payments to
related parties or otherwise be materially and adversely affected by changes in
Chinese laws and regulations.
Under the
Chinese laws and regulations applicable to private schools, a private school is
one that does not require reasonable return unless it elects to be treated as a
school that requires reasonable returns. At the end of each fiscal year, every
private school is required to allocate a certain amount to its development fund
for the construction or maintenance of the school or procurement or upgrade of
educational equipment. For a private school that requires reasonable returns,
this amount must be at least 25% of the school’s annual net income, and for
other private schools this amount must be at least 25% of the school’s annual
increase in its net assets, if any. Private schools that require reasonable
returns must publicly disclose their election of that status and provide
additional information required under the regulations such as the school’s
tuition and other fees and admission standards. A private school is required to
consider factors such as the school’s tuition, ratio of the funds used for
education-related activities to the course fees collected, admission standards
and educational quality when determining the percentage of the school’s net
income to be distributed to investors as reasonable returns. However, none of
the current Chinese laws and regulations provides a formula or guidelines for
determining “reasonable returns.” When the formula or the guidelines for
determining “reasonable returns” are issued by the relevant authorities, they
may not permit returns to us that will be commercially reasonable and may limit
our expected return on investment in our schools.
Private
schools that have not elected to require reasonable returns are entitled to the
same preferential tax treatment as public schools, while preferential tax
treatment policies applicable to private schools requiring reasonable returns
are to be separately formulated by the relevant authorities. To date, however,
no separate regulations or policies have been promulgated in this regard. As a
result, our private primary and secondary schools are subject to the specific
requirements of their respective local tax authorities, which vary from location
to location.
Our
Anqing School was established as a school that requires reasonable returns. We
anticipate adopting articles of association for the Pingdingshan School in 2010
in order to designate it as a school that requires reasonable returns.
After the completion of
the construction of the new campus for our Jingzhou School (Southern Campus), we
also plan to adopt articles of association to designate it as a school that
requires reasonable returns.
Current
laws and regulations governing private education may be amended or replaced by
new laws and regulations that (i) impose significant limitations on the
ability of our schools to operate their business, charge course fees or make
payments to related parties for services received, (ii) specify the formula
for calculating “reasonable returns” or (iii) change the preferential tax
treatment policies applicable to private schools. We cannot predict the timing
and effects of amendments or new laws and regulations. Changes in Chinese laws
and regulations governing private education or otherwise affecting our Chinese
affiliated entity’s and its subsidiaries’ operations could materially and
adversely affect our business prospects and results of
operations.
Contractual
arrangements among our subsidiaries and Chinese affiliated entity and its
subsidiaries may be subject to scrutiny by the Chinese tax authorities and we or
our Chinese affiliated entity and its subsidiaries could be required to pay
additional taxes, which could substantially reduce our consolidated net income
and the value of your investment.
Arrangements
and transactions among related parties may be subject to audit or challenge by
the Chinese tax authorities. We could face material and adverse tax consequences
if the Chinese tax authorities determine that the contractual arrangements among
our subsidiaries and our Chinese affiliated entity and its subsidiaries do not
represent arm’s-length terms. If this were to occur, the tax authorities could
adjust our Chinese affiliated entity’s or any of its subsidiaries’ income in the
form of a transfer pricing adjustment. A transfer pricing adjustment could,
among other things, result in a reduction, for Chinese tax purposes, of expense
deductions recorded by our Chinese affiliated entity or any of its subsidiaries,
which could in turn increase their tax liabilities. The Chinese tax authorities
could also impose late payment fees and other penalties on our Chinese
affiliated entity for under-paid taxes. In addition, any challenge by the
Chinese tax authorities may limit the ability of our Chinese affiliated entity
to maintain any preferential tax treatments and other financial incentives it
currently enjoy. Our consolidated net income may be materially and adversely
affected if our Chinese affiliated entity’s tax liabilities increase or if it is
found to be subject to late payment fees or other penalties.
Regulatory
agencies could commence investigations of the private primary and secondary
schools directly owned and operated by a subsidiary of our Chinese affiliated
entity, and if the results of the investigations were to be unfavorable to us,
we could be subject to fines, penalties, injunctions or other censure that could
have an adverse impact on our results of operations.
Chinese
laws and regulations currently prohibit foreign ownership of primary and middle
schools in China. Through Hongcheng Education and contractual arrangements with
our Chinese affiliated entity, we own and/or operate private primary and
secondary schools. As the provision of private primary and middle school
services is heavily regulated in China, our private primary and secondary
schools and any new primary schools that our Chinese affiliated entity and its
subsidiaries may acquire or establish may be subject from time to time to
investigations, claims of non-compliance or lawsuits by governmental agencies,
which may allege statutory violations or regulatory infractions. If the results
of these investigations were to be unfavorable to us, we could be subject to
fines, penalties, injunctions or other censure that could have an adverse impact
on our results of operations. Even if we were to adequately address any issues
raised by a government investigation, we might have to devote significant
financial and management resources to resolve these issues, which could harm our
business.
We
may in the future rely on dividends and other distributions on equity paid by
our Chinese subsidiaries to fund any cash and financing requirements we have,
and any limitation on the ability of our Chinese subsidiaries and Chinese
affiliated entity to make payments to us could have a material adverse effect on
our ability to conduct our business.
We are a
holding company, and we may rely in the future on dividends from our Chinese
subsidiaries and service, license and other fees paid to our Chinese
subsidiaries by our Chinese affiliated entity and its subsidiaries for our cash
requirements, including servicing any debt we may incur. Current Chinese
regulations permit our Chinese subsidiaries to pay dividends to us only out of
their accumulated profits, if any, determined in accordance with Chinese
accounting standards and regulations. In addition, each of our Chinese
subsidiaries and Chinese affiliated entity (other than our schools, which are
subject to different regulations) in China is required to set aside at least 10%
of its after-tax profits each year, if any, to fund a statutory reserve until
such reserve reaches 50% of its registered capital. These reserves are not
distributable as cash dividends. Currently, all of our Chinese subsidiaries
comply with this reserve requirement except four of our Chinese subsidiaries
because their statutory reserves have reached 50% of their registered capital.
Furthermore, if our Chinese subsidiaries and Chinese affiliated entity incur
debt on their own behalf in the future, the terms of that debt may restrict
their ability to pay dividends or make other payments to us. Moreover, at the
end of each fiscal year, every private school in China is required to allocate a
certain amount to its development fund for the construction or maintenance of
the school or procurement or upgrade of educational equipment. For private
schools that require reasonable returns, this amount must be at least 25% of the
annual net income of the school, if any. As a result, our return on investment
in our private schools will be limited by this reserve requirement. See “—Our
Chinese affiliated entity and its subsidiaries may be subject to significant
limitations on its ability to operate private schools or make payments to
related parties or otherwise be materially and adversely affected by changes in
Chinese laws and regulations.” Any limitation on the ability of our Chinese
subsidiaries and Chinese affiliated entity to distribute dividends or other
payments to us in the future could materially and adversely limit our ability to
grow, make investments or acquisitions that could be beneficial to our
businesses, pay dividends, or otherwise fund and conduct our
business.
We
may be treated as a “resident enterprise” for PRC tax purposes under the
Enterprise Income Tax Law, which may subject us to PRC income tax for our income
originated both within and outside the PRC.
Under the
Enterprise Income Tax Law (the “EIT Law”) that went into effect on January 1,
2008, enterprises established under the laws of non-PRC jurisdictions but whose
“de facto management” body is located in the PRC, may be treated as “resident
enterprises” for PRC tax purposes. The EIT Law’s implementing rules define “de
facto management” as having substantial and overall management and control over
the production and operations, personnel, accounting, and properties of the
enterprise. Based on our analysis of the current facts, we believe that we and
our overseas subsidiaries should not be treated as “resident enterprises” for
PRC tax purposes. It remains unclear, however, as to how tax authorities will
determine tax residency based on the facts of each case. For the year ended
December 31, 2009, our calculation of income taxes generally reflects our status
as a non-China tax resident company. If the PRC governmental authorities hold
that we and our overseas subsidiaries should be treated as a resident enterprise
for PRC tax purposes after January 1, 2008, the effective date of the EIT Law,
our worldwide income will be subject to PRC income tax at the 25% uniform tax
rate, which could have an impact on our effective tax rate and an
adverse effect on our net income and results of operations, although dividends
distributed from our PRC subsidiaries to us could be exempt from Chinese
dividend withholding tax, since such income is exempted under the new EIT Law to
a PRC resident recipient.
If
we are treated as a “resident enterprise” under the EIT Law, dividends payable
by us to our foreign investors and gain on the sale of our ADSs or ordinary
shares may become subject to taxes under PRC tax laws.
Under the
EIT Law and implementation regulations issued by the State Council, PRC income
tax at the rate of 10% is applicable to dividends payable to investors that are
“non-resident enterprises,” which do not have an establishment or place of
business in the PRC, or which have such establishment or place of business but
the relevant income is not effectively connected with the establishment or place
of business, to the extent such dividends have their sources within the PRC.
Similarly, any gain realized on the transfer of ADSs or shares by such investors
is also subject to 10% PRC income tax if such gain is regarded as income derived
from sources within the PRC. If we are considered a PRC “resident enterprise,”
it is unclear whether dividends we pay with respect to our ordinary shares or
ADSs, or the gain you may realize from the transfer of our ordinary shares or
ADSs, would be treated as income derived from sources within the PRC and be
subject to PRC tax. If we are required under the EIT Law to withhold PRC income
tax on dividends payable to our non-PRC investors that are “non-resident
enterprises,” or if you are required to pay PRC income tax on the transfer of
our ordinary shares or ADSs, the value of your investment in our ordinary shares
or ADSs may be materially and adversely affected.
If
we are treated as a “non-resident enterprise” under the EIT Law, dividends that
we receive from our operating subsidiaries located in the PRC may be subject to
PRC withholding tax.
Under the
EIT Law and its implementation rules, dividends declared on earnings generated
after January 1, 2008 and payable by a foreign invested entity (“FIE”) in China
to its foreign investors who are non-resident enterprises are subject to a 10%
withholding tax, unless any such foreign investor's jurisdiction of
incorporation has a tax treaty with China that provides for a different
withholding arrangement. The Cayman Islands, where we are incorporated, does not
have a tax treaty with China. In the future, our income may be
derived from dividends we receive from our operating subsidiaries located in the
PRC. Thus, dividends paid to us by our subsidiaries in China may be subject to
the 10% income tax if we are considered a “non-resident enterprise” under the
EIT Law. If we are required to pay a 10% withholding tax for dividends we may
receive from our subsidiaries in the future, it would materially and adversely
affect our financial condition and results of operations.
Chinese
regulation of loans and direct investment by offshore holding companies to
Chinese entities may delay or prevent us from using the proceeds of our initial
public offering to make loans or additional capital contributions to our Chinese
subsidiaries and Chinese affiliated entity, which could materially and adversely
affect our liquidity and our ability to fund and expand our
business.
Since we
are an offshore holding company for our Chinese subsidiaries and Chinese
affiliated entity, we may make loans to our Chinese subsidiaries and Chinese
affiliated entity, or we may make additional capital contributions to our
Chinese subsidiaries. Any loans we make to our Chinese subsidiaries or our
Chinese affiliated entity are subject to Chinese regulations and approvals. For
example:
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loans
by us to any of our Chinese subsidiaries, each of which is a FIE, to
finance their activities cannot exceed the difference between the total
investment amount and the registered capital of the Chinese subsidiary,
each as set forth in its articles of association, and must be registered
with the SAFE; and
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loans
by us to our Chinese affiliated entity or its subsidiaries must be
approved by the relevant government authorities including, the SAFE and
the NDRC, and must also be registered with the
SAFE.
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We may
also decide to finance our Chinese subsidiaries by means of capital
contributions. These capital contributions would have to be approved by the
Ministry of Commerce or its local counterpart. We cannot assure you that we will
be able to obtain these government registrations or approvals on a timely basis,
if at all, with respect to future loans or capital contributions by us to our
Chinese subsidiaries or our Chinese affiliated entity or any of their respective
subsidiaries. If we fail to receive these registrations or approvals, our
ability to finance our Chinese operations may be negatively affected, which
could materially and adversely affect our liquidity and our ability to fund and
expand our business.
If our
Chinese affiliated entity or its subsidiaries become the subject of a bankruptcy
or liquidation proceeding, we may lose the ability to use and enjoy those
assets, which could reduce the size of our operations and materially and
adversely affect our business, ability to generate revenue and the market price
of our ADSs.
To comply
with Chinese laws and regulations relating to foreign ownership in the education
and telecommunications sectors, we currently conduct our operations in China
through contractual arrangements with our Chinese affiliated entity and its
shareholders and subsidiaries. As part of these arrangements, our Chinese
affiliated entity and its subsidiaries hold some of the assets that are
important to the operation of our business. If any of these entities goes
bankrupt and all or part of their assets become subject to liens or rights of
third-party creditors, we may be unable to continue some or all of our business
activities, which could materially and adversely affect our business, financial
condition and results of operations. If any of our Chinese affiliated entity or
its subsidiaries undergoes a voluntary or involuntary liquidation proceeding,
its shareholders or unrelated third-party creditors may claim rights to some or
all of these assets, which would hinder our ability to operate our business,
which could materially and adversely affect our business, our ability to
generate revenue and the market price of our ADSs.
Risks
Related to the People’s Republic of China
Our business may be adversely
affected by the economic, political and social conditions in
China.
Substantially
all of our assets are located in China and all of our revenue is derived from
our operations in China. Accordingly, our business, financial condition, results
of operations and prospects are subject, to a significant extent, to economic,
political and social developments in China. The Chinese economy differs from the
economies of most developed countries in many respects, including the amount of
government involvement, level of development, growth rate, control of foreign
exchange and allocation of resources. While the Chinese economy has experienced
significant growth over the past two decades, growth has been uneven, both
geographically and among various sectors of the economy.
The
Chinese economy has been transitioning from a planned economy to a more
market-oriented economy. Although the Chinese government has implemented
measures since the late 1970s emphasizing the utilization of market forces for
economic reform, the reduction of state ownership of productive assets and the
establishment of improved corporate governance in business enterprises, a
substantial portion of productive assets in China is still owned by the Chinese
government. The Chinese government also exercises significant control over
China’s economic growth through the allocation of resources, controlling payment
of foreign currency-denominated obligations, setting monetary policy and
providing preferential treatment to particular industries or companies. The
Chinese government implements a number of measures to slow down specific
segments of China’s economy that it believes to be overheating. Since the demand
for our services is affected by a number of factors, including the spending
power of Chinese students and their families on education, which in turn is
affected by the condition of the Chinese economy, the foregoing actions, as well
as future actions and policies of the Chinese government, could materially
affect the demand for our services, our prospects and results of
operations.
If
preferential tax treatments currently available to us are reduced or repealed,
our business and results of operations could suffer.
On
January 1, 2008, the EIT Law became effective, pursuant to which FIEs, such as
our Chinese subsidiaries, and domestic companies are both subject to a uniform
statutory tax rate of 25%. Preferential tax treatments will continue to be
granted to entities that are classified as “high and new technology enterprises
strongly supported by the State” or to entities that conduct business in
encouraged sectors, whether FIEs or domestic companies. Pursuant to Circular
172, which was issued on April 14, 2008, in order for applicant enterprises to
be classified as “high and new technology enterprises strongly supported by the
State”, certain requirements must be met, such as ownership of the core
intellectual property, products or services within “State-Encouraged High
Technology Areas.” Pursuant to the EIT Law and regulations
thereunder, enterprises that were established before March 6, 2007, and were
enjoying preferential tax rates according to previous tax laws, administrative
regulations, and other circulars with equivalent effect, will have their
preferential tax rates gradually transitioned to the new uniform tax rate over a
five-year period starting from January 1, 2008. Enterprises that were also
enjoying preferential tax exemptions and/or reductions for a specified term,
however, may continue to enjoy those exemptions and/or reductions in accordance
with the implementation of transitional preferential tax policies for enterprise
income tax.
On April
14, 2008, Measures on the Classification of High and New Technology Enterprises,
a discussion and interpretation of the detailed standards applicable to the
classification of “high and new technology enterprises” status, was
promulgated. Currently eight of our subsidiaries and affiliated
entity have been approved and classified as “high and new technology
enterprises.” Each approval is valid for three years conditional upon
successfully meeting criteria and filing requirements on an annual basis, and
each classified entity can then apply to renew for an additional three years
provided their business operations continue to qualify for the new HNTE status.
However, as the procedures for obtaining classification as “high and new
technology enterprises” are very complicated and time consuming, and the
standards for classification as a “high and new technology enterprise” are not
easy to achieve, we cannot assure you that our entities currently classified as
“high and new technology enterprises” will continue to be classified as such.
China’s
legal system has inherent uncertainties that could materially and adversely
affect us.
We are a
holding company, and we conduct our business primarily through our subsidiaries
and Chinese affiliated entity incorporated in China. We and our subsidiaries are
generally subject to laws and regulations applicable to foreign investment in
China. We depend on our Chinese affiliated entity to honor its agreements with
us. Most of our contractual arrangements with our Chinese affiliated entity are
governed by Chinese law and disputes arising out of these agreements are
expected to be decided by arbitration in China.
China’s
legal system is based upon written statutes. Prior court decisions may be cited
for reference but are not binding on subsequent cases and have limited value as
precedents. Since 1979, the Chinese legislative bodies have promulgated laws and
regulations dealing with economic and other matters such as foreign investment,
corporate organization and governance, commerce, taxation, trade and education.
However, China has not developed a fully integrated legal system and the array
of new laws and regulations may not be sufficient to cover all aspects of
economic and other activities in China. In particular, because these laws and
regulations are relatively new, and because of the limited volume of published
decisions and their non-binding nature, the interpretation and enforcement of
these laws and regulations involve uncertainties. In addition, published
governmental policies and internal rules may have retroactive effect and, in
some cases, the policies and rules are not published at all. As a result, we may
be unaware of our violation of these policies and rules until some time later.
See “—Risks Related to China’s Regulation of the Education and Telecommunication
Sectors and Our Corporate Structure—If the Chinese authorities determine that
our organizational structure for operating our business does not comply with
Chinese regulations, we could be subject to sanctions, including being required
to discontinue all or a portion of our business.”
Regulation
and censorship of information disseminated over the Internet in China may
adversely affect our business and subject us to liability for information linked
to our websites.
The
Chinese government has adopted regulations governing Internet access and the
distribution of news and other information over the Internet. Under these
regulations, ICPs and Internet publishers are prohibited from posting or
displaying over the Internet content that, among other things, violates Chinese
laws and regulations, impairs the national dignity of China, or is reactionary,
obscene, superstitious, fraudulent or defamatory. Failure to comply with these
requirements may result in the revocation of licenses to provide Internet
content and other licenses and the closure of the concerned websites. In the
past, failure to comply with these requirements has resulted in the closure of
websites found to be in violation of these regulations. The website operator may
also be held liable for such censored information displayed on or linked to the
website. There have been instances in which the Chinese government has blocked
the access in China to the websites of foreign universities as a result of its
concern with regard to the content on such sites, and the same actions could be
taken against websites of the online degree programs for which we provide
services and derive revenue, as well as our online tutoring program’s website
and other websites that form part of our business. In addition, the MII has
published regulations that subject website operators to potential liability for
content displayed on their websites and the actions of users of their systems,
including liability for violations of Chinese laws prohibiting the dissemination
of socially destabilizing content. The Ministry of Public Security can order any
local Internet service provider to block any Internet website at its sole
discretion. From time to time, the Ministry of Public Security has stopped
Internet dissemination of information that it believes to be socially
destabilizing. The State Secrecy Bureau can also block any website leaking state
secrets or failing to meet the relevant regulations relating to the protection
of state secrets in the dissemination of online information.
If
Chinese regulatory authorities determine that any of our websites or the
websites of our university customers providing online degree programs is in
violation of law or policy and takes action to close any such website or impose
other sanctions, our business, financial condition and results of operations
would be materially and adversely affected.
Our
insurance coverage may be inadequate to protect us against losses.
The
insurance industry in China is still at an early stage of development. Insurance
companies in China offer limited business insurance products and do not, to our
knowledge, offer business liability insurance or coverage for business
interruption. As a result, we do not have any business liability, loss of data
or business interruption insurance coverage for our operations in China. If any
claims for injury are brought against us, or if we experience any business
disruption, litigation or natural disaster, we might incur substantial costs and
diversion of resources.
You
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in China based on United States
or other foreign laws against us, our management or the experts named in this
annual report.
We
conduct substantially all of our operations in China and substantially all of
our assets are located in China. In addition, the majority of our directors and
executive officers and some of the experts named in this annual report reside
within China. As a result, it may not be possible to effect service of process
within the United States or elsewhere outside China upon us, our directors or
executive officers or upon some of the experts named in the annual report. In
addition, it may be difficult or impossible to bring an original action against
us or our directors or executive officers in a Chinese court if rights have been
infringed under the U.S. federal securities law or otherwise. Moreover, we have
been advised that China does not have treaties with the United States or many
other countries providing for the reciprocal recognition and enforcement of
judgment of courts.
Governmental
restrictions of currency conversion may limit our ability to receive and use our
revenue or financing effectively.
The
Chinese government imposes controls on the convertibility of the Renminbi into
foreign currencies and, in certain cases, the remittance of currency out of
China. Substantially all of our revenue and expenses are denominated in
Renminbi, which is currently not freely convertible to the extent of capital
account items, such as direct equity investments, loans and repatriation of
investment. Under our current structure, substantially all of our income will be
derived from dividend payments from our Chinese subsidiaries. Shortages in the
availability of foreign currency may restrict the ability of our Chinese
subsidiaries to remit sufficient foreign currency to pay dividends to us, or
otherwise satisfy their foreign currency dominated obligations. Under existing
Chinese foreign exchange regulations, payments of current account items,
including profit distributions and interest payments, can be made in foreign
currencies without prior approval from SAFE by complying with certain procedural
requirements. However, the Chinese government may in the future restrict access
to foreign currencies for current account transactions. If we are unable to
obtain sufficient foreign currency under the Chinese foreign exchange control
system to satisfy our currency demands, we may not be able to pay dividends in
foreign currencies to our shareholders, including holders of our
ADSs.
Foreign
exchange transactions by our subsidiaries in China under the capital account
continue to be subject to significant foreign exchange controls and require the
approval of, or registration with, Chinese governmental authorities. In
particular, if our subsidiaries in China borrow foreign currency loans from us
or other foreign lenders, these loans must be registered with the SAFE, and if
we finance them by means of additional capital contributions using, for
instance, proceeds from our initial public offering these capital contributions
must be approved or registered by certain government authorities including the
appropriate offices of SAFE and the Ministry of Commerce. These limitations
could affect the ability of these entities to obtain foreign exchange through
debt or equity financing, and could adversely affect our business and financial
condition.
The
fluctuation of the Renminbi may materially and adversely affect your
investment.
The value
of the RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in political and economic conditions.
Since July 2005, the Renminbi is no longer pegged solely to the U.S. dollar.
Instead, its value is measured against a basket of currencies, determined by the
People’s Bank of China. For example, on August 26, 2008, the Renminbi
appreciated against the U.S. dollar to approximately RMB6.78 to US$1.00,
representing an upward revaluation of 0.99% of the Renminbi against the
U.S. dollar, as compared to the exchange rate on the previous day.
The Renminbi may
appreciate or depreciate significantly in value against the U.S. dollar in
the future. As of
June 22, 2010, the
Renminbi per U.S. dollar exchange rate was RMB6.8267 to U.S.$1.00.
Fluctuations in the
exchange rate will also affect the relative value of any dividend we may issue,
which will be exchanged into U.S. dollars, and earnings from and the value of
any U.S. dollar-denominated investments we make in the future.
Limited
hedging transactions are available in China to reduce our exposure to exchange
rate fluctuations. To date, we have not entered into any hedging transactions to
reduce our exposure to foreign currency exchange risk. While we may decide to
enter into hedging transactions in the future, the availability and
effectiveness of these hedges may be limited and we may not be able to
successfully hedge our exposure at all. In addition, our currency exchange
losses may be magnified by Chinese exchange control regulations that restrict
our ability to convert Renminbi into foreign currency.
We
face risks related to health epidemics and other outbreaks that could result in
school closures or other similar disruptions, which could adversely impact our
revenue and results of operations.
Our
business could be adversely affected by an outbreak of a contagious disease,
such as the H5N1 strain of avian flu, the recent H1N1 strain of swine flu or
Severe Acute Respiratory Syndrome, or SARS. During the spring of
2003, China experienced an outbreak of SARS that resulted in the closure of
schools, Internet cafes, and many office buildings and caused a general slowdown
of business activity and the economy. China also reported a number of cases of
SARS in April 2004. There have also been recently reported cases of swine flu in
China and there are concerns that a pandemic could develop rapidly if the swine
flu spreads broadly in China.
A reoccurrence of the
SARS epidemic or the occurrence of another epidemic or outbreak could adversely
affect the demand for our products and services or our ability to market and
service our customers and could require the closure of our private primary and
secondary schools. Our business operations could be disrupted if any of our
employees is suspected of having SARS, the avian flu, the swine flu or other
contagious diseases, which would require that a certain number of our employees
be quarantined and/or our offices be disinfected. In addition, our results of
operations could be adversely affected to the extent that an outbreak of SARS,
the avian flu or other contagious diseases harms the Chinese economy in
general.
Recent
Chinese regulations relating to the establishment of offshore special purpose
companies by Chinese residents may subject our Chinese resident shareholders to
personal liability and limit our ability to acquire Chinese companies or inject
capital into our Chinese subsidiaries, limit our Chinese subsidiaries’ ability
to distribute profits to us, or otherwise materially and adversely affect
us.
The SAFE
issued the
Notice on Issues
Relating to the Administration of Foreign Exchange in Fund-Raising and Reverse
Investment Activities of Domestic Residents Conducted via Offshore Special
Purpose Companies
in October 2005, which became effective in November
2005, and an implementing rule in May 2007, collectively the SAFE Rules.
According to the SAFE Rules, Chinese residents, including both legal persons and
natural persons and Chinese citizens and foreign citizens who reside in China,
are required to register with the SAFE or its local branch before establishing
or controlling any company outside China, referred to in the SAFE rules as an
“offshore special purpose company,” for the purpose of financing that offshore
company with their ownership interests in the assets of or their interests in
any Chinese enterprise. In addition, a Chinese resident that is a shareholder of
an offshore special purpose company is required to amend its SAFE registration
with the local SAFE branch with respect to that offshore special purpose company
in connection with the injection of equity interests or assets of a Chinese
enterprise in the offshore company or overseas fund raising by the offshore
company, or any other material change in the capital of the offshore company,
including any increase or decrease of capital, transfer or swap of share,
merger, division, long-term equity or debt investment or creation of any
security interest. The SAFE Rules apply retroactively. As a result, Chinese
residents who have established or acquired control of offshore companies that
have made onshore investments in China in the past were required to complete the
relevant registration procedures with the competent local SAFE branch. If any
resident of China failed to file its SAFE registration for an existing offshore
entity, any dividends remitted by the onshore entity to its overseas parent
since April 21, 2005 will be considered to be an evasion of foreign
exchange purchase rules, and the payment of the dividend will be illegal. As a
result of any illegal action of this type, both the onshore entity and its
actual controlling person(s) can be fined. In addition, failure to comply with
the registration procedures may result in restrictions on the relevant onshore
entity, including prohibitions on the payment of dividends and other
distributions to its offshore parent or affiliate and capital inflow from the
offshore entity. Chinese resident shareholders of the offshore entity may also
be subject to penalties under Chinese foreign exchange administration
regulations.
We have
asked our shareholders and beneficial owners who are Chinese residents to make
the necessary applications and filings as required under Notice 75 and other
related rules. However, due to uncertainty concerning the reconciliation of
Notice 75 with other approval or registration requirements, it remains unclear
how Notice 75, and any future legislation concerning offshore or cross-border
transactions, will be interpreted, amended and implemented by the relevant
government authorities. We will attempt to comply, and attempt to ensure that
our shareholders and beneficial owners who are subject to these rules comply,
with the relevant requirements. However, we cannot provide any assurances that
all of our shareholders and beneficial owners who are Chinese residents will
comply with our request to make or obtain any applicable registrations or comply
with other requirements required by Notice 75 or other related rules. In
addition, certain of the holders of options to purchase our ordinary shares are
Chinese residents. It is unclear under the SAFE Rules whether these
optionholders would be deemed to be beneficial owners of our company for
purposes of these rules as a result of holding these options. The failure or
inability of our Chinese resident shareholders or beneficial owners to register
with the SAFE in a timely manner pursuant to the SAFE Rules, or the failure or
inability of any future Chinese resident shareholders or beneficial owners to
make any required SAFE registration or comply with other requirements under the
SAFE Rules, may subject these shareholders or beneficial owners to fines or
other sanctions and may also limit our ability to contribute additional capital
into or provide loans to our Chinese, limit our Chinese subsidiaries’ ability to
pay dividends to us, repay shareholder loans or otherwise distribute profits or
proceeds from any reduction in capital, share transfer or liquidation to us, or
otherwise adversely affect us.
We
may be subject to fines and legal sanctions imposed by SAFE, State
Administration of Taxation or other Chinese government authorities if we or our
Chinese employees fail to comply with recent Chinese regulations relating to
employee stock options granted by offshore listed companies to Chinese
citizens.
On March
28, 2007, the SAFE issued the
Application Procedure of Foreign
Exchange Administration for Domestic Individuals Participating in Employee Stock
Holding Plan or Stock Option Plan of Overseas-Listed Company
, or the
Stock Option Rule. Under the Stock Option Rule, Chinese citizens who are granted
stock options by an offshore listed company are required, through a Chinese
agent or Chinese subsidiary of the offshore listed company, to register with the
SAFE and complete certain other procedures. In addition, the Ministry of Finance
and State Administration of Taxation issued the
Issues Relevant to the Levy of
Individual Income Tax on the Income from Stock Option of Individuals
Circular
or Caishui [2005] No. 35, which was effective as of July 1,
2005. Under this rule, enterprises in China that operate stock option schemes as
the withholding agent for individual income tax should submit certain
information to the competent tax authority and fulfill the obligations for
withholding and making payment of individual income. As an offshore listed
company, we and our Chinese employees may be subject to fines and legal
sanctions imposed by the SAFE, State Administration of Taxation or other Chinese
government authorities, if they determine that we fail to comply with the
relevant requirements. See “Item 4. Information on the Company—B. Business
Overview—Regulation—Regulation of Foreign Currency Exchange and Dividend
Distribution—SAFE regulations on overseas investment of Chinese residents and
employee stock options.”
Risks
Related to Our ADSs
The
market price for our ADSs may be volatile.
The
market price for our ADSs is highly volatile and may be subject to wide
fluctuations in response to factors including the following:
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actual
or anticipated fluctuations in our quarterly operating
results;
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announcements
of new services by us or our
competitors;
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changes
in financial estimates by securities
analysts;
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changes
in the business, regulatory and other conditions in the education services
market in China;
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significant
acquisitions, strategic partnerships, collaborative alliances or capital
commitments by us or our
competitors;
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additions
or departures of key personnel;
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termination
or release of lock-up or other transfer restrictions on our outstanding
ADSs or ordinary shares or sales of additional ordinary shares or
ADSs;
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potential
litigation or regulatory
investigations;
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general
economic or political conditions in
China;
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price
fluctuations of publicly traded securities of other China-based companies
engaging in similar businesses; and
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general
economic, business and other market conditions in the global
economy.
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In
addition, a number of Chinese companies and companies with substantial
operations in China that offered and sold securities in the United States have
experienced significant volatility in their share prices after their initial
public offerings due to market fluctuations and other issues. Furthermore, the
securities market has from time to time experienced significant price and volume
fluctuations that are not related to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect
the market price of our ADSs.
The
future sales, or perceived future sales, by our existing shareholders of a
substantial number of our ADSs in the public market could adversely affect the
price of our ADSs.
If our
shareholders sell, or are perceived as intending to sell, substantial amounts of
our ordinary shares or ADSs, including those issued upon the exercise of
outstanding options, the market price of our ADSs could fall. Such sales, or
perceived potential sales, also might make it more difficult for us to sell
equity or equity related securities in the future at a time and price that we
deem appropriate. Ordinary shares held by our existing shareholders and any ADSs
held by our affiliates may be sold in the public market under, and subject to
the restrictions contained in, Rule 144 and Rule 701 under the Securities
Act of 1933, as amended, or the Securities Act, and applicable lock-up
agreements.
In
addition, certain holders of our ordinary shares have the right to cause us to
register the sale of those shares under the Securities Act. Registration of
these shares under the Securities Act would result in these shares becoming
freely tradable without restriction under the Securities Act immediately upon
the effectiveness of that registration. Sales of additional registered shares in
the public market could cause the price of our ADSs to decline.
Your
right to participate in any future rights offerings may be limited, which may
cause dilution of your holdings.
We may
from time to time distribute rights to our shareholders, including rights to
acquire our securities. Under the deposit agreement, the depositary bank will
not offer you those rights unless the distribution to ADS holders of both the
rights and any related securities is either registered under the Securities Act
or exempt from registration under the Securities Act. We are under no obligation
to file a registration statement with respect to any such rights or securities
or to endeavor to cause such a registration statement to be declared effective.
Moreover, we may not be able to establish an exemption from registration under
the Securities Act. Accordingly, you may be unable to participate in our rights
offerings and may experience dilution in your holdings.
We
may need additional capital and may sell additional ADSs or other equity
securities and/or incur indebtedness, which could result in additional dilution
to our shareholders or increase our debt service obligations.
We
believe that our current cash and cash equivalents, term deposits and
anticipated cash flows from operations will be sufficient to meet our presently
anticipated cash needs through the end of fiscal year 2010.
We may, however, require
additional cash resources due to changed business conditions or other future
developments, including any investments or acquisitions we may decide to pursue.
If these resources are insufficient to satisfy our cash requirements, we may
seek to sell additional equity or debt securities or obtain a credit facility.
The sale of additional equity securities could result in additional dilution to
our shareholders. The incurrence of indebtedness would result in increased debt
service obligations and could result in operating and financing covenants that
would restrict our operations. We have no current plans to undertake or secure
any such equity or debt financing, and we can provide no assurance that any such
financing would be available in amounts or on terms acceptable to us, if at
all.
You
may not be able to exercise your right to vote.
As a
holder of ADSs, you may only exercise voting rights with respect to the
underlying ordinary shares in accordance with the provisions of the deposit
agreement between us and The Bank of New York, the depositary of our ADSs. Under
the deposit agreement, you must vote by giving voting instructions to the
depositary. Upon receipt of your voting instructions, the depositary will vote
the underlying ordinary shares in accordance with your instructions. Otherwise,
you will not be able to exercise your right to vote unless you withdraw the
shares from the depositary. Under our fifth amended and restated memorandum and
articles of association, the minimum notice period required for convening
general shareholders’ meetings is 10 days. When a general shareholders’
meeting is convened, you may not receive sufficient advance notice to withdraw
the shares to allow you to vote with respect to any specific matter. If we ask
for your instructions, the depositary will notify you of the upcoming vote and
will arrange to deliver our voting materials to you. We cannot assure you that
you will receive the voting materials in time to ensure that you can instruct
the depositary to vote your shares. In addition, the depositary and its agents
are not responsible for failing to carry out voting instructions or for the
manner of carrying out voting instructions. This means that you may not be able
to exercise your right to vote and the shares underlying your ADSs may not be
voted as you requested.
You
may not receive distributions on ordinary shares or any value for them if it is
illegal or impractical to make them available to you.
The
depositary of our ADSs has agreed to pay to you the cash dividends or other
distributions it or the custodian receives on ordinary shares or other deposited
securities after deducting its fees and expenses. You will receive these
distributions in proportion to the number of ordinary shares your ADSs
represent. However, the depositary is not responsible if it decides that it is
inequitable or impractical to make a distribution available to any holders of
ADSs. For example, the depositary may determine that it is not feasible to
distribute certain property through the mail. Additionally, the value of certain
distributions may be less than the cost of mailing them. In these cases, the
depositary may determine not to distribute such property. We have no obligation
to register under U.S. securities laws any ADSs, ordinary shares, rights or
other securities received through such distributions. We also have no obligation
to take any other action to permit the distribution of ADSs, ordinary shares,
rights or anything else to holders of ADSs. This means that you may not receive
any distributions we make on our ordinary shares or any value for them if it is
illegal or impractical to make them available to you. These restrictions may
have a material adverse effect on the value of your ADSs.
You
may be subject to limitations on transfer of your ADSs.
Your ADSs
represented by the ADRs are transferable on the books of the depositary.
However, the depositary may close its transfer books at any time or from time to
time when it deems expedient in connection with the performance of its duties.
In addition, the depositary may refuse to deliver, transfer or register
transfers of ADSs generally when our books or the books of the depositary are
closed, or at any time if we or the depositary thinks it advisable to do so
because of any requirement of law or of any government or governmental body, or
under any provision of the deposit agreement, or for any other
reason.
You
may face difficulties in protecting your interests, and your ability to protect
your rights through the U.S. federal courts may be limited, because we are
incorporated under Cayman Islands law.
We are a
company incorporated under the laws of the Cayman Islands, and our corporate
affairs are governed by our memorandum and articles of association, the Cayman
Islands Companies Law (2007 Revision) and the common law of the Cayman Islands.
The rights of shareholders to take action against the directors, actions by
noncontrolling shareholders and the fiduciary responsibilities of our directors
to us under Cayman Islands law are to a large extent governed by the common law
of the Cayman Islands. The common law of the Cayman Islands is derived in part
from comparatively limited judicial precedent in the Cayman Islands, as well as
from English common law, the decisions of whose courts are of persuasive
authority, but are not binding on a court in the Cayman Islands. The rights of
our shareholders and the fiduciary responsibilities of our directors under
Cayman Islands law are not as clearly established as they would be under
statutes or judicial precedent in some jurisdictions in the United States. In
particular, the Cayman Islands has a less developed body of securities laws as
compared to the United States, and some U.S. states, such as Delaware, have more
fully developed and judicially interpreted bodies of corporate law. In addition,
Cayman Islands companies may not have standing to initiate a shareholder
derivative action in a federal court of the United States.
The
Cayman Islands courts are also unlikely:
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to
recognize or enforce against us judgments of courts of the United States
based on the civil liability provisions of U.S. securities laws;
and
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to
impose liabilities against us, in original actions brought in the Cayman
Islands, based on certain civil liability provisions of
U.S. securities laws that are penal in
nature.
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There is
no statutory recognition in the Cayman Islands of judgments obtained in the
United States, although the courts of the Cayman Islands will in certain
circumstances recognize and enforce a non-penal judgment of a foreign court of
competent jurisdiction without retrial on the merits.
As a
result of all of the above, holders of our ADSs may have more difficulty in
protecting their interests through actions against our management, directors or
major shareholders than they would as shareholders of a
U.S. company.
Item
4. Information on the Company
A.
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History and
Development of the Company
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We were
incorporated as an exempted company in the Cayman Islands with limited liability
on September 6, 1999 and began our online degree services business in the
same year, providing services to Renmin University of China. Since our
inception, we have rapidly grown our online degree program services business and
have added three new business lines through a series of acquisitions in 2005
(online tutoring, private primary and secondary schools and international
curriculum services) and in 2006 (vocational post-secondary international
curriculum programs).
On
December 14, 2007, we and certain selling shareholders of our company completed
an initial public offering of 6,820,000 ADSs representing 20,460,000 of our
ordinary shares. Our ADSs are listed on the NASDAQ Global Market
under the symbol “CEDU.”
Our
principal executive offices are located at 4
th
Floor-A, GeHua Building, No. 1 QinglongHutong, Dongcheng District, Beijing,
100007, People’s Republic of China. Our telephone number at this address is
86-10-84186655. Our registered office in the Cayman Islands is located at the
offices of Codan Trust Company (Cayman) Limited at Cricket Square, Hutchins
Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.
Investor
inquiries should be directed to us at the address and telephone number of our
principal executive offices set forth above. Our website is
www.chinaedu.net
. The
information contained on our website and our other websites is not a part of
this annual report. Our agent for service of process in the United States is CT
Corporation System located at 111 Eighth Avenue, 13/F, New York, New York
10011.
For a
description of our principal capital expenditures, see “Item 5. Operating
and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital
Expenditures.”
We are a
leading educational services provider in China, incorporated as an exempted
limited liability company in the Cayman Islands. Established in 1999, our
primary business is to provide comprehensive services to the online degree
programs of leading Chinese universities. These services include academic
program development, technology services, enrollment marketing, recruiting,
student support services and finance operations. Our other lines of
businesses include online tutoring services, the operation of private primary
and secondary schools, and marketing and support for international curriculum
programs. We believe we are the largest service provider to online degree
programs in China in terms of the number of higher education institutions that
are served and the number of student enrollments supported.
We
currently have strategic relationships with 29 universities, 17 of which are
under long-term
contracts that generally
vary from 10 to 50 years in length. Twelve of our university partners, including
GRTU and FRTU, currently operate their own online degree programs and five
universities are awaiting regulatory approval to begin their online degree
programs. We also perform recruiting service for 18 universities through our
nationwide learning centers network. As of December 31, 2009, there were
approximately 287,000 revenue students in the online degree programs that we
service through these relationships. A revenue student is counted when a student
makes a payment in the semester. These online degree programs are marketed under
the brand names of these leading Chinese universities, which allow us to benefit
from the significant brand equity that these higher education institutions have
established.
Our
business has experienced significant growth since its inception in 1999. This
growth has been driven by the increased number of universities that we serve,
the increased enrollment of the online degree programs of our university
partners, and our expansion into other education-related lines of business. We
generate our revenue from service fees and tuition payments derived from
students who are enrolled in, or served by, our businesses. As of December 31,
2009, we provided services to online degree programs that had an aggregate of
approximately 287,000 revenue students, and we served approximately 47,570
revenue students in our
other businesses. Our net revenue increased from RMB265.0 million in 2007 to
RMB317.7 million in 2008, and RMB354.7 million ($52.0 million) in 2009,
representing a compound annual growth rate, or CAGR, of 15.7%. Net
revenue from our online degree programs contributed 76.3%, 80.4% and 80.4% of
our total net revenue for the years ended December 31, 2007, 2008 and 2009,
respectively.
Our
income from operations decreased from RMB40.3 million in the year ended December
31, 2007 to a loss of RMB13.1 million for the year ended December 31, 2008. Our
income from operations increased from a loss of RMB13.1 million in the year
ended December 31, 2008 to RMB79.4 million ($11.6 million) for the year ended
December 31, 2009. Our net income attributable to ChinaEdu Corporation
shareholders declined from RMB2.5 million for the year ended December 31, 2007
to a net loss attributable to ChinaEdu Corporation shareholders of RMB43.0
million for the year ended December 31, 2008. Our net income attributable to
ChinaEdu Corporation shareholders increased from a loss of RMB43.0 million for
the year ended December 31, 2008 to RMB34.8 million ($5.1 million)
for the year ended December 31, 2009.
The
decline in both income from operations and net income attributable to ChinaEdu
Corporation shareholders from 2007 to 2008, was primarily due to an increase in
impairment losses. Our goodwill impairment and intangible assets impairment
losses were RMB70.1
million for the year
ended December 31, 2008, compared to goodwill impairment losses of RMB16.2
million for the year ended December 31, 2007. There was no goodwill and
intangible assets impairment in 2009.
Our
Strengths
We
believe that we possess the following competitive strengths:
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Market
leadership and proven track record.
We are
one of the market leaders in the education services market due to our
early mover advantage, proven track record and delivery of innovative
services that are in high demand. We believe we are the leading company in
China providing comprehensive services, technology and operating support
to universities offering online degree programs, in terms of both number
of institutions served and the number of enrollments that we support. Our
experienced management team, established technology platform and
capabilities, operational expertise and content portfolio allow us to
effectively attract and retain customers as well as identify new
opportunities in the private education
market.
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Substantial
knowledge of our customers and the Chinese education market.
Through
our ten-year operating history, early efforts to develop an online
technology platform and comprehensive service offering for Chinese
universities, we have acquired substantial knowledge of the Chinese
education market and the needs of its consumers. As we have expanded our
service offerings, we have been able to take advantage of our market
knowledge to address additional areas in which we believe we can leverage
our experience, processes and technology to meet the needs of the market.
As a result, we have expanded our business to include the distribution and
support of international curriculum, private primary and secondary schools
and an online tutoring
platform.
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Provider
of premier services for online degree programs.
We
believe our products position us as an attractive choice for both academic
institutions and students for online degree programs. We have provided
comprehensive services and support to universities for their online degree
programs since 1999. Our service model and technology platform have proven
to be successful, as shown by our leading position in terms of number of
institutions served. In addition, we have developed a wide array of
proprietary courseware, from which we currently tailor over 1,550 courses
for our university partners based on their different requirements. Many of
these courses can be used as a basis to develop similar courses when we
add new university customers, thus enabling us to benefit from economies
of scale. We use this service model with our reliable technology
platforms, comprehensive library of courseware and operational and
marketing expertise to help universities achieve their academic and
financial goals.
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Experienced
management team with proven track record.
We have
an experienced management team with an average of over 11 years of
experience in either the education services industry or the online
services industry. We have recruited strong leaders with proven skills to
serve in key positions within our management team, and our team includes
members with substantial experience in education, technology, marketing
and finance.
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Our
Strategy
Our
strategy consists of the following key elements:
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Expand the
penetration of our online degree program
services.
We plan to take advantage of our
established leadership position and track record to expand the penetration
of our services to online degree programs by increasing the number of
universities that use our online degree program services and by helping
our existing university customers to increase enrollment in their
programs. We are actively targeting new universities to become our
partners for their online education programs. In addition, we plan to help
our existing university customers to increase enrollment in their online
programs by helping them to expand their course offerings, to assist them
in improving their marketing and recruitment initiatives and to assist
them in reducing student attrition. We are also continually working to
enhance our technology platform to improve the students’ online learning
experience.
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Expand our
network of learning centers.
To strengthen
our ability to assist our customers’ online degree programs in recruiting
students and improving student service quality, we established our
learning centers network in 2008. Currently we have 65 learning centers.
We believe that the opening of these learning centers will allow us to
significantly enhance our brand recognition, increase access to potential
students for online degree programs and enhance profitability. We also are
actively seeking to establish strategic relationships with universities
that currently are not our online degree program customers to provide our
learning center services to their online degree
programs.
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Improve our
online tutoring business.
We continue to
focus our growth in the development and improvement of our online tutoring
business. Leveraging on our strength in sales channels,
development of products and offerings and improvements in customer
service, we believe we will be able to expand our customer base and gain
additional traction and market share in the fragmented online tutoring
business.
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Develop our
interactive learning community.
In an effort
to provide an integrated platform for all of our services and offerings we
started to develop our interactive learning community in
2009. Our learning community will combine both educational
content management system and social networking services in creating an
interactive vertical learning platform for students, teachers and
educational institutions.
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Continue
to strengthen our brand name and our reputation
.
We are
focused on continuing to build our brand name and our reputation among our
existing customers, as well as among other Chinese and foreign education
institutions. We believe that building our brand and reputation will allow
us to attract new schools and students to our current business lines. We
are also increasing awareness of our online tutoring programs and learning
centers by increasing advertising to continue to build brand recognition.
We are taking part in a wide range of activities to promote our brand and
reputation, such as participating in conferences, sponsoring industry
events and publishing articles in education trade
journals.
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Develop
new products and services to further enhance the learning experience of
existing students and attract new students.
We plan
to increase our research and development efforts to develop new products
and services with respect to our online tutoring and online degree
programs to introduce more robust online learning programs, to enhance the
students’ learning experience and to improve their sense of community. We
further plan to enhance our online tutoring programs by recruiting
additional high quality teachers, expanding the type of programs offered
and incorporating more interactive technology to increase student
retention and student usage rates for our
programs.
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Pursue
strategic acquisitions.
During
the past several years, we have made strategic acquisitions to broaden our
service offerings and to expand into additional segments of the Chinese
educational market. We will continue to consider and seek acquisition
opportunities that are complementary to our existing lines of business or
that can further expand the services that we can provide to our
customers.
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Our
Business
We are a
leading educational service provider in China. Our primary business is to
provide comprehensive services to the online degree programs of leading Chinese
universities. We also offer online tutoring services to primary and secondary
school students, operate primary and secondary schools, market international
post-secondary and English language curriculum programs to established learning
institutions.
Online
Degree Programs
Our
primary business is to assist universities in China to establish, operate and
expand their online degree programs. We currently provide services to 24
universities with their online degree programs and
to
five additional
universities awaiting regulatory approval to begin their programs. These online
degree programs had approximately 287,000 revenue students as of December 31,
2009.
The online
degree programs we currently service offer associate and bachelor degree
programs in a wide range of subjects, including, but not limited to, accounting,
marketing, finance, business administration, international business, law, civil
engineering, education, computer science, literature, project management,
marketing and administrative management. These online degree programs are aimed
primarily at working adults who have sufficient economic means to support their
studies and who value the flexibility of a self-paced online educational
process. For the years ended December 31, 2007, 2008 and 2009, we generated
76.3%, 80.4% and 80.4 %, respectively, of our net revenue from online degree
programs.
Online
degree programs in China must be approved by the MOE. At present, 67
universities in China have received approvals from the MOE to operate online
degree programs, as well as the China Central Radio and TV University, which
functions primarily as a distance learning facility. The China Central Radio and
TV University delivers its courses to students primarily over satellite and
television, and we believe it currently does not compete with the other 67
universities in the online degree program market. As of December 31, 2009, most
of these 67 universities had registered students in their online degree
programs, and we provided services to 22 out of the 67 universities that have
been approved to offer online degree programs in China. In addition we also
entered into exclusive collaborative alliance agreements with GRTU in February
2009 and FRTU in June 2009. Students registered in online degree programs can
pursue either associate degrees or bachelors degrees. They must generally prepay
tuition for a minimum number of credits upon admission and subsequent
enrollment, which can be applied to credits sought after their initial semester.
The total number of credits required to graduate from an online degree program
offered by these universities generally ranges from 80 credits for associate
degrees to 160 credits for bachelor degrees. The tuition per credit ranges from
approximately RMB60 to RMB180. The tuition charged to students is subject to the
review and approval of the pricing administration authority and the filing with
the relevant education authority.
Learning
centers assist universities with a number of vital functions for their online
degree programs, including marketing, enrollment administration, student
services and tuition collection. Learning centers also provide academic review
sessions and technical support for students. The physical presence of learning
centers is complementary to online distance learning, since it facilitates
face-to-face tutorial sessions, student consultations and course material
distribution. Learning centers also ensure the integrity of examinations, as
entrance exams and final exams are conducted on site at the learning centers,
allowing testing to occur under controlled environments. Learning centers are
generally operated by third parties that have entered into agreements with
universities. Many learning centers are owned by polytechnic, or vocational,
schools, allowing these institutions to leverage their infrastructures to serve
the higher education market.
In
February 2007, we received provisional approval from the MOE to operate 10
learning centers in the provinces of Beijing, Shanghai, and Jiangsu and Zhejiang
for a trial period of up to 18 months. Although this provisional
approval has since expired, the MOE has not ordered us to terminate operations
at our learning centers, although no assurance can be given that the MOE will
not do so. To date, we have also obtained provincial level approval
from the Beijing, Shanghai, Jiangsu, Zhejiang and Jiangxi provinces to operate a
total of 23 learning centers, which include the 10 that received provisional
approval from the MOE in February 2007. We have also entered into agreements to
establish four cooperative learning centers in the provinces of Jilin, Hainan,
Guangdong and Henan. Although these learning centers are not branded under the
ChinaEdu name, we derive revenue from them by contributing significantly to
their operations. In addition to the 27 learning centers discussed above, we
have also entered into agreements with 38 third party learning centers pursuant
to which we provide assistance applying for approval from provincial level
education authorities as well as securing additional university online degree
programs. In return, we receive a percentage of the tuition earned by
these third party learning centers. We believe that the opening of these
learning centers will allow us to significantly enhance our brand recognition,
increase access to potential students for online degree programs and enhance
profitability. We also are actively seeking to establish strategic relationships
with universities that currently are not our online degree program customers to
provide our learning center services to their online degree
programs.
Our
Services
Through
collaborative alliances and other revenue-sharing arrangements, we offer a
comprehensive service platform to our university customers, including academic
program development, technology services, enrollment marketing, recruiting,
student support services and finance operations. We also provide the initial
capital resources needed to establish their online degree programs. We believe
we are the only service provider in China that offers a comprehensive set of
services to online universities that supports virtually all aspects of a
student’s progression through an online degree program. Through these services,
we enable our customers to quickly establish an online degree program with a
high level of student service quality and to significantly expand or improve
existing initiatives with minimal initial investment. Our strategic
relationships with universities are based upon long-term contracts that
generally vary in length from 10 to 50 years.
Academic Program
Development.
Academic program development entails the
design and development of instructional materials, multimedia learning materials
and quality assurance processes. The overall development time for a single
course can range from as little as three weeks to as long as four months,
depending on the subject matter and complexity of the course materials. To date,
we have developed over 1,550 online courses for our university partners’
programs, all of which are proprietary to us or to our university collaborative
alliances. As such, many of our previously developed courses can be used as the
basis to develop similar courses when we add new university customers, thus
enabling us to benefit from economies of scale.
Technology.
Our
technological capabilities consist of a series of proprietary systems and tools,
including our Learning Management System, or LMS, which enables the online
degree programs to manage the entire student life cycle from application to
graduation by providing system support to the student’s learning process and the
university staff’s daily management process. We believe that our LMS is one of
the most advanced offering systems in the market. This system manages
courseware, including multimedia lectures, assignments and quizzes, and provides
management information tools supporting the course offerings. We also provide
certain customers a learning content creation and management system, which
enables the team working on courseware development to bring the courseware from
the concept and design stage to production and implementation. Our technology
also supports an interactive, community-based learning environment through chat
rooms, online forums and bulletin board systems. We also host and support all of
the software and hardware and software requirements of our online degree
university partners.
Enrollment
Marketing.
Our support for universities’ student
recruitment efforts includes the development and implementation of online and
offline marketing strategies and promotional events, as well as the creation of
collateral material to support those efforts. We further assist universities in
identifying, retaining and supervising learning centers, including training
learning center staff on executing our marketing programs. We constantly revise
our marketing programs to maximize demand for our university partners’ programs.
Our marketing programs emphasize the unique characteristics of each of our
university partners’ offerings.
Student Support
Services.
We employ significant resources in developing
student support services for our university partners’ programs to assist
students in completing their course work and improving retention. Support
services that we provide to students include online and offline tutorial
resources, academic review sessions, student consultations and mock
examinations. We also maintain a dedicated staff of student service counselors
whom students may call upon to address any questions they may have regarding the
student support services.
Recruiting
Services.
We currently offer recruiting services to 18
university partners through our learning centers network. We have a total of 65
learning centers in operation. The learning centers perform a number of
essential functions such as marketing, enrollment administration, student
services and tuition collection.
Structure
and Revenue Model
Our
relationships with our university partners are structured as collaborative
alliances, long-term contractual service arrangements, licensing of online
education technology platform agreements and recruiting and technology
agreements.
Collaborative
Alliances.
Our relationships with 10 of our
university partners, including GRTU, FRTU and three universities seeking
regulatory approval to operate their online degree programs, are structured as
collaborative alliances. In our collaborative alliance structures, we establish
a collaborative alliance with the university (or a commercial subsidiary of the
university), which in turn provides services and support to the university’s
online degree program. The collaborative alliances with our university partners
have terms ranging from 10 to 50 years and are exclusive in nature. We have a
majority interest in each of these collaborative alliances and treat them as our
consolidated subsidiaries. We are generally responsible for contributing the
initial capital required for the establishment and startup of the collaborative
alliances, which has historically ranged from approximately RMB0.5 million
to approximately RMB20.0 million. Our university partner pays to the
collaborative alliance a service fee equal to a portion of its tuition receipts
from its online degree program, after deducting certain operating expenses,
administrative fees paid by our university partners, including fees paid to
learning centers, refunds paid to students and, in some cases, licensing or
technical consulting fees paid to us.
Long-Term Contractual Service
Agreement
s.
We
also have entered into long-term contractual service arrangements with four of
our university partners. Pursuant to these agreements we provide services and
technology to support each respective university’s online degree program for a
fixed period of time. We receive service fees equal to an agreed portion of
tuition collected by the university from students in their online degree
programs. The amount of the payments is based on a negotiated formula, which may
depend on the number of students in the program or students registered from
certain geographic territories.
Licensing of Online Education
Technology Platform Agreements
.
We have licensed
our online education technology platform and also provided post contract
customer support ("PCS") to three of our university partners, including two
universities which are still seeking regulatory approval to operate their online
degree programs. Upon their receiving approvals to operate the online
degree programs, we will establish a collaborative alliance with one of the two
universities to serve the online degree program and enter into a long-term
contractual service agreement with the other to serve the online degree program.
We recognize revenue from licensing of online education technology platform when
persuasive evidence of an agreement exists, delivery of the services has
occurred, the fee is fixed or determinable, and collectability is
probable.
Recruiting and Technology
Agreements.
We have also entered into non-exclusive
contractual service arrangements with 18 university partners. Pursuant to these
agreements, we provide recruiting services and technology support for a period
of time, generally ranging from 2 to 3 years, through our network of learning
centers. We receive service fees equal to an agreed portion of the tuition
collected from the students by the learning centers, which are subject to annual
re-negotiation.
University
Partners
The
number of revenue students in the online degree programs we service has grown
rapidly, from approximately 192,000 revenue students at 2007 calendar year-end
to approximately 287,000 revenue students at our 27 existing university
customers at 2009 calendar year-end. In 2007, 2008 and 2009, 68.2%, 67.3% and
63.6%, respectively, of our net revenue was derived from our services to our
five largest online degree program customers. Our three largest customers,
Renmin University of China, China Agricultural University and Dongbei University
of Finance and Economics,
accounted for 20.2%,
13.3%, 12.0%, respectively, of our net revenue in 2009.
Type
of Structure
|
|
Number
of University Partners
|
Collaborative
Alliances
|
|
8
|
|
(including
3 waiting for approval)
|
Radio
and TV Collaborative Alliances
|
|
2
|
|
|
Long-Term
Contractual Service Agreements
|
|
4
|
|
|
Licensing
of Online Education Technology Platform Agreements
|
|
3
|
|
(including
2 waiting for approval)
|
Recruiting
and Technology Agreements
|
|
18
|
|
(including
6 which we have established collaborative alliances or entered into
long-term contractual service agreements)
|
Total
|
|
29
|
|
|
The following map shows our 29 university partners:
Sales
and Marketing Strategy
The two
main aspects of our sales and marketing strategy are increasing the number of
university online degree programs utilizing our services and helping our
customers recruit and retain more online degree students.
We employ
a business development team to establish new relationships with universities,
both those with existing online programs and others that are interested in
developing new programs. We are in continuous discussions with additional
universities regarding their online programs
.
The
university’s relationship, as well as our relationship, with the learning
centers is essential to the sales and marketing of online degree programs to new
students. The learning centers assist the online programs with a number of vital
functions, including recruitment, marketing and student services for such
programs. To provide a nationwide physical presence and to strengthen our sales
network, we have assisted our university partners in developing relationships
with approximately 464 learning centers, which cover most major cities in China.
We provide student support training to many learning centers and assist learning
centers in advertising to solicit students. The relationships between the
learning center operator and the university are typically governed by
non-exclusive compensation arrangements that are subject to annual
re-negotiation. The majority of the learning centers are owned and operated by
independent third parties.
In 2008,
we established our learning centers network, currently we have 65 learning
centers. We believe that the opening of these learning centers will allow us to
significantly enhance our brand recognition, increase access to potential
students for online degree programs and enhance profitability. We also actively
seek to establish strategic relationships with universities that currently are
not our online degree program customers to provide our learning center services
to their online degree programs.
Competition
There are
three main components of competition within the online degree program market:
(i) competition among service providers to attract and retain additional
university partners; (ii) competition among online degree programs seeking to
enroll students; and (iii) competition between our learning centers network and
other national learning centers network. In addition to GRTU and FRTU, we
currently serve 22 out of the 67 universities that have been approved to offer
online degree programs in China and we have contracted with five additional
universities that are awaiting regulatory approval to start their programs.
There are 45 other universities currently offering online degree programs that
either independently run their programs or outsource services for their programs
to other service providers. While we are trying to establish relationships with
additional universities with respect to their online programs, several companies
offer services that compete with our service offerings generally on a
service-by-service basis. We compete with these companies primarily on the scope
and quality of our service offerings to university partners, and to a lesser
extent, price.
The
online degree programs that we service must compete with other online programs,
as well as with other education and training programs that are seeking to enroll
students. Recruitment of students for online degree programs relies heavily on
learning centers, most of which are owned and operated by third parties. We have
assisted our university customers in developing relationships with approximately
464 learning centers, which can be subject to varying degrees of customer
loyalty. Many learning centers assist with recruitment on behalf of multiple
online degree programs, and, as a result, the online degree programs that we
support face considerable competition for recruiting at the learning
centers.
Our
nationwide learning centers network faces competition with Open Online and China
Cyber Learning which have the nationwide learning center operator
licenses. Open Online is the largest learning centers operator in
China, having signed recruiting contracts with 41 out of the 67 online degree
programs, with approximately 1,600 third party learning centers and 23
proprietary learning centers. Currently our learning centers network
has signed recruiting contracts with 18 out of the 67 online degree program and
operates 65 learning centers. China Cyber Learning has signed recruiting
contracts with eight of the 67 online universities and operates 12 proprietary
learning centers.
Online
Tutoring Programs
We
provide online tutoring and test preparation services to primary and secondary
school students in China through a separately branded program known as the “101
Distance Learning Center” or the “101 Online School”. The 101 Online School was
originally founded in 1996, and over the past thirteen years has developed a
strong reputation as a valuable learning tool with students and teachers alike.
The 101 Online School is a leading online tutoring education website in China,
for elementary school, middle school and high school students in China, for
which we currently have over 1.1 million users. The website address for our 101
Online School is
www.chinaedu.com
.
As of
December 31, 2009, the 101 Online School served more than 39,890 revenue
students. In 2007, 2008 and 2009, we generated 6.8%,
4.8% and 5.5%,
respectively, of our net revenue from the 101 Online School through subscription
fees paid by students for the online tutoring service.
Using our
proprietary e-learning platform, the 101 Online School provides interactive
tutoring services to primary and secondary school students in virtually all
academic subjects offered to these students in China. Our online tutoring and
test preparation services also assist secondary school students in preparing for
key examinations administered in China, including the national college entrance
examination. All of the tutoring and test preparation materials used by our 101
Online School are developed by qualified teachers and subject to review by our
quality control staff. By providing tutoring and test preparation services
online, the 101 Online School makes the tutoring and test preparation process
more convenient and accessible for students, especially those with limited
access to traditional tutoring or test preparation services. In addition, we
continue to innovate new services designed to attract and retain students for
our 101 Online School. In 2009, we began hiring an entire staff for the
development of our 101tutor question and answer product for
students.
We
currently market our 101 Online School through regional third-party distributors
and our own sales centers in Beijing, Tianjin and other cities and provinces in
China. Approximately 237 distributors located in major cities in China purchase
bulk subscriptions to our 101 Online School and resell these subscriptions to
students. Bulk subscription sales to distributors accounted for 62.3%, 68.2% and
50.4% of our 101 Online School revenue in 2007, 2008 and 2009,
respectively.
In
addition, we have entered into an arrangement with Lenovo Group Limited, a
personal computer manufacturer in China, to distribute our online tutoring
services in various lines of Lenovo personal computers
.
Private
Primary and Secondary Schools
The
market for private primary and secondary schools in China is growing rapidly. We
believe that private primary and secondary schools will play an increasingly
important role in providing quality education in China, particularly to the
children of the emerging middle class. Parents in China, as in the rest of the
world, are continuously searching for the best educational solutions for their
children. We believe the private primary and secondary school business
represents a compelling business opportunity for us. We owned three private
primary and secondary schools and generated 5.0%, 6.1% and 8.6% of our net
revenue from the private primary and secondary school business in 2007, 2008 and
2009, respectively.
Anqing
Foreign Language School
Through
our Chinese affiliated entity, Hongcheng Education, we have been operating the
Anqing Foreign Language School, or the Anqing School, a private primary school,
grades 1 to 12 since 2005. The Anqing School is regarded as one of the leading
schools in the market that it serves, especially well known for its English
language program and foreign English language teachers. We completed
construction of the new campus by the fall of 2009, which approximately doubled
the capacity of the school and expanded the grades offered in elementary school,
middle school (equivalent of grades 7 to 9), as well as high school, covering
grades 1 through 12. During the 2007-2008 academic year, the Anqing School had
an enrollment of approximately 1,600 which increased to approximately 2,500
students during the 2008-2009 academic year. During the 2009-2010 academic year,
the Anqing School had an enrollment of approximately 3,500
students.
Pingdingshan
Bilingual School
Through
our Chinese affiliated entity, Hongcheng Education, we acquired all of the
rights and interests in the Pingdingshan Bilingual School, or Pingdingshan
School in 2005. The Pingdingshan School is a private primary school, grades 1-9,
in Pingdingshan, Henan province. The Pingdingshan School is regarded as one of
the leading schools in its market. In 2009, we completed the construction of a
new building and other facility improvements. During each of the 2007-2008 and
2008-2009 academic years, the Pingdingshan School had an enrollment of
approximately 1,200 students. During the 2009-2010 academic year, the
Pingdingshan School had an enrollment of approximately 1,400
students.
Jingzhou
School (Southern Campus)
Through
our Chinese affiliated entity, Hongcheng Education, we acquired rights to
construct a new private secondary school, Jingzhou School (Southern Campus), for
students in grades 9-12 in Jingzhou, Hubei province in 2005. The Jingzhou School
(Southern Campus) will be established as a partnership with Jingzhou High
School. We, our partner, Jingzhou High School, and a noncontrolling shareholder
will own 54.4%, 25% and 20.6% of the new school, respectively. Under the
cooperation agreement between Hongcheng Education and Jingzhou High School, we
will undertake construction of the new campus and Jingzhou High School will
contribute its brand as well as management and teaching resources to the
school. We initially planned to complete construction of the new
campus by the fall 2006 recruiting season, however, we have encountered delays
in obtaining the land-use rights for the new campus site, resulting in an
increase in construction costs, and we cannot assure you that we will be able to
begin construction in the near future, or at all. See “Item 3. Key
Information—D. Risk Factors—Risks Related to Our Business – We may not be able
to successfully execute future acquisitions or efficiently manage the businesses
we have acquired to date or may acquire in the future.”
International
Curriculum Programs
We
distribute and support English language programs to secondary schools and
international polytechnic programs to vocational schools in China. We provide
all aspects of delivery and support for these programs, including program
development and implementation, English teacher recruitment and administration,
and other ancillary services. We generate revenue based on the enrollment fees
students pay to the participating schools with whom we have entered into revenue
sharing arrangements, based either on a fixed fee per student or a percentage of
the enrollment fee per student. For the 2007-2008, 2008-2009 and 2009-2010
academic years, respectively, approximately 5,000, 4,000 and 2,800 students were
enrolled in the international curriculum programs. In 2007, 2008 and 2009, we
generated 11.9%, 8.7% and 5.5%, respectively, of our net revenue from
international curriculum services.
The BCIT
Program
. We entered into an exclusive agreement
with the British Columbia Institute of Technology, or BCIT, a leading
polytechnic institute in Canada, in February 2006. Through this program, we
provide services to BCIT in implementing international post-secondary education
programs and market these programs to selected polytechnic colleges in China
approved by BCIT from time to time, enabling these colleges to offer up-to-date
courses across a wide variety of majors and subjects to their students. We are
BCIT’s exclusive service provider in China for these selected polytechnic
colleges until 2020. At present, we provide services to the BCIT programs of six
polytechnic colleges approved by BCIT to offer these programs. The BCIT program
provides a three-year associate degree program to high school graduates seeking
international vocational education within the environment of a Chinese
polytechnic college. Through the participating colleges in China, the program
offers a wide variety of majors and subjects such as business, computing and
information technology, manufacturing, electronics, construction, environment,
transportation and health science, all developed by BCIT. The program is unique
in that entry-level courses and related course materials are in Chinese, but
instruction and course materials for more advanced courses are transitioned to
English.
The SCC
Program.
We have provided services with respect to English
language programs since September 2005. In February 2009, we entered
into a partnership agreement with Howe Sound Secondary School, located in School
District No. 48 in British Columbia, Canada, which we refer to as the SCC
program. The SCC program, for which we are currently in the process
of signing local high school partners, provides secondary schools in China with
high-quality English language instruction programs using native English
speakers. Students at schools that participate in the SCC program must choose to
be enrolled in the SCC program when applying for admission to the
school.
The FEC
Program.
In 2005, we acquired the right to serve as the
exclusive service provider to the English language programs of Western Institute
of Technology at Taranki or “WITT” within China until September
2020. We refer to this program as the FEC program. In
2008, we mutually terminated our agreement with WITT due to ongoing regulatory
challenges that have prevented many of our contracted schools from obtaining
necessary regulatory re-approvals. Schools that have been receiving support from
us under the FEC program, however, can continue to recruit students even after
termination of our agreement with WITT if they choose, since all education
related support is provided by us. However, we cannot assure you that
any or all of the FEC contracted schools will continue to work with us in the
future, and our partner schools may face additional challenges obtaining
re-approvals for replacing WITT with other overseas education institutions with
whom we may partner. While we believe that some of our existing
contracted schools participating in the FEC program may switch to either our
newly established SCC program or to other programs that we may provide, there
can be no assurance they will. See “Item 3. Key Information—D. Risk
Factors—Risks Related to Our Business—Our international curriculum programs,
which include our Polytechnic and English language programs, are heavily
regulated, and our ability to conduct business in this area is highly dependent
on regulatory policies and our compliance with these policies.”
Seasonality
We have
experienced, and expect to continue to experience fluctuations in our revenue
and results of operations, due to a number of reasons including seasonal changes
in the number of students who are enrolled in, or served by, our businesses.
Generally, more new revenue student enrollments occur in the fall, and more
existing student enrollments occur in the spring upon selection of additional
course credits. We generally recognize revenue over the six-month period
following these enrollments. Our expenses and costs, however, do not necessarily
correspond with changes in our revenue or the number of students who are
enrolled in, or served by, our businesses. We expect quarterly fluctuations in
our revenue and results of operations to continue. As our revenue grows, these
seasonal fluctuations may become more pronounced.
Regulation
The
Chinese government regulates the education services industry and the provision
of Internet content. This section summarizes the principal Chinese regulations
relating to our businesses.
We
operate our business in China under a legal framework that consists of the State
Council, which is the highest executive authority of the Chinese central
government, and several ministries and agencies under its authority, including
the Ministry of Education, or MOE, the State Administration of Foreign Exchange,
or SAFE, the General Administration of Press and Publication, or GAPP, the
Ministry of Information Industry, or MII, the State Administration for Industry
and Commerce, or SAIC, the Ministry of Civil Affairs, or MCA, and their
respective authorized local counterparts.
Regulations
on Online Education
Pursuant
to the
Administrative
Regulations on Educational Websites and Online and Distance Education
Schools
, issued by the MOE in 2000, educational websites and online
education schools may provide educational services in relation to higher
education, elementary education, pre-school education, teacher education,
occupational education, adult education, other education and public educational
information services. “Educational websites” refers to organizations providing
education or education-related information services to website visitors by means
of a database or online education platform connected via the Internet or an
educational television station. “Online education schools” refers to education
websites that issue educational certificates in connection with their providing
academic education services or training services.
On
June 29, 2004, the State Council issued the
Decision on Setting Down
Administrative Licenses for the Administrative Examination and Approval Items
Really Necessary to be Retained
, which provides that an administrative
license is required for “online education schools” that provide degree education
to students, but not for “educational websites” that do not provide degree
education to students.
The MOE
issued
Certain Opinions on the
Pilot Program of Supporting Certain Higher Education Institutions to Establish
Online Education Colleges to Develop Modern Long-Distance Education
in
2000 and
Certain Opinions
regarding the Enhancement of the Administration of Higher Education Institution
Online Education Colleges and the Improvement of Education Quality
in
2002 to regulate online higher education. And, on February 1, 2010, the MOE
issued a
Circular on the
Student Enrollment of Online Degree Education by the Pilot Universities which
are Permitted to Operate Online Degree Education
, or the 2009 circular,
to regulate the recruitment of online degree students. The 2009 circular
prohibits universities from recruiting existing full-time students and instructs
schools offering online degrees to recruit only working adults for their
programs. The 2009 circular also required universities to tighten their
admission criteria for their online programs and to improve the quality of their
recruiting materials. As of December 31, 2009, 67 universities and colleges had
been approved by the MOE to operate online education programs as part of the MOE
pilot program.
Twenty two of the
universities to which we currently provide, or have entered into agreements to
provide, online degree program services are included within the pilot program.
Central University of Finance and Economics, Beijing Forestry University,
Shanghai University of Finance and Economics, Jiangxi Normal University and
Jiangsu University, five other universities that we serve, are not in the pilot
program and are currently in the process of applying for the MOE approval to
offer online degrees.
To
regulate the learning centers that provide services to online degree programs,
the MOE issued the
Principles
on the Establishment and Administration of Modern Distance Education Off-campus
Learning Center (Pilot)
, in January 2002, and, in March 2003, promulgated
the
Interim Provisions
on
Administration of Modern
Distance Education Off-campus Learning Center
. According to these two
regulations, learning centers are not authorized to independently carry out
activities such as recruiting students, teaching and issuing degrees for modern
distance education—all activities that must be done in conjunction with the
universities offering the degrees. These regulations also require learning
centers not to pursue business that is irrelevant to online education services.
Each learning center is required to be associated with at least one educational
institution or other entity approved by the MOE to provide online education
services, and can only provide logistics services for recruitment and
examination administration to educational institution(s).
Each
learning center and the educational institution with which it is associated must
jointly apply to the education authorities for approval before the learning
center can provide services to any online education program. Additional
approvals are required for a learning center if it intends to provide support
services to additional educational institutions. The education authorities have
the authority to supervise, inspect and evaluate the learning centers from time
to time. A learning center’s approvals may be withdrawn by the education
authorities if during a periodic inspection they determine that the learning
center is unqualified to continue operations.
In
February 2007, we received provisional approval from the MOE to operate 10
learning centers in the provinces of Beijing, Shanghai, and Jiangsu and Zhejiang
for a trial period of up to 18 months. To date, we have also obtained provincial
level approval from the Beijing, Shanghai, Jiangsu, Zhejiang and Jiangxi
provinces to operate a total of 23 learning centers, which include the 10 that
received provisional approval from the MOE in February 2007. We have also
entered into agreements to establish four cooperative learning centers in the
provinces of Jilin, Hainan, Guangdong and Henan. In addition to the 27 learning
centers discussed above, we have also entered into agreements with 38 third
party learning centers pursuant to which we provide assistance applying for
approval from provincial level education authorities as well as securing
additional university online degree programs. The MOE has not yet issued to us a
final approval to operate learning centers on a nationwide basis in China based
on the performance and operation of our learning centers during the trial
period.
Regulations
on Operating Private Schools
The
principal regulations governing private education in China consist of the
Education Law of China
,
The Law for Promoting Private
Education (2003),
The Implementation Rules for the Law
for Promoting Private Education (2004)
and the
Regulations on Chinese-Foreign
Cooperation in Operating Schools
. These regulations are summarized
below.
Education
Law of China
The
Education Law of China
, or
the
Education Law
, was
enacted on March 18, 1995. The
Education Law
sets forth
provisions relating to the fundamental education systems of China, including a
system of pre-school education, primary education, secondary education and
higher education, a system of nine-year compulsory education and a system of
education certificates. The
Education Law
requires the
government to formulate plans for the development of education and the
establishment and operation of schools and other education institutions. In
principle, enterprises, social organizations and individuals are encouraged to
operate schools and other types of educational organizations in accordance with
Chinese laws and regulations. Nevertheless, no school or any other educational
institution may be established for profit-making purposes. However, private
schools may be operated for “reasonable returns,” as described in more detail
below.
The
Law for Promoting Private Education (2003) and The Implementation Rules for
the Law for Promoting Private Education (2004)
The
Law for Promoting Private Education
(2003)
became effective on September 1, 2003, and its
implementing regulations,
The
Implementation Rules for the Law for Promoting Private Education
(2004)
, became effective on April 1, 2004. Under these
regulations, “private schools” are defined as schools established by individuals
or private social organizations using private funds. Private schools providing
degree education, pre-school education, education for self-study aid and other
academic education are subject to approval by the education authorities, while
private schools engaging in occupational qualification training and occupational
skill training are subject to approvals from the authorities in charge of labor
and social welfare. An approved private school will be granted an operating
permit, and it must be registered with the MCA or its local counterpart as a
privately run non-enterprise legal person. Two of our private primary and
secondary schools, the Anqing School and the Pingdingshan School, have obtained
operating permits and have been registered with the relevant local office of the
MCA. Since construction for Jingzhou School southern campus has been delayed
indefinitely, it has not applied for registration with the MCA yet.
The
operation of private schools is highly regulated. For example, the types and
amounts of fees charged by private schools offering certifications must be
approved by the relevant governmental authority and be publicly disclosed, and
the types and amounts of fees charged by private schools that do not offer
certifications need only be filed with the relevant governmental authority and
be publicly disclosed. Our Anqing School and Pingdingshan School currently offer
certifications to students.
Private
education is treated as a public welfare undertaking under the regulations.
Nonetheless, investors in a private school may elect to require “reasonable
returns” from the schools. Under the regulations, an election to establish a
private school as one requiring reasonable returns must be made in the articles
of association of the school. For schools that have made this election, the
amount of reasonable return that can be distributed to investors each year is
determined based on a percentage of the school’s “operating surplus,” which is
equal to the school’s annual net income less the aggregate amount of donations
received, government subsidies, if any, the amount required to be reserved for
the school’s development fund and other expenses as required by the regulations.
This percentage is determined by the school’s board of directors, taking into
consideration the following factors: (i) the school’s tuition and other
fees, (ii) the ratio of the school’s expenses used for educational
activities and improving the educational conditions to the total fees collected;
and (iii) the school’s admission standards and educational quality.
Information relating to these factors must be publicly disclosed before the
school’s board determines the percentage of the school’s annual net balance that
can be distributed as reasonable returns. This disclosed information and the
decision to distribute reasonable returns must also be filed with the approval
authorities within 15 days from the decision made by the board. However, none of
the current Chinese laws and regulations provides a formula or other guidelines
for determining “reasonable returns.” In addition, none of the current Chinese
laws and regulations sets forth different requirements or restrictions on a
private school’s ability to operate its education business based on such
school’s status as a school that requires reasonable returns or a school that
has not made this election. The Anqing School was established as a school that
requires reasonable returns. We are in the process of changing the status of the
Pingdingshan School to a school that requires reasonable returns.
At the end of each
fiscal year, private schools are required to allocate a certain amount to their
development fund for the construction and maintenance of the school and the
procurement and upgrade of educational equipment. For private schools that
require reasonable returns, this amount must be no less than 25% of the annual
net income or the annual increase in the net assets of the school, while for
other private schools, this amount must be no less than 25% of the annual
increase in the net assets of the school, if any. Private schools that have not
elected to require reasonable returns are entitled to the same preferential tax
treatment as public schools. The regulations require that preferential tax
treatment policies applicable to private schools requiring reasonable returns to
be formulated by the finance authority, taxation authority and other authorities
under the State Council, but to date no such regulations have been promulgated
by the relevant authorities.
Regulations
on Chinese-Foreign Cooperation in Operating Schools
Chinese-foreign
cooperation in the operation of schools and training programs is governed by the
Regulations on Operating
Chinese-Foreign Schools
, issued by the State Council in 2003 in
accordance with the
Education
Law
, the
Occupational
Education Law
and the
Law for Promoting Private
Education
.
The
Regulations on Operating
Chinese-foreign Schools
and its implementing regulations, the
Implementing Rules for the
Regulations on Operating Chinese-foreign Schools
, or the
Implementing Rules
, which
were issued by the MOE in 2004, encourage substantive cooperation between
overseas educational organizations, which are required to have relevant
qualifications and experience in providing high-quality education, and Chinese
educational organizations to jointly operate various types of schools in
China.
Permits
for Chinese-foreign cooperation in operating schools must be obtained from the
relevant education authorities or the authorities that regulate labor and social
welfare in China. Since all of our private primary and secondary schools are
operated by our Chinese affiliated entity and not by us, we believe, based on
the advice of our Chinese counsel, that we are not required to apply for these
permits.
Additionally,
the
Regulations on Operating
Chinese-Foreign Schools
and its
Implementing Rules
require
that the foreign party to Chinese-foreign cooperative educational institutions
or programs be a “foreign educational institution,” and under those regulations,
a for-profit company, such as us, cannot qualify as a foreign educational
institution. As a result, we cannot directly operate the SCC, FEC or BCIT
programs, and instead we are a service provider to these programs.
In August
2004, the MOE promulgated the
Announcement Regarding Re-Approval
of Chinese-foreign Cooperative Educational Institutions and Programs
,
which requires Chinese-foreign cooperative educational institutions and programs
that were established before July 1, 2004 (the effective date for the
Implementing Rules
) to obtain
re-approval from the MOE. Since not all of our contracted schools have obtained
re-approval from the MOE, as a result, in 2008 we mutually terminated our
agreement with WITT.
In April
2007, the MOE issued the Circular on Further Regulating Chinese-foreign
Cooperative Education Programs. The circular directs the local education
authorities generally to suspend the approval of any new Chinese-foreign
cooperative polytechnic education programs until the end of 2008. To ensure the
quality of the Chinese-foreign education programs, the circular emphasizes the
regulatory supervision of these programs and advises local education authorities
to closely supervise and monitor the existing programs, especially in recruiting
materials, advertisement, and issuance of degrees and diplomas, and directs them
to report and remedy any non-compliance by existing programs of the applicable
regulations. As a result of this circular, our BCIT program has not been able to
contract new schools for the program, and we do not expect it to until at least
2010. Although the circular only discusses the suspension of approvals through
the end of 2008, we cannot assure you that our BCIT program will be able to
contract new schools during 2010, or at any time after that.
Regulations
on Internet Information Services
Following
the State Council’s issuance of the
Telecom Regulations and the Internet
Information Services Administrative Measures
, or the
Internet Information
Measures
, on September 25, 2000, the MII and other regulatory
authorities have issued a number of Internet-related regulations, including the
Internet Electronic Bulletin
Board Service Administrative Measures
, or the
BBS Measures
.
The
Internet Information Measures
require that commercial Internet content providers, or ICPs, must either obtain
a license for Internet information services, or an ICP license, from, or make an
ICP filing with, the appropriate telecommunications authorities to carry on any
commercial Internet information services in China. Generally, an ICP license is
required to provide Internet information services for profit-making purposes,
whereas only an ICP filing is required to provide Internet information services
on a non-profit basis. The telecommunications authorities generally consider
that the online degree programs established by universities are not for
profit-making purposes, and the universities are only required to make an ICP
filing, rather than obtain an ICP license, for their online degree programs. The
telecommunications authorities could, however, require the universities to
obtain ICP licenses in the future. In addition, some of our university partners
for online degree programs have not made the required filing with the
telecommunications authorities. If our university partners fail to make an ICP
filing, or obtain an ICP license (if required), these online degree programs may
be sanctioned or suspended.
The 101
Online School, a profit-making business, is required to obtain an ICP license.
Gotop Electronic, a subsidiary of Xiandai Technology, holds the ICP license for
our 101 Online School. Before we acquired Gotop Electronic, it had already
obtained an ICP license. Following our initial acquisition of Gotop Electronic,
a subsidiary of our affiliate entity, Xiandai Technology, directly held an 80%
equity interest of Gotop Electronic.
Although approvals of
the MII, the MOE and the MOC were required for this transaction, we did not
apply for or obtain these approvals. Subsequent to the acquisition, we have
transferred our equity interests in Gotop Electronic to our Chinese affiliated
entity. In addition, at the time when Gotop Electronic was approved by relevant
Chinese authorities to engage in the ICP business, its registered capital did
not meet the minimum requirement specified under Chinese law for ICP license
holders. We have subsequently increased the registered capital of Gotop
Electronic to satisfy this requirement. As a result, we believe that any
regulatory issues relating to our interest in Gotop Electronic have been
resolved.
Under the
Internet Information
Measures
, Internet
information service providers are prohibited from producing, copying, publishing
or distributing information that insults or slanders a third party or that
infringes the lawful rights and interests of others. Depending on the nature of
a violation, ICPs that violate this provision may face criminal charges or be
sanctioned by security authorities. In addition, they may be ordered to
temporarily suspend their service, or their licenses may be
revoked.
The
BBS Measures
provide that
ICPs engaged in providing online bulletin board services, or BBS, must comply
with a special approval process and make a specific filing with the relevant
telecommunications industry authorities. ICPs that provide electronic messaging
services must not disclose user personal information to any third party without
the consent of the user, unless the law otherwise requires that the data be
disclosed. The regulations authorize the relevant telecommunications authorities
to require ICPs to rectify any unauthorized disclosure. ICPs could be liable if
unauthorized disclosure causes damages or losses to users. The Chinese
government can require ICPs to provide the government with Internet users’
personal information if the users post any prohibited content or engage in
illegal activities on the Internet. Our 101 Online School provides BBS or
similar services. Gotop Electronic, the ICP license holder and website operator
of our 101 Online School, has obtained the BBS license, which is valid until
September 24, 2011 and is subject to annual inspection.
In July
2006, the MII issued the
Notice on Strengthening Management
of Foreign Investment in Operating Value-Added Telecom Services
. The
notice prohibits Chinese ICPs engaged in providing value-added telecom services
from leasing, transferring or selling their ICP licenses or providing facilities
or other resources to illegal foreign investors. The notice requires Chinese
ICPs to directly own the trademarks and domain names for the websites they
operate, as well as servers and other infrastructure used to support these
websites. The notice also requires Chinese ICPs to evaluate their compliance
with the notice by November 1, 2006 and correct any non-compliance. A
Chinese ICP’s failure to complete the procedures by November 1, 2006 could
be the basis for revocation of its ICP license.
We
operate
www.chinaedu.com
, the
operating website for our 101 Online School, through Gotop Electronic, a
subsidiary of Xiandai Technology, a subsidiary of our Chinese affiliated entity.
Gotop Electronic holds the ICP license for this website. The ICP license is
valid until 2011 and is subject to annual inspection. Gotop Electronic passed
the annual inspection in 2009. We operate our corporate websites,
www.chinaedu.net
and
www.prcedu.com,
through
Xiandai Technology, which holds the ICP license for these websites. The ICP was
renewed in 2010 and will be valid for five years beginning in February, 2010 and
is subject to annual inspection. Xiandai Technology passed the annual
inspection in 2009. We have not transferred the domain name and
trademark for our
www.chinaedu.net
and
www.prcedu.com
websites to
Xiandai Technology. We may be required to make such transfer in the future and,
if we are unable to do so, the ICP license held by Xiandai Technology may be
suspended or revoked by MII.
Regulations
on Online Publications
The
General Administration of Press and Publication of People’s Republic of China,
or GAPP and the MII jointly promulgated the
Tentative Internet Publishing
Administrative Measures,
or the
Internet Publishing
Measures
, which took effect on August 1, 2002. The
Internet Publishing Measures
require Internet publishers to obtain approval from the GAPP. The term “Internet
publishing” is defined in these regulations as online dissemination through
which Internet information service providers select, edit and process works
created by themselves or others (including content from books, newspapers,
periodicals, audio and video products, electronic publications, and other
sources that have already been formally published or works that have been made
public in other media) and subsequently post this content on the Internet or
transmit it to users over the Internet for browsing, use or downloading by the
public.
Gotop
Electronic, a subsidiary of Xiandai Technology, that operates our 101 Online
School, received verbal confirmation from the GAPP that the online content
services that it provides do not fall within the scope of “Internet publishing”
that would require approval or a license from GAPP. Obtaining an online
publication license requires compliance with certain conditions, including
having five or more qualified editors, which Gotop Electronic cannot satisfy.
However, because there is no further official or publicly-available
interpretation of “Internet publishing,” we cannot assure you that Gotop
Electronic will not require an online publication license in the
future.
Regulations
on Internet Culture Activities
The
Ministry of Culture of China promulgated the
Internet Culture Administration
Tentative Measures,
or the
Internet Culture Measures
,
on May 10, 2003. These measures became effective on July 1, 2003 and
were amended on July 1, 2004. The
Internet Culture Measures
require ICPs engaging in Internet culture activities to obtain an Internet
culture business operations license from the Ministry of Culture in accordance
with the
Internet Culture
Measures
. As defined under the
Internet Culture Measures
,
the term “Internet culture activities” includes, among other things, acts of
online dissemination of Internet cultural products, such as audio-visual
products, games, performances of plays or programs, works of art and cartoons,
and the production, reproduction, importation, sale (wholesale or retail),
leasing and broadcasting of Internet cultural products.
Gotop
Electronic, a subsidiary of our Chinese affiliated entity that operates our 101
Online School, is engaged in the distribution of certain audio-visual products
through the Internet. Gotop Electronic received verbal confirmation from the
Ministry of Culture that its products do not fall within the definition of
“Internet culture products” and its operations do not fall within the definition
of “Internet culture activities” as defined under the
Internet Culture Measures
.
Accordingly, Gotop Electronic is not required to obtain an Internet culture
business operations license. However, because there is no further official or
publicly-available interpretation of these definitions, we cannot assure you
that Gotop Electronic will not need an Internet culture business operations
license in the future.
Regulations
relating to Information Security
On
December 28, 2000, the National People’s Congress enacted the
Decisions Regarding Maintaining
Internet Security
, which prohibits any use of the Internet that results
in a breach of public security, dissemination of socially destabilizing content
or divulgence of state secrets. The conduct prohibited is broadly defined under
the decisions.
According
to other relevant regulations, ICPs must complete mandatory security filing
procedures with local public security authorities and must also report any
public dissemination of prohibited content. According to the
Interim Measures for the
Administration of Filings for Commercial Web Sites
promulgated by the
Beijing Administration of Industry and Commerce, or the Beijing AIC, and other
related regulations, we must file and register our websites with Beijing AIC and
obtain electronic registration marks. We have filed and registered our websites,
www.chinaedu.com
,
www.chinaedu.net
and
www.prcedu.com
with Beijing
AIC and obtained electronic registration marks.
Regulations
on Broadcasting Audio-Video Programs through the Internet or Other Information
Network
The State
Administration of Radio, Film and Television, or SARFT, and MII promulgated the
Rules for Administration of
Internet Video-Audio Programs Service
, or the
Video-Audio Programs
Rules
, which became
effective on January 31, 2008. The
Video-Audio Programs Rules
apply to the activities of broadcasting, integration, transmission, downloading
of audio-video programs with computers, televisions or mobile phones as the main
terminals and through various types of information networks. Pursuant to the
Video-Audio Programs
Rules
, a permit for broadcasting audio-video programs through an
information network is required to engage in these Internet broadcasting
activities. On April 13, 2005, the State Council announced a policy on
private investments in businesses in China that relate to cultural matters,
which prohibits private investments in businesses relating to the dissemination
of audio-video programs through information networks. As these regulations are
relatively new, there are significant uncertainties relating to their
interpretation and implementation, including the definition of “audio-video
programs” as specified in these regulations. Gotop Electronic, a subsidiary of
our Chinese affiliated entity engaging in online tutoring services, does not now
possess a permit for broadcasting audio-video programs, and we cannot assure you
that it will not be required to obtain one in the future.
Regulations
on Protection of the Right of Dissemination through Information
Networks
On
May 18, 2006, the State Council issued the
Regulations on Protection of the
Right of Dissemination through Information Networks
, and they became
effective on July 1, 2006. These regulations require that every
organization or individual who disseminates a third party’s work, performance,
audio or visual recording products to the public through an information network
must obtain permission from, and pay compensation to, the copyright owner of
these products, unless otherwise provided under relevant laws and regulations.
The copyright owner may take technical measures to protect his or her right of
dissemination through information networks and any organization or individual
may not intentionally evade, destroy or otherwise assist others in evading these
protective measures unless permissible under law. These regulations also provide
that permission from and compensation for the copyright owner are not required
in the event of limited dissemination to teaching or research staff for the
purpose of school teaching or scientific research.
We own
the copyrights to all of the educational materials of our 101 Online School, and
the copyrights to all of the online courses for our university partners’ online
degree programs are either owned by us or by collaborative alliances with the
university partners. However, users of our BBS for our 101 Online School may
post copyrighted materials from time to time, without our prior knowledge. We
actively monitor the contents posted on our BBS and will remove any materials
that we believe may infringe the copyrights of third parties.
Regulations
on Copyright and Trademark Protection
China has
adopted legislation governing intellectual property rights, including copyrights
and trademarks. China is a signatory to the main international conventions on
intellectual property rights and became a member of the
Agreement on Trade Related Aspects
of Intellectual Property Rights
, or
TRIPS
, upon its accession to
the World Trade Organization in December 2001.
Copyright
. The
National People’s Congress amended its
Copyright Law
in 2001 to
widen the scope of works and rights that are eligible for copyright protection.
The amended
Copyright
Law
extends copyright protection to Internet activities, products
disseminated over the Internet and software products. In addition, there is a
voluntary registration system administered by the China Copyright Protection
Center.
To
address the problem of copyright infringement related to content posted or
transmitted over the Internet, the National Copyright Administration and the MII
jointly issued the
Administrative Measures for
Copyright Protection Related to the Internet
on April 30, 2005.
These measures became effective on May 30, 2005.
We own
the copyrights to all of the educational materials of our 101 Online School, and
the copyrights to all of the online courses for our university partners’
programs are either owned by us or by our university collaborative
alliances.
Trademark.
The
Chinese Trademark Law
,
adopted in 1982 and revised in 2001, protects the proprietary rights to
registered trademarks. The Trademark Office, which is under the SAIC, handles
trademark registrations and grants a ten-year term to registered trademarks,
subject to renewal for another ten years. Trademark license agreements must be
filed with the Trademark Office for record. We have registered nine trademarks
with the Trademark Office and are in the process of registering additional
marks. In addition, if a registered trademark is recognized as a well-known
trademark, the proprietary right of the trademark holder may be extended beyond
the registered sphere of products and services of the
trademark.
On
November 5, 2004, the MII amended the
Measures for Administration of
Domain Names for the Chinese Internet
, or the
Domain Name Measures
. The
Domain Name Measures
regulate the registration of domain names, such as the first tier domain name
“.cn.” In February 2006, China Internet Network Information Center, or CINIC,
issued the
Implementing Rules
for Domain Name Registration and the Measures on Domain Name Disputes
Resolution
, pursuant to which CINIC can authorize a domain name dispute
resolution institution to decide disputes. We have registered the domain names
for our main websites,
www.chinaedu.net
,
www.chinaedu.com
and
www.prcedu.com,
with CINIC.
We are also the registered owner of several other domain names such as
www.prc-edu.com, www.ecustmde.com,
www.edufe.com.cn, www.edufe.net.cn, www.cmjnu.com.cn, www.cmr.com.cn,
www.ruc.com.cn,
and
www.cmr.net.cn
. We license certain of our domain names to some of our
university partners for them to operate their online degree programs, and some
of our university partners are the registered owners of the domain names under
which their programs operate.
Limitations
on Foreign Ownership of Our Businesses
The
Foreign Investment Industry Guidance Catalogue (amended in 2007), the
Regulations on Chinese-Foreign Cooperation in Operating School, the
Implementation Measures for the Regulations on Sino-Foreign Cooperation in
Operating Schools and other applicable laws and regulations limit foreign
ownership in entities, or foreign participation in entities, engaging in
specified education activities by:
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requiring that the foreign party
in any Chinese-foreign cooperation in operating schools be a qualified
foreign educational
institution;
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requiring regulatory approval for
any Chinese-foreign cooperation in operating
schools;
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prohibiting foreign investment in
schools providing compulsory education (that is, the first grade through
the ninth grade, or primary school and junior high school education);
and
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restricting foreign investment in
educational websites.
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Moreover,
from a practical perspective, the MOE will not approve any foreign investment or
participation in online degree education.
Our
corporate structure is designed to comply with current regulatory limitations on
foreign ownership and participation while engaging in our core business
activities. For details, see “—C. Organizational Structure.”
Compliance
with Chinese Regulations on the Education Services Industry, Publishing,
Internet Activities and Copyrights and Trademarks
We
believe that, except for the online publication license, the Internet culture
business operations license and the license for broadcasting audio-video
programs through the Internet discussed above, no consent, approval or license
other than those already obtained by our Chinese subsidiaries and affiliate is
required under any of the existing laws and regulations of China for our
business and operations.
Regulation
of Foreign Currency Exchange and Dividend Distribution
Foreign
currency exchange
The
principal regulations governing foreign currency exchange in China are the
Foreign Currency Administration
Regulations
(1996), as amended. Under these regulations, the
Renminbi is convertible for current account items, including the distribution of
dividends, interest payments, trade and service-related foreign exchange
transactions. Conversion of the Renminbi for capital account items, such as
direct investment, loans, repatriation of investment and investment in
securities outside China, however, is still subject to SAFE
approval.
Dividends
paid by a subsidiary to its shareholder are deemed income of the shareholder and
are taxable in China. Pursuant to the
Administration Rules of the
Settlement, Sale and Payment of Foreign Exchange
(1996), foreign-invested
enterprises in China may purchase or remit foreign exchange, subject to a cap
approved by the SAFE, for settlement of current account transactions without the
approval of the SAFE. Foreign exchange transactions under the capital account
are still subject to limitations and require approvals from, or registration
with, the SAFE and other relevant Chinese governmental
authorities.
Dividend
distribution
The
principal regulations governing distribution of dividends of foreign holding
companies include the
Foreign
Investment Enterprise Law
(1986), as amended, and the
Administrative Rules under the
Foreign Investment Enterprise Law
(2001). Under these regulations,
foreign investment enterprises, or FIEs, in China may pay dividends only out of
their accumulated profits, if any, determined in accordance with Chinese
accounting standards and regulations. In addition, FIEs in China are required to
allocate at least 10% of their accumulated profits each year, if any, to fund
certain reserve funds unless these reserves have reached 50% of the registered
capital of the enterprises. These reserves are not distributable as cash
dividends. Our Chinese subsidiaries, which are all FIEs, are restricted from
distributing any dividends to us until they have met the requirements set out in
these regulations.
Under PRC
tax laws in effect prior to January 1, 2008, dividends paid to foreign investors
by foreign-invested enterprises, such as dividends paid to overseas holding
companies by PRC subsidiaries, were exempt from PRC withholding
tax. Under the EIT Law and its implementation rules which became
effective on January 1, 2008, dividends declared on earnings generated after
January 1, 2008 and payable by a foreign-invested enterprise in China to its
foreign investors who are non-resident enterprises are subject to a 10%
withholding tax, unless any such foreign investor's jurisdiction of
incorporation has a tax treaty with China that provides for a different
withholding arrangement. The Cayman Islands, where the Company is
incorporated, does not have a tax treaty with China.
SAFE
regulations on overseas investment of Chinese residents and employee stock
options
The SAFE
issued
The Notice on Issues
Relating to the Administration of Foreign Exchange in Fund-Raising and Reverse
Investment Activities of Domestic Residents Conducted via Offshore Special
Purpose Companies
in October 2005, which became effective in November
2005, and an implementing rule in May 2007, collectively the SAFE Rules.
According to the SAFE Rules, Chinese residents, including both legal persons and
natural persons and Chinese citizens and foreign citizens who reside in China,
are required to register with the SAFE or its local branch before establishing
or controlling any company outside China, referred to in the SAFE rules as an
“offshore special purpose company,” for the purpose of financing that offshore
company with their ownership interests in the assets of or their interests in
any Chinese enterprise. In addition, a Chinese resident that is a shareholder of
an offshore special purpose company is required to amend its SAFE registration
with the local SAFE branch with respect to that offshore special purpose company
in connection with the injection of equity interests or assets of a Chinese
enterprise in the offshore company or overseas fund raising by the offshore
company, or any other material change in the capital of the offshore company,
including any increase or decrease of capital, transfer or swap of share,
merger, division, long-term equity or debt investment or creation of any
security interest. The SAFE Rules apply retroactively. As a result, Chinese
residents who have established or acquired control of offshore companies that
have made onshore investments in China in the past were required to complete the
relevant registration procedures with the competent local SAFE branch. If any
resident of China failed to file its SAFE registration for an existing offshore
entity, any dividends remitted by the onshore entity to its overseas parent
since April 21, 2005 will be considered to be an evasion of foreign
exchange purchase rules, and the payment of the dividend will be illegal. As a
result of any illegal action of this type, both the onshore entity and its
actual controlling person(s) can be fined. In addition, failure to comply with
the registration procedures may result in restrictions on the relevant onshore
entity, including prohibitions on the payment of dividends and other
distributions to its offshore parent or affiliate and capital inflow from the
offshore entity. Chinese resident shareholders of the offshore entity may also
be subject to penalties under Chinese foreign exchange administration
regulations.
We have
asked our shareholders and beneficial owners who are Chinese residents to make
the necessary applications and filings as required under Notice 75 and other
related rules. However, due to uncertainty concerning the reconciliation of
Notice 75 with other approval or registration requirements, it remains unclear
how Notice 75, and any future legislation concerning offshore or cross-border
transactions, will be interpreted, amended and implemented by the relevant
government authorities. We will attempt to comply, and attempt to ensure that
our shareholders and beneficial owners who are subject to these rules comply,
with the relevant requirements. However, we cannot provide any assurances that
all of our shareholders and beneficial owners who are Chinese residents will
comply with our request to make or obtain any applicable registrations or comply
with other requirements required by Notice 75 or other related rules. In
addition, certain of the holders of options to purchase our ordinary shares are
Chinese residents. We have been advised that it is unclear under the SAFE Rules
whether these option holders would be deemed to be beneficial owners of our
company for the purposes of these rules as a result of holding these options.
The failure or inability of our Chinese resident shareholders or beneficial
owners to register with the SAFE in a timely manner pursuant to the SAFE Rules,
or the failure or inability of any future Chinese resident shareholders or
beneficial owners to make any required SAFE registration or comply with other
requirements under the SAFE Rules may subject these shareholders or beneficial
owners to fines or other sanctions and may also limit our ability to contribute
additional capital into or provide loans to our Chinese subsidiaries, limit our
Chinese subsidiaries’ ability to pay dividends to us, repay shareholder loans or
otherwise distribute profits or proceeds from any reduction in capital, share
transfer or liquidation to us, or otherwise adversely affect
us.
On
March 28, 2007, SAFE promulgated the
Application Procedure of Foreign
Exchange Administration for Domestic Individuals Participating in Employee Stock
Option Holding Plan or Stock Option Plan of Overseas Listed Company
, or
the
Stock Option Rule
.
The purpose of the
Stock
Option Rule
is to regulate foreign exchange administration of Chinese
citizens who participate in employee stock holding plans and stock option plans
of offshore listed companies. According to the
Stock Option Rule
, if a
Chinese citizen participates in any employee stock holding plan or stock option
plan of an offshore listed company, a Chinese domestic agent or the Chinese
subsidiary of the offshore listed company is required to file, on behalf of the
individual, an application with the SAFE to obtain approval for an annual
allowance with respect to the purchase of foreign exchange in connection with
stock holding or stock option exercises. This restriction exists because a
Chinese citizen may not directly use offshore funds to purchase stock or
exercise stock options. Concurrent with the filing of the required application
with the SAFE, the Chinese domestic agent or the Chinese subsidiary must obtain
approval from the SAFE to open a special foreign exchange account at a Chinese
domestic bank to hold the funds required in connection with the stock purchase
or option exercise, any returned principal profits upon sales of stock, any
dividends issued on the stock and any other income or expenditures approved by
the SAFE. The Chinese domestic agent or the Chinese subsidiary also is required
to obtain approval from the SAFE to open an offshore special foreign exchange
account at an offshore trust bank to hold offshore funds used in connection with
any employee stock holding plans.
All
proceeds obtained by a Chinese citizen from dividends acquired from the offshore
listed company through employee stock holding plans or stock option plans, or
sales of the offshore listed company’s stock acquired through other methods,
must be remitted back to China after relevant offshore expenses are deducted.
The foreign exchange proceeds from these sales can be converted into Renminbi or
transferred to the individuals’ foreign exchange savings account after the
proceeds have been remitted back to the special foreign exchange account opened
at a Chinese bank. If stock options are exercised in a cashless exercise, the
Chinese individuals exercising them are required to remit the proceeds to the
special foreign exchange account. Although the
Stock Option Rule
was
promulgated recently and many issues require further interpretation, we and our
Chinese employees who have been granted stock options have been subject to the
Stock Option Rule
when
our company became an offshore listed company. If we or our Chinese employees
fail to comply with the
Stock
Option Rule
, we and/or our Chinese employees may face sanctions imposed
by foreign exchange authority or any other Chinese government
authorities.
C.
Organizational
Structure
Overview
We were
incorporated as an exempted company in the Cayman Islands with limited liability
in 1999. We are a holding company, and we conduct our business primarily through
our subsidiaries and Chinese affiliated entity incorporated in China. Chinese
laws and regulations limit the ability of foreign-owned entities to participate
in the education and telecommunication sectors in China. Our corporate structure
is designed to comply with current Chinese limitations on foreign ownership of,
and participation in, companies operating in the education and telecommunication
sectors in China. For a discussion of these restrictions see “—B. Business
Overview—Regulation—Limitations on Foreign Ownership of Our Businesses” and
“Item 3. Key Information—D. Risk Factors—Risks Related to China’s Regulation of
the Education and Telecommunication Sectors and Our Corporate
Structure.”
Our
Corporate Structure and Contractual Arrangements
Our
primary business is to provide services to the online degree programs of leading
Chinese universities. We conduct this business through our three Chinese
subsidiaries, except for three online degree programs that are serviced through
our Chinese affiliated entity. Due to restrictions on the foreign ownership and
operation of our online tutoring business and our private primary and secondary
school business, we conduct these businesses through arrangements with our
Chinese affiliated entity or variable interest entity. We direct these
companies’ business affairs and receive substantially all of their net income
through our contractual arrangements. We also conduct our international
curriculum program business through one of our three Chinese subsidiaries. In
2009, 82.5% of our net revenue was derived from businesses conducted by our
three principal Chinese subsidiaries.
Our
principal subsidiaries in China currently are:
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Beijing
Hongcheng Liye Technology Co., Ltd., or Hongcheng Liye, our wholly owned
subsidiary, which has established collaborative alliances with five
Chinese universities to provide services to the universities for the
establishment, operation, and expansion of their online degree programs.
These collaborative alliances are majority owned subsidiaries of Hongcheng
Liye. Hongcheng Liye’s collaborative alliance partners for online degree
programs are Beijing Language and Culture University, China Agricultural
University, Dongbei University of Finance and Economics, Central
University of Finance and Economics and Beijing Forestry University.
Hongcheng Liye also provides our learning-based products and services,
which include our English language training, online tutoring services and
post-secondary vocational educational programs. Our service revenue from
Hongcheng Liye in aggregate accounted for 43.3% of our net revenue in
2009;
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Hongcheng
Technology Development Co., Ltd., or Hongcheng Technology, our wholly
owned subsidiary, which has established four collaborative alliances with
Chongqing University, Shanghai University of Finance &
Economics, GRTU and FRTU to provide services for the
establishment, operation, and expansion of these universities’ online
degree programs. Hongcheng Technology also provides services to four other
universities, Jiangnan University, Nanjing University, Jiangxi
Normal University and Huazhong Normal University for their online degree
programs; and Hongcheng Technology also operates 23 learning centers
providing recruiting service to 16 universities. Our service revenue from
Hongcheng Technology in aggregate accounted for 18.7% of our net revenue
in 2009.
|
|
·
|
CMR
Web Learning Co., Ltd., or CMR Web, our 70% owned subsidiary, which
established a collaborative alliance with Renmin University of China to
provide services to Renmin University of China for the operation of its
online degree program. The remaining 30% of CMR Web is owned by Rendashiji
Technology Development Co., Ltd., a wholly owned subsidiary of Renmin
University of China. Our service revenue from Renmin University of China
accounted for 20.5% of our net revenue in
2009.
|
Our
current Chinese affiliated entity or variable interest entity is:
Beijing Hongcheng Education Technology
Co., Ltd., or Hongcheng Education, through which we own and operate three
private primary and secondary schools and provide services to Lanzhou
University, East China University of Science and Technology and Jiangsu
University for their online degree programs, and Hongcheng Education also
operates 42 learning centers providing recruiting service to 8
universities. Our service revenue from Hongcheng Education in aggregate
accounted for 17.5% of our net revenue in 2009.
Xiandai Xingye Network Technology Co.,
Ltd., or Xiandai Technology, used to be another Chinese affiliated entity of us.
In September 2009, the two shareholders of Xiandai Technology transferred their
equity interest in Xiandai Technology to Hongcheng Education. Xiandai Technology
thus became a wholly owned subsidiary of Hongcheng Education. Xiandai
Technology, and its subsidiary, Gotop Electronic, hold the ICP licenses for the
operation of our websites,
www.chinaedu.net
and
www.prcedu.com
,
and
www.chinaedu.com
,
respectively.
The
following diagram illustrates our corporate structure as of December 31,
2009.
We have
been, and expect to continue to be, dependent on our Chinese subsidiaries and
Chinese affiliated entity to conduct our core businesses in China. Through one
of our subsidiaries, we have entered into a series of contractual arrangements
with our Chinese affiliated entity and its shareholders that are intended to
provide us with the control over, and the economic benefits enjoyed by, this
Chinese affiliated entity. Pursuant to the terms of these contractual
arrangements:
|
·
|
we
effectively control our Chinese affiliated entity and its respective
subsidiaries;
|
|
·
|
substantially
all of the economic benefits of our Chinese affiliated entity are
transferred to us; and
|
|
·
|
our
Chinese subsidiaries or their respective designees have an exclusive
option to purchase all or substantially all of the equity interests in our
Chinese affiliated entity, to the extent permitted by Chinese
law.
|
Technical Consulting and Services
Agreement.
Through our wholly owned subsidiary,
Hongcheng Technology, we have entered into exclusive technical consulting and
service agreement with each of Hongcheng Education and Xiandai Technology. This
consulting and service agreement has an initial term of ten years and will be
automatically renewed for successive periods of ten years thereafter, unless
Hongcheng Technology provides written notice to the other party prior to the
expiration of the then current term of its election not to renew the agreement.
Under the agreement with Hongcheng Education, Hongcheng Technology provides
courseware and product development services, website design services,
maintenance and security services, employee training services and any other
services that may be agreed upon by the parties. Under the agreement with
Xiandai Technology, Hongcheng Technology provides network technology development
services, website design services, maintenance and security services and
employee training services, as well as any other services that may be agreed
upon by the parties. Under these agreements the fees payable to Hongcheng
Technology are based on the gross revenue of the service recipient and are paid
once annually within 30 days of the year-end.
We
operate three private primary and secondary schools through Hongcheng Education,
and have entered into a series of agreements with the shareholders of Hongcheng
Education, Mr. Changqing Xie, one of our officers, and Mr. Xueshan
Yang, one of our former directors, to maintain effective control over Hongcheng
Education. Currently, Mr. Xie and Mr. Yang hold 72% and 28%,
respectively, of the equity interest in Hongcheng Education.
Loan
Agreements
. In 2005, we loaned approximately $4.8
million to Mr. Xie and approximately $1.8 million to Mr. Yang to fund
the registered capital requirements of Hongcheng Education. The terms of these
loans are 20 years and may be extended with the consent of the parties. To the
extent permitted by Chinese law, each loan may be repaid only by the transfer by
Mr. Xie or Mr. Yang of his equity interests in Hongcheng Education to
us or our designee. Mr. Xie and Mr. Yang each have granted us the right to
appoint all directors to the board of Hongcheng Education, a right that they
otherwise would be entitled to as shareholders.
Shareholder Voting Rights
Entrustment Agreements
. In connection with the
Hongcheng Education loan agreements described above, in 2005, Mr. Xie and
Mr. Yang entered into shareholder voting rights entrustment agreements with
Hongcheng Technology. Pursuant to these agreements, Mr. Xie and
Mr. Yang each irrevocably entrusted Hongcheng Technology with the right to
act as their proxy and vote all of their shares in Hongcheng Education. Each of
these agreements will remain effective as long as Mr. Xie or Mr. Yang
remains a shareholder in Hongcheng Education.
Call Option
Agreements
. Mr. Xie and Mr. Yang each
entered into call option agreements with Hongcheng Technology in 2005. Pursuant
to these agreements, Mr. Xie and Mr. Yang each granted irrevocable
options to purchase all of their respective equity interests in Hongcheng
Education to Hongcheng Technology at the lowest price permitted under applicable
Chinese laws.
Equity Pledge Agreements and Powers
of Attorney
. As security for their obligations
under their call option agreements and shareholder voting rights entrustment
agreements with Hongcheng Technology and Hongcheng Education’s obligations under
the technical consulting and services agreement with Hongcheng Technology, in
2005, Mr. Xie and Mr. Yang entered into equity pledge agreements with
Hongcheng Education to pledge all of their equity interests in Hongcheng
Education and all distributions arising from those interests to Hongcheng
Technology.
Through
our Chinese subsidiary, we also entered into similar contractual arrangements
with our prior affiliated entity, Xiandai Technology, and its shareholders,
including loan agreements, shareholder voting rights entrustment agreements,
call option agreements, and equity pledge agreements, with similar terms as
those described above. As a result of Xiandai Technology
shareholders’ transfer of their equity interests in Xiandai Technology to
Hongcheng Education in September 2009, these contractual arrangements have been
terminated.
Our
Significant Subsidiaries
A summary
of our subsidiaries and Chinese affiliated entity or variable interest entity
and its subsidiaries as of December 31, 2009 is as follows:
Name
|
|
Date of
incorporation
or acquisition
|
|
Percentage of
legal ownership
|
|
Place
of incorporation
|
Subsidiaries
of the Company
|
|
|
|
|
|
|
CMR
Web-learning Co., Ltd. ("CMR Web")
|
|
July
29, 1999
|
|
70%
|
|
PRC
|
Hongcheng
Technology Development Co., Ltd. ("Hongcheng Technology")
|
|
July
31, 2000
|
|
100%
|
|
PRC
|
Beijing
Xuezhi Times Education Science Co., Ltd. ("Beijing
Xuezhi")
|
|
October
18, 2001
|
|
100%
|
|
PRC
|
Zhong
Nongda Networks Development Co., Ltd. ("Zhongnongda
Networks")
|
|
October
30, 2001
|
|
55%
|
|
PRC
|
Beijing
Hongcheng Liye Technology Co., Ltd. ("Hongcheng Liye")
|
|
April
15, 2003
|
|
100%
|
|
PRC
|
Dalian
Dongcai Technology Co., Ltd. ("Dongcai")
|
|
June
4, 2003
|
|
70%
|
|
PRC
|
Beijing
WITT Education Consultant Management Co., Ltd. ("WITT
Education")
|
|
July
4, 2003
|
|
100%
|
|
PRC
|
BJ-WITT
EDU MAN. LTD. ("BJ-WITT")
|
|
July
4, 2003
|
|
100%
|
|
BVI
|
Name
|
|
Date of
incorporation
or acquisition
|
|
Percentage of
legal ownership
|
|
Place
of incorporation
|
Chongqing
Chongda Yuanxing Co., Ltd. ("Chongda")
|
|
December
24, 2003
|
|
51%
|
|
PRC
|
Beijing
BCIT Science and Education Management Consulting Limited ("Beijing
BCIT")
|
|
January
13, 2005
|
|
100%
|
|
PRC
|
Beijing
WITT Science Co., Ltd. ("WITT Science")
|
|
December
26, 2005
|
|
100%
|
|
PRC
|
Beijing
Gotop Education Co., Ltd. ("Gotop Hongcheng")
|
|
December
26, 2005
|
|
100%
|
|
PRC
|
Beijing
BCIT Science and Education Management Consulting Limited
("BJ-BCIT")
|
|
February
10, 2006
|
|
100%
|
|
BVI
|
Beijing
Distance Education Technology Co., Ltd. ("Yuancheng
Education")
|
|
March
31, 2006
|
|
65%
|
|
PRC
|
Tianjin
Gaotuo Hongcheng Education Technology Co., Ltd. ("Tianjin Gaotuo
Hongcheng")
|
|
June
26, 2006
|
|
100%
|
|
PRC
|
Beijing
Beiyuda Education Technology Co., Ltd. ("Beiyuda")
|
|
September
26, 2006
|
|
51%
|
|
PRC
|
Beijing
Mingdaoyuan Technology Co., Ltd. ("Beijing Mingdao")
|
|
March
27, 2007
|
|
51%
|
|
PRC
|
Shanghai
Shangcai Education Technology Co., Ltd. ("Shanghai
Shangcai")
|
|
April
18, 2008
|
|
51%
|
|
PRC
|
Dongcai
Online Training Center ("Dongcai Online")
|
|
July
10, 2008
|
|
70%
|
|
PRC
|
Beijing
Zhonglin Technology Co., Ltd. ("Zhonglin")
|
|
November
3, 2008
|
|
51%
|
|
PRC
|
Guangxi
Hongcheng Times Technology Development Co., Ltd. ("Guangxi
Hongcheng")
|
|
February
10, 2009
|
|
51%
|
|
PRC
|
Fuzhou
Haojiaoshi Distance Education Service Co., Ltd. ("Fuzhou Good
Teacher")
|
|
December
7, 2009
|
|
51%
|
|
PRC
|
|
|
|
|
|
|
|
Variable
Interest Entity of the Company
|
|
|
|
|
|
|
Beijing
Hongcheng Education Technology Co., Ltd. ("Hongcheng
Education")
|
|
March
7, 2005
|
|
N/A*
|
|
PRC
|
|
|
|
|
|
|
|
Subsidiaries
of Variable Interest Entity
|
|
|
|
|
|
|
Beijing
Gotop Electronic Science Co., Ltd.
("Gotop
Electronic")
(1)
|
|
November
29, 1995
|
|
N/A
|
|
PRC
|
Xiandai
Xingye Network Technology Co., Ltd. ("Xiandai Technology")
(1)
|
|
November
7, 2000
|
|
N/A
|
|
PRC
|
Pingdingshan
Wellent Bilingual School ("Pingdingshan")
(1)
|
|
September
3, 2002
|
|
N/A
|
|
PRC
|
Anqing
Foreign Language Middle School ("Anqing Foreign Language")
(1)
|
|
August
2, 2004
|
|
N/A
|
|
PRC
|
Jingzhou
Tianchang Investment Co., Ltd. ("Tianchang")
(2)
|
|
September
6, 2005
|
|
N/A
|
|
PRC
|
Jingzhou
Middle School South Campus ("South Campus")
(3)
|
|
December
28, 2005
|
|
N/A
|
|
PRC
|
Beijing
Hongcheng YoYo Technology Co., Ltd. ("Hongcheng YoYo")
(1)
|
|
November
3, 2009
|
|
N/A
|
|
PRC
|
* PRC
regulations currently limit foreign ownership of entities that provide Internet
content and engage in primary and junior high school education. To
comply with PRC laws and regulations, we provide such services in China through
our variable interest entity, Hongcheng Education, and its
subsidiaries.
(1)
Wholly owned subsidiary of Hongcheng Education (variable interest entity of the
Company)
(2) 72.5%
of its equity interest is held by Hongcheng Education (variable interest entity
of the Company)
(3) 54%
of its equity interest is held by Hongcheng Education (variable interest entity
of the Company)
D.
Property, Plants and
Equipment
Our
principal executive office is located at 4
th
Floor-A, GeHua Building, No. 1 QinglongHutong, Dongcheng District, Beijing,
100007, People’s Republic of China, where we own approximately 3,450 square
meters. We also own other operating space in Beijing, Shanghai, Wuxi,
Chongqing, Zhengzhou, Nanchang and Dalian. Each of our three schools
(Pingdingshan School, Anqing School and Jingzhou School (Southern Campus)) has
associated properties that we own or lease. We believe that our existing
facilities, together with the facilities under construction, are adequate for
our current and foreseeable future operations.
Since
2007, we undertook a capital improvements program at our Anqing School and
Pingdingshan School. The renovations and improvements include a new campus for
Anqing School to accommodate larger student population and general facility
upgrades and a new building for Pingdingshan School to improve the level of
education. We spent a total of RMB27.6 million, RMB25.5 million and RMB41.6
million in 2007, 2008 and 2009 respectively, on the renovation of these schools,
and we anticipate incurring additional capital expenditures associated with the
contracted commitment related to such improvements of approximately RMB11.1
million in 2010.
In
addition, although we initially planned to complete construction of a new campus
at the Jingzhou School (Southern Campus) by the fall 2006 recruiting season, we
have encountered delays obtaining the land-use rights for the new campus site.
There is no assurance we will begin construction in the near future, or at all.
As of December 31,2009, we had capital commitments related to the acquisition
and further expansion of Jinzhou School (Southern Campus) of RMB64.8 million. If
we do not fulfill these commitments by the end of the contract term, our partner
Jingzhou High School has the right to seek compensation from us. For further
discussion of these capital expenditures and commitments, please refer to “
Item 5.
Operating and Financial Review and
Prospects
–
B.
Liquidity and Capital
Resources
.
”
The
following table lists the properties that we owned or leased as of December 31,
2009:
Property Address
|
|
Use of
Property
|
|
Owned/Leased
|
|
Approximate
Size (m
2
)
|
Suites
501 and 503, Tower A, Jin Feng He Office Building,
No.
8 Xinjiekouwai Road, Beijing
|
|
Office
|
|
Leased
|
|
99
|
Suite
416-2, F4, Tower C, Hui Long Sem,
International
Enterprise Technology Park, Beijing
Economic
and Technology Zone, 18 South West
Ring
Road, Beijing
|
|
Office
|
|
Leased
|
|
50
|
Suite
205, F2, Tower B, Hui Long Sem,
International
Enterprise Hatch Park, Beijing
Economic
and Technology Zone, No. 14 Zhong
He
Jie, Beijing
|
|
Office
|
|
Leased
|
|
68
|
17
F, 19F Renda Technology and Education
Centre,
No. 59, Zhongguancun Road, Haidian
District,
Beijing
|
|
Office
|
|
Leased
|
|
225
|
Qingshanwan
Rest House, Wuxi, Jiangsu
|
|
Office
|
|
Leased
|
|
45
|
F2,
Gao’an Building, No. 107 Gao’an Road, Shanghai
|
|
Office
|
|
Leased
|
|
30
|
R303,
No. 1 Suite, No. 2 Building, Shangdijiayuan, Beijing
|
|
Office
|
|
Leased
|
|
126
|
R0107,
Tower 2, Songzhuang Town, Songjiazhuang, Fengtai District,
Beijing
|
|
Office
|
|
Owned
|
|
136
|
R
809, Tower C, No. 9, Shangdi Sanjie,
Haidian
District, Beijing
|
|
Office
|
|
Leased
|
|
90
|
R201,
No. 10, Xinghuo Road, Science Town,
Fengtai
District, Beijing
|
|
Office
|
|
Leased
|
|
11
|
No.5,
Jinnan Road, Jinzhou District, Jingzhou, Hubei
|
|
Office
|
|
Leased
|
|
400
|
F2,
F4, No. 83, Shabei Street, Technology Square, Chongqing
|
|
Office
|
|
Leased
|
|
630
|
Northeast
corner, Cross of Qingyuan Road and Qianjiang Road, Anqing,
Anhui
|
|
School
|
|
Owned
|
|
159,119
|
No.
22, Guanyuemiao Street, Anqing, Anhui
(1)
|
|
School
|
|
Leased
|
|
2,500
|
Northwest
corner, Cross of Nanhuan Road and Yingdu Road, Jingzhou,
Hubei
|
|
School
|
|
Owned
|
|
191,865
|
C809,
C810, C811, C812, Tower C, No. 9, Shangdi Sanjie, Haidian District,
Beijing
|
|
Office
|
|
Owned
|
|
1,349
|
R3,
F2, No.2-3, Qixianling Xuezijie, Gaoxinyuan District, Dalian,
Liaoning
|
|
Office
|
|
Owned
|
|
413
|
Headquarters—4th
Floor-A, GeHua Building, No. 1 QinglongHutong, Dongcheng District,
Beijing
|
|
Office
|
|
Owned
|
|
3,450
|
Property Address
|
|
Use of
Property
|
|
Owned/Leased
|
|
Approximate
Size (m
2
)
|
R630,
Tower 1, No.1, Furong South Road, Tianxin District, Changsha,
Hunan
|
|
Office
|
|
|
|
167
|
R307,
F3, Tower A, No.1, Zhuzhai North Road, Jinshui District, Zhengzhou,
Henan
|
|
Office
|
|
Owned
|
|
73
|
R402,
Tower 10, Guanting Square, Huilongguan Town, Changping District,
Beijing
|
|
Office
|
|
Owned
|
|
122
|
No.2000,
Huashan Road, Xuhui District, Shanghai
|
|
Office
|
|
Leased
|
|
328
|
F1,
F7, Ximatai Building, No.193, Jiefang Road, Xuzhou,
Jiangsu
|
|
Office
|
|
Leased
|
|
430
|
F6,
Jinluan Building, No.101, Zhongshan South Road, Nanjing,
Jiangsu
|
|
Office
|
|
Leased
|
|
470
|
R601,
602, 603, No.66, Gongyuan Road, Changzhou, Jiangsu
|
|
Office
|
|
Leased
|
|
300
|
F11,
Longshi Center, No.2, Guangzhou Road, Nanjing, Jiangsu
|
|
Office
|
|
Leased
|
|
433
|
R609,
R610, No.151, Yangyu Alley, Suzhou, Jiangsu
|
|
Office
|
|
Leased
|
|
170
|
R1303,
No.6, Dasha East Road, Huangpu District, Guangzhou,
Guangdong
|
|
Office
|
|
Leased
|
|
45
|
R2,
F1, Greatwall Building, No.62, Zhongguancun East Road, Haidian District,
Beijing
|
|
Office
|
|
Leased
|
|
333
|
No.7,
South Business Room, Cangwu Community, Jinpu District, Lianyungang,
Jiangsu
|
|
Office
|
|
Leased
|
|
85
|
F4,
No.285, Qiannan Middle Road, Nantong, Jiangsu
|
|
Office
|
|
Leased
|
|
600
|
No.150,
Renmin Road, Jiangbei District, Ningbo, Zhejiang
|
|
Office
|
|
Leased
|
|
110
|
G8,
G9, F1, Xinfuxiong Building, Yuexiu District, Guangzhou,
Guangdong
|
|
Office
|
|
Leased
|
|
51
|
No.1596,
Ziyou Road, Changchun, Jilin
|
|
Office
|
|
Leased
|
|
40
|
No.653,
Suofeiya Warehouse, Wanziying, Heizhuanghu Village, Chaoyang District,
Beijing
|
|
Warehouse
|
|
Leased
|
|
104
|
R1608,
No.11, Maliandao Road, Xuanwu District, Beijing
|
|
Office
|
|
Leased
|
|
35
|
R6088,
Tower 1, No.2, Hengfu Middle Road, Science City, Fengtai District,
Beijing
|
|
Office
|
|
Leased
|
|
34
|
Zhanhe
South Road, Pingdingshan, Henan
|
|
School
|
|
Owned
|
|
7,848
|
7F,
Lawyer Building, No.392, Nanmenwai Road, Nankai District,
Tianjin
|
|
Office
|
|
Leased
|
|
528
|
R715,
716, 717 Jiyumingdu, No.299, Hongdu North Road, Qingshanhu District,
Nanchang, Jiangxi
|
|
Office
|
|
Owned
|
|
120
|
R106,
F1, Wanda square, Luguyinhe Business Zone, Shijingshan District,
Beijing
|
|
Office
|
|
Owned
|
|
190
|
Printing
Factory Yard, Coal industry Press, Shaoyaoju, Chaoyang District,
Beijing
|
|
Office
|
|
Owned
|
|
1,100
|
N411,
Gongyuanguoji Plaza, Wenchang West Road, Yangzhou, Jiangsu
|
|
Office
|
|
Leased
|
|
171
|
No.160,
Beijing North Road, Huaian, Jiangsu
|
|
Office
|
|
Leased
|
|
160
|
N176-8,
Xingfu South Road, Suqian, Jiangsu
|
|
Office
|
|
Leased
|
|
210
|
Room
508, F5, Shengshitianxi Plaza, No.81, Qingyang Road Nanchang District,
Wuxi
|
|
Office
|
|
Leased
|
|
242
|
Tower
C, F11, Huaxing Building, No.45, Zhongshan East Road, Zhenjiang,
Jiangsu
|
|
Office
|
|
Leased
|
|
190
|
F14,
No.80, Road Wenyi, Xihu District, Hangzhou, Zhejiang
|
|
Office
|
|
Leased
|
|
90
|
No.149,
Zhongshan East Road Jiaojiang District, Taizhou, Zhejiang
|
|
Office
|
|
Leased
|
|
201
|
F1,
City Library, No.26, Yulong East Road, Yancheng, Jiangsu
|
|
Office
|
|
Leased
|
|
70
|
F2,
8th Building Company, No.321, Hailing South Road, Taizhou,
Jiangsu
|
|
Office
|
|
Leased
|
|
60
|
(1) In
addition to the owned property, the Anqing School pays user fees to the Fourth
Middle School of Anqing for certain state-owned campus facilities it
uses.
Item
4A. Unresolved Staff Comments
Not
applicable.
Item
5. Operating and Financial Review and Prospects
You
should read the following discussion and analysis of our financial condition and
results of operations in conjunction with our consolidated financial statements
and related notes included elsewhere in this annual report on Form 20-F. This
discussion contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements as a result of various factors, including those
set forth under “Item 3. Key Information—D. Risk Factors” and elsewhere in this
annual report on Form 20-F.
Overview
We are a
leading educational services provider in China, incorporated as an exempted
limited liability company in the Cayman Islands. Established in 1999, our
primary business is to provide comprehensive services to the online degree
programs of leading Chinese universities. These services include academic
program development, technology services, enrollment marketing, recruiting,
student support services and finance operations. Our other lines of
businesses include the operation of online tutoring services, private primary
and secondary schools and marketing and support for international curriculum
programs. We believe we are the largest service provider to online degree
programs in China in terms of the number of higher education institutions that
are served and the number of student enrollments supported.
We
currently have strategic relationships with 29 universities, 17 of which are
under long-term
contracts that generally
vary from 10 to 50 years in length. Twelve of our university partners including
GRTU and FRTU currently operate their own online degree programs and five
universities are awaiting regulatory approval to begin their online degree
programs. We also perform recruiting service for 18 universities through our
nationwide learning centers network. As of December 31, 2009, there
were approximately 287,000 revenue students in the online degree programs that
we service through these relationships. These online degree programs are
marketed under the brand names of these leading Chinese universities, which
allow us to benefit from the significant brand equity that these higher
education institutions have established.
Our
business has experienced significant growth since its inception in 1999. This
growth has been driven by the increased number of universities that we serve,
the increased enrollment of the online degree programs of our university
partners, and our expansion into other education-related lines of business. We
generate our revenue from service fees and tuition payments derived from
students who are enrolled in, or served by, our businesses. As of December 31,
2009, we provided services to online degree programs that had an aggregate of
approximately 287,000 revenue students, and we served approximately 47,570
students in our other businesses. Our net revenue increased from RMB265.0
million in 2007 to RMB317.7 million in 2008, and RMB354.7 million ($52.0
million) in 2009, representing a compound annual growth rate, or CAGR, of 15.7%.
Net revenue from our online degree programs contributed 76.3%, 80.4% and 80.4%
of our total net revenue for the years ended December 31, 2007, 2008 and 2009,
respectively.
General
Factors Affecting Our Results of Operations
We have
benefited greatly from the rapid growth of the Chinese education market. This
growth has been driven by several factors, including favorable demographic
trends, overall economic growth and the increase in per capita income, the
imbalance between supply and demand for traditional post-secondary education,
the emphasis that Chinese culture places on higher education and the growing
number of Internet users, especially those with broadband access. China’s
accelerating integration into the global economy is providing increasing career
opportunities for those with post-secondary qualifications. These factors have
led to significant increases in education spending in China and in the number of
people interested in obtaining post-secondary education, including through
online degree programs and other forms of private education services. We
anticipate that the Chinese education market will continue to grow, including
the demand for post-secondary degree programs that can be delivered online.
However, any adverse changes in the economic conditions in China may adversely
affect the demand for post-secondary degree programs, and regulatory changes
could adversely affect the ability of companies such as ours to service this
market.
Specific
Factors Affecting Our Results of Operations
While the
general factors affecting the Chinese education market influence us, we believe
that company specific and regulatory factors more directly affect our business.
Company specific factors include the number of online degree programs we
service, the number of registered students and the number of revenue students in
the programs that we service, the amount of tuition fees these programs can
charge, the amount of fees that we can derive from tuition fees collected by
these programs, the amount of expenses paid by our university partners for their
online degree programs, particularly fees they pay to learning centers, and our
cost of revenue and operating expenses. Because the online degree programs that
we service, which constitute our largest business segment, are operated by our
university partners to whom we provide services, the number of student
enrollments, the number of revenue students and tuition fees, are largely driven
by the demand for the course offerings and recruitment efforts of our partners.
We do, however, provide a technology and service platform that helps drive
enrollment through the quality of the course offerings and we assist in
enrollment marketing as well as recruiting for the university
programs.
Regulatory
factors include the number of additional universities that may be authorized by
the MOE to offer online degree programs, the timing of any such approvals by the
MOE, regulations related to student recruiting activities, such as establishment
of learning centers which are subject to regulation by local authorities, and
whether the MOE will approve and facilitate future cooperative arrangements
between Chinese and foreign educational institutions. In addition, the tuition
fees for all the programs we provide services to, as well as the tuition fees
for our private schools, are subject to direct regulation by China’s price
control authorities. Furthermore, any increase in the tax rates applicable to,
or the loss of preferential tax treatments enjoyed by, our Chinese subsidiaries
and Chinese affiliated entity as a result of changes in Chinese tax laws will
adversely affect our results of operations. See “—Taxation.”
We expect
to expand the penetration of our online program services by increasing the
number of universities that use our online program services, increasing total
student enrollments at the online degree programs we currently serve, as well as
continuing expansion of our learning centers network. We believe that our
ability to grow will be driven principally by the continued strengthening of our
brand name, improvement of our service quality and development of new services.
We are actively targeting other universities to become our partners for their
online education programs. The targeted universities include both those already
offering online degree programs and those planning to offer online degree
programs.
A
significant factor affecting the results of our online degree program segment is
the fees that our university partners pay to the third-party learning centers.
The learning centers play an important role in recruiting students and providing
student services including testing services. The share of tuition revenue that
we receive from our university partners is after the payment of fees to the
learning centers. As a result, an increase in the portion of tuition fees paid
to the learning centers will result in a decrease in the portion of tuition fees
that we receive as revenue. In 2009, the majority of our university partners
paid fees to independent learning centers in amounts ranging from 20% to 54% of
the gross tuition revenues received by their online degree programs. For fiscal
years ended December 31, 2007, 2008 and 2009, the portion of gross tuition fees
that our university partners paid in aggregate to independent learning centers
was approximately 40%, 39% and 40%, respectively. There can be no assurance that
the amounts payable to independent learning centers, as a portion of gross
tuition fees, will not increase. See “Item 3. Key Information—D. Risk
Factors—Risks Related to Our Business—We derive a majority of our revenue by
providing services to online degree programs, and any adverse development in
this business will materially and adversely affect our overall results of
operations.”
To
strengthen our ability to assist our university partners to recruit students and
improve student service quality as well as to enhance our profitability, we have
been building a network of learning centers across China. We believe building a
national network of learning centers will enable us to significantly enhance our
brand recognition and to contribute to our future revenue growth. Proprietary
learning centers generally require low initial capital expenditure as most are
rented locations, which require moderate remodeling and furnishing of office
supplies. To date, we have a total of 65 learning centers servicing 18
universities’ online degree programs.
The
future results of operations of our online tutoring services will depend
significantly upon our ability to increase awareness of our online tutoring
programs, to improve effectiveness and efficiency of our sales channel and to
develop new products and services to further enhance the learning experience of
existing students and attract new students.
The
results of operations of our private primary and secondary schools will depend
significantly upon our capability to continue to increase enrollment and
increase price post the construction of a new campus at our Anqing School and
facility improvement at our Pingdingshan School. We had initially planned to
commence construction of a new campus for Jingzhou School, however, due to
delays and increase in construction costs, we cannot assure you that we will
begin construction in the near future, or at all.
The
results of operations of our international curriculum programs will depend
significantly on the number of schools and students enrolled in these programs
and the amount per student that we receive. Due to regulatory developments, we
expect the future results for our international curriculum programs to be
adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Related
to Our Business—Our international curriculum programs, which include our
Polytechnic and English language programs, are heavily regulated, and our
ability to conduct business in this area is highly dependent on regulatory
policies and our compliance with these policies.”
Our cost
of revenue and operating expenses principally consist of the salaries,
courseware development costs, research and development expenses, marketing
expenses, administrative expenses and, depreciation and amortization costs
relating to our growing business.
Net
revenue
In the
fiscal years ended December 31, 2007, 2008 and 2009, we generated net
revenue of RMB265.0 million, RMB317.7 million and RMB354.7 million
($52.0 million) respectively, representing a CAGR of 15.7%. Our revenue is net
of Chinese business taxes and related surcharges. Our net revenue from servicing
the online degree programs is net of certain expenses paid by our university
partners relating to their online degree programs, including fees paid to
learning centers and any tuition refunds paid to students. For the years ended
December 31, 2007, 2008 and 2009, the portion of gross tuition fees that our
university partners paid in aggregate to third party learning centers was
approximately 40%, 39% and 40%, respectively. The revenue from our other
business lines, online tutoring programs, private primary and secondary schools
and international curriculum programs, is driven by the number of revenue
students and the fees charged for each student.
Our
revenue is reported net of business taxes and related surcharges that are levied
on our total revenue. Most of our revenue, except from primary and secondary
schools, is subject to Chinese business tax at rates of up to 5.5%. Our primary
and secondary schools are exempted from business tax. A percentage of revenue
from our online degree program services and a majority percentage from our
online tutoring programs are subject to value-added taxes. Such value-added tax
rebates are granted to us as part of the PRC government's strategy to encourage
high technology development in the PRC, and are recorded as a component of
revenue when the relevant compliance requirements are met. We are not subject to
further obligations, nor to future refunds or reimbursements in connection with
such value-added tax rebates. We incurred business taxes of RMB7.4 million,
RMB11.0 million and RMB13.7
million ($2.0
million) in the years
ended December 31, 2007, 2008 and 2009, respectively. We accrued value-added tax
rebates for the years ended December 31, 2007, 2008 and 2009 in the amounts of
RMB2.4 million, RMB 9.9 million and RMB6.6 million ($1.0
million),
respectively.
A
significant portion of our revenue is derived from a small number of
customers. Our three largest customers, Renmin University of China, China
Agricultural University and Dongbei University of Finance and Economics,
accounted for 21.1%, 17.3% and 14.0%, respectively, of our net revenue for
the year ended December 31, 2007, 22.1%, 15.2% and 13.3%, respectively, of our
net revenue for the year ended December 31, 2008 and 20.2%, 13.3% and 12.0%,
respectively, of our net revenue for the year ended December 31,
2009.
Segment
Information
We
operate through four reporting segments that offer distinct educational
services: online degree programs, online tutoring programs, private primary and
secondary schools and international curriculum programs.
The
following table sets forth the net revenue for each segment and as a percentage
of net revenue for the periods indicated.
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
% of net
revenue
|
|
|
RMB
|
|
|
% of net
revenue
|
|
|
RMB
|
|
|
US$
|
|
|
% of net
revenue
|
|
|
|
(In thousands, except percentages)
|
|
Net
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
202,185
|
|
|
|
76.3
|
%
|
|
|
255,388
|
|
|
|
80.4
|
%
|
|
|
285,178
|
|
|
|
41,779
|
|
|
|
80.4
|
%
|
Online
tutoring programs
|
|
|
18,013
|
|
|
|
6.8
|
%
|
|
|
15,436
|
|
|
|
4.8
|
%
|
|
|
19,584
|
|
|
|
2,869
|
|
|
|
5.5
|
%
|
Private
primary and secondary schools
|
|
|
13,356
|
|
|
|
5.0
|
%
|
|
|
19,289
|
|
|
|
6.1
|
%
|
|
|
30,627
|
|
|
|
4,487
|
|
|
|
8.6
|
%
|
International
curriculum programs
|
|
|
31,434
|
|
|
|
11.9
|
%
|
|
|
27,607
|
|
|
|
8.7
|
%
|
|
|
19,317
|
|
|
|
2,830
|
|
|
|
5.5
|
%
|
Total
|
|
|
264,988
|
|
|
|
100.0
|
%
|
|
|
317,720
|
|
|
|
100.0
|
%
|
|
|
354,706
|
|
|
|
51,965
|
|
|
|
100.0
|
%
|
Online degree program
revenue.
We generate our online degree program
revenue through various collaborative alliances and other arrangements with
universities in China. We expect that we will continue to earn the substantial
majority of our revenue and profits from this segment in the near future.
Through collaborative alliances and other arrangements, we provide a
comprehensive service platform to our university customers, including academic
program development, technology services, enrollment marketing, student support
services and finance operations. We currently provide services to 29
universities, ten of which are structured as collaborative alliances (including
GRTU and FRTU and three universities awaiting regulatory approval), four of
which are structured as long-term contractual service arrangements, and three of
which are structured as licensing of online education technology platform
agreements (including two universities waiting for regulatory approval). We also
provide recruiting and technology service to eighteen universities (including
six universities which are also our collaborative alliances or have entered into
long-term contractual service agreements with us).
Our collaborative
alliances, long-term contractual service arrangements and licensing of online
education technology platform agreements are based on long-term contracts that
generally vary from 10 years to 50 years.
As of
December 31, 2009, our university partners had, in the aggregate, approximately
287,000 revenue students. Majority of our service fees are determined
by the revenue-sharing arrangements we have with each university, as well as the
terms that each university negotiates with the learning centers that provide
recruiting enrollment and other student service for their online degree
programs. University online degree programs generally require students to prepay
tuition fees for a set number of credits at the outset of their enrollment.
Under our service contracts with the universities, our service fees are
calculated based upon a share of actual cash tuition received by the university
after deducting certain expenses of the university, which consist of service
fees paid to learning centers as well as any tuition refunds paid to students
and administrative expenses. We provide technology and support services to our
university partners’ online degree programs rather than directly to students. We
are not responsible for academic instructional support and its associated costs.
As a result, we recognize these service fees as revenue over the course of the
relevant six-month academic semester for which we provide services to our
university customers rather than over the period the universities provide
services and support to their students.
In 2008,
we began establishing our learning centers network. We provide recruiting,
enrollment marketing and other student services through our learning centers
network to the online degree programs of leading Chinese
universities. The amount of service fees we receive is based on the
agreements we enter into with the universities, and derived from tuition fees
that we collect from students on behalf of the universities. Fees
received are initially recorded as deferred revenue and are recognized as
revenue ratably over the six-month school semester during which we provide the
services.
Online tutoring program
revenue.
We generate our online tutoring and test
preparation services revenue from the sale to students and their parents, most
of which are made through distributors, of a tutoring and test preparation
program known as the 101 Online School. After paying a subscription fee based on
the desired use period such as a year and the desired subjects, a student has
direct access to online tutoring materials. Our service fees from this business
line depend upon the number of students enrolled in the online tutoring and test
preparation programs, the level of fees charged and the fees paid to the
distributors. Our service fees are collected in advance of the student receiving
services. We recognize this revenue ratably over the applicable period that we
provide services.
Private primary and secondary
schools revenue.
In 2005, we acquired three
private primary and secondary schools in medium-sized cities in China: the
Anqing School in Anqing, Anhui province, the Jingzhou School (Southern Campus)
in Jingzhou, Hubei province; and the Pingdingshan School in Pingdingshan, Henan
province, Our revenue from these schools is based on the number of students
enrolled and tuition fees charged. The Anqing School had approximately 3,500
students for the 2009-2010 academic year. The Pingdingshan School had an
enrollment of approximately 1,400 students in the 2009-2010 academic year. Our
operation of the Jingzhou School (Southern Campus) will begin only after we
complete the construction of a new Southern Campus (we do not own or operate the
Northern campus). As discussed previously, construction of Jingzhou
School’s Southern Campus has been delayed, and as a result, there is no definite
expected enrollment period.
The
tuition payments for each of our private primary and secondary schools are
received in advance on a semester basis, and revenue is recognized ratably over
the applicable period as education services are delivered. As is the case with
most private schools in China, our tuition rates are subject to review and
approval by the pricing authority and education authority, and are set for a
particular entering class of students and remain the same through completion of
the students’ studies.
International curriculum programs
revenue.
Historically, we
generated our revenue in this segment through a contractual arrangement with
WITT, to provide the FEC program that we offer to secondary schools in China,
and a contractual arrangement with BCIT, to provide the BCIT program that we
offer to polytechnic colleges in China. In February 2009, we entered into a
partnership agreement with Howe Sound Secondary School, located in British
Columbia, Canada, which we refer to as the SCC program, to provide English
programs to secondary schools in China. Our revenue in this segment depends upon
the number of schools participating in the international curriculum programs,
the fees charged for the programs and the number of students enrolled in the
programs. During the 2009-2010 academic year, approximately 2,800 students were
enrolled in the international curriculum programs.
Our
service fees from these programs are received from schools in the fall of each
year on the basis of the number of students enrolled in the program at each
school and are recognized ratably over the twelve-month period as our services
are delivered.
We
incurred a goodwill impairment charge of RMB16.2 million related to the
international curriculum programs segment during the year ended December 31,
2007 and an impairment charge of RMB68.2 million related to the international
curriculum programs during the year ended December 31, 2008, of which RMB39.1
million was related to goodwill impairment and RMB29.1 million was related to
intangible assets impairment. In 2009, we did not incur any impairment charges.
Our management continues to believe in the long-term prospect of the
international curriculum programs as we develop and provide new English language
related programs given our belief that our English language program has
historically been well-received by parents and students due to the high quality
of the English language instruction. We also believe that there is a
vast market of students in China whose needs for high quality English language
instruction and access to foreign educational institutions is not currently
being met by the Chinese public schools.
Cost
of Revenue
We record
cost of revenue separately for each of our business segments. The following
table sets forth our cost of revenue for each segment and as a percentage of our
net revenue for the periods indicated.
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
% of net
revenue
|
|
|
RMB
|
|
|
% of net
revenue
|
|
|
RMB
|
|
|
US$
|
|
|
% of net
revenue
|
|
|
|
(In thousands, except percentages)
|
|
Cost
of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
58,027
|
|
|
|
21.9
|
%
|
|
|
76,224
|
|
|
|
24.0
|
%
|
|
|
95,428
|
|
|
|
13,980
|
|
|
|
26.9
|
%
|
Online
tutoring programs
|
|
|
3,875
|
|
|
|
1.5
|
%
|
|
|
4,017
|
|
|
|
1.3
|
%
|
|
|
5,713
|
|
|
|
837
|
|
|
|
1.6
|
%
|
Private
primary and secondary schools
|
|
|
10,944
|
|
|
|
4.1
|
%
|
|
|
17,572
|
|
|
|
5.5
|
%
|
|
|
26,109
|
|
|
|
3,825
|
|
|
|
7.4
|
%
|
International
curriculum programs
|
|
|
23,503
|
|
|
|
8.9
|
%
|
|
|
19,920
|
|
|
|
6.3
|
%
|
|
|
11,112
|
|
|
|
1,628
|
|
|
|
3.1
|
%
|
Total
|
|
|
96,349
|
|
|
|
36.4
|
%
|
|
|
117,733
|
|
|
|
37.1
|
%
|
|
|
138,362
|
|
|
|
20,270
|
|
|
|
39.0
|
%
|
Online degree
programs
. Cost of revenue for our online degree
services consists primarily of employee compensation and benefits, including
performance-based compensation, for our project management teams and technical
personnel that directly support our university partners’ programs, and for our
learning centers network, employees that directly engage in recruiting related
activities. Our cost of revenue also includes rent, academic program
development, courseware development and other direct costs associated with
maintaining our service offerings as well as fees paid to third-party
distributors at our learning centers network. Depreciation of facilities and
equipment and amortization of intangible assets acquired through business
combination are also included in cost of revenue for this segment.
Online tutoring
programs.
Cost of revenue for our online tutoring and
test preparation services consists primarily of employee compensation and
benefits for our employees working in this line of business, including those
involved in courseware development and maintenance, and outsourcing fees we pay
to non-employee contract teachers developing courseware and related materials,
as well as costs associated with the amortization of intangible assets acquired
through business combination.
Private primary and secondary
schools.
Cost of revenue for our private primary
and secondary schools consists primarily of employee compensation and benefits
for the teachers and administrative staff employed at the schools, depreciation
for the facilities and equipment, lease payments for premises and payments of
user fees for the use by our Anqing School of certain facilities of the Fourth
Middle School of Anqing.
International curriculum
programs.
Cost of revenue for international
curriculum program services consists primarily of compensation and benefits for
the English-speaking teachers contracted for the program and licensing and
registration fees payable to WITT and BCIT. Cost of revenue for our SCC program
is currently low. The licensing fees payable to WITT are generally determined on
the basis of a fixed fee for each participating student. The registration fees
that we pay to BCIT are determined on the basis of the number of students
enrolled in the program, and the licensing fees we pay to BCIT are based on the
number and selection of subjects provided to the polytechnic schools. Our cost
of revenue also include travel and lodging costs of students participating in
the summer and winter programs abroad and travel and lodging related to training
for senior employees, as well as costs associated with the amortization of
intangible assets acquired through business combination.
Our cost
of revenue also includes share-based compensation cost for employees directly
engaged in revenue generation. Those costs were RMB0.3 million, RMB0.5
million and RMB0.5 million ($0.07 million) in fiscal years 2007, 2008 and 2009,
representing 0.4%, 0.4% and 0.4% of our total cost of revenue in each of these
periods, respectively.
In
addition, the amortization of intangible assets acquired through business
combinations directly used in revenue generation is included in our cost of
revenue. Those costs from the amortization of intangible assets were RMB4.0
million, RMB4.0 million, and RMB3.0 million ($0.44 million) in fiscal years
2007, 2008 and 2009, representing 4.1%, 3.4% and 2.2% of our total cost of
revenue in each of these periods, respectively.
Operating
Expenses
Our
operating expenses consist of general and administrative expenses, selling and
marketing expenses, research and development expenses and share-based
compensation is allocated to each item based on the nature of the service
rendered by the employees who received the benefit. In 2007 and 2008, we also
incurred goodwill impairment and intangible assets impairment charges primarily
related to our international curriculum programs. The following table sets forth
our operating expenses for each item and as a percentage of net revenue for the
periods indicated.
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
% of net
revenue
|
|
|
RMB
|
|
|
% of net
revenue
|
|
|
RMB
|
|
|
US$
|
|
|
% of net
revenue
|
|
|
|
(In thousands, except percentages)
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
76,893
|
|
|
|
29.0
|
%
|
|
|
86,908
|
|
|
|
27.4
|
%
|
|
|
82,858
|
|
|
|
12,139
|
|
|
|
23.4
|
%
|
Selling
and marketing
|
|
|
14,277
|
|
|
|
5.4
|
%
|
|
|
29,851
|
|
|
|
9.4
|
%
|
|
|
23,688
|
|
|
|
3,470
|
|
|
|
6.7
|
%
|
Research
and development
|
|
|
21,021
|
|
|
|
7.9
|
%
|
|
|
26,185
|
|
|
|
8.2
|
%
|
|
|
30,385
|
|
|
|
4,451
|
|
|
|
8.5
|
%
|
Goodwill
impairment
|
|
|
16,192
|
|
|
|
6.1
|
%
|
|
|
41,036
|
|
|
|
12.9
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intangible
assets impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
29,057
|
|
|
|
9.2
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
128,383
|
|
|
|
48.4
|
%
|
|
|
213,037
|
|
|
|
67.1
|
%
|
|
|
136,931
|
|
|
|
20,060
|
|
|
|
38.6
|
%
|
General
and administrative
Our
general and administrative expenses consist primarily of employee compensation
and benefits for the executive management team and employees not directly
engaged in revenue generation such as human resources, finance, legal and
investor relations functions. Our general and administrative expenses also
include rent, administrative office expenses, depreciation and amortization of
land use right. In addition, our general and administrative expenses also
include share-based compensation expense for employees not directly engaged in
revenue generation. Our share-based compensation expense included in general and
administrative expenses was RMB3.0 million in 2007, RMB4.1 million in 2008
and RMB6.0 million ($0.88
million) in 2009
representing 3.8%, 4.7% and
7.2% of our total
general and administrative expenses in these periods, respectively.
Selling
and marketing
Our
selling and marketing expenses consist primarily of employee compensation and
benefits, advertising, industry conferences and travel. Other selling and
marketing expenses include expenses associated with promotional activities and
consulting fees.
Our
selling and marketing expenses include the share-based compensation expense for
employees working in sales and marketing. Our share-based compensation expense
included in selling and marketing expenses was RMB0.2 million, RMB0.5
million and RMB0.7 million ($0.10 million) in each of the years ended December
31, 2007, 2008 and 2009, respectively, representing 1.6%, 1.7% and 2.9% of our
total selling and marketing expenses in these periods,
respectively.
Our
selling and marketing expenses also include the amortization of intangible
assets acquired through business combinations which benefited our sales and
marketing efforts. Those costs were RMB3.3 million in 2007, RMB3.3 million in
2008, and RMB0.8 million ($0.11 million) in 2009, representing 23.0%, 10.9% and
3.3% of our total selling and marketing expenses in each of these periods,
respectively.
Research
and development
Our
research and development expenses consist primarily of employee compensation and
benefits and other personnel-related costs associated with development of new or
enhanced technologies, products and services. Our research and development
expenses also include share-based compensation expense for employees working in
research and development. In 2007, 2008 and 2009, our research and development
expenses have largely been related to our online degree programs. We expense all
research and development costs when incurred.
Our
share-based compensation expenses included in research and development were
RMB0.1 million, RMB0.2 million, and RMB0.3 million ($0.04 million) in the
years ended December 31, 2007, 2008 and 2009, respectively. These amounts
represent less than
1% of our total research
and development expenses in each of these periods.
Goodwill
impairment and intangible assets impairment
In fiscal
year 2008, we recorded total goodwill and intangible assets impairment charges
of RMB70.1 million compared to RMB16.2 million related to goodwill impairment in
2007. Of the RMB70.1 million impairment recorded in 2008, RMB41.0
million related to goodwill impairment and RMB29.1 million related to intangible
assets impairment. We did not incur any impairment charges in
2009.
Goodwill
impairment.
Based on annual goodwill impairment
assessments performed by management as of December 31, 2007, 2008 and 2009, we
recorded goodwill impairment losses of RMB16.2 million, RMB41.0 million and RMB
nil for the years ended December 31, 2007, 2008 and 2009, respectively. The
goodwill impairment charge for the year ended December 31, 2007 was due to
management’s significantly reduced profit forecast for our FEC program, which is
a component of our international curriculum programs. Of the RMB41.0
million goodwill impairment loss for the year ended December 31, 2008, RMB39.1
million was related to our international curriculum programs, for which
management significantly reduced its profitability forecast due to adverse
changes in the PRC government regulatory environment and the resulting early
mutual termination of our agreement with WITT. The remaining goodwill impairment
charge of RMB1.9 million for the year ended December 31, 2008 was related to a
goodwill impairment charge for our private primary and secondary schools,
primarily due to management's assessment that construction of Jingzhou School's
South campus would be further delayed, and as a result there was no definite
expected enrollment period.
Intangible assets
impairment.
No impairment of intangible assets was
recorded in fiscal years 2007 and 2009, respectively. For fiscal year 2008, we
recorded an impairment loss of intangible assets of RMB29.1 million. The
intangible assets impairment loss for the year ended December 31, 2008 was also
related to our international curriculum programs, for which we have
significantly reduced our profitability forecast due to the adverse changes in
the PRC government regulatory environment and the resulting mutual termination
of our agreement with WITT.
Share-Based
Compensation Expenses
We
incurred share-based compensation expenses of RMB3.6 million, RMB5.2 million and
RMB7.4 million ($1.1 million) for the years ended December 31, 2007,
2008 and 2009, respectively. As of December 31, 2009, our unrecognized
share-based compensation costs totaled RMB12.8 million ($1.9 million), which was
expected to be recognized over a weighted average vesting period of 2.25
years.
Our
share-based compensation charges have been allocated to cost of revenue, general
and administrative, selling and marketing and research and development expenses
in line with the nature of the service rendered by the employee who received the
benefit.
The
allocation of share-based compensation expenses is listed in the table
below:
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
% of net
revenue
|
|
|
RMB
|
|
|
% of net
revenue
|
|
|
RMB
|
|
|
US$
|
|
|
% of net
revenue
|
|
|
|
(In
thousands, except percentages)
|
|
Share-based
compensation expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
346
|
|
|
|
0.1
|
%
|
|
|
474
|
|
|
|
0.15
|
%
|
|
|
489
|
|
|
|
72
|
|
|
|
0.14
|
%
|
General
and administrative
|
|
|
2,960
|
|
|
|
1.1
|
%
|
|
|
4,073
|
|
|
|
1.28
|
%
|
|
|
5,982
|
|
|
|
876
|
|
|
|
1.69
|
%
|
Selling
and marketing
|
|
|
222
|
|
|
|
0.08
|
%
|
|
|
506
|
|
|
|
0.16
|
%
|
|
|
676
|
|
|
|
99
|
|
|
|
0.19
|
%
|
Research
and development
|
|
|
115
|
|
|
|
0.04
|
%
|
|
|
178
|
|
|
|
0.06
|
%
|
|
|
269
|
|
|
|
39
|
|
|
|
0.07
|
%
|
Total
|
|
|
3,643
|
|
|
|
1.3
|
%
|
|
|
5,231
|
|
|
|
1.65
|
%
|
|
|
7,416
|
|
|
|
1,086
|
|
|
|
2.09
|
%
|
Taxation
Cayman
Islands
We are
incorporated in the Cayman Islands. Under the current laws of the Cayman
Islands, we are not subject to tax on income or capital gain. In addition, upon
payments of dividends by us to our shareholders, no Cayman Islands withholding
tax will be imposed.
British
Virgin Islands
Under the
current BVI law, income from BJ-BCIT and BJ-WITT are not subject to
taxation.
PRC
Our PRC
entities, including subsidiaries and affiliated entity or variable interest
entity, were subject to PRC Enterprise Income Tax (“EIT”) on the taxable income
in accordance with the relevant PRC income tax laws. In 2007, the EIT rate for
companies operating in the PRC was 33%.
Prior to
January 1, 2008, our PRC entities which qualified as “high and new technology
enterprises” (“HNTE”) under the EIT Law included CMR Web, Hongcheng Technology,
Hongcheng Liye, Hongcheng Education, Beijing Xuezhi, WITT Education, Zhongnongda
Network, Beijing Mingdao, Beiyuda, Dongcai and Chongda. Among those, CMR Web,
Hongcheng Technology, Hongcheng Liye, Hongcheng Education, Beijing Xuezhi, WITT
Education, Zhongnongda Network, Beijing Mingdao and Beiyuda were entitled to a
preferential tax rate of 15% with three-year exemption followed by a reduced tax
rate of 7.5% for the subsequent three years. Dongcai and Chongda were
entitled to a preferential tax rate of 15% with two-year exemption followed by a
reduced tax rate of 7.5% for the subsequent three years.
On March
16, 2007, the National People’s Congress adopted the Enterprise Income Tax Law
(“the New EIT Law”) which became effective on January 1, 2008. The New EIT Law
applies a uniform 25% enterprise income tax rate to both foreign invested
enterprises and domestic enterprises.
Under the
New EIT Law, an enterprise which qualifies as a “high and new technology
enterprise” (“the new HNTE”) is entitled to a tax rate of 15%. CMR
Web, Hongcheng Liye, Hongcheng Education, Gotop Hongcheng, Beiyuda, Dongcai, and
Zhongnongda Network obtained the new HNTE status in 2008, Hongcheng Technology
obtained the new HNTE status in 2009.
One of
our subsidiaries, Chongda, which qualified as a “software enterprise” under the
new EIT law is entitled to a preferential tax rate of 12.5% for 2008, 2009 and
2010.
The
preferential tax rates of our PRC entities, different from the statutory rates,
which were used to calculate the tax provision based on our interpretation of
the New EIT Law as of the balance sheet date, are presented in the following
table.
PRC entities
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
Hongcheng
Technology
(1)
|
|
|
15.0
|
%
|
|
|
25.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
Hongcheng
Liye
(1)
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
Hongcheng
Education
(1)
|
|
|
0.0
|
%
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
|
|
15.0
|
%
|
Beijing
Xuezhi
|
|
|
7.5
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
WITT
Education
|
|
|
7.5
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Zhongnongda
Network
(1)
|
|
|
7.5
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
Beijing
Mingdao
|
|
|
0.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Beiyuda
(1)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
7.5
|
%
|
|
|
15.0
|
%
|
Dongcai
(1)
|
|
|
7.5
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
Chongda
|
|
|
0.0
|
%
|
|
|
12.5
|
%
|
|
|
12.5
|
%
|
|
|
12.5
|
%
|
|
|
25.0
|
%
|
Gotop
Hongcheng
(1)
|
|
|
33.0
|
%
|
|
|
0.0
|
%
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
(1) The
new HNTE status obtained by CMR Web, Hongcheng Technology, Hongcheng Liye,
Hongcheng Education, Zhongnongda Network, Beiyuda, Dongcai and Gotop Hongcheng
under the New EIT Law is valid for three years and qualifying entities can then
apply to renew for an additional three years provided their business operations
continue to qualify for the new HNTE status. We believe it is highly likely that
our qualifying entities will continue to obtain the renewal in the future.
Accordingly, in calculating deferred tax assets and liabilities, we assumed our
qualifying entities will continue to renew the new HNTE status at the conclusion
of the initial three year period.
On April
21, 2010, the State Administration of Taxation issued Circular 157
Further Clarification on
Implementation of Preferential EIT Rate during Transition Periods
(“Circular 157”). Circular 157 seeks to provide additional guidance on the
interaction of certain preferential tax rates under the transitional rules of
the New EIT Law. Prior to issuance of Circular 157, we interpreted the law to
mean that if an entity was in a period where it was entitled to a 50% reduction
in the tax rate and was also entitled to a 15% rate of tax due to HNTE status
under the New EIT Law then it was entitled to pay tax at the rate of 7.5%.
Circular 157 appears to have the effect that such an entity is entitled to pay
tax at either 15% or 50% of the standard PRC tax rate. The effect of Circular
157 is retrospective and would apply to 2008 and 2009.
As a
consequence of Circular 157, the preferential tax rate enjoyed by Hongcheng
Liye, Hongcheng Education, Gotop Hongcheng, and Beiyuda which each qualified as
a HNTE during their 50% reduction period will be 12.5% for the relevant years,
rather than 7.5% which is the rate we had used prior to the issuance of Circular
157. We believe that Circular 157 is similar to a change in tax law, the
cumulative effect of which should be reflected in the period of the
change.
As a
result, we will adjust the deferred tax asset and deferred tax liability as of
December 31, 2009 for those impacted entities. The resulting additional tax
charge of RMB0.7 million will be recorded in the quarter ending June 30,
2010.
The
procedures for obtaining classification as “high and new technology enterprises”
are very complicated and time consuming, and the standards for classification as
a “high and new technology enterprise” are not easy to achieve. We
cannot assure you that our entities currently classified as “high and new
technology enterprises” will continue to be classified as such after the
expiration of the initial three year period. Preferential tax treatments granted
to our Chinese entities by Chinese governmental authorities are subject to
review and may be adjusted or revoked at any time. If our subsidiaries and
affiliated entity fail to maintain their preferential tax treatments, they will
be subject to the 25% unified enterprise income tax rate.
The
amount of income tax payable by our Chinese subsidiaries in the future will
depend on various factors, including, among other things, their results of
operations and taxable income, and the statutory tax rate. Our effective tax
rate depends in part on the extent of each of our subsidiaries’ relative
contribution to our consolidated taxable income. As our business expands, we may
establish new entities from time to time that, depending on applicable law, may
be entitled to certain tax incentives, including reduced tax rates. We intend to
continue to explore opportunities to take advantage of available tax incentives.
In addition, the expiration of our remaining tax exemptions and recognition of
more share-based compensation expense in the future will cause our effective tax
rate to increase, since share-based compensation is not deductible for Chinese
tax purposes.
We have
net operating loss carryforwards of RMB22.4 million from our PRC entities for
the year ended December 31, 2009 that will expire on various dates between
December 31, 2010 and December 31, 2014.
As of
December 31, 2009, a valuation allowance of RMB3.5 million was provided against
deferred tax assets including net operating loss carryforwards of certain of our
PRC entities due to our determination that it is more likely than not that these
deferred tax assets related to the respective entities will not be
realized. Adjustments will be made to the valuation allowance if
events occur in the future that indicate changes in the amount of deferred tax
assets that may be realized.
We
operate through multiple PRC entities and the valuation allowances are
considered separately for each PRC entity. We do not file consolidated tax
returns, and, therefore, losses and deferred taxes from one PRC entity may not
be used to offset another entity’s earnings or deferred taxes.
We
recognized RMB3.7 million accumulated impact of unrecognized tax benefit to
accumulated deficits as of January 1, 2007 and the accumulated
unrecognized tax benefits was RMB5.5 million and RMB7.7 million as of December
31, 2008 and 2009, respectively. We recognized RMB0.1 million interest and
RMB0.9 million penalties for the year the ended December 31, 2009.
The EIT
Law includes a provision specifying that legal entities organized outside China
will be considered residents for Chinese income tax purposes if their place of
effective management or control is within China. If legal entities organized
outside China were considered residents for Chinese income tax purpose, they
would become subject to the EIT Law on their worldwide income. This would cause
any income that legal entities organized outside China earned to be subject to
China’s 25% EIT. The Implementation Rules to EIT Law provide that non-resident
legal entities will be considered China residents if substantial and overall
management and control over the manufacturing and business operations,
personnel, accounting, properties, etc. resides within China. Pursuant to the
additional guidance released by the Chinese government on April 22, 2009, we do
not believe that the legal entities organized outside China should be
characterized as China tax residents for EIT Law purposes.
Under the
PRC tax laws effective prior to January 1, 2008, dividends paid to foreign
investors by foreign-invested enterprises, such as dividends paid to the
overseas holding companies by the PRC subsidiaries, were exempt from PRC
withholding tax. Under the EIT Law and its implementation rules which became
effective on January 1, 2008, dividends generated after January 1, 2008 and
payable by a foreign-invested enterprise in China to its foreign investors who
are nonresident enterprises are subject to a 10% withholding tax, unless any
such foreign investor’s jurisdiction of incorporation has a tax treaty with
China that provides for a different withholding arrangement.
Our
subsidiaries located in PRC had aggregate accumulated gain of approximately
RMB38.5 million as of December 31, 2009. Since we have decided to reinvest those
profits for future development, no provision has been made for the Chinese
dividend withholding taxes that would be payable upon the distribution of those
amounts to us. Accordingly, no deferred tax liability has been
accrued for the Chinese dividend withholding taxes that would be payable upon
the distribution of those amounts to us as of December 31, 2009.
Under
applicable accounting principles, a deferred tax liability should be recorded
for taxable temporary differences attributable to the excess of carrying amount
over tax basis, including those differences attributable to a more than 50%
interest in a domestic subsidiary. However, recognition is not
required in situations where the tax law provides a means by which reported
amounts of such interest can be recovered tax-free and the enterprise expects
that it will ultimately use that means. We have not recorded any such
deferred tax liability attributable to the financial interest in our variable
interest entity and its subsidiaries because they were in an accumulated loss
position as of December 31, 2009.
Critical
Accounting Policies
We
prepare financial statements in conformity with U.S. GAAP, which requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities on the date of the
financial statements, and the reported amounts of revenue and expenses during
the financial reporting period. We continually evaluate these estimates and
assumptions based on the most recently available information, our own historical
experience and various other assumptions that we believe are reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Since the use of estimates is an integral component
of the financial reporting process, actual results could differ from those
estimates. Some of our accounting policies require higher degrees of judgment
than others in their application. We believe the following accounting policies
involve the most significant judgments and estimates used in the preparation of
our financial statements.
Since we
generate all of our revenue from customers in China, we do not account for our
results of operations on a geographical basis.
Revenue
Recognition
Our
revenue is principally derived from three primary sources: (i) the provision of
bundled online education technical, consulting and recruiting services; (ii) the
provision of online tutoring services; and (iii) the provision of traditional
classroom education services. Revenue is recognized when earned and is reported
net of business tax and surcharges, which totaled RMB7.4 million, RMB11.0
million and RMB13.7 million for the years ended December 31, 2007, 2008 and
2009, respectively.
Online
education technical, consulting and recruiting services
Our
primary business is to provide online education technical and consulting
services to the online degree programs of leading Chinese
universities. These services include academic program development,
technology services, enrollment marketing, student support services, and finance
operations. Since each of the services does not have a stand-alone
value to the universities, these services are accounted for as one unit of
accounting and the related revenue is recognized ratably over the service
period. We primarily host the online education technology on our
system and provide access to the universities to whom we provide services and
their students. Any universities that prefer hosting the online
education platform or courseware on their own systems must enter into separate
arrangements with us.
We
receive service fees from the universities each semester covering services to be
provided to the universities during that semester. The amount of
service fees to be received by us is derived from tuition fees collected by the
universities from their students at the beginning of each semester, as adjusted
for the universities' costs and expenses, such as refunds to students, fees to
other service providers, and other operating costs and expenses.
We also
provide recruiting, enrollment marketing and other student services through our
learning centers network to the online degree programs of leading Chinese
universities. The amount of service fees received is based on the
agreements entered into with the universities, and derived from tuition fees
that we collect from students on behalf of the universities.
Service
fees received are initially recorded as deferred revenue and are recognized as
revenue ratably over the six-month school semester during which we provide the
services. The semesters generally begin in April and October of each
calendar year.
Online
tutoring services
We offer
online interactive tutoring services to primary and secondary
students. These services allow the customers access to the online
education services over a fixed period of time, generally ranging from one month
to three years, through the use of prepaid cards. The prepaid cards
are sold to distributors, from whom we collect payments when the prepaid cards
are delivered to the distributors. The distributors then resell the
cards to end users. All prepaid fees received from distributors are
initially recognized as deferred revenue and revenue is recognized ratably over
the applicable period that we provide services to the end users.
Traditional
classroom education services
We
operate a number of private primary and secondary schools, and market and
support international post-secondary and English language curriculum programs to
established learning institutions. Students must register and pay for
their classes at the beginning of each semester. Fees collected from
private primary and secondary schools operations upfront are initially recorded
as deferred revenue at the time the students register for their classes and we
receive payments. Revenue is recognized ratably over the service
period, which is six months for each school semester, as the education services
are delivered. If a student withdraws from a class, any collected but
unearned portion of the fee is recognized at that time unless the student is
entitled to a refund under limited circumstances.
For the
international post-secondary and English language curriculum programs, students
must register and pay for their classes at the beginning of each
semester. Fees collected from the provision of teaching and other
support services to the learning institutions are recognized either when such
services are provided, or on a straight-line basis over the service period,
which is typically the six-month school semester.
Income
Taxes
Current
income taxes are provided for in accordance with the laws of the relevant tax
authorities. Deferred income taxes are recognized when temporary
differences exist between the tax bases of assets and liabilities and their
reported amounts in the consolidated financial statements. Net
operating loss carry forwards and credits are applied using enacted statutory
tax rates applicable to future years. Deferred tax assets are reduced
by a valuation allowance when, in our opinion, it is more-likely-than-not that a
portion of or all of the deferred tax assets will not be
realized. The components of the deferred tax assets and liabilities
are individually classified as current and non-current based on their
characteristics. The impact of an uncertain income tax position on
the income tax return is recognized at the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant tax
authority. An uncertain income tax position will not be recognized if
it has less than a 50% likelihood of being sustained. Interest and
penalties on income taxes will be classified as a component of the provisions
for income taxes.
Share-Based
Compensation
The fair
value of the option award was estimated on the date of grant or the date of
modification using the Black-Scholes option pricing model that uses assumptions,
including fair value of the ordinary shares underlying to the options, risk free
interest rate, expected life, expected dividend yield and expected volatility.
The Black-Scholes model is one of the most commonly used models that meet the
criteria required by authoritative pronouncement regarding accounting for
share-based payment in estimating fair value of employee share
options.
We have
historically used the following assumptions on the date of grant or
modification:
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Option
granted or modified to employees:
|
|
|
|
|
|
|
|
|
|
Weighted
average risk-free interest rate
|
|
|
4.45
|
%
|
|
|
2.62
|
%
|
|
|
2.19
|
%
|
Weighted
average expected option life (years)
|
|
|
5.0
|
|
|
|
6.0
|
|
|
|
5.3
|
|
Weighted
average volatility rate
|
|
|
44.1
|
%
|
|
|
46.6
|
%
|
|
|
49.4
|
%
|
Weighted
average dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(a)
Volatility
The
volatility of the underlying ordinary shares during the life of the options was
estimated based on the historical stock price volatility of our ordinary shares
and listed shares of comparable companies over a period similar to the expected
term of the options. Most of the options were granted prior to our IPO or during
the year ended December 31, 2007 when we had limited historical data on the
price of our publicly traded shares. Therefore we did not have sufficient
company specific information regarding the volatility of our share price on
which to base an estimate of expected volatility. As such, we based our estimate
of expected volatility on the historical volatility of comparable entities whose
share prices are publicly available.
Since our
IPO in December 2007, we have had slightly less than two and a half years of
historical market price data for our ADSs, the historical share price data of
our ADSs was limited. The average historical volatility of the market price of
our ADSs over the period from December 2007 to May 31, 2010 was 50.4%. For
future grants, we will consider all relevant information in determining an
appropriate volatility assumption.
(b)
Risk-free interest rate
Risk-free
interest rate was estimated based on the yield, as of the grant date, to
maturity of treasury bonds of the United States with a maturity period close to
the expected term of the options.
(c)
Expected term
As we did
not have sufficient historical data on the exercise of share options, we
estimated the expected term with reference to the average between the weighted
average vesting period of the options and the contractual term. Of the
10,703,803 options outstanding as of December 31, 2009, 8,065,670 options were
granted prior to the IPO, representing 75.4% of the total. We did not believe we
had sufficient historical information as at grant date of the options to make a
refined estimate of expected term. Therefore, we estimate the expected life as
the average between the weighted average vesting term of the options and the
contractual term. In the future, should more detailed information be available
to us, we would consider adoption a different method of estimating expected
term.
(d)
Dividend yield
We
assumed a zero dividend yield based on our expected dividend policy over the
expected term of the options. We anticipate growing our business with
internally generated cash and do not expect to pay dividends in the foreseeable
future, nor have we paid any dividends to date.
(e) Exercise
price
The
exercise price of the options was determined by our board of
directors.
(f) Fair
value of underlying ordinary shares
When
estimating the fair value of the ordinary shares on the grant dates before the
IPO, we considered a number of factors, including the results of our equity
transactions, while taking into account standard valuation methods and the
achievement of certain events. After the IPO, we used the closing
market price of our ADSs as of the grant date as the fair value of the
underlying ordinary shares on that date.
As of
December 31, 2009, there were options outstanding for the purchase of 10,703,803
ordinary shares and options for the purchase of 289,778 ordinary shares
available for future grant under our equity incentive plan. The share-based
compensation expenses arising from the options we have granted are being
recognized over the applicable vesting period, which typically is three
years.
Basis
for Consolidation and Our Relationships with Our Chinese Affiliated
Entity
Substantially
all of our operations are conducted in China through our three principal Chinese
subsidiaries and through contractual arrangements with our Chinese affiliated
entity. Our corporate structure is designed to comply with current Chinese
limitations on foreign ownership of, and participation in, companies engaging in
the education and telecommunication sectors in China. We consolidate 100% of the
interests of our subsidiaries and Chinese affiliated entity.
We
conduct some of our operations through our Chinese affiliated entity, Hongcheng
Education, in which we do not directly hold any equity interest. We entered into
contractual arrangements with this entity and its shareholders pursuant to which
we maintain effective control over this entity, bear all of its economic risk
and receive substantially all of its economic rewards. In our consolidated
financial statements, we have consolidated all of the interests of Hongcheng
Education under authoritative pronouncement regarding consolidation of variable
interest entities.
Authoritative
pronouncement regarding consolidation of variable interest entities requires a
“variable interest entity” to be consolidated by the primary beneficiary of such
entity. An entity is considered to be a variable interest entity if certain
conditions are present, including where the equity investors in the entity do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. As a result of our
various agreements with Hongcheng Education and its respective shareholders, we
are considered the primary beneficiary of Hongcheng Education and all of its
subsidiaries; which have been consolidated in our financial statements. All
significant transactions and balances between us, our subsidiaries, Hongcheng
Education have been eliminated upon consolidation.
For
additional information with respect to our relationships with Hongcheng
Education, see “Item 4. Information on the Company—C. Organizational
Structure.”
Long-lived
Assets
Our
accounting for long-lived assets, including property and equipment , is
described in Note 2 to our consolidated financial statements included in this
annual report. The recorded value of long-lived assets is affected by a number
of management estimates, including estimated useful lives, residual values and
impairment charges. We review our long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may no longer be recoverable. When these events occur, we measure
impairment by comparing the carrying value of the long-lived assets to the
estimated undiscounted future cash flows expected to result from the use of the
assets and their eventual disposition. If the sum of the expected
undiscounted cash flow is less than the carrying amount of the assets, we would
recognize an impairment loss based on the fair value of the assets.
Goodwill
and Acquired Intangible Assets
The
excess of the purchase price over the fair value of net assets acquired is
recorded on the consolidated balance sheet as goodwill.
Goodwill
is not amortized but is evaluated at least annually for impairment following a
two-step process. The first step compares the fair values of each
reporting unit to its carrying amount, including goodwill. If the
fair value of each reporting unit exceeds its carrying amount, goodwill is not
considered to be impaired and the second step will not be
required. If the carrying amount of a reporting unit exceeds its fair
value, the second step compares the implied fair value of goodwill to the
carrying value of a reporting unit's goodwill. The implied fair value
of goodwill is determined in a manner similar to accounting for a business
combination with the allocation of the assessed fair value determined in the
first step to the assets and liabilities of the reporting unit. The
excess of the fair value of the reporting unit over the amounts assigned to the
assets and liabilities is the implied fair value of goodwill. An
impairment loss is recognized for any excess in the carrying value of goodwill
over the implied fair value of goodwill.
Acquired
intangible assets are carried at cost, less accumulated amortization and
impairment. We amortize acquired intangible assets (other than trade names,
which are discussed below) over their respective individual estimated useful
lives in proportion to the economic benefits consumed in each period. Our
estimates of the useful lives of identified intangible assets are based on a
number of factors, including the effects of obsolescence, demand, competition,
and other economic factors (such as the stability of the industry, and known
technological advances), and the level of maintenance expenditures required to
obtain the expected future undiscounted cash flows from the asset. We determined
that our trade names do not have determinable useful lives. Consequently, the
carrying amounts of trade names are not amortized but are tested for impairment
annually or more frequently if events or circumstances indicate that the asset
may be impaired.
We
evaluate intangible assets for impairment whenever events or changes in
circumstances indicate that their carrying amounts may no longer be recoverable.
When these events occur, we measure impairment by comparing the carrying value
of the acquired intangible assets to the estimated undiscounted future cash
flows expected to result from the use of the assets and their eventual
disposition. If the sum of the expected undiscounted cash flow is
less than the carrying amount of the acquired intangible assets, we would
recognize an impairment loss based on the fair value of the assets.
The total
carrying amount of goodwill is RMB38.2 million as of December 31, 2009.
RMB12.9 million, RMB20.8 million and RMB4.5 million are allocated to online
degree programs reporting unit, online tutoring programs reporting unit, and the
international curriculum programs reporting unit, respectively. In evaluating
goodwill and acquired intangible assets for impairment, we sought the assistance
of independent valuation experts, perform internal valuation analyses and
consider publicly available information regarding our market capitalization when
assessing the reasonableness of the cumulative fair values of the reporting
units. In applying the income approach, the discounted cash flow methodology was
used.
We
considered two generally accepted valuation approaches: market and income. In
2009, the comparability of earning multiples of public traded education
companies and hence the reliability of market approach was low because most
publicly traded education companies operate in the U.S. and they were adversely
impacted by the global financial crisis. Therefore, we used the discounted cash
flow, or DCF, method of the income approach to assess the goodwill impairment in
2009.
The
following are critical assumptions in determining the fair value of the
reporting units as of December 31, 2009:
|
·
|
The
revenue growth for each reporting units is projected based on discrete
five year revenue forecasts. For the year 2010-2014, the CAGR of the three
reporting units are approximately 10%, 13% and 5% for the online degree
programs, online tutoring programs and the international curriculum
programs, respectively.
|
|
·
|
In
the projection periods, the cost of revenues as a percentage of revenues
is expected to remain stable, except for the international curriculum
programs with a lower margin in the year
2010.
|
|
·
|
Operating
expenses, including selling expenses, R&D expenses and general and
administrative expenses, as a percentage of sales is expected to remain
stable.
|
|
·
|
To
maintain normal operations, capital expenditures are estimated to be
around 5%, 1% and 1% of revenue for the three reporting units,
respectively.
|
|
·
|
The
working capital requirement is estimated based on main accounts turnover
days.
|
|
·
|
A
perpetual growth rate after 2014 is assumed to be at 3% per year for the
three reporting units.
|
|
·
|
The
weighted average cost of capital, or WACC, used in the calculation is 20%,
26.5% and 24% for the three reporting units,
respectively.
|
Estimates
of fair value result from a complex series of judgments about future events and
uncertainties and rely heavily on estimates and assumptions at a point in time.
The judgments made in determining an estimate of fair value can materially
impact our results of operations. The valuations are based on information
available as of the impairment review date and are based on expectations and
assumptions that have been deemed reasonable by management. Any changes in key
assumptions, including unanticipated events and circumstances, may affect the
accuracy or validity of such estimates and could potentially result in an
impairment charge.
In the
fiscal year 2007, we incurred a goodwill impairment charge of RMB16.2 million
related to the international curriculum programs segment due to management’s
significantly reduced profit forecast for our international curriculum programs.
In the fiscal year 2008, we recognized total goodwill impairment and intangible
assets impairment charges of RMB70.1 million. Of this amount, RMB68.2
million of impairment loss was related to the international curriculum programs,
which management has significantly reduced profitability forecast due to adverse
change in government regulatory environment and the resulting early mutual
termination of our agreement with WITT. The remaining goodwill
impairment charge of RMB1.9 million for the private primary and secondary
schools was primarily due to management’s assessment that construction of
Jingzhou School’s South campus would be further delayed, and as a result there
is no definite expected enrollment period. There was no impairment charge of
goodwill and intangible assets in the fiscal year 2009.
Royalty
Fees
Royalty
fees payable to a middle school increases each year from the 2005 calendar year
to the 2024 calendar year. Royalty fees during this period were aggregated and
recognized as royalty expense on a straight-line basis. The difference between
royalty fees paid and the amount reported as expenses was included as a
component of accrued expenses and other current liabilities in the consolidated
financial statements.
Recent
Accounting Pronouncements
In June
2009, the FASB issued an authoritative pronouncement that changes how a company
determines whether an entity should be consolidated when such entity is
insufficiently capitalized or is not controlled by the company through voting
(or similar rights). The determination of whether a company is required to
consolidate an entity is based on, among other things, the entity's purpose and
design and the company's ability to direct the activities of the entity that
most significantly impact the entity's economic performance. The pronouncement
retains the scope of previously issued pronouncements but added entities
previously considered qualifying special purpose entities, since the concept of
these entities was eliminated by FASB. The pronouncement is effective as of the
beginning of an entity's first fiscal year that begins after November 15, 2009.
The adoption of this pronouncement will not have a significant impact on our
financial condition or results of operations.
In
October 2009, the FASB issued an authoritative pronouncement regarding the
revenue arrangements with multiple deliverables. This pronouncement was issued
in response to practice concerns related to the accounting for revenue
arrangements with multiple deliverables under existing pronouncement. Although
the new pronouncement retains the criteria from existing pronouncement for when
delivered items in a multiple-deliverable arrangement should be considered
separate units of accounting, it removes the previous separation criterion under
existing pronouncement that objective and reliable evidence of the fair value of
any undelivered items must exist for the delivered items to be considered a
separate unit or separate units of accounting. The new pronouncement is
effective for fiscal years beginning on or after June 15, 2010. Entities can
elect to apply this pronouncement (1) prospectively to new or materially
modified arrangements after the pronouncement's effective date or (2)
retrospectively for all periods presented. Early application is permitted;
however, if the entity elects prospective application and early adopts this
pronouncement after its first interim reporting period, it must also do the
following in the period of adoption: (1) retrospectively apply this
pronouncement as of the beginning of that fiscal year and (2) disclose the
effect of the retrospective adjustments on the prior interim periods' revenue,
income before taxes, net income, and earnings per share. We are in the process
of evaluating the effect of adoption of this pronouncement.
In
October 2009, the FASB issued an authoritative pronouncement regarding software
revenue recognition. This new pronouncement amends existing pronouncement to
exclude from their scope all tangible products containing both software and
non-software components that function together to deliver the product's
essential functionality. That is, the entire product (including the software
deliverables and non-software deliverables) would be outside the scope of
software revenue recognition and would be accounted for under other accounting
literature. The new pronouncement include factors that entities should consider
when determining whether the software and non-software components function
together to deliver the product's essential functionality and are thus outside
the revised scope of the authoritative literature that governs software revenue
recognition. The pronouncement is effective for fiscal years beginning on or
after June 15, 2010. Entities can elect to apply this pronouncement (1)
prospectively to new or materially modified arrangements after the
pronouncement's effective date or (2) retrospectively for all periods presented.
Early application is permitted; however, if the entity elects prospective
application and early adopts this pronouncement after its first interim
reporting period, it must also do the following in the period of adoption: (1)
retrospectively apply this pronouncement as of the beginning of that fiscal year
and (2) disclose the effect of the retrospective adjustments on the prior
interim periods' revenue, income before taxes, net income, and earnings per
share. We are in the process of evaluating the effect of adoption of this
pronouncement.
In
January 2010, the FASB issued authoritative guidance on accounting for
distributions to shareholders with components of stock and cash. The objective
of this new guidance is to clarify that the stock portion of a distribution to
shareholders that allows them to elect to receive cash or stock with a potential
limitation on the total amount of cash that all shareholders can elect to
receive in the aggregate is considered a share issuance that is reflected
prospectively in earnings per share and is not considered a stock dividend for
purposes of accounting treatment of equity and earnings per share. This new
guidance is effective for interim and annual periods ending on or after December
15, 2009, and should be applied on a retrospective basis. The adoption of this
guidance will not have a significant effect on our consolidated financial
position or results of operations.
In
January 2010, the FASB issued authoritative guidance to clarify the scope of
accounting and reporting for decreases in ownership of a subsidiary. The
objective of this guidance is to address implementation issues related to
changes in ownership provisions. This guidance clarifies certain conditions,
which need to apply to this guidance, and it also expands disclosure
requirements for the deconsolidation of a subsidiary or derecognition of a group
of assets. This guidance is effective in the period in which an entity adopts
the authoritative guidance on noncontrolling interests in consolidated financial
statements. If an entity has previously adopted the guidance on noncontrolling
interests in consolidated financial statements, the amendments in this update
are effective beginning in the first interim or annual reporting period ending
on or after December 15, 2009. Retrospective application to the first period
that an entity adopted the guidance on noncontrolling interests in consolidated
financial statements is required. The adoption of this guidance will not have a
significant effect on our consolidated financial position or results of
operations.
In April
2010, the FASB issued an authoritative pronouncement on milestone method of
revenue recognition. The scope of this pronouncement is limited to arrangements
that include milestones relating to research or development deliverables. The
pronouncement specifies guidance that must be met for a vendor to recognize
consideration that is contingent upon achievement of a substantive milestone in
its entirety in the period in which the milestone is achieved. The guidance
applies to milestones in arrangements within the scope of this consensus
regardless of whether the arrangement is determined to have single or multiple
deliverables or units of accounting. The pronouncement will be effective for
fiscal years, and interim periods within those years, beginning on or after June
15, 2010. Early application is permitted. Companies can apply this guidance
prospectively to milestones achieved after adoption. However, retrospective
application to all prior periods is also permitted. We are in the process of
evaluating the effect of adoption of this pronouncement.
In April
2010, the FASB issued an authoritative pronouncement on effect of denominating
the exercise price of a share-based payment award in the currency of the market
in which the underlying equity securities trades and that currency is different
from (1) entity's functional currency, (2) functional currency of the foreign
operation for which the employee provides services, and (3) payroll currency of
the employee. The guidance clarifies that an employee share-based payment award
with an exercise price denominated in the currency of a market in which a
substantial portion of the entity's equity securities trades should be
considered an equity award assuming all other criteria for equity classification
are met. The pronouncement will be effective for interim and annual periods
beginning on or after December 15, 2010, and will be applied prospectively.
Affected entities will be required to record a cumulative catch-up adjustment
for all awards outstanding as of the beginning of the annual period in which the
guidance is adopted. We are in the process of evaluating the effect of adoption
of this pronouncement.
Results
of Operations
The
following table sets forth selected data from our consolidated statements of
operations for the periods indicated.
|
|
Years
ended December 31,
|
|
|
|
2007
(As
adjusted)
|
|
|
2008
(As
adjusted)
|
|
|
2009
|
|
|
|
RMB
|
|
|
%
of net
revenue
|
|
|
RMB
|
|
|
%
of net
revenue
|
|
|
RMB
|
|
|
US$
|
|
|
%
of net
revenue
|
|
|
|
(In
thousands, except for percentages)
|
|
Net
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
202,185
|
|
|
|
76.3
|
%
|
|
|
255,388
|
|
|
|
80.4
|
%
|
|
|
285,178
|
|
|
|
41,779
|
|
|
|
80.4
|
%
|
Online
tutoring programs
|
|
|
18,013
|
|
|
|
6.8
|
%
|
|
|
15,436
|
|
|
|
4.8
|
%
|
|
|
19,584
|
|
|
|
2,869
|
|
|
|
5.5
|
%
|
Private
primary and secondary schools
|
|
|
13,356
|
|
|
|
5.0
|
%
|
|
|
19,289
|
|
|
|
6.1
|
%
|
|
|
30,627
|
|
|
|
4,487
|
|
|
|
8.6
|
%
|
International
curriculum programs
|
|
|
31,434
|
|
|
|
11.9
|
%
|
|
|
27,607
|
|
|
|
8.7
|
%
|
|
|
19,317
|
|
|
|
2,830
|
|
|
|
5.5
|
%
|
Total
net revenue
|
|
|
264,988
|
|
|
|
100.0
|
%
|
|
|
317,720
|
|
|
|
100
|
%
|
|
|
354,706
|
|
|
|
51,965
|
|
|
|
100
|
%
|
Cost
of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
58,027
|
|
|
|
21.9
|
%
|
|
|
76,224
|
|
|
|
24.0
|
%
|
|
|
95,428
|
|
|
|
13,980
|
|
|
|
26.9
|
%
|
Online
tutoring programs
|
|
|
3,875
|
|
|
|
1.5
|
%
|
|
|
4,017
|
|
|
|
1.3
|
%
|
|
|
5,713
|
|
|
|
837
|
|
|
|
1.6
|
%
|
Private
primary and secondary schools
|
|
|
10,944
|
|
|
|
4.1
|
%
|
|
|
17,572
|
|
|
|
5.5
|
%
|
|
|
26,109
|
|
|
|
3,825
|
|
|
|
7.4
|
%
|
International
curriculum programs
|
|
|
23,503
|
|
|
|
8.9
|
%
|
|
|
19,920
|
|
|
|
6.3
|
%
|
|
|
11,112
|
|
|
|
1,628
|
|
|
|
3.1
|
%
|
Total
cost of revenue
|
|
|
96,349
|
|
|
|
36.4
|
%
|
|
|
117,733
|
|
|
|
37.1
|
%
|
|
|
138,362
|
|
|
|
20,270
|
|
|
|
39.0
|
%
|
Gross
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
144,158
|
|
|
|
54.4
|
%
|
|
|
179,164
|
|
|
|
56.4
|
%
|
|
|
189,750
|
|
|
|
27,799
|
|
|
|
53.5
|
%
|
Online
tutoring programs
|
|
|
14,138
|
|
|
|
5.3
|
%
|
|
|
11,419
|
|
|
|
3.6
|
%
|
|
|
13,871
|
|
|
|
2,032
|
|
|
|
3.9
|
%
|
Private
primary and secondary schools
|
|
|
2,412
|
|
|
|
0.9
|
%
|
|
|
1,717
|
|
|
|
0.5
|
%
|
|
|
4,518
|
|
|
|
662
|
|
|
|
1.2
|
%
|
International
curriculum programs
|
|
|
7,931
|
|
|
|
3.0
|
%
|
|
|
7,687
|
|
|
|
2.4
|
%
|
|
|
8,205
|
|
|
|
1,202
|
|
|
|
2.4
|
%
|
Total
gross profit
|
|
|
168,639
|
|
|
|
63.6
|
%
|
|
|
199,987
|
|
|
|
62.9
|
%
|
|
|
216,344
|
|
|
|
31,695
|
|
|
|
61.0
|
%
|
Gross
profit margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
71.3
|
%
|
|
|
—
|
|
|
|
70.2
|
%
|
|
|
—
|
|
|
|
66.5
|
%
|
|
|
66.5
|
%
|
|
|
—
|
|
Online
tutoring programs
|
|
|
78.5
|
%
|
|
|
—
|
|
|
|
74
|
%
|
|
|
—
|
|
|
|
70.8
|
%
|
|
|
70.8
|
%
|
|
|
—
|
|
Private
primary and secondary schools
|
|
|
18.1
|
%
|
|
|
—
|
|
|
|
8.9
|
%
|
|
|
—
|
|
|
|
14.8
|
%
|
|
|
14.8
|
%
|
|
|
—
|
|
International
curriculum programs
|
|
|
25.2
|
%
|
|
|
—
|
|
|
|
27.8
|
%
|
|
|
—
|
|
|
|
42.5
|
%
|
|
|
42.5
|
%
|
|
|
—
|
|
Total
gross profit margin
|
|
|
63.6
|
%
|
|
|
—
|
|
|
|
62.9
|
%
|
|
|
—
|
|
|
|
61.0
|
%
|
|
|
61.0
|
%
|
|
|
—
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
76,893
|
|
|
|
29.0
|
%
|
|
|
86,908
|
|
|
|
27.4
|
%
|
|
|
82,858
|
|
|
|
12,139
|
|
|
|
23.4
|
%
|
Selling
and marketing
|
|
|
14,277
|
|
|
|
5.4
|
%
|
|
|
29,851
|
|
|
|
9.4
|
%
|
|
|
23,688
|
|
|
|
3,470
|
|
|
|
6.7
|
%
|
Research
and development
|
|
|
21,021
|
|
|
|
7.9
|
%
|
|
|
26,185
|
|
|
|
8.2
|
%
|
|
|
30,385
|
|
|
|
4,451
|
|
|
|
8.5
|
%
|
Goodwill
impairment
|
|
|
16,192
|
|
|
|
6.1
|
%
|
|
|
41,036
|
|
|
|
12.9
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intangible
assets impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
29,057
|
|
|
|
9.2
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
operating expenses
|
|
|
128,383
|
|
|
|
48.4
|
%
|
|
|
213,037
|
|
|
|
67.1
|
%
|
|
|
136,931
|
|
|
|
20,060
|
|
|
|
38.6
|
%
|
Income
(loss) from operations
|
|
|
40,256
|
|
|
|
15.2
|
%
|
|
|
(13,050
|
)
|
|
|
(4.2
|
)%
|
|
|
79,413
|
|
|
|
11,635
|
|
|
|
22.4
|
%
|
Operating
margin
|
|
|
15.2
|
%
|
|
|
|
|
|
|
(4.2
|
)%
|
|
|
—
|
|
|
|
22.4
|
%
|
|
|
22.4
|
%
|
|
|
|
|
Other
income
|
|
|
394
|
|
|
|
0.1
|
%
|
|
|
562
|
|
|
|
0.2
|
%
|
|
|
1,748
|
|
|
|
256
|
|
|
|
0.5
|
%
|
Interest
income
|
|
|
4,118
|
|
|
|
1.6
|
%
|
|
|
10,652
|
|
|
|
3.4
|
%
|
|
|
4,980
|
|
|
|
730
|
|
|
|
1.4
|
%
|
Interest
expense
|
|
|
(2,130
|
)
|
|
|
(0.8
|
)%
|
|
|
(1,298
|
)
|
|
|
(0.4
|
)%
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
Income (loss) before
income tax provisions and noncontrolling intere
st
(1)
|
|
|
42,638
|
|
|
|
16.1
|
%
|
|
|
(3,134
|
)
|
|
|
(1.0
|
)%
|
|
|
86,139
|
|
|
|
12,621
|
|
|
|
24.3
|
%
|
Income
tax provisions
|
|
|
15,003
|
|
|
|
5.7
|
%
|
|
|
3,473
|
|
|
|
1.1
|
%
|
|
|
19,287
|
|
|
|
2,826
|
|
|
|
5.5
|
%
|
Net
income (loss)
|
|
|
27,635
|
|
|
|
10.4
|
%
|
|
|
(6,607
|
)
|
|
|
(2.1
|
)%
|
|
|
66,852
|
|
|
|
9,795
|
|
|
|
18.8
|
%
|
Less:
net income contributable to the noncontrolling interests
|
|
|
25,148
|
|
|
|
9.5
|
%
|
|
|
36,412
|
|
|
|
11.4
|
%
|
|
|
32,073
|
|
|
|
4,699
|
|
|
|
9.0
|
%
|
Net
income (loss) attributable to ChinaEdu Corporation
shareholders
|
|
|
2,487
|
|
|
|
0.9
|
%
|
|
|
(43,019
|
)
|
|
|
(13.5
|
)%
|
|
|
34,779
|
|
|
|
5,096
|
|
|
|
9.8
|
%
|
(1) We
adopted authoritative pronouncement on noncontrolling interests in consolidated
financial statements on January 1, 2009, retrospectively.
Year
ended December 31, 2009 compared to the year ended December 31,
2008
Net
Revenue.
Our total net revenue for the fiscal year ended
December 31, 2009 was RMB354.7 million ($52.0 million), representing an 11.6%
increase, compared to RMB317.7 million for the fiscal year ended
December 31, 2008.
Online degree
programs.
Net revenue from online degree programs
for the fiscal year 2009 was RMB285.2 million ($41.8 million), representing an
11.7% increase from RMB255.4 million for the fiscal year 2008. This
increase was attributable primarily to the enrollment growth at our university
partners’ online degree programs in fiscal year 2009 as compared to fiscal year
2008. In the aggregate, our university partners had approximately
287,000 revenue students during fiscal year 2009, representing an 18.1% increase
from approximately 243,000 revenue students in fiscal year 2008.
Online tutoring
programs.
Net revenue from our online tutoring
business increased approximately 26.9% from RMB15.4 million for the fiscal year
2008 to RMB19.6 million ($2.9 million) for the fiscal year 2009. The increase
was primarily because we expanded our sales channels, developed additional
courseware and enhanced customer service.
Private primary and secondary
schools.
Net revenue from our private primary and
secondary school business increased approximately 58.8% from RMB19.3 million for
the fiscal year 2008 to RMB30.6 million ($4.5 million) for the fiscal year
2009. This was primarily due to a 56.2% increase in enrollments at
our Anqing School for the 2008-2009 academic year and a 40% increase in
enrollments at Anqing School for the 2009-2010 academic year.
International curriculum
programs
. Net revenue from our international
curriculum programs decreased approximately 30.0% from RMB27.6 million for the
fiscal year 2008 to RMB19.3 million ($2.8 million) for the fiscal year 2009.
This decrease was mainly attributable to the further decrease in student
enrollment resulting from the termination of our agreement with WITT in the
fiscal year 2009 as compared to the fiscal year 2008 Students
participating in the international curriculum programs decreased from 4,000 for
the fiscal year 2008 to 2,800 for the fiscal year 2009.
Cost of
Revenue.
Total cost of revenue for fiscal year 2009 was
RMB138.4 million ($20.3 million), representing a 17.5% as compared to RMB117.7
million for fiscal year 2008.
Online degree
programs.
Cost of revenue from our online degree
programs for fiscal year 2009 was RMB95.4 million ($14.0 million), representing
a 25.2% increase from RMB76.2 million in fiscal year 2008. The increase was
primarily due to the cost increase related to the expansion of our learning
centers network and increase in employee related costs throughout fiscal year
2009.
Online tutoring
programs.
Our cost of revenue for our online
tutoring programs increased approximately 42.2% from RMB4.0 million for the
fiscal year 2008 to RMB5.7 million ($0.8 million) for the fiscal year 2009. This
increase was the result of new product development costs incurred during the
fiscal year 2009.
Private primary and secondary
schools.
Our cost of revenue for
our private primary and secondary schools increased approximately 48.6% from
RMB17.6 million for the fiscal year 2008 to RMB26.1 million ($3.8 million) for
the fiscal year 2009. This was mostly attributable to the increase in the
enrollment which resulted in increased employee related cost, and depreciation
of property and equipment as we completed the construction of the Anqing
School’s new campus.
International curriculum
programs.
Our cost of revenue for our
international curriculum programs decreased approximately 44.2% from RMB19.9
million for the fiscal year 2008 to RMB11.1 million ($1.6 million) for the
fiscal year 2009. This decrease was primarily attributable to the decrease in
the related operational costs associated with the decrease in student
enrollment.
Gross Profit and Gross
Margin.
Gross profit for the fiscal year 2009 was
RMB216.3 million ($31.7 million) as compared with RMB200.0 million for the
fiscal year 2008, representing an increase of 8.2%. Gross margin for
the fiscal year 2009 was 61.0%, as compared with gross margin of 62.9% for the
fiscal year 2008. Gross margin for the online degree programs was
66.5% in 2009 as compared with gross margin for the online degree programs of
70.2% for 2008. The decrease in gross margin was primarily due to
investment in our learning centers network.
Operating
Expenses
Total operating expenses for the fiscal year
2009 were RMB136.9 million ($20.1 million), representing a 35.7% decrease from
RMB213.0 million for fiscal year 2008. This decrease was attributable primarily
to the factors discussed below:
General and administrative expenses.
General
and administrative expenses for the fiscal year 2009 were RMB82.9 million ($12.1
million), representing a 4.7% decrease from RMB86.9 million for fiscal year
2008. The decrease was primarily because there were almost no account
receivables write-offs and exchange losses in 2009 as well as a reduction in
rent in fiscal year 2009 as compared to fiscal year 2008.
Selling and marketing
expenses.
Selling and marketing expenses for the
fiscal year 2009 were RMB23.7 million ($3.5 million), representing a 20.6%
decrease from RMB29.9 million for the fiscal year 2008. The decrease
was attributable primarily to a shift from conducting general sales and
marketing activities to focusing on direct recruiting related activities at our
learning centers network.
Research and
development.
Research and development expenses for
the fiscal year 2009 were RMB30.4 million ($4.5 million), representing a 16.0%
increase from RMB26.2 million for the fiscal year 2008. This increase
was attributable primarily to technology platform upgrade and the internet &
mobile applications development for the online degree and non-degree
programs
Goodwill impairment and intangible
assets impairment.
There was no impairment charge of
goodwill and intangible assets in the fiscal year 2009, while such charge was
RMB70.1 million in the fiscal year 2008. See “
—
Operating
Expenses
—
Goodwill Impairment and Intangible Assets Impairment.”
Share-based
compensation.
Share-based compensation for the fiscal
year 2009, which was allocated to the related cost of revenue and operating
expense line items, was RMB7.4 million ($1.1 million), representing an increase
of RMB2.2 million from RMB5.2 million for the fiscal year 2008. This
increase was attributable primarily to the re-pricing for under-water options
and an increase in the number and fair value of options granted in fiscal year
2009 as compared to fiscal year 2008.
Income (loss) from
operations.
Income from operations was RMB79.4 million
($11.6 million) for the fiscal year 2009, as compared to a loss of RMB13.1
million for the fiscal year 2008. Operating margin was 22.4% for the
fiscal year 2009 as compared to a negative 4.1% for the fiscal year
2008. The increase was primarily because there was not an impairment
charge of goodwill and intangible assets in the fiscal year 2009, while such
charge was RMB70.1 million in the fiscal year 2008.
Interest
income.
Interest income decreased by 53.2% to RMB5.0
million ($0.7 million) in the fiscal year 2009, as compared to RMB10.7 million
in the fiscal year 2008. This decrease was attributable primarily to
(i) the reduced interest bearing cash and bank deposit balance of RMB325.4
million ($47.7 million) as of December 31, 2009, as compared to RMB417.4 million
as of December 31, 2008, and (ii) a lower interest rate for the fiscal year 2009
as compared to the fiscal year 2008.
Income tax
provision.
Income tax expense for the fiscal year 2009 was
RMB19.3 million ($2.8 million), representing a significant increase from RMB3.5
million for the fiscal year 2008. In December 2008, seven of our
subsidiaries and affiliate companies obtained the “high and new technology
enterprises” status under the new PRC Enterprise Income Tax Law, which came into
effect on January 1, 2008. The “high and new technology enterprises”
entities enjoy a 15% tax rate, which is lower than the statutory tax rate of
25%. An adjustment was recorded in the fourth quarter of 2008 to adjust our
deferred income tax expenses based on the decrease in tax rate from 25% to 15%,
which resulted in a low deferred income tax expense in 2008. In
addition, our 2008 income tax was lower because there was a significant decrease
in deferred tax liabilities related to impairment of acquired intangible assets
in our international curriculum programs, while there was no such charge in
2009.
Noncontrolling interest
s.
Noncontrolling
interests was RMB32.1 million ($4.7 million) in the fiscal year 2009,
representing an 11.9% decrease, as compared to RMB36.4 million in the fiscal
year 2008, which was attributable primarily to the noncontrolling interest
impact related to the reduction in our deferred tax liabilities for the fiscal
year 2008 resulted from change of tax rate from 25% to 15%.
Net income (loss)
attributable to ChinaEdu
.
Net
income attributable to ChinaEdu was RMB34.8 million ($5.1 million) for the
fiscal year 2009, compared with a loss of RMB43.0 million for the fiscal year
2008, primarily because there was not an impairment charge of goodwill and
intangible assets in the fiscal year 2009, while such charge was RMB70.1 million
in the fiscal year 2008.
Year
ended December 31, 2008 compared to the year ended December 31,
2007
Net
Revenue.
Our total net revenue for the fiscal year ended
December 31, 2008 was RMB317.7 million, representing a 19.9% increase, compared
to RMB265.0 million for the fiscal year ended December 31, 2007.
Online degree
programs.
Net revenue from online degree programs
for the fiscal year 2008 was RMB255.4 million, representing a 26.3% increase
from RMB202.2 million for the fiscal year 2007. This increase was
attributable primarily to the solid enrollment growth at our university
partners’ online degree programs in fiscal year 2008 as compared to fiscal year
2007. In the aggregate, our university partners had approximately
243,000 revenue students during fiscal year 2008, representing a 27% increase
from approximately 192,000 revenue students in fiscal year 2007.
Online tutoring
programs.
Net revenue from our online tutoring
business decreased approximately 14.3% from RMB18.0 million for the year ended
December 31, 2007 to RMB15.4 million for the year ended December 31, 2008. The
decrease was mostly attributable to a change in distribution channels, which
resulted in short-term negative impact on net revenue.
Private primary and secondary
schools.
Net revenue for this business line
increased approximately 44.4% from RMB13.4 million for the year ended December
31, 2007 to RMB19.3 million for the same period in 2008. This was
primarily due to a 14.3% increase in enrollments at our Anqing School for the
2007-2008 academic year and a 56.2% increase in enrollments at our Anqing School
for the 2008-2009 academic year.
International curriculum
programs
. Net revenue from our international
curriculum programs decreased approximately 12.2% from RMB31.4 million for the
year ended December 31, 2007 to RMB27.6 million for the same period in 2008.
This decrease was mainly attributable to the decrease in student enrollment
resulting from the shrinkage of our operations in this business line in the
fiscal year 2008 as compared to the fiscal year 2007 due to adverse changes in
the governmental regulatory environment and the related termination of our
agreement with WITT. Students participating in our international curriculum
programs decreased from 5,000 for the year ended December 31, 2007 to 4,000 for
the year ended December 31, 2008.
Cost of
Revenue.
Total cost of revenue for fiscal year 2008 was
RMB117.7 million, representing a 22.2% increase, from RMB96.3 million for fiscal
year 2007. Cost of revenue as a percentage of net revenue increased to 37.1% in
2008 from 36.4% in 2007, primarily due to an increase in cost of revenue for the
expansion of our learning centers, new courseware development and hardware
upgrades in 2008 as compared to 2007. The increase in cost of revenue is
discussed below.
Online degree
programs.
The cost of revenue from our online degree programs
for fiscal year 2008 was RMB76.2 million, representing a 31.4% increase from
RMB58.0 million in fiscal year 2007. The increase was attributable
primarily to the following factors:
(i) In
fiscal year 2008, the number of revenue students enrolled in our university
partners’ online degree programs increased by 27% to approximately 243,000 from
approximately 192,000 revenue students in fiscal year 2007, which resulted in an
increase in recruiting-related expenses; and
(ii)
In fiscal year 2008, we significantly expanded our learning centers
network, increasing the number of learning centers from one operational learning
center at the fiscal year end of 2007 to 37 as of fiscal year end
2008.
As a
result of this significant expansion, cost of revenue related to learning
centers operations was approximately RMB3.5 million for fiscal year 2008, while
cost of revenue related to our learning centers operations was insignificant in
2007.
Online tutoring
programs.
Our cost of revenue for our online
tutoring programs increased approximately 3.7% from RMB3.9 million in the year
ended December 31, 2007 to RMB4.0 million in the year ended December 31, 2008.
This slight increase was the result of new product development costs incurred
during the year ended December 31, 2008.
Private primary and secondary
schools
. Our cost of revenue for our private
primary and secondary schools increased approximately 60.6% from RMB10.9 million
for the year ended December 31, 2007 to RMB17.6 million for the same period in
2008. This was mostly attributable to the completion Phase I construction at the
Anqing School’s new campus, which resulted in increased faculty and facility
costs, and depreciation of property and equipment as we commenced enrollment at
the Anqing School’s new campus.
International curriculum
programs
. Our cost of revenue for our
international curriculum programs decreased approximately 15.2% from RMB23.5
million in the year ended December 31, 2007 to RMB19.9 million for the same
period in 2008. This decrease was primarily attributable to the decrease in the
related operational costs associated with the decrease in student
enrollment.
Gross Profit and Gross
Margin.
Gross profit increased by 18.6% to
RMB200.0 million in 2008 from RMB168.6 million in 2007. Our gross margin
decreased slightly to 62.9% in 2008 from 63.6% in 2007.
Operating
Expenses.
Total operating expenses for the fiscal
year 2008 were RMB213.0 million representing a 65.9% increase from RMB128.4
million for fiscal year 2007. Operating expenses, as a percentage of net
revenue, increased to 67.1% in 2008 from 48.4% in 2007. This increase was
attributable primarily to the factors discussed below:
General and administrative
expenses.
General and administrative expenses for
the fiscal year 2008 were RMB86.9 million, representing a 13.0% increase from
RMB76.9 million for fiscal year 2007. Our general and administrative
expenses, as a percentage of net revenue, decreased to 27.4% in 2008 from 29.0%
in 2007. The overall increase was primarily due to expenses associated with
being a new U.S. publicly listed company. In particular, in 2008 we
incurred an increase of approximately RMB6.0 million in professional fees paid
to auditors, lawyers, consultants assisting in compliance with the
Sarbanes-Oxley Act of 2002, and other third-party service providers that provide
advice and guidance regarding compliance with the regulatory requirements of a
publicly listed company.
Selling and marketing
expenses.
Selling and marketing expenses for the
fiscal year 2008 were RMB29.9 million as compared to RMB14.3 million for the
fiscal year 2007. Our selling and marketing expenses, as a percentage
of net revenue, increased to 9.4% in 2008 from 5.4% in 2007. The
increase is attributable primarily to our learning centers network expansion. We
recorded approximately RMB8.4 million in selling and marketing expenses in
connection with the expansion of our learning centers network in fiscal year
2008. Selling and marketing expenses related to our learning centers
were insignificant in 2007. We also incurred increased selling and marketing
expenses related to our online tutoring programs and certain non-degree programs
at our collaborative alliances
Research and
development.
Research and development expenses for
the fiscal year 2008 were RMB26.2 million, representing a 24.6% increase from
RMB21.0 million for the fiscal year 2007. Our research and development expenses,
as a percentage of net revenue, increased to 8.2% in 2008 from 7.9% in 2007.
This increase was attributable primarily to technology platform upgrade and
reconfiguration activities in some of our collaborative alliances in order to
further enhance and support our online degree programs.
Goodwill impairment and intangible
assets impairment.
In fiscal year 2008, we
recorded total goodwill and intangible assets impairment charges of RMB70.1
million compared to RMB16.2 million related solely to goodwill impairment in
2007. Of the RMB70.1 million impairment recorded in 2008, RMB41.0
million related to goodwill impairment and RMB29.1 million related to intangible
assets impairment. Goodwill and intangible assets impairment, as a percentage of
net revenue, increased to 22.1% in 2008 from 6.1% in 2007.
Goodwill
impairment.
Based on management’s annual goodwill
impairment assessments performed as of December 31, 2007 and 2008, we recorded
goodwill impairment losses of RMB16.2 million and RMB41.0 million for the years
ended December 31, 2007 and 2008, respectively. The goodwill impairment charge
for the year ended December 31, 2007 was due to management’s significantly
reduced profit forecast for our FEC program, which is a component of our
international curriculum programs. Of the RMB41.0 million goodwill
impairment loss for the year ended December 31, 2008, RMB39.1 million was
related to our international curriculum programs, for which management
significantly reduced its profitability forecast due to adverse changes in the
PRC government regulatory environment and the resulting early mutual termination
of our agreement with WITT. The remaining goodwill impairment charge of RMB1.9
million for the year ended December 31, 2008, which was taken in the fourth
quarter, related to a total goodwill impairment charge for our private primary
and secondary schools, primarily due to management's assessment that
construction of Jingzhou School's South campus would be further delayed, and as
a result there is no definite expected enrollment period.
Intangible assets
impairment.
No impairment of intangible assets was
recorded in fiscal year 2007. For fiscal year 2008, we recorded an impairment
loss of intangible assets of RMB29.1million. The intangible assets
impairment loss for the year ended December 31, 2008 was also related to our
international curriculum programs, for which we have significantly reduced our
profitability forecast due to the adverse changes in the PRC government
regulatory environment and the resulting mutual termination of our agreement
with WITT.
Income (loss) from
operations.
Loss from operations for fiscal year
2008 was RMB13.1 million as compared to income from operations of RMB40.3
million for the fiscal year 2007. The resulting loss from operations during
fiscal the year ended 2008 versus 2007 is attributable to the factors discussed
above regarding the overall increases in our cost of revenue and operating
expenses, in particular the impairment losses recorded.
Interest
income.
Interest income increased by 158.7% to RMB10.7
million in the fiscal year 2008, as compared to RMB4.1 million in the fiscal
year 2007. This increase was attributable primarily to the interest income
earned on the net proceeds from our IPO completed in December 2007.
Income tax
provision
Income tax expense for the fiscal year 2008
was RMB3.5 million, representing a significant decrease from RMB15.0 million for
the fiscal year 2007. This was attributable primarily to the fact that, in the
fourth quarter of 2008, seven of our subsidiaries and affiliate companies
applied and qualified for the “high and new technology enterprise” status under
the EIT Law, which came into effect on January 1, 2008. Under the new
tax regulation, the statutory tax rate for all enterprises in China is 25%,
except for enterprises who have obtained the newly implemented “new and high
technology enterprise” status. As a result of their qualification as “high and
new technology enterprises”, these seven subsidiaries received certain tax
exemptions and a preferential statutory tax rate of 15%, which resulted in a
decrease in our deferred tax liabilities. In addition, as a result of the
intangible assets impairment loss from our international curriculum programs,
the related deferred tax liabilities recorded were reversed, which reduced our
income tax expense for the fiscal year 2008.
Noncontrolling
interests.
Noncontrolling interests was RMB36.4
million in the fiscal year 2008, representing a 44.8% increase, as compared to
RMB25.1 million in the corresponding period in 2007, which was primarily
attributable to the increased profitability of our collaborative
alliances.
Net income (loss) attributable to
ChinaEdu.
As a result of the above factors, most
notably the goodwill and intangible assets impairment charges, we had a net loss
of RMB43.0 million in 2008 compared to net income of RMB2.5 million in
2007.
B.
|
Liquidity and Capital
Resources
|
Since our
initial public offering completed in December 2007, we have financed our
operations primarily through cash flows from operations. As of December 31,
2009, we had RMB325.4 million ($47.7 million) in cash and bank deposit, and
no borrowings. Our cash and bank deposit primarily consist of cash on hand,
demand deposits and term deposits with original maturity terms of greater than
three months but less than one year that are placed with banks and other
financial institutions. A portion of the cash balances of our Chinese affiliated
entity and its subsidiaries may be paid to us pursuant to our contractual
arrangements with the entity and its subsidiaries for our technical and teaching
support, enrollment system and other services. We may fund the cash needs of our
Chinese affiliated entity from time to time.
We have
not encountered any difficulties meeting our cash obligations to
date. Since we do not expect making additional significant capital
expenditures through the end of 2010, we believe that our current cash and cash
equivalents and anticipated future cash flows from operations, will be
sufficient to meet our presently anticipated cash needs.
We may, however, require
additional cash due to changing business conditions or other future
developments, including any investments or acquisitions we may decide to pursue.
If our existing cash is insufficient to meet our requirements, we may seek to
sell additional equity securities or debt securities or borrow from lending
institutions.
We had no
outstanding capital commitments as of December 31, 2009 associated with
acquisition of the Anqing School. In 2009, we completed construction of new
campus at the Anqing School. We had outstanding capital commitments
of approximately RMB64.8 million as of December 31, 2009 associated with the
acquisition of Jingzhou School (Southern Campus). However, due to the ongoing
delays that have prevented construction at our Jinzhou School (Southern Campus),
we are currently unable to estimate when the outstanding RMB64.8 million capital
commitment will be paid.
The
following table sets forth a summary of our cash flows for the periods
indicated:
|
|
Years ended December 31,
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(In
thousands)
|
Net
cash (used in) provided by operating activities
|
|
|
80,932
|
|
|
|
54,547
|
|
|
|
83,420
|
|
|
|
12,224
|
|
Net
cash (used in) investing activities
|
|
|
(93,704
|
)
|
|
|
(110,325
|
)
|
|
|
(149,068
|
)
|
|
|
(21,839
|
)
|
Net
cash (used in) provided by financing activities
|
|
|
366,501
|
|
|
|
(68,221
|
)
|
|
|
(85,454
|
)
|
|
|
(12,518
|
)
|
Effect
of exchange rate changes
|
|
|
(4,930
|
)
|
|
|
(19,182
|
)
|
|
|
312
|
|
|
|
43
|
|
Net
changes in cash and cash equivalents
|
|
|
348,799
|
|
|
|
(143,181
|
)
|
|
|
(150,790
|
)
|
|
|
(22,090
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
148,315
|
|
|
|
497,114
|
|
|
|
353,933
|
|
|
|
51,851
|
|
Cash
and cash equivalents at end of period
|
|
|
497,114
|
|
|
|
353,933
|
|
|
|
203,143
|
|
|
|
29,761
|
|
Operating
Activities
In the
year ended December 31, 2009, we generated positive cash flow from operating
activities of RMB83.4 million ($12.2 million), which was primarily due to our
net income of RMB66.9 million, adjusted by the add-back of non-cash items
RMB31.0 million from a number of factors, including share-based compensation
expenses of RMB7.4 million, depreciation of RMB16.6 million, and amortization of
intangible assets of RMB5.2 million. These positive cash flows were also offset
by aggregate changes in our current assets and liabilities of RMB14.5 million,
which included a RMB19.1 million increase in accrued expenses and other current
liabilities due to the growth of our business and increased accrued employee
payroll and welfare benefits, a RMB9.4 million increase in income tax and other
taxes payable due to increased profitability of several of our subsidiaries, and
a RMB3.8 million increase in deferred revenues due to an increase in revenue
students. Those positive factors were partially offset by an increase in amounts
due from related parties of RMB26.3 million and an increase in accounts
receivable of RMB13.8 million. The increase in amounts due from
related parties reflected higher service fees payable to us by our university
partners in the year ended December 31, 2009 than those paid to us in the same
period in 2008.
In the
year ended December 31, 2008, we generated positive cash flow from operating
activities of RMB54.5 million, which was primarily due to our net loss of RMB6.6
million, adjusted by the add-back of non-cash items RMB91.4 million from a
number of factors, including share-based compensation expenses of RMB5.2
million, depreciation of RMB12.2 million, goodwill and intangible assets
impairment of RMB70.1 million, and amortization of acquired intangible assets of
RMB8.7 million. These positive cash flows were also offset by aggregate changes
in our current assets and liabilities of RMB30.2 million, which included a
RMB10.0 million increase in accrued expenses and other current liabilities due
to the growth of our business and increased accrued employee payroll and welfare
benefits, a RMB10.8 million increase in income tax and other taxes payable due
to increased profitability of several of our subsidiaries, such as CMR Web and
Dongcai, and a RMB15.2 million increase in deferred revenue due to an increase
in revenue students. Those positive factors were partially offset by changes in
growth in amounts due from related parties of RMB45.0 million and an RMB14.7
million increase in accounts receivable. The increase in amounts due
from related parties reflected higher service fees payable to us by our
university partners in the year ended December 31, 2008 than those paid to us in
the same period in 2007.
In the
year ended December 31, 2007, we generated positive cash flow from operating
activities of RMB83.1 million, which was primarily derived from our net income
of RMB27.6 million, adjusted by the add-back of non-cash items of RMB45.4
million from a number of factors, including share-based compensation expenses of
RMB3.6 million, depreciation of RMB8.2 million, goodwill impairment of RMB16.2
million, and amortization of intangible assets of RMB8.5 million. These positive
cash flows were also derived from aggregate changes in our current assets and
liabilities of RMB7.9 million, which included an RMB20.9 million increase in
accrued expenses and other current liabilities, a RMB25.0 million increase in
amounts due to related parties, a RMB7.9 million increase in deferred revenue
and a RMB11.3 million decrease in accounts receivable. Those positive factors
were partially offset by changes in growth in amounts due from related parties
of RMB52.5 million. The increase in amounts due from related parties
reflected higher service fees payable to us by our university partners in the
year ended December 31, 2007 than those paid to us in the same period in
2006.
Investing
Activities
In the
year ended December 31, 2009, net cash used in investing activities was RMB149.1
million ($21.8 million), which is primarily related to our purchase of
additional term deposit products in the total amount of RMB58.8 million, our
deposits paid for acquisition of property and equipment in the amount of RMB11.4
million, our investment in purchase of property and equipment in the amount of
RMB57.1 million, and our purchase of investments in the amount of RMB20.6
million.
In the
year ended December 31, 2008, net cash used in investing activities was RMB110.3
million, which is primarily related to our purchase of additional term deposit
products in the total amount of RMB57.5 million, our acquisition of additional
equity interests in our subsidiaries in the amount of RMB6.7 million, our
deposits paid for acquisition of property and equipment in amount of RMB8.7
million, and our investment in purchase of property and equipment in the amount
of RMB36.3 million.
In the
year ended December 31, 2007, net cash used in investing activities was RMB93.7
million, which is primarily related to our purchase of office space for our new
headquarters in the amount of RMB31.0 million, to our acquisition of additional
equity interests in our subsidiaries in the amount of RMB22.5 million and to our
investment in the construction of our Anqing School in the amount of RMB27.1
million.
Financing
Activities
Net cash
used by financing activities was RMB85.5 million ($12.5million) for the year
ended December 31, 2009. This is attributable primarily to the repurchase of
ordinary shares in the amount of RMB76.4 million and cash dividends paid to
noncontrolling shareholders RMB14.7 million for the year ended December 31,
2009. Net cash used by financing activities was RMB68.2 million for
the year ended December 31, 2008. This is attributable primarily to the
repurchase of ordinary shares in the amount of RMB34.2
million, repayment of a long term loan in the amount of RMB25.7
million and cash dividends paid to noncontrolling shareholders of RMB11.3
million for the year ended December 31, 2008. Net cash provided by
financing activities was RMB366.5 million for the year ended December 31, 2007.
This is attributable primarily to the RMB348.8 million in net proceeds that we
received from our initial public offering.
Capital
Expenditures
We made
capital expenditures of RMB71.9 million, RMB36.5million and RMB59.1 million
($8.7 million) for the years ended December 31, 2007, 2008 and 2009,
respectively. These capital expenditures were primarily for the acquisition of
land and buildings at our Pingdingshan School, Anqing School and Jingzhou School
(Southern Campus), for additional office space relating to our online degree
programs and for a new office building to house our corporate headquarters. Each
of our three private schools (Pingdingshan School, Anqing School and Jingzhou
School (Southern Campus)) has associated properties that we either own or lease.
We estimate that capital expenditures for the fiscal year 2010 will be
approximately RMB11.1 million at our Anqing School and Pingdingshan
School. As discussed above, because of the ongoing delays that have
prevented construction at our Jinzhou School (Southern Campus), we do not
currently anticipate incurring any capital expenditures in connection with the
construction of the Jinzhou School (Southern Campus) in the near future, or at
all.
C.
|
Research and
Development, Patents and Licenses,
etc.
|
Intellectual
Property and Proprietary Rights
We regard
our copyrights, trademarks, trade secrets and other intellectual property rights
as critical to our business. We rely on trademark and copyright law, trade
secret protection, non-competition and confidentiality and/or licensing
agreements with our executive officers, clients, contractors and others to
protect our intellectual property rights. We have registered our
chinaedu.com
,
prcedu.com
and
chinaedu.net
Internet domain
names, which are held by our Chinese affiliated entity’s
subsidiaries.
We have
directly, or indirectly through our Chinese affiliated entity, registered for
trademark protection for certain intellectual property relating to our brand and
our websites with the Trademark Office of the Chinese State Administration
for Industry and Commerce. We have also registered some of the computer
software that we have developed for copyright protection with the Chinese
National Copyright Office.
We,
together with our university customers, have developed courseware for our
university partners’ online degree programs. All of this courseware is
proprietary to us or the collaborative alliances we form with these
universities.
Our
intellectual property is subject to risks of infringement and other unauthorized
use, and our ability to protect our intellectual property from unauthorized use
is limited. In addition, we may be subject to claims that we have infringed the
intellectual property rights of others. See “Item 3. Key Information—D. Risk
Factors—Risks Related to Our Business—If we are unable to prevent others from
using our intellectual property or if we are subject to intellectual property
infringement claims by others, our business may be materially and adversely
affected”.
Technology
We
provide end-to-end technology solutions to our customers providing online degree
programs. Our technology consists of a series of systems and tools, including
our Learning Management System, which enables the online universities to manage
the entire student lifecycle from student application to graduation by providing
system support to the student’s learning process and the university staff’s
daily management process. We also provide a learning content creation and
management system, which enables the team working on courseware development to
bring the courseware from the concept and design stage to production and
implementation, as well as manage courseware content, and various delivery and
management systems and tools. In addition, in the past months we have been
introducing more creative, front-end utilities to our customers, including
real-time, virtual online classroom and mass-capacity flash-based course
on-demand system to improve user experience in the online education
scenario.
Our
strategy is to develop, integrate and deliver the most suitable, stable,
efficient and cost-effective systems to our customers in the online education
market in China. Our in-depth understanding of the online education market and
the operational model of online education programs helps us develop technology
solutions suited to the needs of our current and future customers. Our
accumulated experience and proprietary technology have further strengthened our
leading position in the online education service market.
Our
technology is based on Microsoft platform, as well as other open source projects
like CAS, Sakai and LifeRay. Application software and databases are further
supported by storage and back-up technologies. In addition to providing software
solutions, along with maintenance support and customized development, we provide
centralized system and network management services to our online degree program
customers. Our production servers are hosted at a data center operated by China
Telecom. In addition to the services provided by the data center (such as
uninterrupted power supply), the servers are supported by advanced technologies
to ensure security, scalability, reliability and expandability. Additionally,
our bandwidth is scalable to accommodate spikes in user activity.
Using
advanced technologies, our system can identify errors and isolate failed servers
automatically to minimize the interruption of our customers’ access to our
services. Our websites are hosted at a third party facility in Beijing. This
facility provides redundant utility systems, a back-up electric generator and
24-hour server support. All our servers have redundant power supplies to
maximize system and date availability. We regularly back-up our databases
automatically on storage devices hosted at an Internet data center to minimize
the impact of data loss due to system failures and we maintain back-up files
offsite to facilitate disaster recovery.
Other
than as disclosed elsewhere in this annual report, we are not aware of any
trends, uncertainties, demands, commitments or events that are reasonably likely
to have a material adverse effect on our net revenues, income, profitability,
liquidity or capital resources, or that caused the disclosed financial
information to be not necessarily indicative of future operating results or
financial conditions.
E.
|
Off-Balance Sheet
Arrangements
|
We have
not entered into any financial guarantees or other commitments to guarantee the
payment obligations of any third parties. Other than the warrants, we have not
entered into any other derivative contracts that are indexed to our own shares
and classified as shareholders’ equity, or that are not reflected in our
consolidated financial statements. In addition, we do not have any retained or
contingent interest in assets transferred to an unconsolidated entity that
serves as credit, liquidity or market risk support to such entity. Furthermore,
we do not have any variable interest in any unconsolidated entity that provides
financing, liquidity, market risk or credit support to us or engages in leasing,
hedging or research and development services with us.
Authoritative
pronouncement regarding consolidation of variable interest entities requires a
“variable interest entity” to be consolidated by the primary beneficiary of such
entity. An entity is considered to be a variable interest entity if certain
conditions are present, including where the equity investors in the entity do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. As a result of our
various agreements with Hongcheng Education and its respective shareholders, we
are considered the primary beneficiary of Hongcheng Education and all its
subsidiaries have been consolidated in our financial statements. All significant
transactions and balances between us, our subsidiaries, Hongcheng Education have
been eliminated upon consolidation.
F.
|
Tabular Disclosure of
Contractual Obligations
|
Contractual
Obligations
The
following table sets forth our contractual obligations and commercial
commitments as of December 31, 2009.
|
|
Payment Due by December 31
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
|
(In
RMB thousands)
|
|
Operating
lease obligations
|
|
|
15,571
|
|
|
|
7,041
|
|
|
|
4,017
|
|
|
|
2,684
|
|
|
|
1,124
|
|
|
|
705
|
|
|
|
—
|
|
Funding
obligations to university partners
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Facility fees to a
middle school
(1)
|
|
|
17,800
|
|
|
|
1,000
|
|
|
|
1,200
|
|
|
|
1,200
|
|
|
|
1,200
|
|
|
|
1,200
|
|
|
|
12,000
|
|
Capital obligations
for private primary and secondary schools
(2)
|
|
|
75,834
|
|
|
|
11,082
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unrecognized tax
benefit
(3)
|
|
|
7,727
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(1) These
amounts represent the user fees that our Anqing School will pay to the Fourth
Middle School of Anqing for the use of certain facilities of the Fourth Middle
School of Anqing over the period set out in the related agreement.
(2) These
amounts represent the remaining portion of our capital commitments to the
Jingzhou government for the expansion of the Jingzhou School (Southern Campus)
(approximately RMB64.8 million), and also include RMB11.1 million has been
contracted for the Anqing School and the Pingdingshan School’s constructions
with third-party contractors in 2009. Since we do not know when construction
will begin at the Jingzhou School, we are unable to reasonably estimate the
timing of the capital commitment for the Jingzhou School.
(3) This
amount represents unrecognized tax benefit pursuant to the authoritative
pronouncement regarding to accounting for uncertainties in income tax. Since
there is a high degree of uncertainty regarding the timing of future cash
outflows, we are unable to make reasonable estimates regarding the timing of
settlement with the respective tax authority.
Other
than the contractual obligations set forth above, we do not have any other
long-term debt obligations, operating lease obligations, purchase obligations or
other long-term liabilities.
This
annual report contains forward-looking statements that involve risks and
uncertainties. All statements other than statements of historical facts are
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from those expressed or implied by
the forward-looking statements.
You can
identify these forward-looking statements by words or phrases such as “may,”
“will,” “expect,” “is expected to,” “anticipate,” “aim,” “estimate,” “intend,”
“plan,” “believe,” “is/are likely to” or other similar expressions. We have
based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect
our financial condition, results of operations, business strategy and financial
needs. These forward-looking statements include:
|
·
|
our
anticipated growth strategies;
|
|
·
|
our
future business development, results of operations and financial
condition;
|
|
·
|
expected
changes in our revenues and certain cost and expense
items;
|
|
·
|
our
ability to increase student enrollments and course fees and expand
program, service and product
offerings;
|
|
·
|
competition
in the language training, test preparation, primary and secondary
education, educational content, software and other technology development
and online education markets;
|
|
·
|
risks
associated with our offering of new educational programs, services and
products and the expansion of our geographic
reach;
|
|
·
|
the
expected increase in expenditures on education in China;
and
|
|
·
|
PRC
laws, regulations and policies relating to private education and providers
of private educational services, including recent changes in the
government regulatory environment related to our international curriculum
programs; and
|
|
·
|
general
economic, business and other market conditions in the PRC and worldwide,
including the ability of the general global economy to recover timely from
the current economic downturn.
|
You
should read thoroughly this annual report and the documents that we refer to
herein with the understanding that our actual future results may be materially
different from and/or worse than what we expect. We qualify all of our
forward-looking statements by these cautionary statements. Other sections of
this annual report include additional factors which could adversely impact our
business and financial performance. Moreover, we operate in an evolving
environment. New risk factors emerge from time to time and it is not possible
for our management to predict all risk factors, nor can we assess the impact of
all factors on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
This
annual report also contains third-party data relating to the education market in
China that includes projections based on a number of assumptions. The education
market may not grow at the rates projected by market data, or at all. The
failure of this market to grow at the projected rates may have a material
adverse effect on our business and the market price of our ADSs. Furthermore, if
any one or more of the assumptions underlying the market data turns out to be
incorrect, actual results may differ from the projections based on these
assumptions. You should not place undue reliance on these forward-looking
statements.
You
should not rely upon forward-looking statements as predictions of future events.
The forward-looking statements made in this annual report relate only to events
or information as of the date on which the statements are made in this annual
report. We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
Item
6. Directors, Senior Management and Employees
A.
Directors and Senior
Management
Directors
and Executive Officers
Members
of our board of directors are elected by our shareholders. Our executive
officers are appointed by, and serve at the discretion of, our board of
directors.
The
following table sets forth information concerning our directors and executive
officers. The business address of each of our directors and executive officers
listed below is 4
th
Floor-A, GeHua Building, No. 1 QinglongHutong, Dongcheng District, Beijing,
100007, People’s Republic of China.
Name
|
|
Age
|
|
Positions
|
Julia
Huang
|
|
41
|
|
Chairman,
Chief Executive Officer
|
Shawn
Ding
|
|
45
|
|
Director,
President and Chief Operating Officer
|
Zonglian
Gu
|
|
54
|
|
Director
|
Samuel
Yen
|
|
38
|
|
Director
|
Min
Fan
|
|
44
|
|
Director
|
Amol
Shah
|
|
35
|
|
Director
|
Tianwen
Liu
|
|
47
|
|
Director
|
Lily
Liu
|
|
34
|
|
Chief
Financial Officer
|
Changqing
Xie
|
|
46
|
|
Vice
President
|
Wen
Liu
|
|
40
|
|
Vice
President
|
Lingling
Chen
|
|
36
|
|
Vice
President
|
Julia Huang
has served as our chairman since September 2007 and as our chief
executive officer since June 2000. Prior to joining us, she was a senior manager
at Ernst & Young Management Consulting (New York) Group from 1996 to
1999. Ms. Huang also served as a project manager at Merck & Co.
from 1993 to 1995. Ms. Huang holds an MBA from Columbia Business School
with concentrations in finance and international business and a master’s degree
in chemical engineering and microbiology from University of Tennessee,
Knoxville.
Shawn Ding
has served as our director, president and chief operating officer since
December 2004. Mr. Ding joined us in July 2001 as our chief technology
officer. From 2000 to 2001, Mr. Ding was the chief technology officer of
Infostream Technologies Inc., a U.S. company specializing in the development and
implementation of packaged and customized enterprise resource planning software.
He also served as a director of Internet application development at Automatic
Data Processing, Inc. from 1999 to 2000 and was a director of system
architecture at Prudential Insurance Company of America from 1992 to 1998.
Mr. Ding received a bachelor’s degree in environmental science from Peking
University, a bachelor’s degree in computer science from Rutgers University, and
a master’s degree in computer science from New Jersey Institute of
Technology.
Zonglian Gu
has served as one of our directors since March 2005. Mr. Gu joined
CMR Web as general manager in November 2001. Mr. Gu also currently serves
as the dean of Renmin University of China’s Online Education College, and was
previously a professor at Renmin University of China and served as the vice dean
of Renmin University of China Online Education College and vice dean of the
Adult Education College Department of Renmin University of China. Mr. Gu
holds a bachelor’s degree in international politics from Renmin University of
China and has over 19 years of experience in the public education
sector.
Samuel Yen
was elected as a director of our company in October 2007. Mr. Yen is the vice
president of finance at Alibaba Group, a leading e-commerce company operating
online marketplaces for businesses and consumers. From 2004 to 2005, Mr. Yen
served as financial controller and company secretary of Dynasty Fine Wines Group
Limited and prior to that Mr. Yen served in various positions at
PricewaterhouseCoopers and Arthur Andersen & Co., lastly as a senior
manager. Mr. Yen received a bachelor’s degree in commerce from the
University of Toronto and is a member of the American Institute of Certified
Public Accountants, the Hong Kong Institute of Certified Public Accountants, the
Institute of Certified Management Accountants and the CFA
Institute.
Min Fan
was elected as a director of our company in October 2007. Mr. Fan is one
of the co-founders and the current chief executive officer of Ctrip.com
International Ltd., a leading travel services firm in China. From 2000 to 2004,
Mr. Fan served as Ctrip’s chief operating officer and executive vice president.
Prior to founding Ctrip in 1999, Mr. Fan was the chief executive officer of
Shanghai Travel Service Company, a leading domestic travel agency in China, and
from 1990 to 1997 served in a number of senior management positions at Shanghai
New Asia Hotel Management Company. Mr. Fan holds a master’s and a bachelor’s
degree from Shanghai Jiao Tong University and has studied at the Lausanne Hotel
Management School of Switzerland.
Amol Shah
is Senior Vice President of Global Strategy for the McGraw-Hill
Companies. He oversees strategy development for the McGraw-Hill Companies and
its business units. Mr. Shah also serves as Vice President of McGraw-Hill
Ventures, which makes equity investments in innovative, high growth companies
that are complementary to McGraw-Hill's traditional business lines. Prior to
joining the McGraw-Hill Companies, he served as a Managing Director at Novantas
LLC, a strategy consulting firm, where he served as a leading advisor on growth
strategies. Earlier in his career, Mr. Shah worked as a consultant specializing
in financial services strategy for First Manhattan Consulting Group. Mr. Shah
earned his bachelor's degree from the University of Pennsylvania and The Wharton
School with a dual degree in engineering and economics through the Jerome Fisher
Program in Management & Technology. Mr. Shah also earned a MBA in finance
from the Columbia Business School.
Tianwen Liu
was elected as a director of our company in September 2008. Mr. Liu is
the Chairman and Chief Executive Officer of iSoftStone Information Service
Corporation. Mr. Liu founded iSoftStone, one of the fastest growing IT
outsourcing companies in China. He has over 20 years of experience in the IT
sector. Prior to iSoftStone, Mr. Liu co-founded AsiaEC.com in 1999, and led the
effort to build the company from the ground up and grow it to become China's
largest on-line office supply and services provider. Prior to AsiaEC.com, Mr.
Liu served as the General Manager of Siemens Business Services and Siemens
Nixdorf Information Technologies from 1996-1999, where he was responsible for IT
consulting, system integration, and outsourcing businesses in China. Before
that, Mr. Liu worked for several consulting and IT companies in the U.S.,
including Bechtel and DEC. Mr. Liu holds a MBA from Massachusetts Institute of
Technology, as well as a Masters degree in Electrical Engineering from the
University of Massachusetts.
Lily Liu
joined our company as Chief Financial Officer in October 2008. Prior to
joining, she served as the Chief Financial Officer of MainOne Inc., a Vice
President at Lehman Brothers in Hong Kong, and an Associate at Lehman Brothers
in New York and Hong Kong. From 2000 to 2001, Ms. Liu was Vice President and
Founder of Trulycustom Construction Inc. in Boston, Massachusetts. Ms. Liu
received a bachelor's degree in Mathematics and Economics from Dartmouth
College, and a MBA from Sloan School of Management at the Massachusetts
Institute of Technology.
Changqing
Xie
has served as a vice president of our company since February 2005.
Prior to joining us, Mr. Xie was the chief executive officer of Wellent
Institute of Education International (Asia) Limited from January 2001 to January
2005. He served as a manager of Oriental Patron Financial Services Group from
August 1997 to December 2000. From January 1988 to August 1993, Mr. Xie was a
lecturer at Peking University. Mr. Xie received a master’s degree in
geography from Peking University and a MBA degree from the University of
Georgia.
Wen Liu
has served as a vice president of our company since
2006. Prior to joining the Company, he served as the Deputy General
Manager of Beijing MoVision Technologies from 2003 to 2006, and the Director of
China SciTech Business of Henderson Holdings from 2002 to 2003. From 1993 to
2002, Mr. Liu was the Chief Engineer and Deputy General Manager of Beijing
Keqing New Technologies. In 1994, Mr. Liu received bachelor's and master's
degrees from Peking University, and furthered his doctoral studies at the China
Academy of Sciences from 1994 to 1997.
Lingling
Chen
has served as a vice president of our company since 2009. She joined
ChinaEdu in 2005 as the Director of human resources and became the executive
vice president of our 101 Online Tutoring programs in 2008. Prior to
joining the company, Ms. Chen was the Director of HR at Tsinghua
Tongfang. She has over 10 years of experience in human resources
management and also received national license in psychology and professional
teaching license. Ms. Chen received a bachelor's degree in History at Liaoning
University in 1997.
Employment
Agreements
We have
entered into employment agreements with each of our executive officers. The
terms of these agreements are substantially similar to each other. Under these
agreements, we have agreed to employ each of our executive officers for a period
of three years, provided that their respective employment relationship with our
company may be terminated by us or the executive officer under certain
circumstances. These agreements do not provide for any special termination or
severance benefits beyond what is required under the relevant laws of China, nor
do we have other arrangements with these executive officers regarding such
matters. Under these agreements, each executive officer has agreed not to
disclose our confidential information and to abide by certain non-competition
restrictions during his or her tenure with our company and for a period of two
years thereafter.
B.
Compensation
Compensation
of Directors and Executive Officers
For the
year ended December 31, 2009, we paid aggregate cash compensation of
approximately RMB4.9 million ($0.7 million) to our executive officers as a
group, which includes all salary, cash bonuses, and housing allowances paid by
us. Other than the grant of options to purchase an aggregate of 9,417,560 of our
ordinary shares, we did not provide any other non-cash compensation to our
executive officers as a group. See “—Stock-Based Compensation Plans” for
additional information with respect to these option grants. For the year ended
December 31, 2009, we paid aggregate cash compensation of approximately
RMB0.2 million to our three independent directors for serving as
directors. Other than the grant of options to purchase an aggregate
of 60,000 of our ordinary shares, we did not provide any other non-cash
compensation to our non-executive or independent directors.
Stock-Based
Compensation Plans
We
amended our Equity Incentive Plan (as amended, the “Amended Equity Incentive
Plan”) by holding an Extraordinary General Meeting on March 6, 2009. Our Amended
Equity Incentive Plan replaced the equity incentive plan adopted by us in
November 2007, which had amended and restated our original stock option plan
adopted in March 2007. The Amended Equity Incentive Plan provides for the grant
of options as well as restricted shares and restricted stock units, referred to
as “awards.” The purpose of the plan is to attract and retain the best available
personnel for positions of substantial responsibility, provide additional
incentive to employees, directors and consultants, and promote the success of
our business.
Administration.
According
to the amendments to our Amended Equity Incentive Plan, which were approved by
our shareholders at the Extraordinary General Meeting on March 6, 2009, the
compensation committee of our board of directors will administer the
plan. Subject to the provisions of the Amended Equity Incentive Plan,
the compensation committee has the authority, in its sole discretion to, among
other things, amend or modify outstanding awards under the plan, only in ways
that will not be adverse to the award/option holder, including, without
limitation, the repricing of “underwater” options (i.e., options with an
exercise price that is higher than the current trading price of our common
shares) or the replacement of an option with cash or other award type that would
be treated as a repricing under the rules of the stock exchange on which the
shares are listed. In addition, our shareholders also approved an
amendment to the plan that eliminated the requirement that subsequent amendments
to the Amended Equity Incentive Plan be submitted for shareholder approval (to
the extent such shareholder approval would have been required under the stock
exchange on which our securities are listed).
Option
Terms.
Share options granted under our Amended
Equity Incentive Plan may be incentive share options, or ISOs, which are
intended to qualify for favorable U.S. federal income tax treatment under
the provisions of Section 422 of the U.S. Internal Revenue Code of
1986, as amended, or non-qualified share options, or NSOs, which do not so
qualify. Under our Amended Equity Incentive Plan, the exercise price of ISOs
cannot be less than the fair market value of our ordinary shares on the date of
grant. However, in the case of an ISO granted to a grantee who at the time of
grant owned shares possessing more than 10.0% of the combined voting power of
all classes of our share capital (including any equity of any of our Chinese
subsidiaries), the option price may not be less than 110.0% of the fair market
value of our ordinary shares on the date of grant of such ISO and the option
period may not be greater than five years from the date of grant. The exercise
price for NSOs is determined by the board of directors but may not be less than
the fair market value of ordinary shares on the date of grant.
Eligibility.
Under
our Amended Equity Incentive Plan, awards may be issued to employees,
non-employee directors or consultants of our company or our Chinese
subsidiaries, although ISOs may only be issued to our employees or the employees
of our Chinese subsidiaries.
Option Exercise and Termination of
Awards.
Share options granted under the plan may
be exercised within the option period specified by our board of directors or the
compensation committee (after it is established), which shall not be more than
ten years from the date of option grant. If an option holder’s service
terminates due to the option holder’s death or disability, the unvested portion
of a share option is forfeited and the vested portion is still exercisable for a
period of one year following the option holder’s death or disability or until
the expiration of the option period (if sooner). If an option holder’s service
ends for reasons other than death or disability, the unvested portion of a share
option will be forfeited and the vested portion will be exercisable for a period
of ninety days following the option holder’s termination or until the expiration
of the option period (if sooner). Awards of restricted stock or restricted stock
units that are unvested will be forfeited at the time of termination of
service.
Third Party
Acquisition.
If a third party acquires us through
a merger or consolidation transaction in which we are not the surviving
corporation, all outstanding share options will be substituted by the surviving
or resulting corporation. We are authorized to cancel any outstanding options
upon the effective date of any such transaction, provided that we notify each
option holder of our intention to do so at least 30 days prior to the effective
date of the transaction and permit the optionees to exercise their options in
full during this period. We are also authorized to cancel any outstanding awards
and pay or deliver to the holder an amount in cash or securities having a value
equal to the formula or fixed price per share paid to shareholders in the case
of restricted stock or restricted stock units. In the case of options, the
holder will receive an amount equal to the product of the number of shares
subject to the option multiplied by the amount, if any, by which the formula or
fixed price per share paid to shareholders in the transaction exceeds the option
exercise price applicable to such award.
Amendment and Termination of
Plan.
Our board of directors may at any time
amend, suspend or terminate the Amended Equity Incentive Plan without
shareholder approval. However, any amendment, suspension or termination of the
plan may not adversely affect awards already granted without consent of the
recipient of such awards. Unless terminated earlier, the Amended Equity
Incentive Plan shall continue in effect for a term of ten years from the date of
adoption.
As of
June 22, 2010, our board of directors has authorized the issuance of up to
16,071,594 ordinary shares upon exercise of awards granted under our equity
incentive plan, with an increase each year equal to two percent of the
outstanding number of shares as of the immediately preceding year ended December
31. As of June 22, 2010, options to purchase
10,673,103 ordinary
shares were outstanding and options to purchase 950,783 ordinary shares remained
available for future option grants.
The following table
summarizes the outstanding option shares granted to our directors and executive
officers as of June 22, 2010:
Name
|
|
Ordinary Shares
Underlying Option Grant
|
|
Exercise Price
($/share)
|
|
Expiration Date
|
Julia
Huang
(1)
|
|
2,108,280
|
|
Vary
from 1.09 to 1.85
|
|
Vary
from March, 2014 to May, 2019
|
Shawn
Ding
(2)
|
|
2,208,280
|
|
Vary
from 0.86 to 1.85
|
|
Vary
from March, 2014 to May, 2019
|
Zhonglian
Gu
|
|
*
|
|
Vary
from 0.50 to 1.26
|
|
Vary
from August, 2013 to April, 2017
|
Tianwen
Liu
|
|
*
|
|
1.56
|
|
September,
2018
|
Samuel
Yen
|
|
*
|
|
1.80
|
|
December,
2017
|
Min
Fan
|
|
*
|
|
1.80
|
|
December,
2017
|
Lily
Liu
(3)
|
|
*
|
|
Vary
from 1.27 to 1.80
|
|
Vary
from October, 2018 to May, 2019
|
Changqing
Xie
|
|
*
|
|
Vary
from 0.86 to 1.80
|
|
Vary
from December, 2014 to March, 2018
|
Wen
Liu
|
|
*
|
|
1.85
|
|
March,
2016
|
Lingling
Chen
|
|
*
|
|
Vary
from 1.26 to 1.80
|
|
Vary
from August, 2015 to May,
2019
|
* Director
or executive officer who beneficially owns less than 1% of our ordinary shares
outstanding as of June 22, 2010, including the ordinary shares underlying
options exercisable by such person within 60 days.
(1) Ms.
Huang designated the stock options that she beneficially owns to South Lead
Technology Limited, a British Virgin Islands company.
(2) Mr.
Ding designated the stock options that he beneficially owns to Moral Known
Industrial Limited, a British Virgin Islands company.
(3) Ms.
Liu designated the stock options that she beneficially owns to Meritlink Group
Limited, a British Virgin Islands company.
Pension
and Similar Benefits
Full time
employees of our company in the PRC participate in a government-mandated
multi-employer defined contribution plan pursuant to which certain pension
benefits, medical care, unemployment insurance, employee housing fund and other
welfare benefits are provided to employees. Chinese labor regulations require
the Group to accrue for these benefits based on certain percentages of the
employees’ salaries. The total amount we have accrued under such employee
benefits plans as of December 31, 2009 was approximately RMB23.2 million ($3.4
million).
C.
Board
Practices
Board
Composition
Our board
of directors consists of seven directors, three of whom satisfy the
“independence” requirements of the NASDAQ corporate governance rules and the SEC
regulations. We will rely on a NASDAQ rule that permits a foreign private issuer
to be exempted from the requirement that a majority of its board of directors
must be “independent.” We intend to comply, however, with the other NASDAQ
corporate governance rules, in particular, the independence requirements for the
relevant board committees discussed below. There are no family
relationships between any of our directors and executive officers.
Committees
of the Board of Directors
To
enhance our corporate governance, we have established three committees under the
board of directors: the audit committee, the compensation committee and the
nominating committee. We adopted charters for each of these committees. The
committees have the following functions and members:
Audit
Committee
Our audit
committee charter requires that the members of the audit committee satisfy
applicable NASDAQ
corporate governance rules
on independence. Our audit committee consists of Samuel Yen, Min Fan and Tianwen
Liu, each of whom is considered independent. Mr. Yen serves as
chairman of the committee.
Our audit
committee is responsible for, among other things:
|
·
|
the appointment, evaluation,
compensation, oversight and termination of the work of our independent
registered public accounting firm (including the resolution of
disagreements between our management and the independent registered public
accounting firm regarding financial
reporting);
|
|
·
|
ensuring that it receives from
our independent registered public accounting firm a formal written
statement attesting to the registered public accounting firm’s
independence and describing all relationships between our independent
registered public accounting firm and
us;
|
|
·
|
pre-approving both audit and
non-audit services, including tax services, to be provided by our
independent registered public accounting firm in accordance with NASDAQ
rules;
|
|
·
|
reviewing our annual audited
financial statements and, if deemed appropriate by the audit committee,
other publicly disclosed financial
information;
|
|
·
|
reviewing with our independent
registered public accounting firm all critical accounting policies and
practices to be used by us in preparing our financial statements, all
alternative treatments of financial information within U.S. GAAP, and
other material communications between our independent registered public
accounting firm and
management;
|
|
·
|
reviewing our policies with
respect to risk assessment and risk
management;
|
|
·
|
reviewing, with management and
counsel, any legal matters that may have a material impact on us and any
material reports or inquiries from regulatory or governmental agencies;
and
|
|
·
|
ensuring that we have established
procedures for the receipt, retention and treatment of complaints
regarding accounting, internal accounting controls, auditing matters or
potential violations of law, and the confidential, anonymous submission by
our employees of concerns regarding questionable accounting or auditing
matters or potential violations of
law.
|
Compensation
Committee
Our
compensation committee charter requires that the members of the compensation
committee satisfy applicable NASDAQ
corporate governance rules
on independence. Our compensation committee consists of Samuel Yen, Min Fan and
Tianwen Liu, each of whom is considered independent. Tianwen Liu
serves as chairman of the committee.
Our compensation
committee assists the board in reviewing and approving the compensation
structure of our directors and executive officers, including all forms of
compensation to be provided to our directors and executive officers. In
addition, the compensation committee reviews stock compensation arrangements for
all of our other employees. Members of the compensation committee will not be
prohibited from direct involvement in determining their own compensation. Our
chief executive officer is not permitted to be present at any committee meeting
during which his or her compensation is deliberated. Our compensation committee
is responsible for, among other things:
|
·
|
approving and overseeing the
total compensation package for our
executives;
|
|
·
|
reviewing and making
recommendations to the board with respect to the compensation of our
directors;
|
|
·
|
reviewing and approving corporate
goals and objectives relevant to the compensation of our chief executive
officer, evaluating the performance of our chief executive officer in
light of those goals and objectives, and setting the compensation level of
our chief executive officer based on this
evaluation;
|
|
·
|
reviewing the results of, and
procedures for, the evaluation of the performance of other executive
officers;
|
|
·
|
reviewing periodically and making
recommendations to the board regarding any long-term incentive
compensation or equity plans, programs or similar arrangements, and
administering these plans;
|
|
·
|
reviewing and making
recommendations to the board regarding all new employment, consulting,
retirement and severance agreements and arrangements proposed for our
executives; and
|
|
·
|
selecting peer groups of
companies to be used for purposes of determining competitive compensation
packages.
|
Nominating
Committee
Our
nominating committee charter requires that the members of the nominating and
corporate governance committee satisfy applicable NASDAQ corporate governance
rules on independence. Our nominating and corporate governance committee
consists of Samuel Yen, Min Fan and Tianwen Liu, each of whom is considered
independent. Min Fan serves as chairman of the committee.
The nominating committee
assists the board in selecting individuals qualified to become our directors and
in determining the composition of the board and its committees. Our nominating
committee is responsible for, among other things:
|
·
|
selecting and recommending to the
board nominees for election or re-election to the board;
and
|
|
·
|
reviewing annually with the board
the current composition of the board with regards to characteristics such
as independence, skills, experience, age and availability of service to
us.
|
Code
of Business Conduct and Ethics
Our board
of directors has adopted a code of business conduct and ethics, which will be
applicable to all of our directors, officers and employees. We have made our
code of business conduct and ethics publicly available on our website at
www.chinaedu.net
.
Duties
of Directors
Under
Cayman Islands law, our directors have a duty to act honestly, in good faith and
with a view to our best interests. Our directors also have a duty to exercise
the care, diligence and skills that a reasonably prudent person would exercise
in comparable circumstances. In fulfilling their duty of care to us, our
directors must ensure compliance with our memorandum and articles of
association. We have the right to seek damages if a duty owed by our directors
is breached.
The
functions and powers of our board of directors include, among
others:
|
·
|
supervising and directing the
business and affairs of our company in the interest, and for the benefit,
of our shareholders in order to enhance shareholder value over the long
term;
|
|
·
|
exercising its business judgment
to act in a manner which it reasonably believes to be in the best
interests of our company and shareholders consistent with its fiduciary
duties;
|
|
·
|
reviewing and, where appropriate,
approving our major strategic, financial and business objectives, plans
and actions;
|
|
·
|
establishing policies and
principles for the selection, and possible succession planning, of
directors, the chief executive officer and other senior management
officers;
|
|
·
|
convening shareholders’ annual
general meetings and reporting its work to shareholders at such
meetings;
|
|
·
|
declaring dividends and
distributions;
|
|
·
|
appointing officers and
determining the term of office of the
officers;
|
|
·
|
exercising the borrowing powers
of our company and mortgaging the property of our company;
and
|
|
·
|
approving the transfer of shares
in our company, including the registering of such shares in our share
register.
|
Interested
Transactions
A
director may vote in respect of any contract or transaction in which he is
interested, provided that the nature and extent of the interest of any director
in any such contract or transaction shall be disclosed by him at or prior to the
consideration and any vote on that matter. A general notice or disclosure to the
directors or otherwise contained in the minutes of a meeting or a written
resolution of the directors or any committee of directors that a director is a
shareholder of any specified firm or company and is to be regarded as interested
in any transaction with such firm or company will be sufficient disclosure, and,
after such general notice, it will not be necessary to give special notice
relating to any particular transaction.
Remuneration
and Borrowing
The
directors may determine remuneration to be paid to the directors. The
compensation committee will assist the directors in reviewing and approving the
compensation structure for the directors. Subject to certain restrictions, the
directors may exercise all the powers of our company to borrow money and to
mortgage or charge our undertaking, property and uncalled capital or any part
thereof and to issue debentures, debenture stock and other securities whether
outright or as security for any debt, liability or obligation of our company or
of any third party.
Qualification
A
director is not required to hold any shares in our company in order to serve as
a director.
Terms
of Directors and Executive Officers
At each
annual general meeting of the shareholders of our company, one-third of our
directors at such time are required to retire from office and are eligible for
re-election. All of these directors will retain office until the close of such
general meeting.
D.
Employees
We had
1,078 employees, 1,434 employees and 1,603 employees as of December 31, 2007,
2008 and 2009, respectively.
The increase in the
number of our employees from 2007 to 2009 was primarily due to the increase in
general and administrative employees as a result of becoming a public reporting
company, the establishment of learning centers network and the expansion of our
technology team. The following table sets forth the number of our employees
categorized by function and the percentage of each category of our total
employees as of December 31, 2009.
|
|
Employees
|
|
|
Percentage
|
|
Operations
and program support
|
|
|
968
|
|
|
|
60.38
|
%
|
Management
and administration
|
|
|
356
|
|
|
|
22.21
|
%
|
Research
and development
|
|
|
188
|
|
|
|
11.73
|
%
|
Selling
and marketing
|
|
|
91
|
|
|
|
5.68
|
%
|
Total
number of employees
|
|
|
1,603
|
|
|
|
100
.0
|
%
|
We
believe that our relations with our employees are good, and we have not
experienced any significant labor disputes. Our employees are not represented by
any collective bargaining agreements or labor unions.
We are
required by PRC law to participate in various government sponsored benefit and
pension programs for our employees. We are required to accrue a portion of the
salaries, bonuses and certain other payments to our employees for these
benefits. The total amount we have accrued under our employee benefits plans for
the twelve months ended December 31, 2009 was approximately RMB23.2 million
($3.4 million).
Under our
equity incentive plan, we granted certain employees options to purchase our
ordinary shares. For a description of our equity incentive plan, see “—B.
Compensation—Stock-Based Compensation Plans.”
E.
Share
Ownership
The
following table sets forth information, as of June 22, 2010, with respect to the
beneficial ownership of our ordinary shares held by:
|
·
|
each
person known to us to own beneficially more than 5% of our ordinary
shares; and
|
|
·
|
each
of our directors and executive
officers.
|
Beneficial
ownership is determined in accordance with the rules of the SEC and includes
voting or investment power with respect to securities. Except as indicated
below, and subject to applicable community property laws, the persons named in
the table below have sole voting and investment power with respect to all
ordinary shares beneficially owned by them. A shareholder is also deemed to be,
as of any date, the beneficial owner of all securities that such shareholder has
the right to acquire within 60 days after that date through (a) the exercise of
any option, warrant or right, (b) the conversion of a security, (c) the power to
revoke a trust, discretionary account or similar arrangement, or (d) the
automatic termination of a trust, discretionary account or similar
arrangement.
|
|
Ordinary Shares Beneficially Owned
|
|
|
|
Number
(1)
|
|
|
|
%
(2)
|
|
Directors
and Executive Officers
|
|
|
|
|
|
|
|
Julia
Huang
(3)
|
|
|
2,108,280
|
|
|
|
4.2
|
|
Shawn
Ding
(4)
|
|
|
2,208,280
|
|
|
|
4.4
|
|
Zonglian
Gu
(5)
|
|
|
1,965,000
|
|
|
|
4.1
|
|
Amol
Shah
(6)
|
|
|
3,377,336
|
|
|
|
7.0
|
|
Tianwen
Liu
|
|
|
*
|
|
|
|
*
|
|
Samuel
Yen
|
|
|
*
|
|
|
|
*
|
|
Min
Fan
|
|
|
*
|
|
|
|
*
|
|
Lily
Liu
(7)
|
|
|
*
|
|
|
|
*
|
|
Changqing
Xie
|
|
|
*
|
|
|
|
*
|
|
Wen
Liu
|
|
|
*
|
|
|
|
*
|
|
Lingling
Chen
|
|
|
*
|
|
|
|
*
|
|
All
directors and executive officers as a group (11 persons)
|
|
|
10,379,863
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
Major
Shareholders
|
|
|
|
|
|
|
|
|
The
McGraw-Hill Companies Inc.
|
|
|
3,377,336
|
|
|
|
7.0
|
|
*
Director or executive officer who beneficially owns less than 1% of our ordinary
shares outstanding as of June 22, 2010.
(1) Beneficial
ownership of each listed person includes the shares such person has the right to
acquire within 60 days.
(2) Percentage
of beneficial ownership of each listed person is based on 48,087,388
ordinary shares
outstanding as of June 22, 2010 and the ordinary shares underlying options and
warrants exercisable by such person within 60 days.
(3) Represents
ordinary shares underlying stock options exercisable within 60 days beneficially
owned by Ms. Huang that have been designated to South Lead Technology Limited, a
British Virgin Islands Company.
(4) Represents
ordinary shares underlying stock options exercisable within 60 days beneficially
owned by Mr. Ding that have been designated to Moral Known Industrial Limited, a
British Virgin Islands Company.
(5) Represents
1,745,000 ordinary shares held by Rendashiji Technology Development Co., Ltd.
Mr. Gu disclaims beneficial ownership of all of the shares held by Rendashiji
Technology Development Co., Ltd., except to the extent of his pecuniary interest
therein.
(6) Represents
3,377,336 ordinary shares held by The McGraw-Hill Companies, Inc. Mr. Shah is
senior vice president of the China division of The McGraw-Hill Companies, Inc.
Mr. Shah disclaims beneficial ownership of all of our shares held by The
McGraw-Hill Companies, Inc., except to the extent of his pecuniary interest
therein.
(7) Represents
ordinary shares underlying stock options exercisable within 60 days beneficially
owned by Ms. Liu that have been designated to
Meritlink Group Limited
, a
British Virgin Islands Company.
As of
June 22, 2010, warrants to purchase 486,486 of our ordinary shares that are
exercisable within 60 days were held by a record holder in the United States,
which represents 0.85% of our total share capital. We had a total of 4 record
holders in the United States. Bank of New York, as the depositary of our ADS
facility, was the only record holder of our ADSs representing ordinary shares in
the United States, holding approximately 90.49% of our total outstanding
ordinary shares. The number of beneficial owners of our ADSs in the United
States is likely much larger than the number of recorder holders of our ordinary
shares in the United States.
None of
our existing shareholders has voting rights that differ from the voting rights
of other shareholders after the closing of our initial public
offering.
Item
7. Major Shareholders and Related Party Transactions
A.
Major
Shareholders
Please
refer to “Item 6. Directors, Senior Management and Employees — E. Share
Ownership.”
B.
Related Party
Transactions
Share
Repurchase Agreement
Pursuant
to the November 2008 share repurchase agreement with Tiger Global, we agreed to
purchase from Tiger Global an aggregate of 8,364,634 ordinary shares (2,788,211
ADSs) at US$1.3167 per ordinary share (US$3.95 per ADS) for an aggregate
purchase price of RMB75.3 million ($11.0 million). The agreement also
stipulated that all warrants held by Tiger Global, which represented the right
to purchase an aggregate of 1,768,300 ordinary shares, would be
cancelled. As of December 31, 2008, we repurchased and cancelled
1,518,949 ordinary shares and 321,109 warrants for an aggregate consideration of
RMB13.7 million. In January 2009, we subsequently repurchased and
cancelled 6,845,685 ordinary shares and 1,447,191warrants for an aggregate
consideration of RMB61.6 million ($9.0 million) in January 2009.
Contractual
Arrangements Relating to our Affiliated Entity
Due to
the Chinese regulatory restrictions on foreign investment in the Internet and
K-12 education sectors, we entered into a series of agreements with Hongcheng
Education, our Chinese affiliated entity in which we do not have a direct
ownership interest, for us to maintain effective control over and receive the
economic benefits of this entity. For the regulatory restrictions, see “Item 4.
Information on the Company—B. Business Overview—Regulation.”
Contractual
Arrangements with Respect to Hongcheng Education
Under the
current Chinese legal framework, foreign invested companies are not permitted to
invest in K-12 schools in China. We operate the three private primary and
secondary schools through Hongcheng Education, and have entered into a series of
agreements with Hongcheng Education and its shareholders, Mr. Changqing
Xie, one of our officers, and Mr. Xueshan Yang, one of our directors, to
maintain effective control over and receive the economic benefits of Hongcheng
Education. Currently, Mr. Xie and Mr. Yang hold 72% and 28% of the equity
interest in Hongcheng Education, respectively. The material agreements that
currently govern the relationship and economic arrangements between Hongcheng
Education and us are described in greater detail below.
ChinaEdu and Changqing Xie Loan
Agreement
. We entered into a loan agreement with
Mr. Xie on January 3, 2005 (and amended such agreement on
July 12, 2005 and July 18, 2007), pursuant to which we loaned Mr. Xie
approximately $4.8 million to fund the registered capital requirements of
Hongcheng Education. The term of the loan is 20 years and may be extended with
the consent of the parties. To the extent permitted by Chinese law, the loan may
only be repaid by Mr. Xie transferring all of his equity interests in
Hongcheng Education to us (or our designee). Mr. Xie has agreed that we
have the right to appoint all directors to the board of directors of Hongcheng
Education that Mr. Xie is entitled to appoint in his capacity as a
shareholder of the entity.
ChinaEdu and Xueshan Yang Loan
Agreement
. We entered into a loan agreement with
Mr. Yang on January 3, 2005 (and amended such agreement in June 2005
and July 18, 2007), pursuant to which we loaned Mr. Yang approximately $1.8
million to fund the registered capital requirements of Hongcheng Education. The
term of the loan is 20 years and may be extended with the consent of the
parties. To the extent permitted by Chinese law, the loan may only be repaid by
Mr. Yang transferring all of his equity interests in Hongcheng Education to
us (or our designee). Mr. Yang has agreed that we have the right to appoint
all directors to the board of directors of Hongcheng Education that
Mr. Yang is entitled to appoint in his capacity as a shareholder of the
entity.
Hongcheng Education, Changqing Xie,
Xueshan Yang and Hongcheng Technology Shareholder’s Voting Rights Entrustment
Agreement.
Hongcheng Education, Mr. Xie and Mr.
Yang and Hongcheng Technology entered into a shareholder’s voting rights
entrustment agreement dated on July 12, 2005, pursuant to which
Mr. Xie and Mr. Yang irrevocably entrusted Hongcheng Technology with the
right to act as their proxies and vote their shares in Hongcheng Education.
Mr. Xie entered into a second similar agreement with Hongcheng Education
and Hongcheng Technology on December 20, 2005. These agreements will remain
effective as long as Mr. Xie or Mr. Yang, respectively, remains a
shareholder in Hongcheng Education.
Changqing Xie, Xueshan Yang and
Hongcheng Technology
Call Option
Agreement.
Mr. Xie and Mr. Yang entered into
a call option agreement with Hongcheng Technology on July 12, 2005 pursuant
to which Mr. Xie and Mr. Yang each granted irrevocable options to purchase all
or, in the case of Mr. Xie, a portion, of their respective equity interests
in Hongcheng Education to Hongcheng Technology at the lowest price permitted
under applicable Chinese laws. Mr. Xie entered into a second similar call
option agreement with Hongcheng Technology on December 20, 2005 granting
similar rights to Hongcheng Technology with respect to shares in Hongcheng
Education held by Mr. Xie that were not covered under the original call
option agreement.
Changqing Xie, Xueshan Yang and
Hongcheng Technology Equity Pledge Agreement.
As
security for Mr. Xie and Mr. Yang’s obligations under their Call Option
Agreements and Shareholder Voting Rights Entrustment Agreements with Hongcheng
Technology and Hongcheng Education’s obligations under the technical consulting
and services agreement with Hongcheng Technology, Mr. Xie and Mr. Yang pledged
all of their equity interests in Hongcheng Education and all distributions
arising from those interests to Hongcheng Technology under equity pledge
agreements dated July 12, 2005 and December 20, 2005, as amended on July
18, 2007.
Power of Attorney by Changqing Xie
and Xueshan Yang.
For purposes of securing their
performance under the various agreements that they have entered into with us and
Hongcheng Technology, both Mr. Xie and Mr. Yang have irrevocably appointed
Hongcheng Technology as their attorneys-in-fact and have authorized Hongcheng
Technology to take all actions on their behalf (as shareholders of Hongcheng
Education) that are deemed appropriate by Hongcheng Technology.
Hongcheng Technology and Hongcheng
Education Exclusive Technical Consulting and Services
Agreement.
In July 2007, we, through our wholly
owned subsidiary Hongcheng Technology, entered into an exclusive technical
consulting and services agreement with Hongcheng Education. Under this agreement
Hongcheng Technology provides courseware and product development services,
website design services, maintenance and security services, employee training
services and any other services that may be agreed upon by the parties to
Hongcheng Education. As consideration for these services Hongcheng Education
pays Hongcheng Technology a service fee equal to 80% of its annual gross
revenue.
Stock
Option Grants
We have
granted options to purchase our ordinary shares to certain of our employees,
directors and officers under our equity incentive plan. As of June 22, 2010,
there were outstanding options to purchase an aggregate of
10,673,103 ordinary
shares.
For a
description of our equity incentive plan and these option grants, see “Item
6. Directors, Senior Management and Employees—B.
Compensation—Stock-Based Compensation Plans.”
Registration
Rights
Pursuant
to our fourth amended and restated registration rights agreement entered into in
March 2007, we have granted certain registration rights to holders of our
registrable securities, which include our preferred shares and ordinary shares
converted from our preferred shares as well as ordinary shares owned by certain
of our early shareholders, or founders, as of August 18, 2000. Since
December 31, 2007, the holders of an aggregate of 29,536,862 ordinary shares are
entitled to the registration rights provided under this registration rights
agreement. Set forth below is a description of the registration rights granted
under the agreement.
Demand Registration
Rights
. Holders of at least 25% of registrable
securities (excluding for such purposes the shares held by the founders) have
the right to demand that we file a registration statement covering the offer and
sale of their securities as long as the securities to be registered have an
aggregate offering price of at least $5.0 million. We, however, are not
obligated to effect a demand registration (1) if we have already effected
two demand registrations, (2) during the period beginning on the 60th day
prior to our good faith estimate of the filing date of, and ending on the 180th
day after the effective date of, a public offering of our securities initiated
by us, or (3) if the securities to be registered can be immediately
registered on Form S-3 or Form F-3, as applicable. We have the right to defer
filing of a registration statement for up to 60 days if our board of directors
determines in good faith that filing of a registration will be detrimental to
us, but we cannot exercise the deferral right more than once in any 12 month
period.
Form F-3 or S-3 Registration
Rights
. When we are eligible to register our
shares using Form F-3 or Form S-3, holders of registrable securities then
outstanding have the right to request that we file a registration statement
under Form F-3 or Form S-3 as long as the aggregate amount of securities to be
sold under the registration statement exceeds $1.50 million. We may defer filing
of a registration statement on Form F-3 or Form S-3 for up to 60 days if our
board of directors determines in good faith that filing such a registration
statement will be detrimental to us and our shareholders, provided that we
cannot exercise the deferral right more than once in any 12 month period. We are
not obligated to file a registration statement on Form F-3 or Form S-3 if we
have already effected two registrations on Form F-3 or Form S-3 within the 18
month period preceding the date of such request.
Piggyback Registration
Rights.
If we propose to file a registration
statement for a public offering of our securities other than as required by the
agreement granting holders of our registrable securities the registration rights
or pursuant to a registration statement relating to the sale or issuance of
securities under an employee benefit plan or in connection with a corporate
reorganization, then we must offer holders of registrable securities an
opportunity to include in such registration all or any part of their registrable
securities. We must use our best effort to cause the underwriters in any
underwritten offering to permit these shareholders who so requested to include
their shares on the same terms and conditions as our securities to be
registered.
Expenses of
Registration.
We will pay all expenses relating to
any demand, piggyback or F-3 or S-3 registration other than underwriting
commissions and discounts, and fees and disbursements for counsel for selling
shareholders, if applicable.
Indemnification.
We
are required to indemnify any selling holders of our registrable securities and
any underwriters engaged in connection with sales of our ordinary shares
pursuant to these registration rights.
Employment
Agreements
See “Item
6. Directors, Senior Management and Employees—A. Directors and Senior
Management” for a description of the employment agreements we have entered into
with our senior executive officers.
Share
Incentives
See “Item
6. Directors, Senior Management and Employees—B. Compensation—Compensation of
Directors and Executive Officers” for a description of share options and stock
purchase rights we have granted to our directors, officers and other individuals
as a group.
C.
Interests of Experts and
Counsel
Not
applicable.
Item
8. Financial Information
A.
Consolidated Statements and
Other Financial Information
Please
refer to Item 18 for a list of our annual consolidated financial statements
filed as part of this annual report. The financial statements contained in this
annual report begin on page F-1.
Dividend Policy
Since the
incorporation of our company in 1999, we have not declared or paid any dividends
on our ordinary shares or ADSs. We have no present plan to declare or pay any
dividends on our ordinary shares or ADSs in the foreseeable future. We currently
intend to retain most, if not all, of our available funds and any future
earnings to operate and expand our business.
We are a
holding company incorporated in the Cayman Islands. Although we have not
received any to date, we may in the future rely on dividends from our
subsidiaries in China. Current Chinese regulations permit our subsidiaries to
pay dividends to us only out of their accumulated profits, if any, determined in
accordance with Chinese accounting standards and regulations. In addition, our
subsidiaries in China are required to set aside a certain amount of their
accumulated after-tax profits each year, if any, to fund certain statutory
reserves. These reserves may not be distributed as cash dividends. Further, if
our subsidiaries in China incur debt on their own behalf, the instruments
governing the debt may restrict their ability to pay dividends or make other
payments to us.
Under the
previous Chinese tax law, dividend payments to foreign investors made by FIEs,
such as our Chinese subsidiaries, were exempt from PRC withholding tax. Pursuant
to the EIT Law that became effective on January 1, 2008, as well as the related
implementation rules and other recently issued regulations, dividends payable by
an FIE to its foreign investors are subject to a 10% withholding tax (unless the
foreign investor’s jurisdiction of incorporation has a tax treaty with China
that provides for a different withholding arrangement). Distributions
made from pre-January 1, 2008 retained earnings will not be subject to the
withholding tax.
Our board
of directors has complete discretion as to whether to distribute dividends,
subject to the approval of our shareholders. Even if our board of directors
decides to pay dividends, the form, frequency and amount will depend upon our
future operations and earnings, capital requirements and surplus, our general
financial condition, contractual restrictions and other factors that the board
of directors may deem relevant. If we pay any dividends, we will pay our ADS
holders to the same extent as holders of our ordinary shares, subject to the
terms of the deposit agreement, including the fees and expenses payable
thereunder. Cash dividends on our ADSs and ordinary shares, if any, will be paid
in U.S. dollars.
Legal
Proceedings
There are
no material legal proceedings, regulatory inquiries or investigations pending,
or to our knowledge, threatened against us.
Item
9. The Offer and Listing
A.
Offering and Listing
Details
Not
applicable.
B.
Plan of
Distribution
Not
applicable.
C.
Markets
Our ADSs,
each representing three of our ordinary shares, have been listed on the NASDAQ
Global Market since December 14, 2007. Our ADSs trade under the
symbol “CEDU.” For the period from December 14, 2007, the date of our
initial public offering, to June 22,
2010, the trading price
of our ADSs on the NASDAQ Global Market has ranged from US$2.97 to US$9.20 per
ADS. The following table provides the high and low trading prices for our ADSs
on the NASDAQ Global Market for each of the months since our initial public
offering:
|
|
Trading Price
|
|
|
|
High
|
|
|
Low
|
|
|
|
US$
|
|
|
US$
|
|
Annual
Highs and Lows
|
|
|
|
|
|
|
2007
(from December 14, 2007)
|
|
|
9.20
|
|
|
|
7.75
|
|
2008
|
|
|
8.58
|
|
|
|
2.97
|
|
2009
|
|
|
8.40
|
|
|
|
4.15
|
|
|
|
|
|
|
|
|
|
|
Quarterly
Highs and Lows
|
|
|
|
|
|
|
|
|
January
1–March 31, 2008
|
|
|
8.58
|
|
|
|
6.04
|
|
April
1-June 30, 2008
|
|
|
8.05
|
|
|
|
4.51
|
|
July
1-September 30, 2008
|
|
|
5.00
|
|
|
|
3.50
|
|
October
1-December 31, 2008
|
|
|
5.00
|
|
|
|
2.97
|
|
January
1–March 31, 2009
|
|
|
6.90
|
|
|
|
4.15
|
|
April
1-June 30, 2009
|
|
|
7.84
|
|
|
|
4.49
|
|
July
1-September 30, 2009
|
|
|
7.85
|
|
|
|
6.40
|
|
October
1-December 31, 2009
|
|
|
8.40
|
|
|
|
6.20
|
|
|
|
|
|
|
|
|
|
|
Monthly
Highs and Lows
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
November
|
|
|
8.40
|
|
|
|
7.00
|
|
December
|
|
|
7.55
|
|
|
|
6.20
|
|
2010
|
|
|
|
|
|
|
|
|
January
|
|
|
8.20
|
|
|
|
7.20
|
|
February
|
|
|
7.65
|
|
|
|
7.09
|
|
March
|
|
|
8.35
|
|
|
|
6.96
|
|
April
|
|
|
8.15
|
|
|
|
7.50
|
|
May
|
|
|
7.83
|
|
|
|
6.57
|
|
June
(through June 22)
|
|
|
7.15
|
|
|
|
6.61
|
|
D.
Selling
Shareholders
Not
applicable.
E.
Dilution
Not
applicable.
F.
Expenses of the
Issue
Not
applicable.
Item
10. Additional Information
A.
Share
Capital
Not
applicable.
B.
Memorandum and Articles of
Association
We have
incorporated by reference into this annual report our fifth amended and restated
memorandum of association and our fifth amended and restated articles of
association, both of which became effective upon the closing of our initial
public offering, filed as Exhibits 3.1 and 3.2, respectively, to our F-1
registration statement (File No. 333-147620), as amended, initially filed
with the SEC on November 26, 2007.
C.
Material
Contracts
We have
not entered into any material contracts other than in the ordinary course of
business and other than those described in “Item 4. Information on the Company”,
and “Item 7. Major Shareholders and Related Party Transactions—B.
Related Party Transactions” or elsewhere in this annual report on Form
20-F.
D.
Exchange
Controls
See “Item
4. Information on the Company—B. Business Overview—Regulation—Regulation of
Foreign Currency Exchange and Dividend Distribution.”
E.
Taxation
Cayman Islands Taxation
The
Cayman Islands currently levy no taxes on individuals or corporations based upon
profits, income, gains or appreciation and there is no taxation in the nature of
inheritance tax or estate duty. There are no other taxes likely to be material
to our company levied by the Government of the Cayman Islands except for stamp
duties that may be applicable on instruments executed in, or after execution
brought within the jurisdiction of, the Cayman Islands. The Cayman Islands are
not party to any double taxation treaties. There are no exchange control
regulations or currency restrictions in the Cayman Islands.
People’s
Republic of China Taxation
For
discussion of PRC taxation, please see “Item 5. Operating and Financial Review
and Prospects—A. Operating Results—Taxation—PRC.”
United
States Federal Income Taxation
The
following is a discussion of material U.S. federal income tax consequences of
purchasing, owning and disposing of shares and ADSs. This discussion does not
purport to be a comprehensive description of all of the U.S. tax considerations
that may be relevant to a particular person’s decision to acquire the shares or
ADSs (including any state, local or non-U.S. tax consequences of the ownership
of the shares or ADSs).
INVESTORS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF SHARES
AND ADSs IN THEIR PARTICULAR SITUATION.
This
discussion applies to only to those investors that hold shares or ADSs as
capital assets for U.S. tax purposes (generally, for investment). This section
does not apply to holders that may be subject to special tax rules, including
but not limited to:
|
·
|
a dealer in securities or
currencies;
|
|
·
|
a trader in securities that
elects to use a mark-to-market method of accounting for your securities
holdings;
|
|
·
|
a bank, insurance company or
other financial institution;
|
|
·
|
a regulated investment company or
real estate investment
trust;
|
|
·
|
a tax-exempt
organization;
|
|
·
|
a holder liable for alternative
minimum tax;
|
|
·
|
a holder that actually or
constructively owns 10% or more by voting power or value of our shares or
ADSs;
|
|
·
|
a holder that holds equity shares
or ADSs as part of a straddle, hedging or conversion
transaction;
|
|
·
|
a U.S. holder whose functional
currency is not the U.S.
Dollar;
|
|
·
|
a holder that purchases or
otherwise acquires shares or ADSs other than through this offering;
or
|
|
·
|
a holder that acquired shares or
ADSs pursuant to the exercise of any employee share option or otherwise as
compensation.
|
This
section is based on the U.S. Internal Revenue Code of 1986, as amended, or the
Code, its legislative history, existing and proposed U.S. Treasury regulations,
published rulings and other administrative guidance of the U.S. Internal Revenue
Service and court decisions, all as in effect on the date hereof. These laws are
subject to change or different interpretation by the U.S. Internal Revenue
Service or a court, possibly on a retroactive basis.
You are a
“U.S. holder” if you are a beneficial owner of shares or ADSs and you
are:
|
·
|
a citizen or resident individual
of the United States;
|
|
·
|
a U.S. domestic corporation, or
other entity treated as a domestic corporation for U.S. federal income tax
purposes;
|
|
·
|
an
estate whose income is subject to U.S. federal income tax regardless of
its source; or
|
|
·
|
a trust if a U.S. court can
exercise primary supervision over the trust’s administration and one or
more U.S. persons are authorized to control all substantial decisions of
the trust or if the trust has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a United States
person.
|
If a
partnership (including for this purpose any entity treated as a partnership for
U.S. tax purposes) is a beneficial owner of the shares or ADSs, the U.S. tax
treatment of a partner in the partnership generally will depend on the status of
the partner and the activities of the partnership. A holder of the shares or
ADSs that is a partnership and partners in such a partnership should consult
their own tax advisors about the U.S. federal income tax consequences of holding
and disposing of the shares or ADSs.
A
“non-U.S. holder” is a beneficial owner of shares or ADSs that is not a U.S.
person for U.S. federal income tax purposes.
For U.S.
federal income tax purposes, holders of ADSs will be treated as the owners of
shares represented by such ADSs. Accordingly, no gain or loss will be recognized
upon the exchange of an ADS for shares. A U.S. holder’s tax basis in our shares
will be the same as the tax basis in the ADS surrendered therefor, and the
holding period in such shares will include the period during which the holder
held the surrendered ADS.
Taxation
of Dividends
U.S.
Holders
. Subject to the passive foreign investment
company (“PFIC”) rules referred to below, under the U.S. federal income tax
laws, if you are a U.S. holder, you must include in your gross income the gross
amount of any dividend paid by us out of our current or accumulated earnings and
profits (as determined for U.S. federal income tax purposes). The dividend is
ordinary income that you must include in income when you receive the dividend,
actually or constructively. Dividends received by a non-corporate taxpayer
during taxable years beginning before January 1, 2011 will be taxed at a
maximum rate of 15%, where certain holding period and other requirements are
satisfied, if such dividends constitute qualified dividend income. Qualified
dividend income includes dividends paid by a “qualified foreign corporation” (as
defined in the Code), and we believe that we are, and will continue to be, a
Qualified Foreign Corporation. Holders of ADSs and shares should consult their
own tax advisors regarding the availability of the reduced dividend tax rate in
light of their own particular circumstances.
Dividends
will not be eligible for the dividends-received deduction generally allowed to
U.S. corporations in respect of dividends received from other U.S. corporations.
The amount of the dividend distribution that you must include in your income as
a U.S. holder will be the U.S. Dollar value of the foreign currency payments
made, determined at the spot exchange rate on the date the dividend distribution
is includible in your income, regardless of whether the payment is in fact
converted into U.S. Dollars. If the foreign currency received as a dividend is
not converted into U.S. dollars on the date of receipt, a U.S. holder will have
a basis in the foreign currency equal to its U.S. dollar value on the date of
receipt. Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date you include the dividend payment in
income to the date you convert the payment into U.S. Dollars will be treated as
ordinary income or loss. The gain or loss generally will be income or loss from
sources within the United States for foreign tax credit limitation purposes. If
we distribute non-cash property as a dividend (other than pro rata distributions
of our shares), you generally will include in income an amount equal to the fair
market value of the property, in U.S. Dollars, on the date that it is
distributed. Subject to certain limitations, a U.S. holder may be entitled to a
credit or deduction against its U.S. federal income taxes for the amount of any
foreign taxes that are withheld from dividend distributions made to such U.S.
holders. The decision to claim either a credit or deduction must be made
annually, and will apply to all foreign taxes paid by the U.S. holder to any
foreign country or U.S. possession with respect to the applicable tax
year.
Dividends
paid on shares or ADSs will generally be treated as foreign source income for
U.S. foreign tax credit purposes under special U.S. federal income tax rules,
subject to various classifications and other limitations. The rules relating to
computing foreign tax credits are complex. You should consult your own tax
advisor to determine the foreign tax credit implications of owning our shares or
ADSs.
Distributions
in excess of current and accumulated earnings and profits, as determined for
U.S. federal income tax purposes, will be treated as a non-taxable return of
capital to the extent of your basis in the equity shares and ADSs and thereafter
as capital gain. However, we do not plan on calculating our earnings and profits
for U.S. federal income tax purposes, and U.S. holders therefore should
generally assume that any distributions paid by us are paid out of our earnings
and profits for this purpose.
Non-U.S.
Holders
. Dividends paid to non-U.S. holders
generally will not be subject to U.S. income tax unless the dividends are
“effectively connected” with your conduct of a trade or business within the
United States, and the dividends are attributable to a permanent establishment
(or in the case of an individual, a fixed place of business) that you maintain
in the United States if that is required by an applicable income tax treaty as a
condition for subjecting you to U.S. taxation on a net income basis. In such
cases, you generally will be taxed in the same manner as a U.S. holder, and will
not be subject to U.S. federal withholding tax. If you are a corporate non-U.S.
holder, “effectively connected” dividends may, under certain circumstances, be
subject to an additional “branch profits tax” at a 30% rate or a lower rate if
you are eligible for the benefits of an income tax treaty that provides for a
lower rate.
Taxation
of Capital Gains
U.S.
Holders.
Subject to the PFIC rules referred to
below, if you are a U.S. holder and you sell or otherwise dispose of your shares
or ADSs, you will recognize capital gain or loss for U.S. federal income tax
purposes equal to the difference between the U.S. Dollar value of the
amount that you realize and your tax basis, determined in U.S. Dollars, in your
shares or ADSs. For taxable years beginning before January 1, 2011, capital
gains of a non-corporate U.S. holder are generally taxed at a maximum rate of
15% where the property is held for more than one year. The gain or loss will
generally be income or loss from sources within the United States for foreign
tax credit limitation purposes, unless it is attributable to an office or other
fixed place of business outside the United States and certain other conditions
are met. Your ability to deduct capital losses is subject to
limitations.
Medicare Tax on Unearned
Income
. Newly enacted legislation requires certain U.S.
holders that are individuals, estates or trusts to pay an additional 3.8% tax
on, among other things, dividends on and capital gains from the sale or other
disposition of shares or ADSs for taxable years beginning after December 31,
2012. U.S. holders that are individuals, estates or trusts should
consult their tax advisors regarding the effect, if any, of this legislation on
their ownership and disposition of our shares or ADSs.
Non-U.S.
Holders
. If you are a non-U.S. holder, you will
not be subject to U.S. federal income tax on gain recognized on the sale or
other disposition of your shares or ADSs unless:
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·
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the gain is “effectively
connected” with your conduct of a trade or business in the United States,
and the gain is attributable to a permanent establishment (or in the case
of an individual, a fixed place of business) that you maintain in the
United States if that is required by an applicable income tax treaty as a
condition for subjecting you to U.S. taxation on a net income
basis;
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·
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you are an individual, you are
present in the United States for 183 or more days in the taxable year of
the sale and certain other conditions are met;
or
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·
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we are or have been a “United
States real property holding corporation” for U.S. federal income tax
purposes.
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In the
first case, the non-U.S. holder will be taxed in the same manner as a U.S.
holder. In the second case, the non-U.S. holder will be subject to U.S. federal
income tax at a rate of 30% on the amount by which the non-U.S. holder’s
U.S.-source capital gains exceed such non-U.S. holder’s U.S.-source capital
losses.
If you
are a corporate non-U.S. holder, “effectively connected” gains that you
recognize may also, under certain circumstances, be subject to an additional
“branch profits tax” at a 30% rate or at a lower rate if you are eligible for
the benefits of an income tax treaty that provides for a lower
rate.
In
general, a corporation is a United States real property holding company if the
fair market value of its “U.S. real property interests” equals or exceeds 50% of
the sum of the fair market value of its worldwide real property interests plus
its other assets used or held for use in a trade or business. We do not believe
that we are or have been, and do not expect to become, a United States real
property holding corporation for U.S. federal income tax purposes.
PFIC
Rules
We
believe that our shares and ADSs will not be treated as stock of a PFIC for U.S.
federal income tax purposes for the current tax year, and we do not expect to
become a PFIC in the foreseeable future, although we can provide no assurances
in this regard for the reasons discussed below. The determination of whether or
not we are a PFIC in respect of any of our taxable years is a factual
determination that cannot be made until the close of the applicable tax year and
that is based on the types of income we earn and the value of our assets
(including goodwill), both of which are subject to change. In calculating
goodwill for this purpose, we will determine the total value of our assets by
reference to the then-current market price of the equity and ADSs, and will make
determinations regarding the amount of this total value allocable to goodwill.
The value of our goodwill, and the total value of our assets, therefore will
change as the market prices of our shares and ADSs change. Therefore, we can
make no assurances that we will not be a PFIC in respect of our current taxable
year or in the future.
In
general, if you are a U.S. holder, we will be a PFIC with respect to you if for
any taxable year in which you held the equity shares or ADSs:
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·
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at
least 75% of our gross income for the taxable year is passive income;
or
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·
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at least 50% of the value,
determined on the basis of a quarterly average, of our assets, is
attributable to assets that produce or are held for the production of
passive income.
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Passive
income generally includes dividends, interest, royalties, rents (other than
certain rents and royalties derived in the active conduct of a trade or
business), the excess of gains over losses from certain types of transactions in
commodities, annuities and gains from assets that produce passive income. If a
foreign corporation owns at least 25% by value of the stock of another
corporation, the foreign corporation is treated for purposes of the PFIC tests
as owning its proportionate share of the assets of the other corporation, and as
receiving directly its proportionate share of the other corporation’s
income.
If we are
treated as a PFIC, and you are a U.S. holder that did not make a mark-to-market
election, as described below, you will be subject to special rules with respect
to:
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·
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any gain you realize on the sale
or other disposition of your shares or ADSs;
and
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·
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any excess distribution that we
make to you (generally, any distributions to you during a single taxable
year that are greater than 125% of the average annual distributions
received by you in respect of the shares or ADSs during the three
preceding taxable years or, if shorter, your holding period for the shares
or ADSs).
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Under
these rules:
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·
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the gain or excess distribution
will be allocated ratably over your holding period for the shares and
ADSs;
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·
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the amount allocated to the
taxable year in which you realized the gain or excess distribution will be
taxed as ordinary income;
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·
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the amount allocated to each
prior year in respect of which we were, or were treated as, a PFIC
generally will be taxed at the highest tax rate in effect for that year;
and
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·
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the interest charge generally
applicable to underpayments of tax will be imposed in respect of the tax
attributable to each such
year.
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Special
rules apply for calculating the amount of the foreign tax credit with respect to
excess distributions by a PFIC.
If you
own shares in a PFIC that are treated as marketable stock, you may make a
mark-to-market election. If you make this election in a timely fashion, you will
not be subject to the PFIC rules described above. Instead, in general, you will
include as ordinary income each year the excess, if any, of the fair market
value of your equity shares and ADSs at the end of the taxable year over your
adjusted basis in your shares and ADSs. You will also be allowed to take an
ordinary loss in respect of the excess, if any, of the adjusted basis of your
shares and ADSs over the fair market value at the end of the taxable year (but
only to the extent of the net amount of previously included income as a result
of the mark-to-market election). Your basis in the shares and ADSs will be
adjusted to reflect any such income or loss amounts.
We do not
intend to furnish you with the information that you would need in order to make
a “qualified electing fund” election to include your share of its income on a
current basis.
If you
own shares or ADSs during any year that we are a PFIC, you must file U.S.
Internal Revenue Service Form 8621 that describes the distribution received on
the equity shares or ADSs and the gain realized on the disposition of the shares
or ADSs. The reduced tax rate for dividend income, discussed in “Taxation of
Dividends,” is not applicable to dividends paid by a PFIC.
Information
Reporting and Backup Withholding
In
general, information reporting requirements will apply to dividends in respect
of shares or ADSs or the proceeds received on the sale, exchange or redemption
of shares or ADSs paid within the United States (and, in certain cases, outside
the United States) to U.S. holders other than certain exempt recipients, such as
corporations, and backup withholding tax at the rate of 28% may apply to such
amounts if the U.S. holder fails to provide an accurate taxpayer identification
number (or to otherwise establish, in the manner provided by law, an exemption
from backup withholding) or to report dividends required to be shown on the U.S.
holder’s U.S. federal income tax returns.
Backup
withholding is not an additional income tax, and the amount of any backup
withholding from a payment to a U.S. holder will be allowed as credit against
the U.S. holder’s U.S. federal income tax liability provided that the
appropriate returns are filed. A Non-U.S. holder generally may eliminate any
requirement for information reporting and backup withholding by providing
certification of its foreign status to the payer, under penalties of perjury, on
IRS Form W-8BEN.
New
Legislation Relating to Foreign Accounts and Foreign Entities
Newly
enacted legislation may impose withholding taxes on certain types of payments
made to “foreign financial institutions” and certain other non-U.S.
entities. Under this legislation, the failure to comply with
additional certification, information reporting and other specified requirements
could result in withholding tax being imposed on payments of dividends and sales
proceeds to U.S. Holders that own shares and ADSs through foreign accounts or
foreign intermediaries and to certain non-U.S. Holders. The legislation imposes
a 30% withholding tax on dividends on, and gross proceeds from the sale or other
disposition of, shares paid to a foreign financial institution or to a foreign
nonfinancial entity, unless (i) the foreign financial institution undertakes
certain diligence and reporting obligations or (ii) the foreign non-financial
entity either certifies it does not have any substantial U.S. owners or
furnishes identifying information regarding each substantial U.S. owner. In
addition, if the payee is a foreign financial institution, it generally must
enter into an agreement with the U.S. Treasury that requires, among other
things, that it undertake to identify accounts held by certain U.S. persons or
U.S.-owned foreign entities, annually report certain information about such
accounts, and withhold 30% on payments to certain other account holders. The
legislation applies to payments made after December 31, 2012. Prospective
holders should consult their tax advisors regarding this
legislation.
F.
Dividends and Paying
Agents
Not
applicable.
G.
Statement by
Experts
Not
applicable.
H.
Documents on
Display
We have
filed with the SEC our registration statement on Form F-1(File
No. 333-147620), including relevant exhibits, under the Securities Act,
with respect to our underlying ordinary shares represented by the
ADSs.
We are
subject to the periodic reporting and other informational requirements of the
Exchange Act. Under the Exchange Act, we are required to file reports and other
information with the SEC. Specifically, we are required to file annually a Form
20-F no later than six months after the close of each fiscal year, which is
December 31. Copies of reports and other information, when so filed, may be
inspected without charge and may be obtained at prescribed rates at the public
reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. The public may obtain information regarding the
Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains a web site at www.sec.gov that contains reports, proxy and
information statements, and other information regarding registrants that make
electronic filings with the SEC using its EDGAR system. As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the
furnishing and content of quarterly reports and proxy statements, and officers,
directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions contained in Section 16 of the
Exchange Act.
We will
furnish The Bank of New York, the depositary of our ADSs, with our annual
reports, which will include a review of operations and annual audited
consolidated financial statements prepared in conformity with U.S. GAAP, and all
notices of shareholders’ meetings and other reports and communications that are
made generally available to our shareholders. The depositary will make such
notices, reports and communications available to holders of ADSs and, upon our
request, will mail to all record holders of ADSs the information contained in
any notice of a shareholders’ meeting received by the depositary from
us.
I.
Subsidiary Information
For a
listing of our subsidiaries, see “Item 4. Information on the Company—C.
Organizational Structure” and Exhibit 8.1 “Significant Subsidiaries”, filed
herewith.
Item
11. Quantitative and Qualitative Disclosures about Market
Risk
Interest
Rate Risk
Our
exposure to interest rate risk for changes in interest rates relates primarily
to the interest receipts of excess cash deposited in banks. As of December 31,
2009, we had cash and cash equivalents of RMB203.1 million ($29.8
million). Cash and cash equivalents consist of cash on hand and in
banks.
We have
not been exposed to nor do we anticipate being exposed to material risks due to
changes in interest rates, although our future interest income may fluctuate in
line with changes in interest rates. The risk associated with fluctuating
interest rates is principally confined to our cash deposits in banks, and,
therefore, our exposure to interest rate risk is minimal. We currently do not
use any derivative financial instruments to hedge interest rate
risk.
Credit
Risk
The
carrying amounts of cash and cash equivalents, term deposits, accounts
receivable and amount due from related parties represent our principal exposure
to credit risk in relation to our financial assets. As of December 31, 2009,
substantially all of our cash and cash equivalents were held in uninsured
accounts at major financial institutions located in China and Hong Kong that we
believe are of acceptable credit quality. We have not used any derivative
financial instruments to hedge interest rate risk.
Foreign
Exchange Risk
Substantially
all of our revenue generating operations are transacted in Renminbi, which is
not fully convertible into foreign currencies and substantially all of our
assets and liabilities are denominated in Renminbi. As a result, the conversion
of our revenue into foreign currencies is subject to PRC regulatory restrictions
on currency conversion and we are exposed to risks posed by fluctuations in the
foreign exchange market. The value of the RMB against the U.S. dollar and other
currencies may fluctuate and is affected by, among other things, changes in
China’s political and economic conditions. The conversion of RMB into foreign
currencies, including U.S. dollars, has been based on rates set by the People’s
Bank of China. On July 21, 2005, the PRC government changed its decade-old
policy of pegging the value of the RMB to the U.S. dollar. Under the new policy,
the RMB is permitted to fluctuate within a narrow and managed band against a
basket of certain foreign currencies. This change in policy has resulted in an
approximately 21% appreciation of the RMB against the U.S. dollar as of December
31, 2009. There remains significant international pressure on the PRC government
to adopt an even more flexible currency policy, which could result in a further
and more significant appreciation of the RMB against the U.S. dollar. To the
extent we hold assets denominated in U.S. dollars through our PRC entities,
any further appreciation of the Renminbi against the U.S. dollar could
result in a charge to our income statement and a reduction in the RMB value of
our U.S. dollar denominated assets.
We have
not used any forward contracts or currency borrowings to hedge our exposure to
foreign currency risk. See “Item 3. Key Information—D. Risk Factors—Risks
Related to the People’s Republic of China—The fluctuation of the Renminbi may
materially and adversely affect your investment.”
Inflation
and Monetary Risk
Inflation
in China has not had a material impact on our results of operations in recent
years. According to the National Bureau of Statistics of China, the change in
Consumer Price Index in China was 4.8%, 5.9% and negative 0.7% in 2007, 2008 and
2009, respectively.
Item
12. Description of Securities Other than Equity
Securities
A.
Debt Securities
Not
Applicable.
B.
Warrants and Rights
Not
Applicable.
C.
Other Securities
Not
Applicable.
D.
American Depositary
Shares
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3.
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Fees
paid by our ADS holders
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The Bank
of New York, the depositary of our ADS program, collects its fees for issuance
and cancellation of ADSs directly from investors depositing shares or
surrendering ADSs for the purpose of withdrawal or from intermediaries acting
for them. The depositary also collects fees for making distributions to
investors by deducting those fees from the amounts distributed or by selling a
portion of distributable property to pay the fees. The depositary may collect
its annual fee for depositary services by deduction from cash distributions, by
directly billing investors or by charging the book-entry system accounts of
participants acting for them. The depositary may generally refuse to provide
services until its fees for those services, if any, are paid.
The table
below sets forth all fees and charges, which may change from time to time, that
a holder of ADSs may have to pay to the depositary bank of our ADS program,
either directly or indirectly:
Persons depositing or withdrawing shares must
pay:
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For:
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$5.00
(or less) per 100 ADSs (or portion of 100 ADSs)
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·
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Issuance
of ADSs, including issuances resulting from a distribution of shares or
rights or other property
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·
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Cancellation
of ADSs for the purpose of withdrawal, including if the deposit agreement
terminates
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$.02
(or less) per ADS
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Any
cash distribution to you
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A
fee equivalent to the fee that would be payable if securities distributed
to you had been shares and the shares had been deposited for issuance of
ADSs
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Distribution
of securities distributed to holders of deposited securities which are
distributed by the depositary to ADS holders
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$.03
(or less) per ADSs per calendar year
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Depositary
services
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Registration
or transfer fees
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·
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Transfer
and registration of shares on our share register to or from the name of
the depositary or its agent when you deposit or withdraw
shares
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Expenses
of the depositary
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·
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Cable,
telex and facsimile transmissions (when expressly provided in the deposit
agreement)
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·
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Converting
foreign currency to U.S.
dollars
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Taxes
and other governmental charges the depositary or the custodian have to pay
on any ADS or share underlying an ADS, for example, stock transfer taxes,
stamp duty or withholding taxes
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As
necessary
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Any
charges incurred by the depositary or its agents for servicing the
deposited securities
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As
necessary
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4.
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Fees
and Payments from the Depositary to
Us
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The Bank
of New York, as depositary, has agreed to reimburse us for expenses we incur
that are related to the establishment and maintenance of the ADR program. There
are limits on the amount of expenses for which the depositary will reimburse us,
but the amount of reimbursement available to us is not linked to the amounts of
fees the depositary collects from investors. In 2009, the depositary reimbursed
us $257,260 for expenses related to the administration and maintenance of the
ADS facility in 2009.
PART
II
Item 13. Defaults,
Dividend Arrearages and Delinquencies
None.
Item 14. Material
Modifications to the Rights of Security Holders and Use of Proceeds
The
following “Use of Proceeds” information relates to the registration statement on
Form F-1 (File No. 333-147620) (the “Registration Statement”) for our
initial public offering of 6,820,000 ADSs (including 1,364,000 ADSs being sold
by certain selling shareholders), for an aggregate offering price of
$68,200,000, which Registration Statement was declared effective by the SEC on
December 10, 2007 and was terminated after all of the registered securities were
sold. Bear, Stearns & Co. Inc., Piper Jaffray and CIBC World Markets were
the underwriters for the initial public offering of our ADSs.
We
received net proceeds of approximately $47.8
million from our
initial public offering, after deducting underwriting discounts and commissions
and estimated offering expenses. We did not receive any of the proceeds from the
sale of ADSs by the selling shareholders. None of the transaction expenses for
the offering included payments to directors or officers of our company or their
associates, persons owning more than 10% or more of our equity securities or our
affiliates.
We have
used or intend to use the net proceeds received from our initial public offering
for the following purposes:
Online
degree programs
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approximately
$7.4 million to develop our learning centers network, of which
approximately $2.2 million has been used as of June 22, 2010 in connection
with the opening of 65 learning
centers;
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·
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approximately
$5 million to expand our existing lines of business, including the funding
of new collaborative alliances with university partners, of which
approximately $1.2 million of which had been used as of June 22,
2010;
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Online
tutoring programs
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·
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approximately
$1.0 million to fund our acquisition of the remaining 20% equity interest
in 101 online school, all of which was used in May
2008;
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Private
Primary and Secondary schools
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·
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approximately
$11.7 million to complete the construction of the new campuses at our
Jingzhou School (Southern Campus) and Anqing School
,
of which
approximately
$10.7 million
has been used as
of June 22, 2010;
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Headquarter
real estate
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·
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approximately
$3.7 million to repay the loan incurred in connection with the acquisition
of the new office building for our headquarters, which amounts were paid
in July 2008; and
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Share
Repurchase
|
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approximately
$11.0 million to repurchase ordinary shares from Tiger Global, a former
majority shareholder, approximately $5.0 million to repurchase ordinary
shares according to our share repurchase plan from July 2008 to December
2009, and approximately $3.0 million to repurchase ordinary shares from
time to time through May 1, 2012 according to our share
repurchase plan.
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The
allocation of approximately $19.0 million in net proceeds for the repurchase of
ordinary shares was not specifically described in the use of proceeds section to
the Registration Statement. Nevertheless, we determined to use a
portion of the IPO proceeds for this purpose given our belief that the trading
price of our ADSs has not reflected the company’s potential value, especially in
light of the recent economic downturn. Our management team and board of
directors believe the share repurchase transactions are in the best interests of
the company and its shareholders. The repurchase decisions also
demonstrate management’s confidence in our long-term growth and
profitability.
As of
June 22, 2010, approximately $34.8 million of the net offering proceeds from our
initial public offering had been applied.
Item
15. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Our Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act as of the end of the period covered by this annual
report. They have concluded that, as of the end of the fiscal year covered by
this annual report, our disclosure controls and procedures were designed, and
were effective, to give reasonable assurance that the information required to be
disclosed by us in reports that we file under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC, and were also effective to ensure that information
required to be disclosed in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act for our company. Internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
consolidated financial statements in accordance with generally accepted
accounting principles, and includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of a company’s assets, (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of consolidated financial statements in accordance with
generally accepted accounting principles, and that a company’s receipts and
expenditures are being made only in accordance with authorizations of a
company’s management and directors, and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of a company’s assets that could have a material effect on the
consolidated financial statements.
Because
of its inherent limitations, a system of internal control over financial
reporting can provide only reasonable assurance with respect to consolidated
financial statement preparation and presentation, and may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies and
procedures may deteriorate.
As
required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as
promulgated by the Securities and Exchange Commission, our management assessed
the effectiveness of the internal control over financial reporting as of
December 31, 2009 using criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, our management concluded that the internal
control over financial reporting was effective as of December 31,
2009.
Our
independent registered public accounting firm has audited our internal control
over financial reporting as of December 31, 2009 and has issued an attestation
report on our internal control over financial reporting. The attestation report
appears below:
Attestation
Report of the Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of ChinaEdu Corporation,
We have
audited the internal control over financial reporting of ChinaEdu Corporation
(the “company”), its subsidiaries and its variable interest entities
(collectively, the “Group”) as of December 31, 2009, based on the criteria
established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. The Group’s management
is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Annual Report on
Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Group’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to risk that the controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
In our
opinion, the Group maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the
criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2009 of the Group and our report dated June 28,
2010 expressed an unqualified opinion on those financial statements and included
an explanatory paragraph relating to the retrospective application of
authoritative guidance on noncontrolling interests, previously issued
as Statement of Financial Accounting Standards No. 160, “Noncontrolling
Interests in Consolidated Financial Statements — an amendment of ARB No. 51”,
now codified in Accounting Standards Codification Topic 810, Consolidation,
which was adopted by the Group on January 1, 2009, and an explanatory paragraph
relating to the convenience translation of Renminbi amounts into United States
dollar amounts in the financial statements.
/s/
Deloitte Touche Tohmatsu CPA Ltd.
Beijing,
the People's Republic of China
June 28,
2010
Changes
in Internal Control over Financial Reporting
There
were no changes in our company’s internal control over financial reporting (as
defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the
year ended December 31, 2009 that have materially affected, or are reasonably
likely to materially affect, our company’s internal control over financial
reporting.
Item 16A. Audit
Committee Financial Expert
Our board
of directors has determined that Samuel Yen, the chairman of our audit
committee, is an audit committee financial expert as defined by the
rules and regulations of the SEC. Samuel Yen is an independent
director as defined by NASDAQ Marketplace Rule 4200(a)(15) and under Rule 10A-3
of the Exchange Act.
Item 16B. Code
of Ethics
Our board
of directors has adopted a code of ethics that applies to our directors,
officers, employees and agents, including certain provisions that specifically
apply to our chief executive officer, chief financial officer, chief operating
officer, chief technology officer, vice presidents and any other persons who
perform similar functions for us. Our code of business conduct and
ethics is publicly available on our internet website at
http
://ir.chinaedu.net
and refer to “Corporate Governance – Conduct, Ethics and Duties”.
Item 16C. Principal
Accountant Fees and Services
The
following table sets forth the aggregate fees by categories specified below in
connection with certain professional services rendered by Deloitte Touche
Tohmatsu CPA Ltd., our independent registered public accounting firm, for the
periods indicated. We did not pay any other fees to our independent registered
public accounting firm during the periods indicated below.
|
|
Years ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, in RMB)
|
|
Audit
fees
(1)
|
|
|
5,302
|
|
|
|
6,591
|
|
Audit-related
fees
(2)
|
|
|
—
|
|
|
|
—
|
|
Tax
fees
(3)
|
|
|
—
|
|
|
|
—
|
|
All
other fees
(4)
|
|
|
—
|
|
|
|
—
|
|
(1)
|
“Audit
fees” means the aggregate fees billed for professional services rendered
by Deloitte Touche Tohmatsu CPA Ltd. for the audit of our annual financial
statements and the review of our comparative interim financial
statements.
|
(2)
|
“Audit-related
fees” represents aggregate fees billed for professional services rendered
by
Deloitte
Touche Tohmatsu CPA Ltd. for the assurance and related services
that are reasonably related to the performance of the audit or review of
our financial statements and are not reported under “Audit
fees.”
|
(3)
|
“Tax
fees” represents the aggregated fees billed for professional services
rendered by
Deloitte
Touche Tohmatsu CPA Ltd. for tax compliance, tax advice, and tax
planning.
|
(4)
|
“All
other fees” comprise fees for all other services provided by Deloitte
Touche Tohmatsu CPA Ltd., other than those services covered in footnotes
(1) to (3) above.
|
The
policy of our audit committee is to pre-approve all audit and non-audit services
provided by Deloitte Touche Tohmatsu CPA Ltd., including audit services,
audit-related services, tax services and other services as described
above. All audit and non-audit services disclosed in the table above
were pre-approved by the audit committee, or the full board of directors in the
event such services were pre-approved prior to the formation of the audit
committee.
Item 16D. Exemptions
from the Listing Standards for Audit Committees
Not
applicable.
Item 16E. Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
The
following tables set forth some additional information about our repurchases
made in the fiscal years ended December 31, 2008 and 2009.The ordinary shares
underlying the repurchased ADSs have been canceled pursuant to Cayman Islands
law.
Issuer
Repurchases in the Years Ended December 31, 2008 and 2009
Period
|
|
Total
Number of
Shares
Purchased
|
|
|
Average
Price Paid
per Share
(US$)
|
|
|
Total
Number of
Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
(2)
|
|
|
Approximate
Dollar Value of
Shares that
May Yet Be
Purchased
Under
the Plans or
Programs
(2)
(US$)
|
|
January 1,
2008 – January 31, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
February 1,
2008 – February 28, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
March 1,
2008 – March 31, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
April
1, 2008 – April 30, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
May
1, 2008 – May 31, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
June 1,
2008 – June 30, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
July 1,
2008 – July 31, 2008
|
|
|
210,834
|
|
|
|
1.31
|
|
|
|
210,834
|
|
|
|
4,723,453
|
|
August 1,
2008 – August 31, 2008
|
|
|
575,010
|
|
|
|
1.30
|
|
|
|
575,010
|
|
|
|
3,977,001
|
|
September 1,
2008 – September 30, 2008
|
|
|
733,401
|
|
|
|
1.54
|
|
|
|
733,401
|
|
|
|
2,846,059
|
|
October 1,
2008 – October 31, 2008
|
|
|
518,793
|
|
|
|
1.27
|
|
|
|
518,793
|
|
|
|
2,185,501
|
|
November 1,
2008 – November 30, 2008
(1)
|
|
|
1,626,058
|
|
|
|
1.34
|
|
|
|
107,109
|
|
|
|
2,053,038
|
|
December
1, 2008 – December 31, 2008
|
|
|
38,487
|
|
|
|
1.43
|
|
|
|
38,487
|
|
|
|
1,998,025
|
|
2008
Total
|
|
|
3,702,583
|
|
|
|
1.35
|
|
|
|
2,183,634
|
|
|
|
1,998,025
|
|
January 1,
2009 –January 31, 2009
(1)
|
|
|
6,845,685
|
|
|
|
1.32
|
|
|
|
-
|
|
|
|
1,998,025
|
|
February 1,
2009 – February 28, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,998,025
|
|
March 1,
2009 – March 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,998,025
|
|
April
1, 2009 – April 30, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,998,025
|
|
May
1, 2009 – May 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,998,025
|
|
June 1,
2009 – June 30, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,998,025
|
|
July 1,
2009– July 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,998,025
|
|
August 1,
2009 – August 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,998,025
|
|
September 1,
2009 – September 30, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,998,025
|
|
October 1,
2009 – October 31, 2009
|
|
|
150,996
|
|
|
|
2.32
|
|
|
|
150,996
|
|
|
|
1,647,950
|
|
November 1,
2009 – November 30, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,647,950
|
|
December
1, 2009 – December 31, 2009
|
|
|
832,119
|
|
|
|
2.17
|
|
|
|
832,119
|
|
|
|
-
|
|
2009
Total
|
|
|
7,828,800
|
|
|
|
1.43
|
|
|
|
983,115
|
|
|
|
-
|
|
(1)
|
Pursuant
to a share repurchase agreement entered into with Tiger Global in November
2008, we agreed to purchase from Tiger Global an aggregate of 8,364,634
ordinary shares (2,788,211 ADSs) at US$1.3167 per ordinary share (US$3.95
per ADS), for an aggregate purchase price of RMB75.3
million ($11.0 million). The agreement also
stipulated that all warrants held by Tiger Global, which represented the
right to purchase an aggregate of 1,768,300 ordinary shares, would be
cancelled. As of December 31, 2008, we had repurchased and
cancelled 1,518,949 ordinary shares and 321,109 warrants for an aggregate
consideration of RMB13.7 million ($2.0 million). Subsequent to
December 31, 2008, we repurchased and cancelled 6,845,685 ordinary shares
and 1,447,191warrants for an aggregate consideration of RMB61.6 million
($9.0 million) in
January
2009.
|
(2)
|
In
June 2008, our board of directors approved a share repurchase program
over a period of 12 months for the repurchase up to $5 million of our
outstanding ADSs. The share repurchase program has expired in June
2009.
|
In April
2010, our board of directors approved a share repurchase program to repurchase
up to US$3 million of our outstanding ADSs from time to time through May 1,
2012.
Item
16F. Change in Registrant’s Certifying Accountant
Not
applicable.
Item
16G. Corporate Governance
We are
incorporated under the laws of the Cayman Islands. Our ADSs are registered with
the SEC and listed on the NASDAQ Global Market. However, certain of the
corporate governance rules of the NASDAQ Marketplace Rules do not apply to us as
a “foreign private issuer,” and we are permitted to follow the corporate
governance practices in the Cayman Islands in lieu of most corporate governance
standards contained in the NASDAQ Marketplace Rules. Rule 5615(a)(3)
of the NASDAQ Marketplace Rules requires foreign private issuers listed on the
NASDAQ to disclose each requirement that it does not follow and include a brief
statement of the home country practice that the company follows in lieu of such
corporate governance requirement(s). Set forth below a brief summary
of such significant differences.
Board and
Committee Independence
While the
NASDAQ Marketplace Rules require U.S. domestic issuers to have a majority
of independent directors, we are not subject to this requirement. Three of our
seven directors are independent non-executive directors.
The
NASDAQ Marketplace Rules require U.S. domestic issuers to regularly
schedule executive sessions to be attended by only independent directors. We are
not subject to such requirement and our independent directors are entitled to
attend all of our board meetings.
The
NASDAQ Marketplace Rules require shareholder approval prior to the issuance of
securities when a stock option or purchase plan is to be established or
materially amended or other equity compensation arrangement made or materially
amended, pursuant to which stock may be acquired by officers, directors,
employees, or consultants. Our stockholders have approved an
amendment to our existing equity incentive plan to permit our board of directors
at any time to amend, suspend or terminate our equity incentive plan. Any
amendment, suspension or termination of our equity incentive plan must not
adversely affect awards already granted without consent of the recipient of such
awards.
PART
III
Item 17. Financial
Statements
We have
elected to provide the financial statements and related information specified in
Item 18.
Item 18. Financial
Statements
The
consolidated financial statements of ChinaEdu Corporation are included in this
annual report beginning on page F-1.
Item 19. Exhibits
Exhibit
Number
|
|
Description of Document
|
|
|
|
1.1
|
|
Form
of Fifth Amended and Restated Memorandum of Association (incorporated by
reference to Exhibit 3.1 from our registration statement on Form F-1 (File
No. 333-147620), as amended, initially filed with the SEC on November
26, 2007)
|
|
|
|
1.2
|
|
Form
of Fifth Amended and Restated Articles of Association (incorporated by
reference to Exhibit 3.2 from our registration statement on Form F-1 (File
No. 333-147620), as amended, initially filed with the SEC on November
26, 2007)
|
|
|
|
2.1
|
|
Form
of Deposit Agreement among Registrant, depositary and holders of the
American Depositary Receipts (incorporated by reference to Exhibit 4.1
from our registration statement on Form F-1 (File No. 333-147620), as
amended, initially filed with the SEC on November 26,
2007)
|
Exhibit
Number
|
|
Description of Document
|
|
|
|
2.2
|
|
Registrant’s
Specimen Certificate for Ordinary Shares (incorporated by reference to
Exhibit 4.2 from our registration statement on Form F-1 (File
No. 333-147620), as amended, initially filed with the SEC on November
26, 2007)
|
|
|
|
2.3
|
|
Registrant’s
Specimen American Depositary Receipt (incorporated by reference to Exhibit
4.3 from our registration statement on Form F-1 (File
No. 333-147620), as amended, initially filed with the SEC on November
26, 2007)
|
|
|
|
3.1
|
|
English
Translation of Shareholder’s Voting Rights Entrustment Agreement among
Hongcheng Technology, Yang Xueshan, Xie Changqing and Hongcheng Education
dated July 12, 2005 (incorporated by reference to Exhibit 10.22 from our
registration statement on Form F-1 (File No. 333-147620), as amended,
initially filed with the SEC on November 26, 2007)
|
|
|
|
3.2
|
|
English
Translation of Shareholder’s Voting Rights Entrustment Agreement among
Hongcheng Technology, Xie Changqing and Hongcheng Education dated December
20, 2005 (incorporated by reference to Exhibit 10.23 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.1
|
|
Form
of Amended Equity Incentive Plan, dated March 2009, approved by
shareholders at the Extraordinary General Meeting on March 6, 2009
(incorporated by reference to Exhibit 4.1 from our annual report on Form
20-F (File No. 001-33858), filed with the SEC on June 30,
2009)
|
|
|
|
4.2
|
|
Form
of Indemnification Agreement between the Registrant and its officers and
directors (incorporated by reference to Exhibit 10.2 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.3
|
|
Form
of Employment Agreement between the Registrant and a Senior Executive
Officer of the Registrant (incorporated by reference to Exhibit 10.3 from
our registration statement on Form F-1 (File No. 333-147620), as
amended, initially filed with the SEC on November 26,
2007)
|
|
|
|
4.4
|
|
Fourth
Amended and Restated Registration Rights Agreement (incorporated by
reference to Exhibit 10.4 from our registration statement on Form F-1
(File No. 333-147620), as amended, initially filed with the SEC on
November 26, 2007)
|
|
|
|
4.5
|
|
English
Translation of Loan Agreement between Registrant and Xie Changqing dated
July 15, 2005 (incorporated by reference to Exhibit 10.5 from our
registration statement on Form F-1 (File No. 333-147620), as amended,
initially filed with the SEC on November 26, 2007)
|
|
|
|
4.6
|
|
English
Translation of Supplementary Agreement to Loan Agreement between
Registrant and Xie Changqing dated July 18, 2007 (incorporated by
reference to Exhibit 10.6 from our registration statement on Form F-1
(File No. 333-147620), as amended, initially filed with the SEC on
November 26, 2007)
|
|
|
|
4.7
|
|
English
Translation of Amended and Renewed Loan Agreement between Registrant and
Xie Changqing dated July 12, 2005 (incorporated by reference to Exhibit
10.7 from our registration statement on Form F-1 (File
No. 333-147620), as amended, initially filed with the SEC on November
26, 2007)
|
|
|
|
4.8
|
|
English
Translation of Supplementary Agreement to Amended and Renewed Loan
Agreement between Registrant and Xie Changqing dated July 18, 2007
(incorporated by reference to Exhibit 10.8 from our registration statement
on Form F-1 (File No. 333-147620), as amended, initially filed with
the SEC on November 26, 2007)
|
|
|
|
4.9
|
|
English
Translation of Amended and Renewed Loan Agreement between Registrant and
Yang Xueshan dated June 2005 (incorporated by reference to Exhibit 10.9
from our registration statement on Form F-1 (File No. 333-147620), as
amended, initially filed with the SEC on November 26,
2007)
|
Exhibit
Number
|
|
Description of Document
|
|
|
|
4.10
|
|
English
Translation of Supplementary Agreement to Amended and Renewed Loan
Agreement between Registrant and Yang Xueshan dated July 18, 2007
(incorporated by reference to Exhibit 10.10 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.11
|
|
English
Translation of Equity Pledge Agreement among Hongcheng Technology, Xie
Changqing and Yang Xueshan dated July 12, 2005 (incorporated by reference
to Exhibit 10.15 from our registration statement on Form F-1 (File
No. 333-147620), as amended, initially filed with the SEC on November
26, 2007)
|
|
|
|
4.12
|
|
English
Translation of Supplementary Agreement to Equity Pledge Agreement among
Hongcheng Technology, Xie Changqing and Yang Xueshan dated July 18, 2007
(incorporated by reference to Exhibit 10.16 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.13
|
|
English
Translation of Equity Pledge Agreement between Hongcheng Technology and
Xie Changqing dated December 20, 2005 (incorporated by reference to
Exhibit 10.19 from our registration statement on Form F-1 (File
No. 333-147620), as amended, initially filed with the SEC on November
26, 2007)
|
|
|
|
4.14
|
|
English
Translation of Supplementary Agreement to Equity Pledge Agreement between
Hongcheng Technology and Xie Changqing dated July 18, 2007 (incorporated
by reference to Exhibit 10.20 from our registration statement on Form F-1
(File No. 333-147620), as amended, initially filed with the SEC on
November 26, 2007)
|
|
|
|
4.15
|
|
English
Translation of Call Option Agreement among Hongcheng Technology, Yang
Xueshan and Xie Changqing dated July 12, 2005 (incorporated by reference
to Exhibit 10.24 from our registration statement on Form F-1 (File
No. 333-147620), as amended, initially filed with the SEC on November
26, 2007)
|
|
|
|
4.16
|
|
English
Translation of Call Option Agreement between Hongcheng Technology and Xie
Changqing dated December 20, 2005 (incorporated by reference to Exhibit
10.26 from our registration statement on Form F-1 (File
No. 333-147620), as amended, initially filed with the SEC on November
26, 2007)
|
|
|
|
4.17
|
|
English
Translation of Power of Attorney executed by Yang Xueshan dated July 12,
2005 (incorporated by reference to Exhibit 10.27 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.18
|
|
English
Translation of Power of Attorney executed by Wang Gongquan dated July 12,
2005 (incorporated by reference to Exhibit 10.28 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.19
|
|
English
Translation of Power of Attorney executed by Xie Changqing dated July 12,
2005 (incorporated by reference to Exhibit 10.30 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.20
|
|
English
Translation of Power of Attorney executed by Xie Changqing dated December
20, 2005 (incorporated by reference to Exhibit 10.31 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.21
|
|
English
Translation of Technical Consulting and Services Agreement between
Hongcheng Technology and Xiandai Technology dated July 18, 2007
(incorporated by reference to Exhibit 10.32 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26,
2007)
|
Exhibit
Number
|
|
Description of Document
|
|
|
|
4.22
|
|
English
Translation of Technical Consulting and Services Agreement between
Hongcheng Technology and Hongcheng Education dated July 18, 2007
(incorporated by reference to Exhibit 10.33 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.23
|
|
English
Translation of Collaborative Alliance Contract between the Company and
Renda Century dated October 22, 2002 (incorporated by reference to Exhibit
10.34 from our registration statement on Form F-1 (File
No. 333-147620), as amended, initially filed with the SEC on November
26, 2007)
|
|
|
|
4.24
|
|
English
Translation of Technology Development Agreement between Renda Online
School and CMR dated July 15, 2003 (incorporated by reference to Exhibit
10.35 from our registration statement on Form F-1 (File
No. 333-147620), as amended, initially filed with the SEC on November
26, 2007)
|
|
|
|
4.25
|
|
English
Translation of Service Agreement between Renda Online School and CMR dated
March 31, 2003 (incorporated by reference to Exhibit 10.36 from our
registration statement on Form F-1 (File No. 333-147620), as amended,
initially filed with the SEC on November 26, 2007)
|
|
|
|
4.26
|
|
English
Translation of Memorandum of Understanding (Regarding Service Fee Payment)
between Renda Online School and CMR dated May 16, 2003 (incorporated by
reference to Exhibit 10.37 from our registration statement on Form F-1
(File No. 333-147620), as amended, initially filed with the SEC on
November 26, 2007)
|
|
|
|
4.27
|
|
English
Translation of Memorandum of Understanding between Renda Online School,
CMR, Renda Century and the Company dated March 31, 2003 (incorporated by
reference to Exhibit 10.38 from our registration statement on Form F-1
(File No. 333-147620), as amended, initially filed with the SEC on
November 26, 2007)
|
|
|
|
4.28
|
|
English
Translation of Memorandum of Understanding (Regarding Service Fee
Alteration) between Renda Online School and CMR dated May 16, 2003
(incorporated by reference to Exhibit 10.39 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.29
|
|
English
Translation of Collaborative Alliance Contract among China Agriculture
University, Hongcheng Liye, Shanghai SVA Communication Co., Ltd. and
Beijing CAU Technological Enterprise Incubator Co., Ltd. dated April 28,
2005 (incorporated by reference to Exhibit 10.40 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.30
|
|
English
Translation of Cooperation Agreement between Zhong Nongda Networks
Development Co., Ltd. and China Agriculture University dated December 12,
2005 (incorporated by reference to Exhibit 10.41 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.31
|
|
English
Translation of Service Agreement between China Agriculture University and
Zhong Nongda Networks Development Co., Ltd dated April 28, 2005
(incorporated by reference to Exhibit 10.42 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.32
|
|
English
Translation of Memorandum of Service Agreement between China Agriculture
University and Zhong Nongda Networks Development Co., Ltd. dated April 28,
2005 (incorporated by reference to Exhibit 10.43 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.33
|
|
English
Translation of Collaborative Alliance Contract between Hongcheng Liye and
Dongbei University of Finance and Economics dated May, 2003 (incorporated
by reference to Exhibit 10.44 from our registration statement on Form F-1
(File No. 333-147620), as amended, initially filed with the SEC on
November 26, 2007)
|
Exhibit
Number
|
|
Description of Document
|
|
|
|
4.34
|
|
English
Translation of Supplementary Agreement to Collaborative Alliance Contract
between Hongcheng Liye and Dongbei University of Finance and Economics
dated May, 2003 (incorporated by reference to Exhibit 10.45 from our
registration statement on Form F-1 (File No. 333-147620), as amended,
initially filed with the SEC on November 26, 2007)
|
|
|
|
4.35
|
|
English
Translation of Service Agreement between Dongbei University of Finance and
Economics and Dalian Dongcai Technology Development Co., Ltd. dated June
26, 2003 (incorporated by reference to Exhibit 10.46 from our registration
statement on Form F-1 (File No. 333-147620), as amended, initially
filed with the SEC on November 26, 2007)
|
|
|
|
4.36
|
|
English
Translation of Licensing Agreement between Dalian Dongcai Technology
Development Co., Ltd, and Hongcheng Technology Development Co., Ltd. dated
September 18, 2003 (incorporated by reference to Exhibit 10.47 from our
registration statement on Form F-1 (File No. 333-147620), as amended,
initially filed with the SEC on November 26, 2007)
|
|
|
|
8.1*
|
|
List
of subsidiaries of ChinaEdu Corporation
|
|
|
|
12.1*
|
|
Certification
of Chief Executive Officer required by
Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
12.2*
|
|
Certification
of Chief Financial Officer required by
Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
13.1*
|
|
Certification
of Chief Executive Officer required by
Rule 13a-14(b)/15d-14(b) under the Exchange Act, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
13.2*
|
|
Certification
of Chief Financial Officer required by
Rule 13a-14(b)/15d-14(b) under the Exchange Act, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
15.1*
|
|
Consent
of Deloitte Touche Tohmatsu CPA
Ltd.
|
*
Filed herewith
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
CHINAEDU
CORPORATION
|
|
|
By
|
|
Name:
|
Julia
Huang
|
Title:
|
Chairman
and Chief Executive Officer
|
Date:
June 30, 2010
|
CHINAEDU CORPORATION
|
|
|
|
Report
of Independent Registered
|
|
Public
Accounting Firm and
|
|
Consolidated
Financial Statements
|
|
For
the years ended December 31, 2007, 2008 and
2009
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
|
|
PAGE
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
F-1
|
|
|
|
CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2009
|
|
F-3
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND
2009
|
|
F-5
|
|
|
|
CONSOLIDATED
STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED
DECEMBER 31, 2007, 2008 AND 2009
|
|
F-7
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND
2009
|
|
F-8
|
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
F-10
|
|
|
|
SCHEDULE
I
|
|
F-67
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE
BOARD OF DIRECTORS
AND SHAREHOLDERS OF CHINAEDU
CORPORATION
We have
audited the accompanying consolidated balance sheets of ChinaEdu Corporation
(the "Company"), its subsidiaries, and its variable interest entity
(collectively, the "Group") as of December 31, 2008 and 2009 and the related
consolidated statements of operations, equity and comprehensive income (loss),
and cash flows for each of the three years in the period ended December 31,
2009, and the related financial statement schedule included in Schedule
1. These financial statements and the related financial statement
schedule are the responsibility of the Group's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the related financial statement schedule based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of the Group as of December 31, 2008 and 2009
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects, the information set forth therein.
As
discussed in Note 26, the financial statements have been adjusted for the
retrospective application of authoritative guidance regarding noncontrolling
interests in consolidated financial statements, which was adopted by the Group
on January 1, 2009.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE
BOARD OF DIRECTORS
AND SHAREHOLDERS OF CHINAEDU
CORPORATION
- continued
Our
audits also comprehended the translation of Renminbi amounts into United States
dollar amounts and, in our opinion, such translation has been made in conformity
with the basis stated in Note 2. Such United States dollar amounts
are presented solely for the convenience of the readers.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Group's internal control over financial
reporting as of December 31, 2009, based on the criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated June 28, 2010
expressed an unqualified opinion on the Group's internal control over financial
reporting.
/s/
Deloitte Touche Tohmatsu CPA Ltd.
Beijing,
the People's Republic of China
June 28,
2010
CHINAEDU
CORPORATION
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share-related data)
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(As adjusted,
|
|
|
|
|
|
|
|
|
|
see Note 26)
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
353,933
|
|
|
|
203,143
|
|
|
|
29,761
|
|
Term
deposits
|
|
|
63,500
|
|
|
|
122,304
|
|
|
|
17,918
|
|
Restricted
cash
|
|
|
-
|
|
|
|
365
|
|
|
|
53
|
|
Short-term
investments
|
|
|
-
|
|
|
|
17,706
|
|
|
|
2,594
|
|
Accounts
receivable, net
|
|
|
14,854
|
|
|
|
28,334
|
|
|
|
4,151
|
|
Inventory
|
|
|
-
|
|
|
|
1,852
|
|
|
|
271
|
|
Prepaid
expenses and other current assets
|
|
|
20,251
|
|
|
|
25,315
|
|
|
|
3,709
|
|
Amounts
due from related parties
|
|
|
150,472
|
|
|
|
176,802
|
|
|
|
25,902
|
|
Deferred
tax assets
|
|
|
3,986
|
|
|
|
3,309
|
|
|
|
485
|
|
Total
current assets
|
|
|
606,996
|
|
|
|
579,130
|
|
|
|
84,844
|
|
Long-term
investments
|
|
|
1,210
|
|
|
|
4,210
|
|
|
|
617
|
|
Deferred
tax assets
|
|
|
2,096
|
|
|
|
1,541
|
|
|
|
226
|
|
Rental
deposits
|
|
|
958
|
|
|
|
868
|
|
|
|
127
|
|
Land
use rights, net
|
|
|
28,344
|
|
|
|
27,874
|
|
|
|
4,084
|
|
Property
and equipment, net
|
|
|
161,925
|
|
|
|
203,995
|
|
|
|
29,885
|
|
Deposits
paid for acquisition of property and equipment
|
|
|
8,619
|
|
|
|
13,898
|
|
|
|
2,036
|
|
Acquired
intangible assets, net
|
|
|
70,377
|
|
|
|
66,621
|
|
|
|
9,760
|
|
Goodwill
|
|
|
38,155
|
|
|
|
38,155
|
|
|
|
5,590
|
|
Total
assets
|
|
|
918,680
|
|
|
|
936,292
|
|
|
|
137,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
8,530
|
|
|
|
6,467
|
|
|
|
947
|
|
Deferred
revenues (including deferred revenue from related parties of RMB55,615 and
RMB53,161 in 2008 and 2009, respectively)
|
|
|
96,068
|
|
|
|
97,853
|
|
|
|
14,336
|
|
Accrued
expenses and other current liabilities
|
|
|
51,629
|
|
|
|
68,917
|
|
|
|
10,096
|
|
Amounts
due to related parties
|
|
|
25,769
|
|
|
|
25,668
|
|
|
|
3,760
|
|
Income
taxes payable
|
|
|
27,917
|
|
|
|
33,389
|
|
|
|
4,892
|
|
Other
taxes payable
|
|
|
12,008
|
|
|
|
15,900
|
|
|
|
2,329
|
|
Total
current liabilities
|
|
|
221,921
|
|
|
|
248,194
|
|
|
|
36,360
|
|
Deferred
revenues
|
|
|
6,073
|
|
|
|
8,075
|
|
|
|
1,183
|
|
Deferred
tax liabilities
|
|
|
11,069
|
|
|
|
10,143
|
|
|
|
1,486
|
|
Unrecognized
tax benefit
|
|
|
5,473
|
|
|
|
7,727
|
|
|
|
1,132
|
|
Total
liabilities
|
|
|
244,536
|
|
|
|
274,139
|
|
|
|
40,161
|
|
CHINAEDU
CORPORATION
CONSOLIDATED
BALANCE SHEETS - continued
(In
thousands, except share-related data)
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(As adjusted
|
|
|
|
|
|
|
|
|
|
see Note 26)
|
|
|
|
|
|
|
|
Commitments
(Note 20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
ChinaEdu
Corporation's equity:
|
|
|
|
|
|
|
|
|
|
Ordinary
shares (RMB0.08 (US$0.01) par value; 100,000,000 shares authorized;
63,076,129 shares issued and outstanding in 2008; 55,247,329 shares issued
and outstanding in 2009)
|
|
|
4,573
|
|
|
|
4,076
|
|
|
|
597
|
|
Additional
paid-in capital
|
|
|
734,733
|
|
|
|
673,847
|
|
|
|
98,719
|
|
Warrants
|
|
|
5,555
|
|
|
|
1,883
|
|
|
|
276
|
|
Statutory
reserves
|
|
|
9,597
|
|
|
|
13,661
|
|
|
|
2,001
|
|
Accumulated
deficits
|
|
|
(143,709
|
)
|
|
|
(112,994
|
)
|
|
|
(16,551
|
)
|
Accumulated
other comprehensive loss
|
|
|
(20,920
|
)
|
|
|
(20,500
|
)
|
|
|
(3,003
|
)
|
Total
ChinaEdu Corporation's equity
|
|
|
589,829
|
|
|
|
559,973
|
|
|
|
82,039
|
|
Noncontrolling
interests
|
|
|
84,315
|
|
|
|
102,180
|
|
|
|
14,969
|
|
Total
equity
|
|
|
674,144
|
|
|
|
662,153
|
|
|
|
97,008
|
|
Total
liabilities and equity
|
|
|
918,680
|
|
|
|
936,292
|
|
|
|
137,169
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CHINAEDU
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except share-related data)
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(As adjusted
|
|
|
(As adjusted
|
|
|
|
|
|
|
|
|
|
see Note 26)
|
|
|
see Note 26)
|
|
|
|
|
|
|
|
Net
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
202,185
|
|
|
|
255,388
|
|
|
|
285,178
|
|
|
|
41,779
|
|
-
Related parties
|
|
|
161,384
|
|
|
|
209,770
|
|
|
|
220,661
|
|
|
|
32,327
|
|
-
Third parties
|
|
|
40,801
|
|
|
|
45,618
|
|
|
|
64,517
|
|
|
|
9,452
|
|
Online
tutoring programs
|
|
|
18,013
|
|
|
|
15,436
|
|
|
|
19,584
|
|
|
|
2,869
|
|
Private
primary and secondary schools
|
|
|
13,356
|
|
|
|
19,289
|
|
|
|
30,627
|
|
|
|
4,487
|
|
International
curriculum programs
|
|
|
31,434
|
|
|
|
27,607
|
|
|
|
19,317
|
|
|
|
2,830
|
|
Net
revenue
|
|
|
264,988
|
|
|
|
317,720
|
|
|
|
354,706
|
|
|
|
51,965
|
|
Cost
of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
58,027
|
|
|
|
76,224
|
|
|
|
95,428
|
|
|
|
13,980
|
|
-
Related parties
|
|
|
30,590
|
|
|
|
47,105
|
|
|
|
58,414
|
|
|
|
8,558
|
|
-
Third parties
|
|
|
27,437
|
|
|
|
29,119
|
|
|
|
37,014
|
|
|
|
5,422
|
|
Online
tutoring programs
|
|
|
3,875
|
|
|
|
4,017
|
|
|
|
5,713
|
|
|
|
837
|
|
Private
primary and secondary schools
|
|
|
10,944
|
|
|
|
17,572
|
|
|
|
26,109
|
|
|
|
3,825
|
|
International
curriculum programs
|
|
|
23,503
|
|
|
|
19,920
|
|
|
|
11,112
|
|
|
|
1,628
|
|
Total
cost of revenue
|
|
|
96,349
|
|
|
|
117,733
|
|
|
|
138,362
|
|
|
|
20,270
|
|
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
144,158
|
|
|
|
179,164
|
|
|
|
189,750
|
|
|
|
27,799
|
|
-
Related parties
|
|
|
130,794
|
|
|
|
162,665
|
|
|
|
162,247
|
|
|
|
23,769
|
|
-
Third parties
|
|
|
13,364
|
|
|
|
16,499
|
|
|
|
27,503
|
|
|
|
4,030
|
|
Online
tutoring programs
|
|
|
14,138
|
|
|
|
11,419
|
|
|
|
13,871
|
|
|
|
2,032
|
|
Private
primary and secondary schools
|
|
|
2,412
|
|
|
|
1,717
|
|
|
|
4,518
|
|
|
|
662
|
|
International
curriculum programs
|
|
|
7,931
|
|
|
|
7,687
|
|
|
|
8,205
|
|
|
|
1,202
|
|
Total
gross profit
|
|
|
168,639
|
|
|
|
199,987
|
|
|
|
216,344
|
|
|
|
31,695
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
76,893
|
|
|
|
86,908
|
|
|
|
82,858
|
|
|
|
12,139
|
|
Selling
and marketing
|
|
|
14,277
|
|
|
|
29,851
|
|
|
|
23,688
|
|
|
|
3,470
|
|
Research
and development
|
|
|
21,021
|
|
|
|
26,185
|
|
|
|
30,385
|
|
|
|
4,451
|
|
Goodwill
impairment
|
|
|
16,192
|
|
|
|
41,036
|
|
|
|
-
|
|
|
|
-
|
|
Intangible
assets impairment
|
|
|
-
|
|
|
|
29,057
|
|
|
|
-
|
|
|
|
-
|
|
Total
operating expenses
|
|
|
128,383
|
|
|
|
213,037
|
|
|
|
136,931
|
|
|
|
20,060
|
|
Income
(loss) from operations
|
|
|
40,256
|
|
|
|
(13,050
|
)
|
|
|
79,413
|
|
|
|
11,635
|
|
Other
income
|
|
|
394
|
|
|
|
562
|
|
|
|
1,748
|
|
|
|
256
|
|
Interest
income
|
|
|
4,118
|
|
|
|
10,652
|
|
|
|
4,980
|
|
|
|
730
|
|
Interest
expense
|
|
|
(2,130
|
)
|
|
|
(1,298
|
)
|
|
|
(2
|
)
|
|
|
-
|
|
Income
(loss) before income tax provisions
|
|
|
42,638
|
|
|
|
(3,134
|
)
|
|
|
86,139
|
|
|
|
12,621
|
|
Income
tax provisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Current
|
|
|
16,286
|
|
|
|
11,860
|
|
|
|
18,981
|
|
|
|
2,781
|
|
-
Deferred
|
|
|
(1,283
|
)
|
|
|
(8,387
|
)
|
|
|
306
|
|
|
|
45
|
|
Total
income tax provisions
|
|
|
15,003
|
|
|
|
3,473
|
|
|
|
19,287
|
|
|
|
2,826
|
|
Net
income (loss)
|
|
|
27,635
|
|
|
|
(6,607
|
)
|
|
|
66,852
|
|
|
|
9,795
|
|
Less:
net income attributable to the noncontrolling interests
|
|
|
25,148
|
|
|
|
36,412
|
|
|
|
32,073
|
|
|
|
4,699
|
|
Net
income (loss) attributable to ChinaEdu Corporation
shareholders
|
|
|
2,487
|
|
|
|
(43,019
|
)
|
|
|
34,779
|
|
|
|
5,096
|
|
CHINAEDU
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS - continued
(In
thousands, except share-related data)
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(As adjusted
|
|
|
(As adjusted
|
|
|
|
|
|
|
|
|
|
see Note 26)
|
|
|
see Note 26)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share attributable to ChinaEdu Corporation shareholders
- basic
|
|
|
0.06
|
|
|
|
(0.75
|
)
|
|
|
0.71
|
|
|
|
0.10
|
|
Net
income per preferred A share-basic
|
|
|
0.06
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
income per preferred B share-basic
|
|
|
0.06
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
income per preferred C share-basic
|
|
|
0.06
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
income per preferred D share-basic
|
|
|
0.06
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
income (loss) per share attributable to ChinaEdu Corporation shareholders
- diluted
|
|
|
0.05
|
|
|
|
(0.75
|
)
|
|
|
0.66
|
|
|
|
0.10
|
|
Weighted
average shares used in calculating basic net income per share attributable
to ChinaEdu Corporation shareholders
|
|
|
20,585,074
|
|
|
|
57,679,504
|
|
|
|
48,844,606
|
|
|
|
48,844,606
|
|
Weighted
average shares used in calculating preferred A basic net income per
share
|
|
|
4,991,507
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted
average shares used in calculating preferred B basic net income per
share
|
|
|
11,561,814
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted
average shares used in calculating preferred C basic net income per
share
|
|
|
3,221,030
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted
average shares used in calculating preferred D basic net income per
share
|
|
|
1,787,745
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted
average shares used in calculating diluted net income per share
attributable to ChinaEdu Corporation shareholders
|
|
|
47,322,184
|
|
|
|
57,679,504
|
|
|
|
52,519,683
|
|
|
|
52,519,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
346
|
|
|
|
474
|
|
|
|
489
|
|
|
|
72
|
|
General
and administrative
|
|
|
2,960
|
|
|
|
4,073
|
|
|
|
5,982
|
|
|
|
876
|
|
Selling
and marketing
|
|
|
222
|
|
|
|
506
|
|
|
|
676
|
|
|
|
99
|
|
Research
and development
|
|
|
115
|
|
|
|
178
|
|
|
|
269
|
|
|
|
39
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CHINAEDU
CORPORATION
CONSOLIDATED
STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In
thousands, except share-related data)
|
|
ChinaEdu Corporation Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A convertible
|
|
|
Series B convertible
|
|
|
Series C convertible
|
|
|
Series D convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
ChinaEdu
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred shares
|
|
|
preferred shares
|
|
|
preferred shares
|
|
|
preferred shares
|
|
|
Ordinary shares
|
|
|
paid-in
|
|
|
Subscription
|
|
|
|
|
|
Statutory
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
Corporation
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
receivable
|
|
|
Warrants
|
|
|
reserve
|
|
|
deficits
|
|
|
income (loss)
|
|
|
shareholders'
equity
|
|
|
interests
|
|
|
equity
|
|
|
income (loss)
|
|
|
|
|
|
|
RMB
|
|
|
|
|
|
RMB
|
|
|
|
|
|
RMB
|
|
|
|
|
|
RMB
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Balance
at January 1, 2007 (As adjusted see note 26)
|
|
|
5,150,000
|
|
|
|
426
|
|
|
|
12,140,495
|
|
|
|
1,005
|
|
|
|
3,378,379
|
|
|
|
272
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,007,408
|
|
|
|
1,710
|
|
|
|
343,167
|
|
|
|
(1,117
|
)
|
|
|
8,076
|
|
|
|
4,621
|
|
|
|
(94,457
|
)
|
|
|
616
|
|
|
|
264,319
|
|
|
|
49,323
|
|
|
|
313,642
|
|
|
|
|
|
Issuance
of Series D convertible preferred shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,598,503
|
|
|
|
200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,322
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,522
|
|
|
|
-
|
|
|
|
74,522
|
|
|
|
|
|
Repurchase
of ordinary share as treasury stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,300,000
|
)
|
|
|
(178
|
)
|
|
|
(49,869
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,047
|
)
|
|
|
-
|
|
|
|
(50,047
|
)
|
|
|
|
|
Issuance
of treasury share to new shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,300,000
|
|
|
|
178
|
|
|
|
49,869
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,047
|
|
|
|
-
|
|
|
|
50,047
|
|
|
|
|
|
Collection
of subscription receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,117
|
|
|
|
-
|
|
|
|
1,117
|
|
|
|
|
|
Amortization
of share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,643
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,643
|
|
|
|
-
|
|
|
|
3,643
|
|
|
|
|
|
Accumulated
adjustment of unrecognized tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,744
|
)
|
|
|
-
|
|
|
|
(3,744
|
)
|
|
|
-
|
|
|
|
(3,744
|
)
|
|
|
|
|
Repurchase
and cancellation of ordinary share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(600,000
|
)
|
|
|
(46
|
)
|
|
|
(12,767
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,813
|
)
|
|
|
-
|
|
|
|
(12,813
|
)
|
|
|
|
|
Repurchase
and cancellation of Series B convertible preferred share
|
|
|
-
|
|
|
|
-
|
|
|
|
(30,000
|
)
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(638
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(640
|
)
|
|
|
-
|
|
|
|
(640
|
)
|
|
|
|
|
Exercise
of warrants for Series A convertible preferred shares
|
|
|
300,000
|
|
|
|
23
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,386
|
|
|
|
-
|
|
|
|
(1,235
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,174
|
|
|
|
-
|
|
|
|
2,174
|
|
|
|
|
|
Exercise
warrants for ordinary shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
121,622
|
|
|
|
9
|
|
|
|
2,126
|
|
|
|
-
|
|
|
|
(471
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,664
|
|
|
|
-
|
|
|
|
1,664
|
|
|
|
|
|
Conversion
of series A, B, C, D preferred shares
|
|
|
(5,450,000
|
)
|
|
|
(449
|
)
|
|
|
(12,110,495
|
)
|
|
|
(1,003
|
)
|
|
|
(3,378,379
|
)
|
|
|
(272
|
)
|
|
|
(2,598,503
|
)
|
|
|
(200
|
)
|
|
|
23,537,377
|
|
|
|
1,924
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Issuance
of ordinary shares on IPO (net of issuance cost of
RMB25,665)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,368,000
|
|
|
|
1,208
|
|
|
|
347,619
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
348,827
|
|
|
|
-
|
|
|
|
348,827
|
|
|
|
|
|
Provision
for statutory reserves
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,540
|
|
|
|
(7,540
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,822
|
)
|
|
|
(2,822
|
)
|
|
|
-
|
|
|
|
(2,822
|
)
|
|
|
(2,822
|
)
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,487
|
|
|
|
-
|
|
|
|
2,487
|
|
|
|
25,148
|
|
|
|
27,635
|
|
|
|
27,635
|
|
Capital
contribution by a noncontrolling shareholder
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,430
|
|
|
|
3,430
|
|
|
|
|
|
Dividend
distributed to noncontrolling shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,178
|
)
|
|
|
(15,178
|
)
|
|
|
|
|
Acquisition
of equity interests from noncontrolling shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,327
|
)
|
|
|
(3,327
|
)
|
|
|
|
|
Withdraw
of capital by a noncontrolling shareholder
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,400
|
)
|
|
|
(1,400
|
)
|
|
|
|
|
Balance
at December 31, 2007 (As adjusted see note 26)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58,434,407
|
|
|
|
4,805
|
|
|
|
760,858
|
|
|
|
-
|
|
|
|
6,370
|
|
|
|
12,161
|
|
|
|
(103,254
|
)
|
|
|
(2,206
|
)
|
|
|
678,734
|
|
|
|
57,996
|
|
|
|
736,730
|
|
|
|
24,813
|
|
Ordinary
shares converted to ADS shares for future exercise of share options (note
14)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,344,305
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Repurchase
of ordinary shares (note 18)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,702,583
|
)
|
|
|
(253
|
)
|
|
|
(33,937
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(34,190
|
)
|
|
|
-
|
|
|
|
(34,190
|
)
|
|
|
|
|
Forfeiture
of warrants (note 18)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
815
|
|
|
|
-
|
|
|
|
(815
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercise
of share options (note 14)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
1,766
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,787
|
|
|
|
-
|
|
|
|
1,787
|
|
|
|
|
|
Amortization
of share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,231
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,231
|
|
|
|
-
|
|
|
|
5,231
|
|
|
|
|
|
Transfer
statutory reserve
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,264
|
)
|
|
|
5,264
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Provision
for statutory reserves
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,700
|
|
|
|
(2,700
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,714
|
)
|
|
|
(18,714
|
)
|
|
|
-
|
|
|
|
(18,714
|
)
|
|
|
(18,714
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(43,019
|
)
|
|
|
-
|
|
|
|
(43,019
|
)
|
|
|
36,412
|
|
|
|
(6,607
|
)
|
|
|
(6,607
|
)
|
Capital
contribution by a noncontrolling shareholder
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,225
|
|
|
|
1,225
|
|
|
|
|
|
Dividend
distributed to noncontrolling shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,318
|
)
|
|
|
(11,318
|
)
|
|
|
|
|
Balance
at December 31, 2008 (As adjusted see note 26)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63,076,129
|
|
|
|
4,573
|
|
|
|
734,733
|
|
|
|
-
|
|
|
|
5,555
|
|
|
|
9,597
|
|
|
|
(143,709
|
)
|
|
|
(20,920
|
)
|
|
|
589,829
|
|
|
|
84,315
|
|
|
|
674,144
|
|
|
|
(25,321
|
)
|
Repurchase
of ordinary shares (note 18)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,828,800
|
)
|
|
|
(536
|
)
|
|
|
(76,098
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(76,634
|
)
|
|
|
-
|
|
|
|
(76,634
|
)
|
|
|
|
|
Forfeiture
of warrants (note 18)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,672
|
|
|
|
-
|
|
|
|
(3,672
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercise
of share options (note 14)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39
|
|
|
|
4,124
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,163
|
|
|
|
-
|
|
|
|
4,163
|
|
|
|
|
|
Amortization
of share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,416
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,416
|
|
|
|
-
|
|
|
|
7,416
|
|
|
|
|
|
Provision
for statutory reserve
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,064
|
|
|
|
(4,064
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
276
|
|
|
|
276
|
|
|
|
-
|
|
|
|
276
|
|
|
|
276
|
|
Unrealized
gains (note 6)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
144
|
|
|
|
144
|
|
|
|
-
|
|
|
|
144
|
|
|
|
144
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,779
|
|
|
|
-
|
|
|
|
34,779
|
|
|
|
32,073
|
|
|
|
66,852
|
|
|
|
66,852
|
|
Capital
contribution by a noncontrolling shareholder
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,960
|
|
|
|
1,960
|
|
|
|
|
|
Dividend
distributed to noncontrolling shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,168
|
)
|
|
|
(16,168
|
)
|
|
|
|
|
Balance
at December 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,247,329
|
|
|
|
4,076
|
|
|
|
673,847
|
|
|
|
-
|
|
|
|
1,883
|
|
|
|
13,661
|
|
|
|
(112,994
|
)
|
|
|
(20,500
|
)
|
|
|
559,973
|
|
|
|
102,180
|
|
|
|
662,153
|
|
|
|
67,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
597
|
|
|
US$
|
98,719
|
|
|
|
|
|
|
US$
|
276
|
|
|
US$
|
2,001
|
|
|
US$
|
(16,551
|
)
|
|
US$
|
(3,003
|
)
|
|
US$
|
82,039
|
|
|
US$
|
14,969
|
|
|
US$
|
97,008
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CHINAEDU
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands, except share-related data)
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(As adjusted
|
|
|
(As adjusted
|
|
|
|
|
|
|
|
|
|
see Note 26)
|
|
|
see Note 26)
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
27,635
|
|
|
|
(6,607
|
)
|
|
|
66,852
|
|
|
|
9,795
|
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
3,643
|
|
|
|
5,231
|
|
|
|
7,416
|
|
|
|
1,086
|
|
Depreciation
and amortization of property and equipment
|
|
|
8,206
|
|
|
|
12,212
|
|
|
|
16,603
|
|
|
|
2,432
|
|
Amortization
of land use rights
|
|
|
533
|
|
|
|
606
|
|
|
|
619
|
|
|
|
91
|
|
Amortization
of acquired intangible assets
|
|
|
8,548
|
|
|
|
8,746
|
|
|
|
5,237
|
|
|
|
767
|
|
Goodwill
and acquired intangible assets impairment
|
|
|
16,192
|
|
|
|
70,093
|
|
|
|
-
|
|
|
|
-
|
|
Provision
for amounts due from related parties and account
receivables
|
|
|
7,049
|
|
|
|
1,215
|
|
|
|
364
|
|
|
|
53
|
|
Property
and equipment write down
|
|
|
688
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gain
on conversion of warrants of series D convertible preferred
shares
|
|
|
(394
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest
expenses
|
|
|
2,130
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss
from disposal of property and equipment
|
|
|
89
|
|
|
|
1,663
|
|
|
|
513
|
|
|
|
75
|
|
Deferred
income taxes
|
|
|
(1,283
|
)
|
|
|
(8,387
|
)
|
|
|
306
|
|
|
|
45
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
-
|
|
|
|
-
|
|
|
|
(365
|
)
|
|
|
(53
|
)
|
Accounts
receivable
|
|
|
11,340
|
|
|
|
(14,658
|
)
|
|
|
(13,844
|
)
|
|
|
(2,028
|
)
|
Inventory
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,852
|
)
|
|
|
(271
|
)
|
Prepaid
expenses and other current assets
|
|
|
(8,737
|
)
|
|
|
(2,970
|
)
|
|
|
(5,075
|
)
|
|
|
(743
|
)
|
Amounts
due from related parties
|
|
|
(52,492
|
)
|
|
|
(44,950
|
)
|
|
|
(26,330
|
)
|
|
|
(3,857
|
)
|
Rental
deposits
|
|
|
(1,187
|
)
|
|
|
665
|
|
|
|
90
|
|
|
|
13
|
|
Land
use rights
|
|
|
(2,195
|
)
|
|
|
(160
|
)
|
|
|
(1,989
|
)
|
|
|
(291
|
)
|
Accounts
payable
|
|
|
(5,640
|
)
|
|
|
(950
|
)
|
|
|
115
|
|
|
|
17
|
|
Deferred
revenues
|
|
|
7,905
|
|
|
|
15,210
|
|
|
|
3,792
|
|
|
|
556
|
|
Accrued
expenses and other current liabilities
|
|
|
20,860
|
|
|
|
10,011
|
|
|
|
19,082
|
|
|
|
2,796
|
|
Amounts
due to related parties
|
|
|
25,045
|
|
|
|
(4,368
|
)
|
|
|
268
|
|
|
|
39
|
|
Income
taxes payable
|
|
|
9,495
|
|
|
|
5,462
|
|
|
|
5,472
|
|
|
|
802
|
|
Other
taxes payable
|
|
|
2,914
|
|
|
|
5,342
|
|
|
|
3,892
|
|
|
|
570
|
|
Unrecognized
tax benefit
|
|
|
588
|
|
|
|
1,141
|
|
|
|
2,254
|
|
|
|
330
|
|
Net
cash provided by operating activities
|
|
|
80,932
|
|
|
|
54,547
|
|
|
|
83,420
|
|
|
|
12,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of businesses, net of cash acquired of RMB625, RMB nil and RMB nil in
2007, 2008 and 2009, respectively
|
|
|
(16,520
|
)
|
|
|
(6,700
|
)
|
|
|
-
|
|
|
|
-
|
|
Payment
of contingent consideration
|
|
|
(6,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(69,687
|
)
|
|
|
(36,323
|
)
|
|
|
(57,071
|
)
|
|
|
(8,361
|
)
|
Deposits
paid for acquisition of property and equipment
|
|
|
(2,025
|
)
|
|
|
(8,650
|
)
|
|
|
(11,371
|
)
|
|
|
(1,666
|
)
|
Purchase
of term deposits
|
|
|
3,958
|
|
|
|
(57,458
|
)
|
|
|
(58,813
|
)
|
|
|
(8,616
|
)
|
Purchase
of contractual rights
|
|
|
(3,430
|
)
|
|
|
(1,225
|
)
|
|
|
(1,235
|
)
|
|
|
(181
|
)
|
Purchase
of investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,578
|
)
|
|
|
(3,015
|
)
|
Proceeds
from disposal of property and equipment
|
|
|
-
|
|
|
|
31
|
|
|
|
-
|
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(93,704
|
)
|
|
|
(110,325
|
)
|
|
|
(149,068
|
)
|
|
|
(21,839
|
)
|
CHINAEDU
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS - continued
(In
thousands, except share-related data)
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(As adjusted
|
|
|
(As adjusted
|
|
|
|
|
|
|
|
|
|
see Note 26)
|
|
|
see Note 26)
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Initial Public Offering ("IPO") (net of issuance cost of
RMB25,665)
|
|
|
348,827
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cash
dividends paid to noncontrolling shareholders
|
|
|
(19,028
|
)
|
|
|
(11,319
|
)
|
|
|
(14,698
|
)
|
|
|
(2,153
|
)
|
Capital
contribution by noncontrolling shareholders
|
|
|
2,030
|
|
|
|
1,225
|
|
|
|
1,715
|
|
|
|
251
|
|
Proceeds
from issuance of Series D convertible preferred shares (net of issuance
costs of RMB2,598)
|
|
|
72,033
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from exercise of warrants
|
|
|
3,838
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Repurchase
and cancellation of Series B convertible preferred shares
|
|
|
(640
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Repurchase
and cancellation of ordinary shares
|
|
|
(12,813
|
)
|
|
|
(34,190
|
)
|
|
|
(76,634
|
)
|
|
|
(11,226
|
)
|
Repayment
of convertible notes
|
|
|
(27,783
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Repayment
of long-term debts
|
|
|
(1,080
|
)
|
|
|
(25,724
|
)
|
|
|
-
|
|
|
|
-
|
|
Collection
of subscription receivable
|
|
|
1,117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from exercise of share options
|
|
|
-
|
|
|
|
1,787
|
|
|
|
4,163
|
|
|
|
610
|
|
Net
cash provided by (used in) financing activities
|
|
|
366,501
|
|
|
|
(68,221
|
)
|
|
|
(85,454
|
)
|
|
|
(12,518
|
)
|
Effect
of exchange rate changes
|
|
|
(4,930
|
)
|
|
|
(19,182
|
)
|
|
|
312
|
|
|
|
43
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
348,799
|
|
|
|
(143,181
|
)
|
|
|
(150,790
|
)
|
|
|
(22,090
|
)
|
Cash
and cash equivalents, beginning of year
|
|
|
148,315
|
|
|
|
497,114
|
|
|
|
353,933
|
|
|
|
51,851
|
|
Cash
and cash equivalents, end of year
|
|
|
497,114
|
|
|
|
353,933
|
|
|
|
203,143
|
|
|
|
29,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
|
6,791
|
|
|
|
4,987
|
|
|
|
11,255
|
|
|
|
1,649
|
|
Interest
paid
|
|
|
4,743
|
|
|
|
1,294
|
|
|
|
2
|
|
|
|
-
|
|
Supplemental
disclosure of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible note into Series D preferred shares
|
|
|
2,489
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchase
of building financed by mortgage loan
|
|
|
26,430
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Conversion
of Series A, B, C, D preferred shares into ordinary shares
|
|
|
1,924
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES
|
ChinaEdu
Corporation (the "Company") was incorporated in the Cayman Islands on September
6, 1999. The Company, its subsidiaries, and its variable interest
entities are collectively referred to hereinafter as the "Group". The
Group principally provides online educational technical and consulting services
and recruiting services to universities that provide online education services.
The Group also provides online tutoring services and educational services,
English language learning service and international polytechnic curriculum
through traditional classroom in the People's Republic of China (the
"PRC").
A summary
of the Company's subsidiaries and variable interest entity and its subsidiaries
as of December 31, 2009 was as follows:
|
|
Date of incorporation
|
|
Percentage of
|
|
|
Name
|
|
or acquisition
|
|
legal ownership
|
|
Place of incorporation
|
|
|
|
|
|
|
|
Subsidiaries
of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMR
Web-learning Co., Ltd. ("CMR Web")
|
|
July 29, 1999
|
|
70%
|
|
PRC
|
|
|
|
|
|
|
|
Hongcheng
Technology Development Co., Ltd. ("Hongcheng Technology")
|
|
July 31, 2000
|
|
100%
|
|
PRC
|
|
|
|
|
|
|
|
Beijing
Xuezhi Times Education Science Co., Ltd. ("Beijing
Xuezhi")
|
|
October 18, 2001
|
|
100%
|
|
PRC
|
|
|
|
|
|
|
|
Zhong
Nongda Networks Development Co., Ltd. ("Zhongnongda
Networks")
|
|
October 30, 2001
|
|
55%
|
|
PRC
|
|
|
|
|
|
|
|
Beijing
Hongcheng Liye Technology Co., Ltd. ("Hongcheng Liye")
|
|
April 15, 2003
|
|
100%
|
|
PRC
|
|
|
|
|
|
|
|
Dalian
Dongcai Technology Co., Ltd. ("Dongcai")
|
|
June 4, 2003
|
|
70%
|
|
PRC
|
|
|
|
|
|
|
|
Beijing
WITT Education Consultant Management Co., Ltd. ("WITT
Education")
|
|
July 4, 2003
|
|
100%
|
|
PRC
|
|
|
|
|
|
|
|
BJ-WITT
EDU MAN. LTD. ("BJ-WITT")
|
|
July 4, 2003
|
|
100%
|
|
BVI
|
|
|
|
|
|
|
|
Chongqing
Chongda Yuanxing Co., Ltd. ("Chongda")
|
|
December 24, 2003
|
|
51%
|
|
PRC
|
|
|
|
|
|
|
|
Beijing
BCIT Science and Education Management Consulting Limited ("Beijing
BCIT")
|
|
January 13, 2005
|
|
100%
|
|
PRC
|
|
|
|
|
|
|
|
Beijing
WITT Science Co., Ltd. ("WITT Science")
|
|
December 26, 2005
|
|
100%
|
|
PRC
|
|
|
|
|
|
|
|
Beijing
Gotop Education Co., Ltd. ("Gotop Hongcheng")
|
|
December 26, 2005
|
|
100%
|
|
PRC
|
|
|
|
|
|
|
|
Beijing
BCIT Science and Education Management Consulting Limited
("BJ-BCIT")
|
|
February 10, 2006
|
|
100%
|
|
BVI
|
|
|
|
|
|
|
|
Beijing
Distance Education Technology Co., Ltd. ("Yuancheng
Education")
|
|
March 31, 2006
|
|
65%
|
|
PRC
|
|
|
|
|
|
|
|
Tianjin
Gaotuo Hongcheng Education Technology Co., Ltd. ("Tianjin Gaotuo
Hongcheng")
|
|
June 26, 2006
|
|
100%
|
|
PRC
|
|
|
|
|
|
|
|
Beijing
Beiyuda Education Technology Co., Ltd. ("Beiyuda")
|
|
September 26, 2006
|
|
51%
|
|
PRC
|
|
|
|
|
|
|
|
Beijing
Mingdaoyuan Technology Co., Ltd. ("Beijing Mingdao")
|
|
March 27, 2007
|
|
51%
|
|
PRC
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES -
continued
|
|
Date of incorporation
|
|
Percentage of
|
|
|
Name
|
or acquisition
|
|
legal ownership
|
|
Place of incorporation
|
|
|
|
|
|
|
Shanghai
Shangcai Education Technology Co., Ltd. ("Shanghai
Shangcai")
|
April 18, 2008
|
|
|
51%
|
|
PRC
|
|
|
|
|
|
|
|
Dongcai
Online Training Center ("Dongcai Online")
|
July 10, 2008
|
|
|
70%
|
|
PRC
|
|
|
|
|
|
|
|
Beijing
Zhonglin Technology Co., Ltd. ("Zhonglin")
|
November 3, 2008
|
|
|
51%
|
|
PRC
|
|
|
|
|
|
|
|
Guangxi
Hongcheng Times Technology Development Co.,Ltd. ("Guangxi
Hongcheng")
|
February 10, 2009
|
|
|
51%
|
|
PRC
|
|
|
|
|
|
|
|
Fuzhou
Haojiaoshi Distance Education Service Co., Ltd. ("Fuzhou Good
Teacher")
|
December 7, 2009
|
|
|
51%
|
|
PRC
|
|
|
|
|
|
|
|
Variable
interest entity of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing
Hongcheng Education Technology Co., Ltd. ("Hongcheng
Education")
|
March 7, 2005
|
|
|
N/A
|
|
PRC
|
|
|
|
|
|
|
|
Subsidiaries
of variable interest entity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing
Gotop Electronic Science Co., Ltd. ("Gotop Electronic")
(1)
|
November 29, 1995
|
|
|
N/A
|
|
PRC
|
|
|
|
|
|
|
|
Xiandai
Xingye Network Technology Co., Ltd. ("Xiandai Technology")
(1)
|
November 7, 2000
|
|
|
N/A
|
|
PRC
|
|
|
|
|
|
|
|
Pingdingshan
Wellent Bilingual School ("Pingdingshan")
(1)
|
September 3, 2002
|
|
|
N/A
|
|
PRC
|
|
|
|
|
|
|
|
Anqing
Foreign Language Middle School ("Anqing Foreign Language")
(1)
|
August 2, 2004
|
|
|
N/A
|
|
PRC
|
|
|
|
|
|
|
|
Jingzhou
Tianchang Investment Co., Ltd. ("Tianchang")
(2)
|
September 6, 2005
|
|
|
N/A
|
|
PRC
|
|
|
|
|
|
|
|
Jingzhou
Middle School South Campus ("South Campus")
(3)
|
December 28, 2005
|
|
|
N/A
|
|
PRC
|
|
|
|
|
|
|
|
Beijing
Hongcheng YoYo Technology Co., Ltd. ("Hongcheng YoYo")
(1)
|
November 3, 2009
|
|
|
N/A
|
|
PRC
|
|
(1)
|
Wholly
owned subsidiary of Hongcheng Education (VIE of the
Company)
|
|
(2)
|
72.5%
of its equity is held by Hongcheng Education (VIE of the
Company)
|
|
(3)
|
54%
of its equity is held by Hongcheng Education (VIE of the
Company)
|
PRC
regulations currently limit foreign ownership of entities providing Internet
content and engaging in primary and junior high school education. To
comply with PRC laws and regulations, the Group provides such services in the
PRC through its variable interest entities, Xiandai Technology, and Hongcheng
Education, and their subsidiaries.
On
November 7, 2000, the Group established Xiandai Technology, a variable interest
entity ("VIE") through series of contractual arrangements with designated equity
owners who are PRC citizens and legally own the VIE. The Group extended
interest-free loans with total principal of RMB600 to the nominee shareholders
to finance their investments in Xiandai Technology.
On March
7, 2005, the Group established Hongcheng Education, a VIE, through series of
contractual arrangements with designated equity owners who are PRC citizens and
legally own the VIE. The Group extended interest-free loans with
total principal of RMB54,200 to the nominee shareholders to finance their
investments in Hongcheng Education.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES -
continued
|
A summary
of the key terms in the loan agreements and the related pledge agreements is as
follows:
|
(i)
|
Proceeds
from the loans are to be used solely for the investments in Xiandai
Technology and Hongcheng
Education;
|
|
(ii)
|
The
loans can only be repaid by a transfer of the equity ownership interest in
Xiandai Technology and Hongcheng Education to the
Group;
|
|
(iii)
|
Ownership
interests in Xiandai Technology and Hongcheng Education cannot be
transferred to other parties without the approval of the
Group;
|
|
(iv)
|
The
Group has the right to appoint all directors and senior management
personnel of Xiandai Technology and Hongcheng
Education;
|
|
(v)
|
All
ownership rights, including voting rights and rights to declare and rights
to pay dividends, are assigned to the Group for an indefinite term;
and
|
|
(vi)
|
The
Group has the right to acquire all of the ownership interests in Xiandai
Technology and Hongcheng Education at the lowest price permitted by the
PRC law at any time, when permitted by the PRC
law.
|
The Group
also entered into an exclusive technical consulting and services agreement with
Xiandai Technology and Hongcheng Education. As consideration for
these services, the Group charges Xiandai Technology and Hongcheng Education a
service fee, it represents substantially all of their net income.
As a
result of these contractual arrangements, the Group became the primary
beneficiary of Xiandai Technology and Hongcheng Education, and consolidated
Xiandai Technology and Hongcheng Education as of the date of the above
agreements.
In
September 2009, the nominee shareholders of Xiandai Technology transferred all
of their equity interests to Hongcheng Education. Xiandai Technology became a
wholly owned subsidiary of Hongcheng Education. The related contractual
arrangements with the Group were terminated as a result.
The
following total assets, total liabilities, net revenue and net income (loss) of
VIE and its subsidiaries were included in the accompanying consolidated
financial statements:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
191,898
|
|
|
|
236,218
|
|
Total
liabilities
|
|
|
140,652
|
|
|
|
186,959
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES -
continued
|
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
|
31,608
|
|
|
|
49,517
|
|
|
|
66,410
|
|
Net
income (loss)
|
|
|
3,592
|
|
|
|
(7,566
|
)
|
|
|
(1,125
|
)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of presentation
The
consolidated financial statements of the Group have been prepared in accordance
with accounting principles generally accepted in the United States of America
("US GAAP"). The accompanying consolidated financial statements of
the Group are stated in Renminbi ("RMB"). The presentation of the
amounts in United States dollar ("US$") is included solely for the convenience
of the reader and were converted at a rate of RMB6.8259 to US$1.00, the
approximate rate of exchange at December 31, 2009. Such translation
should not be construed to be the amounts that would have been reported under US
GAAP.
Basis
of consolidation
The
consolidated financial statements include the financial statements of the
Company, its subsidiaries, and its variable interest entities. All
inter-company transactions and balances have been eliminated upon
consolidation.
Noncontrolling
interests
Effective
January 1, 2009, the Group adopted an authoritative pronouncement issued by the
Financial Accounting Standards Board (the "FASB") regarding noncontrolling
interests in consolidated financial statements. The pronouncement requires
noncontrolling interests to be separately presented as a component of equity in
the consolidated financial statements. The presentation regarding noncontrolling
interest was retroactively applied for all the presented periods.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Use
of estimates
The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and revenue and expenses in the financial statements and
the accompanying notes. Significant accounting estimates reflected in
the Group's financial statements include the allowance of doubtful debts, the
useful lives and impairment of property and equipment, and intangible assets
with definite lives; valuation allowance for deferred tax assets; impairment of
goodwill and indefinite life intangible assets; impairment of investments;
purchase price allocation relating to the businesses acquired; and share-based
compensation expense. Actual results could differ from those
estimates.
Cash
and cash equivalents
Cash and
cash equivalents consist of cash on hand and demand deposits which are
unrestricted as to withdrawal or use, and have original maturities of three
months or less when purchased.
Restricted
cash
Restricted
cash represents cash that can not be withdrawn without the permission of third
parties. The Group's restricted cash is substantially cash balance of safety
deposit for business proposal.
Term
deposits
Term
deposits consist of deposits placed with financial institutions with original
maturity terms of greater than three months but less than one year.
Investments
The group
classifies its investment in debt and equity securities into one of three
categories and accounts for these as follows: (i) debt securities that the group
has the positive intent and the ability to held to maturity are classified as
"held to maturity" and reported as amortized cost; (ii) debt and equity
securities that are bought and held principally for the purpose of selling them
in the near term are classified as "trading securities" with unrealized holding
gains and losses included in earnings; (iii) debt and equity securities not
classified as held to maturity or as trading securities are classified
"available for sale" and reported at fair value. Unrealized gains and losses on
available for sale securities are excluded from earnings and reported as
accumulated other comprehensive income (loss), net of tax.
Investment
classified as "held to maturity" with remaining maturity terms of greater than
12 months are classified as non-current asset.
The group
monitors its investments for other than temporary impairment by considering
factors including, but not limited to, current economic and market conditions,
the operating performance of the companies including current earnings trends and
other company-specific information.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Cost
method investment
For
investment in an investee over which the Group does not have significant
influence, the Group carries the investment at cost and recognizes income as any
dividends received from the distribution of the investee's post acquisition
earnings. The Group reviews the cost method investment for impairment whenever
events or changes in circumstances indicate that the carrying value may no
longer be recoverable. An impairment loss is recognized in earnings
equal to the difference between the investment's cost and its fair value at the
balance sheet date of the reporting period for which the assessment is
made. The fair value of the investment would then become the new cost
basis of the investment.
Fair
value
Fair
value is the price that would be received from selling an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. When determining the fair value measurements for assets
and liabilities required or permitted to be recorded at fair value, the Group
considers the principal or most advantageous market in which it would transact
and it considers assumptions that market participants would use when pricing the
asset or liability.
Authoritative
literature provides a fair value hierarchy, which prioritizes the inputs to
valuation techniques used to measure fair value into three broad
levels. The level in the hierarchy within which the fair value
measurement in its entirety falls is based upon the lowest level of input that
is significant to the fair value measurement as follows:
|
·
|
Level
1 - inputs are based upon unadjusted quoted prices for identical
instruments traded in active
markets.
|
|
·
|
Level
2 - inputs are based upon quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques for which all
significant assumptions are observable in the market or can be
corroborated by observable market data for substantially the full term of
the assets or liabilities.
|
|
·
|
Level
3 - inputs are generally unobservable and typically reflect management's
estimates of assumptions that market participants would use in pricing the
asset or liability. The fair values are therefore determined
using model-based techniques that include option pricing models,
discounted cash flow models, and similar
techniques.
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Land
use rights, net
Land use
rights are recorded at cost less accumulated
amortization. Amortization is provided on a straight-line basis over
the estimated useful lives, which is generally 50 years and represents the
shorter of the estimated usage periods or the terms of the
agreements.
Property
and equipment, net
Property
and equipment are carried at cost less accumulated depreciation and
amortization. Assets under construction are not depreciated until
they are ready for their intended use. Depreciation and amortization
is calculated on a straight-line basis over the following estimated useful
lives:
Buildings
|
20
years
|
Furniture,
fixtures and equipment
|
3-5
years
|
Motor
vehicles
|
5
years
|
Leasehold
improvements
|
Shorter
of the lease term or the
|
|
estimated
useful lives
|
Acquired
intangible assets, net
Acquired
intangible assets other than goodwill consist of trade names, service agreements
with universities and high schools, operating platforms, customer base, online
coursewares, agency agreements, contractual rights and prepaid operating
contracts, and are carried at cost, less accumulated amortization and
impairment. Amortization of acquired intangible assets (other than
trade names, which are discussed below) is calculated on a straight-line basis
over the shorter of the contractual terms or the expected useful lives of the
acquired assets. The weighted average amortization periods by major
intangible assets class are as follows:
Service
agreements with universities and high schools
|
26
years
|
Operating
platforms
|
6
years
|
Customer
base
|
4
years
|
Online
coursewares
|
3
years
|
Agency
agreements
|
5
years
|
Contractual
rights
|
16
years
|
Prepaid
operating contracts
|
22
years
|
The
Group's trade names do not have determinable useful
lives. Consequently, the carrying amounts of trade names are not
amortized but are tested for impairment annually or more frequently if events or
circumstances indicate that the asset may be impaired. Such
impairment test consists of a comparison of the fair values of the trade names
with their carrying amounts and an impairment loss is recognized if and when the
carrying amounts of the trade names exceed their fair values.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Acquired intangible assets,
net
- continued
The
estimates of fair values of intangible assets not subject to amortization are
determined using various discounted cash flow valuation
methodologies. Significant assumptions are inherent in this process,
including estimates of discount rate. Discount rate assumptions are
based on an assessment of the risk inherent in the respective intangible
assets.
Impairment
of long-lived assets
The Group
reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may no longer be
recoverable. When these events occur, the Group measures impairment
by comparing the carrying value of the long-lived assets to the estimated
undiscounted future cash flows expected to result from the use of the assets and
their eventual disposition. If the sum of the expected undiscounted
cash flow is less than the carrying amount of the assets, the Group would
recognize an impairment loss based on the fair value of the assets.
Goodwill
The
excess of the purchase price over the fair value of net assets acquired is
recorded on the consolidated balance sheet as goodwill.
Goodwill
is not amortized but is evaluated at least annually for impairment following a
two-step process. The first step compares the fair values of each
reporting unit to its carrying amount, including goodwill. If the
fair value of each reporting unit exceeds its carrying amount, goodwill is not
considered to be impaired and the second step will not be
required. If the carrying amount of a reporting unit exceeds its fair
value, the second step compares the implied fair value of goodwill to the
carrying value of a reporting unit's goodwill. The implied fair value
of goodwill is determined in a manner similar to accounting for a business
combination with the allocation of the assessed fair value determined in the
first step to the assets and liabilities of the reporting unit. The
excess of the fair value of the reporting unit over the amounts assigned to the
assets and liabilities is the implied fair value of goodwill. An
impairment loss is recognized for any excess in the carrying value of goodwill
over the implied fair value of goodwill.
Revenue
recognition
The
Group's revenue is principally derived from three primary sources: (i) the
provision of bundled online education technical, consulting and recruiting
services; (ii) the provision of online tutoring services; and (iii) the
provision of traditional classroom education services. Revenue is recognized
when earned and is reported net of business tax and surcharges, which totaled
RMB7,354, RMB10,974 and RMB13,741 for the years ended December 31, 2007, 2008
and 2009, respectively.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Revenue recognition
-
continued
|
(i)
|
Online
education technical, consulting and recruiting
services
|
The
Group's primary business is to provide online education technical and consulting
services to the online degree programs of leading Chinese
universities. These services include academic program development,
technology services, enrollment marketing, student support services, and finance
operations. Since each of the services does not have a stand-alone
value to the universities, these services are accounted for as one unit of
accounting and the related revenue is recognized ratably over the service
period. The Group primarily hosts the online education technology on
its system and provides access to the universities to whom the Group provides
services and their students. Any universities that prefer hosting the
online education platform or courseware on their own systems must enter into
separate arrangements with the Group.
The Group
receives service fees from the universities each semester covering services to
be provided to the universities during that semester. The amount of
service fees to be received by the Group is derived from tuition fees collected
by the universities from their students at the beginning of each semester, as
adjusted for the universities' costs and expenses, such as refunds to students,
fees to other service providers, and other operating costs and
expenses.
The Group
also provides recruiting, enrollment marketing and other student services
through its learning centers network to the online degree programs of leading
Chinese universities. The amount of service fees received is based on
the agreements entered into with the universities, and derived from tuition fees
that the Group collects from students on behalf of the
universities.
Service
fees received are initially recorded as deferred revenue and are recognized as
revenue ratably over the six-month school semester during which the Group
provides the services. The semesters generally begin in April and
October of each calendar year.
|
(ii)
|
Online
tutoring services
|
The Group
offers online interactive tutoring services to primary and secondary
students. These services allow the customers access to the online
education services over a fixed period of time, generally ranging from one month
to three years, through the use of prepaid cards. The prepaid cards
are sold to distributors, from whom the Group collects payments when the prepaid
cards are delivered to the distributors. The distributors then resell
the cards to end users. All prepaid fees received from distributors
are initially recognized as deferred revenue and revenue is recognized ratably
over the applicable period that the Group provides services to the end
users.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Revenue recognition
-
continued
|
(iii)
|
Traditional
classroom education services
|
The Group
operates a number of private primary and secondary schools, and markets and
supports international post-secondary and English language curriculum programs
to established learning institutions. Students must register and pay
for their classes at the beginning of each semester. Fees collected
from private primary and secondary schools operations upfront are initially
recorded as deferred revenue at the time the students register for their classes
and the Group receives payments. Revenue is recognized ratably over
the service period, which is six months for each school semester, as the
education services are delivered. If a student withdraws from a
class, any collected but unearned portion of the fee is recognized at that time
unless the student is entitled to a refund under limited
circumstances.
For the
international post-secondary and English language curriculum programs, students
must register and pay for their classes at the beginning of each
semester. Fees collected from the provision of teaching and other
support services to the learning institutions are recognized either when such
services are provided, or on a straight-line basis over the service period,
which is typically the six-month school semester.
Revenue
from the online education technical and consulting services and online tutoring
services also includes the rebate of value-added tax. Such
value-added tax rebates are granted to the Group as part of the PRC government's
strategy to encourage high technology development in the PRC, and are recorded
as a component of revenue when the relevant compliance requirements are met and
that, there are no further obligations, nor subject to future refunds or
reimbursements. Rebates granted to the Group during the years ended December 31,
2007, 2008 and 2009 were RMB2,405, RMB9,870 and RMB6,634,
respectively.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Accounts
receivable
Accounts
receivable relate to the online education technical, consulting and recruiting
services provided to certain university customers. Accounts
receivable are recorded at amounts that are presently due based on the service
agreement, which are net of allowance for doubtful accounts.
The Group
writes off accounts receivable when it becomes apparent based upon age or
customer circumstances that such amounts will not be collected.
Concentration
of credit risk
Financial
instruments that potentially expose the Group to concentrations of credit risk
consist primarily of cash and cash equivalents, term deposits, restricted cash,
investments, accounts receivable and amount due from related
parties. The Group places its cash and cash equivalents and term
deposits with financial institutions with high-credit ratings and
quality.
The Group
conducts credit evaluations of its customers and generally does not require
collateral or other security from them. To date, the Group has not
experienced significant losses from uncollectible accounts. An
allowance for doubtful accounts amounting to RMB1,215 and RMB364 was recorded in
2008 and 2009, respectively, these amounts were written-off in the same year.
Management will continue to evaluate the Group's collection experience and will
provide for an allowance for doubtful accounts as appropriate.
A summary
of the customers who accounted for 10% or more of the Group's consolidated net
revenues was as follows:
|
|
Years ended December 31,
|
|
Customers
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
55,965
|
|
|
|
70,197
|
|
|
|
71,722
|
|
B
|
|
|
37,075
|
|
|
|
42,377
|
|
|
|
42,701
|
|
C
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
D
|
|
|
45,926
|
|
|
|
48,178
|
|
|
|
47,355
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Concentration of credit risk
-
continued
A summary
of the customers who accounted for 10% or more of the Group's consolidated
accounts receivable and amounts due from related parties was as
follows:
|
|
December 31,
|
|
Customers
|
|
2008
|
|
|
2009
|
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
A
|
|
|
40
|
|
|
|
44
|
|
B
|
|
|
17
|
|
|
|
11
|
|
C
|
|
|
18
|
|
|
|
23
|
|
D
|
|
|
*
|
|
|
|
*
|
|
E
|
|
|
13
|
|
|
|
*
|
|
|
*
|
Represented
less than 10% of consolidated net revenue or accounts receivable and
amounts due from related parties'
balances.
|
Research
and development
Research
and development expenses mainly include depreciation, payroll, employee
benefits, and other headcount-related costs associated with the development of
online education technology platform and courseware. The Group
expenses all research and development costs when incurred.
Advertising
costs
Advertising
costs are expensed as incurred. The Group incurred advertising costs
totaling RMB5,575, RMB8,216 and RMB7,822 for the years ended December 31, 2007,
2008 and 2009, respectively, which were recorded as a component of selling and
marketing expenses in the accompanying consolidated statements of
operations.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Royalty
fees
Royalty
fees payable to a middle school increase each year from the 2005 calendar year
to the 2024 calendar year. Royalty fees during this period were
aggregated and recognized as royalty expense on a straight-line
basis. The difference between royalty fees paid and the amount
reported as expenses was included as a component of accrued expenses and other
current liabilities in the accompanying consolidated balance
sheets.
Foreign
currency translation
The
functional currency of the Company, BJ-BCIT and BJ-WITT is the
US$. The functional currency of all entities within the Group,
excluding the Company, BJ-BCIT and BJ-WITT, is the RMB. Transactions
in other currencies are recorded in each relevant entity's functional currency
at the rates of exchange prevailing when the transactions
occur. Monetary assets and liabilities denominated in other
currencies are translated into the applicable functional currencies at rates of
exchange in effect at the balance sheet dates. Nonmonetary assets and
liabilities are remeasured into the applicable functional currencies at
historical exchange rates and transactions denominated in other currencies are
converted at the applicable rates of exchange prevailing when the transactions
occur. Exchange gains and losses are recorded in the consolidated
statements of operations.
The
Group's reporting currency is the RMB. The group’s entities with
functional currency of US$ translate their operating results and financial
position into the RMB, the group’s reporting currency. Assets and liabilities
are translated at the exchange rates at the balance sheet date, equity amounts
are translated at historical exchange rates and revenues, expenses, gains, and
losses are translated using the average rate for the
year. Translation adjustments are reported as cumulative translation
adjustments and are shown as a separate component of other comprehensive loss in
the consolidated statements of shareholders' equity.
Foreign
currency risk
The RMB
is not a freely convertible currency. The State Administration for
Foreign Exchange, under the authority of the People's Bank of China, controls
the conversion of RMB into foreign currencies. The value of the RMB
is subject to changes in central government policies and to international
economic and political developments affecting supply and demand in the China
Foreign Exchange Trading System market. Cash and cash equivalents and
term deposits of the Group included aggregate amounts of RMB266,760 and
RMB285,514 at December 31, 2008 and 2009, respectively, which were denominated
in RMB.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Income
taxes
Current
income taxes are provided for in accordance with the laws of the relevant tax
authorities. Deferred income taxes are recognized when temporary
differences exist between the tax bases of assets and liabilities and their
reported amounts in the financial statements. Net operating loss
carry forwards and credits are applied using enacted statutory tax rates
applicable to future years. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is
more-likely-than-not that a portion of or all of the deferred tax assets will
not be realized. The components of the deferred tax assets and
liabilities are individually classified as current and non-current based on
their characteristics. The impact of an uncertain income tax position
on the income tax return is recognized at the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant tax
authority. An uncertain income tax position will not be recognized if
it has less than a 50% likelihood of being sustained. Interest and
penalties on income taxes will be classified as a component of the provisions
for income taxes.
Comprehensive
income (loss)
Comprehensive
income (loss) includes net income (loss), foreign currency translation
adjustments and unrealized gain (loss) on available-for-sale securities.
Comprehensive income (loss) is reported as a component of the consolidated
statements of equity and comprehensive income (loss).
Financial
instruments
Financial
instruments include cash and cash equivalents, term deposits, restricted cash,
short-term investments, accounts receivable, accounts payable, long-term debt,
long-term investments, and amounts due from and due to related
parties. The carrying values of cash and cash equivalents, term
deposits, restricted cash, accounts receivable, accounts payable and amounts due
from and to related parties approximate their fair values due to their
short-term maturities. The fair value of the short-term investments and
long-term investments measured at cost are not disclosed because they are not
readily determinable. Available-for-sale investments are carried at fair
value.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Net
income (loss) per share
The Group
had determined that its convertible preferred shares were participating
securities as the preferred shares participate in undistributed earnings on an
as-if-converted basis. The holders of the preferred shares were
entitled to receive dividends on a pro rata basis, as if their shares had been
converted into ordinary shares. Accordingly, the Group used the
two-class method of computing net income (loss) per share, for ordinary and
preferred shares according to participation rights in undistributed
earnings. Under this method, net income applicable to holders of
ordinary shares was allocated on a pro rata basis to the ordinary and preferred
shares to the extent that each class may share income for the period; whereas
undistributed net loss was allocated to ordinary shares because preferred shares
were not contractually obligated to share the loss.
To
calculate the number of shares for diluted net income (loss) per share,
convertible preferred shares were computed using the if-converted
method. The effect of the warrants and share options were computed
using the treasury stock method.
Share-based
compensation
The
Company estimates the fair value of share-based payment awards on the date of
grant using an option-pricing model. The value of the portion of the
award that is ultimately expected to vest is recognized as expense ratably over
the requisite service periods. The Company has estimated the fair
value of share options as of the date of grant or assumption using the
Black-Scholes option pricing model. The Black-Scholes model
considers, among other factors, the expected life of the award and the expected
volatility of stock price.
A change
in any of the terms or conditions of share options shall be accounted for as a
modification of the plan. Therefore, the Company calculates incremental
compensation cost of a modification as the excess of the fair value of the
modified option over the fair value of the original option immediately before
its terms are modified, measured based on the share price and other pertinent
factors at the modification date. For vested options, the Company would
recognize incremental compensation cost in the period of the modification
occurred and for unvested options, the Company would recognize, over the
remaining requisite service period, the sum of the incremental compensation cost
and the remaining unrecognized compensation cost for the original award on the
modification date.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Business
combinations
The Group
accounts for its business combinations using the purchase method of
accounting. Acquisition costs are allocated to the assets and
liabilities the Group acquired based on their fair values with goodwill being
the excess value over the net identifiable assets acquired. On January 1, 2009,
the Group adopted a new accounting pronouncement with prospective application
which made certain changes to the previous authoritative literature on business
combinations.
From
January 1, 2009, the assets acquired, the liabilities assumed, and any
noncontrolling interest of the acquiree at the acquisition date, if any, are
measured at their fair values as of that date. Goodwill is recognized and
measured as the excess of the total consideration transferred plus the fair
value of any noncontrolling interest of the acquiree, if any, at the acquisition
date over the fair values of the identifiable net assets acquired. Previously,
any non-controlling interest was reflected at historical cost.
Common
forms of the consideration made in acquisitions include cash and common equity
instruments. Consideration transferred in a business acquisition is measured at
the fair value as at the date of acquisition. For shares issued in a business
combination, the Company has estimated the fair value as of the date of
acquisition.
Where the
consideration in an acquisition includes contingent consideration the payment of
which depends on the achievement of certain specified conditions
post-acquisition, from January 1, 2009, the contingent consideration is
recognized and measured at its fair value at the acquisition date and if
recorded as a liability it is subsequently carried at fair value with changes in
fair value reflected in earnings. For periods prior to January 1, 2009,
contingent consideration was not recorded until the contingency was
resolved.
From
January 1, 2009, changes in the Group's ownership interest while the Group
retains its controlling financial interest in its subsidiary are accounted for
as equity transactions (investments by owners and distributions to owners acting
in their capacity as owners). Therefore, no gain or loss is
recognized in consolidated net income or comprehensive income. The
carrying amount of the noncontrolling interest is adjusted to reflect the change
in its ownership interest in the subsidiary. Any difference between
the fair value of the consideration received or paid and the amount by which the
noncontrolling interest is adjusted is recognized in equity attributable to the
parent. For periods prior to January 1, 2009, changes in the Group's
ownership interest while the Group retains its controlling financial interest in
its subsidiaries are accounted for using the purchase method of
accounting.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Recently
issued accounting standards
In June
2009, the FASB issued an authoritative pronouncement that changes how a company
determines whether an entity should be consolidated when such entity is
insufficiently capitalized or is not controlled by the company through voting
(or similar rights). The determination of whether a company is required to
consolidate an entity is based on, among other things, the entity's purpose and
design and the company's ability to direct the activities of the entity that
most significantly impact the entity's economic performance. The pronouncement
retains the scope of previously issued pronouncements but added entities
previously considered qualifying special purpose entities, since the concept of
these entities was eliminated by FASB. The pronouncement is effective as of the
beginning of an entity's first fiscal year that begins after November 15, 2009.
The adoption of this pronouncement will not have a significant impact on its
financial condition or results of operations.
In
October 2009, the FASB issued an authoritative pronouncement regarding the
revenue arrangements with multiple deliverables. This pronouncement was issued
in response to practice concerns related to the accounting for revenue
arrangements with multiple deliverables under existing pronouncement. Although
the new pronouncement retains the criteria from exiting pronouncement for when
delivered items in a multiple-deliverable arrangement should be considered
separate units of accounting, it removes the previous separation criterion under
existing pronouncement that objective and reliable evidence of the fair value of
any undelivered items must exist for the delivered items to be considered a
separate unit or separate units of accounting. The new pronouncement is
effective for fiscal years beginning on or after June 15, 2010. Entities can
elect to apply this pronouncement (1) prospectively to new or materially
modified arrangements after the pronouncement's effective date or (2)
retrospectively for all periods presented. Early application is permitted;
however, if the entity elects prospective application and early adopts this
pronouncement after its first interim reporting period, it must also do the
following in the period of adoption: (1) retrospectively apply this
pronouncement as of the beginning of that fiscal year and (2) disclose the
effect of the retrospective adjustments on the prior interim periods' revenue,
income before taxes, net income, and earnings per share. The Group is in the
process of evaluating the effect of adoption of this
pronouncement.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Recently issued accounting
standards
- continued
In
October 2009, the FASB issued an authoritative pronouncement regarding software
revenue recognition. This new pronouncement amends existing pronouncement to
exclude from their scope all tangible products containing both software and
non-software components that function together to deliver the product's
essential functionality. That is, the entire product (including the software
deliverables and non-software deliverables) would be outside the scope of
software revenue recognition and would be accounted for under other accounting
literature. The new pronouncement include factors that entities should consider
when determining whether the software and non-software components function
together to deliver the product's essential functionality and are thus outside
the revised scope of the authoritative literature that governs software revenue
recognition. The pronouncement is effective for fiscal years beginning on or
after June 15, 2010. Entities can elect to apply this pronouncement (1)
prospectively to new or materially modified arrangements after the
pronouncement's effective date or (2) retrospectively for all periods presented.
Early application is permitted; however, if the entity elects prospective
application and early adopts this pronouncement after its first interim
reporting period, it must also do the following in the period of adoption: (1)
retrospectively apply this pronouncement as of the beginning of that fiscal year
and (2) disclose the effect of the retrospective adjustments on the prior
interim periods' revenue, income before taxes, net income, and earnings per
share. The Group is in the process of evaluating the effect of adoption of this
pronouncement.
In
January 2010, the FASB issued authoritative guidance on accounting for
distributions to shareholders with components of stock and cash. The objective
of this new guidance is to clarify that the stock portion of a distribution to
shareholders that allows them to elect to receive cash or stock with a potential
limitation on the total amount of cash that all shareholders can elect to
receive in the aggregate is considered a share issuance that is reflected
prospectively in earnings per share and is not considered a stock dividend for
purposes of accounting treatment of equity and earnings per share. This new
guidance is effective for interim and annual periods ending on or after December
15, 2009, and should be applied on a retrospective basis. The adoption of this
guidance will not have a significant effect on its consolidated financial
position or results of operations.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
|
Recently issued accounting
standards
- continued
In
January 2010, the FASB issued authoritative guidance to clarify the scope of
accounting and reporting for decreases in ownership of a subsidiary. The
objective of this guidance is to address implementation issues related to
changes in ownership provisions. This guidance clarifies certain conditions,
which need to apply to this guidance, and it also expands disclosure
requirements for the deconsolidation of a subsidiary or derecognition of a group
of assets. This guidance is effective in the period in which an entity adopts
the authoritative guidance on noncontrolling interests in consolidated financial
statements. If an entity has previously adopted the guidance on noncontrolling
interests in consolidated financial statements, the amendments in this update
are effective beginning in the first interim or annual reporting period ending
on or after December 15, 2009. Retrospective application to the first period
that an entity adopted the guidance on noncontrolling interests in consolidated
financial statements is required. The adoption of this guidance will not have a
significant effect on its consolidated financial position or results of
operations.
In April
2010, the FASB issued an authoritative pronouncement on milestone method of
revenue recognition. The scope of this pronouncement is limited to arrangements
that include milestones relating to research or development deliverables. The
pronouncement specifies guidance that must be met for a vendor to recognize
consideration that is contingent upon achievement of a substantive milestone in
its entirety in the period in which the milestone is achieved. The guidance
applies to milestones in arrangements within the scope of this consensus
regardless of whether the arrangement is determined to have single or multiple
deliverables or units of accounting. The pronouncement will be effective for
fiscal years, and interim periods within those years, beginning on or after June
15, 2010. Early application is permitted. Companies can apply this guidance
prospectively to milestones achieved after adoption. However, retrospective
application to all prior periods is also permitted. The Group is in the process
of evaluating the effect of adoption of this pronouncement.
In April
2010, the FASB issued an authoritative pronouncement on effect of denominating
the exercise price of a share-based payment award in the currency of the market
in which the underlying equity securities trades and that currency is different
from (1) entity's functional currency, (2) functional currency of the foreign
operation for which the employee provides services, and (3) payroll currency of
the employee. The guidance clarifies that an employee share-based payment award
with an exercise price denominated in the currency of a market in which a
substantial portion of the entity's equity securities trades should be
considered an equity award assuming all other criteria for equity classification
are met. The pronouncement will be effective for interim and annual periods
beginning on or after December 15, 2010, and will be applied prospectively.
Affected entities will be required to record a cumulative catch-up adjustment
for all awards outstanding as of the beginning of the annual period in which the
guidance is adopted. The Group is in the process of evaluating the effect of
adoption of this pronouncement.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
In order
to diversify its service offerings under the private primary and secondary
schools, online tutoring programs and international curriculum programs, the
Group consummated the acquisitions set forth below. Because the
acquirees' business models are similar to that of the Group, the combination of
their operations with the Group is expected to strengthen the Group's position
in the respective service offerings. These transactions were recorded
using the purchase method of accounting, and accordingly, the acquired assets
and liabilities were recorded at their estimated fair values on the acquisition
date.
|
(a)
|
On
February 13, 2007, Hongcheng Education acquired an additional 10% equity
interest in Tianchang for cash consideration of RMB3,520. After
the acquisition, the equity interest in Tianchang increased to
72.5%.
|
The
purchase price for the extra 10% equity interest was allocated based on the fair
value of the acquired assets and liabilities on the date of the
acquisition.
|
|
RMB
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
625
|
|
Accounts
receivable
|
|
|
13
|
|
Amounts
due from related parties
|
|
|
75
|
|
Property
and equipment
|
|
|
355
|
|
Land
use right
|
|
|
1,852
|
|
Amounts
due to related parties
|
|
|
(74
|
)
|
Net
assets acquired
|
|
|
2,846
|
|
Goodwill
(allocated to private primary and secondary schools
segment)
|
|
|
674
|
|
Total
|
|
|
3,520
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
3.
|
ACQUISITIONS
- continued
|
|
(b)
|
In
May 2007, the Group acquired the remaining 20% equity interest in WITT
Education for cash consideration of RMB12,800 (US$1,654), and WITT
Education became a wholly-owned subsidiary of the Group. In
addition, the Group paid an additional RMB6,000 to the original
shareholder in 2007 since WITT Education met the operating performance
target set forth in the purchase agreement, consequently increasing the
goodwill by RMB6,000.
|
The
purchase price for this 20% equity interest was allocated based on the fair
value of the acquired assets and liabilities on the date of the
acquisition.
|
|
|
|
Weighted
|
|
|
|
|
|
average remaining
|
|
|
|
RMB
|
|
amortization period
|
|
Intangible
assets:
|
|
|
|
|
|
Service
agreement with a high school
|
|
|
3,154
|
|
18.7 years
|
|
Service
agreements with other high schools
|
|
|
4,980
|
|
13.7 years
|
|
Total
intangible assets
|
|
|
8,134
|
|
15.6 years
|
|
Deferred
tax liabilities relating to intangible assets acquired
|
|
|
(1,907
|
)
|
|
|
Goodwill
(allocated to the international curriculum programs
segment)
|
|
|
6,573
|
|
|
|
Total
|
|
|
12,800
|
|
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
3.
|
ACQUISITIONS
- continued
|
|
(c)
|
In
May 2008, the Group acquired the remaining 20% equity interest in Gotop
Electronic and Beijing Xuezhi from Tianjin Tianxingjian Co., Ltd.
("Tianxingjian"), which were engaged in providing online tutoring service,
for an aggregate purchase price a cash consideration of RMB6,700 (US$982)
and Gotop Electronic and Beijing Xuezhi became wholly owned by the
Group.
|
The
purchase price for this 20% equity interest was allocated based on the fair
value of the acquired assets and liabilities on the date of
acquisition.
|
|
|
|
Weighted
|
|
|
|
|
|
average remaining
|
|
|
|
RMB
|
|
amortization period
|
|
|
|
|
|
|
|
Intangible
assets:
|
|
|
|
|
|
Trade
name
|
|
|
854
|
|
indefinite life
|
|
Online
courseware
|
|
|
119
|
|
2 years
|
|
Agency
agreements
|
|
|
61
|
|
5 years
|
|
Operation
platform
|
|
|
69
|
|
5 years
|
|
Total
intangible assets
|
|
|
1,103
|
|
|
|
Deferred
tax liabilities relating to intangible assets acquired
|
|
|
(275
|
)
|
|
|
Goodwill
(allocated to the online tutoring programs segment)
|
|
|
5,872
|
|
|
|
Total
|
|
|
6,700
|
|
|
|
The
following unaudited pro forma information summarizes the results of operations
for the Group for the years ended December 31, 2007, 2008, and 2009 assuming
that all significant acquisitions during the year ended December 31, 2007
occurred as of January 1, 2007; assuming that the significant acquisitions
during the year ended December 31, 2008 occurred as of January 1, 2007 and 2008,
respectively. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations that would have resulted had the significant acquisitions occurred as
of the beginning of each year, nor are they indicative of future operating
results.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
3.
|
ACQUISITIONS
- continued
|
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net revenues
|
|
|
264,988
|
|
|
|
317,720
|
|
|
|
354,706
|
|
Pro
forma net income (loss) attributable to ChinaEdu Corporation
shareholders
|
|
|
2,000
|
|
|
|
(43,046
|
)
|
|
|
34,779
|
|
Pro
forma net income (loss) per shares attributable to ChinaEdu Corporation
shareholders-basic
|
|
|
0.05
|
|
|
|
(0.75
|
)
|
|
|
0.71
|
|
Pro
forma net income (loss) per preferred A share-basic
|
|
|
0.05
|
|
|
|
-
|
|
|
|
-
|
|
Pro
forma net income (loss) per preferred B share-basic
|
|
|
0.05
|
|
|
|
-
|
|
|
|
-
|
|
Pro
forma net income (loss) per preferred C share-basic
|
|
|
0.05
|
|
|
|
-
|
|
|
|
-
|
|
Pro
forma net income (loss) per preferred D share-basic
|
|
|
0.05
|
|
|
|
-
|
|
|
|
-
|
|
Pro
forma income (loss) per share attributable to
ChinaEdu Corporation
shareholders-diluted
|
|
|
0.04
|
|
|
|
(0.75
|
)
|
|
|
0.66
|
|
4.
|
ACCOUNTS
RECEIVABLE, NET
|
Accounts
receivable, net consisted of the following:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
14,854
|
|
|
|
28,334
|
|
Less:
allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
Accounts
receivable, net
|
|
|
14,854
|
|
|
|
28,334
|
|
Movement
of allowance for doubtful accounts was as follow:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Balance
as of January 1
|
|
|
-
|
|
|
|
-
|
|
Charged
to expenses
|
|
|
1,042
|
|
|
|
364
|
|
Written
off
|
|
|
(1,042
|
)
|
|
|
(364
|
)
|
Balances
as of December 31
|
|
|
-
|
|
|
|
-
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
5.
|
PREPAID
EXPENSES AND OTHER CURRENT ASSETS
|
Prepaid
expenses and other current assets consisted of:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Staff
advances and others
|
|
|
1,877
|
|
|
|
2,477
|
|
Advance
to an online school
|
|
|
2,457
|
|
|
|
7,597
|
|
Prepaid
expenses
|
|
|
4,052
|
|
|
|
6,718
|
|
Advances
to suppliers
|
|
|
3,782
|
|
|
|
3,026
|
|
Interest
receivables
|
|
|
2,078
|
|
|
|
777
|
|
Value-added
tax rebate receivable
|
|
|
6,005
|
|
|
|
4,720
|
|
|
|
|
20,251
|
|
|
|
25,315
|
|
Advance
to an online school represented amount loaned to an online education alliance
program to fund its operations. Advance to an online school is
non-interest bearing and is payable on demand. Value-added tax rebate
receivable represented the accrued value added tax rebate from online degree
programs which will be received in 2010.
6.
|
SHORT-TERM INVESTMENTS
|
The
short-term investments were comprised of investments in trust funds and bonds.
The fair value of investments in trust funds was not readily determinable,
therefore, the investments were classified as cost method investments and
measured at cost. As of December 31, 2009, the cost method investments were
carried at cost of RMB13,000.
The
investments in bonds were classified as available-for-sale investments and
measured at fair value. As of December 31, 2009, the available-for-sale
investments were carried at fair value of RMB4,706. The fair value was measured
base on level 1 input because the Group used the quoted prices for identical
instruments traded in active markets to value the investments. During the year
ended December 31, 2009, unrealized gains on the change of the fair value of the
investments of RMB144 were recognized in other comprehensive income (loss), net
of tax.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
All
long-term investments were classified as cost method investments and measured at
cost.
|
a)
|
In
June 2004, the Group obtained a 10% equity interest in Hongcheng Xueyuan
Technology Development Co., Ltd. ("Hongcheng Xueyuan"), a company
established in the PRC that is engaged in the provision of education
services in the PRC, for consideration of RMB100. In December
2006, the Group increased its equity interest in Hongcheng Xueyuan to 19%
by acquiring an additional 9% equity interest for cash consideration of
RMB1,110.
|
|
b)
|
In
July 2009, the Group invested RMB3,000 in a trust fund, which was
classified as a cost method investment and carried at
cost.
|
Land use
rights, net consisted of the following:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Land
use rights
|
|
|
30,138
|
|
|
|
30,287
|
|
Less:
accumulated amortization
|
|
|
(1,794
|
)
|
|
|
(2,413
|
)
|
Land
use rights, net
|
|
|
28,344
|
|
|
|
27,874
|
|
Amortization
expenses for land use rights totaled RMB533, RMB606 and RMB619 for the years
ended December 31, 2007, 2008, and 2009, respectively. Future
amortization expenses are RMB619 per year for each of the next five years
through December 31, 2014.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
9.
|
PROPERTY
AND EQUIPMENT, NET
|
Property
and equipment, net consisted of the following:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
123,428
|
|
|
|
154,795
|
|
Furniture,
fixtures and equipment
|
|
|
47,179
|
|
|
|
53,030
|
|
Motor
vehicles
|
|
|
9,630
|
|
|
|
11,016
|
|
Leasehold
improvements
|
|
|
13,770
|
|
|
|
13,890
|
|
|
|
|
194,007
|
|
|
|
232,731
|
|
Less:
accumulated depreciation and amortization
|
|
|
(37,917
|
)
|
|
|
(50,594
|
)
|
|
|
|
156,090
|
|
|
|
182,137
|
|
Construction
in progress
|
|
|
5,835
|
|
|
|
21,858
|
|
|
|
|
161,925
|
|
|
|
203,995
|
|
Depreciation
and amortization expenses for the years ended December 31, 2007, 2008 and 2009
were RMB8,206, RMB12,212 and RMB16,603, respectively.
10.
|
ACQUIRED
INTANGIBLE ASSETS, NET
|
Acquired
intangible assets, net including those acquired as part of business combination
consisted of the following:
|
|
Years
Ended
December
31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
carrying
|
|
|
carrying
|
|
|
Accumulated
|
|
|
Accumulate
|
|
|
carrying
|
|
|
|
amount
|
|
|
amortization
|
|
|
impairment
|
|
|
amount
|
|
|
amount
|
|
|
amortization
|
|
|
impairment
|
|
|
amount
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
intangible assets with definite lives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
agreements with universities and high schools
|
|
|
89,235
|
|
|
|
(9,916
|
)
|
|
|
(29,057
|
)
|
|
|
50,262
|
|
|
|
89,235
|
|
|
|
(12,635
|
)
|
|
|
(29,057
|
)
|
|
|
47,543
|
|
Operating
platforms
|
|
|
759
|
|
|
|
(487
|
)
|
|
|
-
|
|
|
|
272
|
|
|
|
759
|
|
|
|
(614
|
)
|
|
|
-
|
|
|
|
145
|
|
Customer
base
|
|
|
11,708
|
|
|
|
(10,934
|
)
|
|
|
-
|
|
|
|
774
|
|
|
|
11,708
|
|
|
|
(11,708
|
)
|
|
|
-
|
|
|
|
-
|
|
Online
coursewares
|
|
|
3,623
|
|
|
|
(3,543
|
)
|
|
|
-
|
|
|
|
80
|
|
|
|
3,623
|
|
|
|
(3,602
|
)
|
|
|
-
|
|
|
|
21
|
|
Agency
agreements
|
|
|
356
|
|
|
|
(244
|
)
|
|
|
-
|
|
|
|
112
|
|
|
|
356
|
|
|
|
(316
|
)
|
|
|
-
|
|
|
|
40
|
|
Contract
rights
|
|
|
16,455
|
|
|
|
(5,347
|
)
|
|
|
-
|
|
|
|
11,108
|
|
|
|
17,936
|
|
|
|
(6,581
|
)
|
|
|
-
|
|
|
|
11,355
|
|
Prepaid
operating contracts
|
|
|
4,464
|
|
|
|
(1,011
|
)
|
|
|
|
|
|
|
3,453
|
|
|
|
4,464
|
|
|
|
(1,263
|
)
|
|
|
-
|
|
|
|
3,201
|
|
Total
intangible assets definite lives
|
|
|
126,600
|
|
|
|
(31,482
|
)
|
|
|
(29,057
|
)
|
|
|
66,061
|
|
|
|
128,081
|
|
|
|
(36,719
|
)
|
|
|
(29,057
|
)
|
|
|
62,305
|
|
Acquired
intangible assets with indefinite lives Trade name
|
|
|
4,316
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,316
|
|
|
|
4,316
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,316
|
|
Total
|
|
|
130,916
|
|
|
|
(31,482
|
)
|
|
|
(29,057
|
)
|
|
|
70,377
|
|
|
|
132,397
|
|
|
|
(36,719
|
)
|
|
|
(29,057
|
)
|
|
|
66,621
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
10.
|
ACQUIRED
INTANGIBLE ASSETS, NET - continued
|
The
carrying amount of acquired intangible assets, net by operating segment was as
follows:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
46,313
|
|
|
|
45,001
|
|
Online
tutoring programs
|
|
|
4,645
|
|
|
|
4,422
|
|
Private
primary and secondary schools
|
|
|
3,453
|
|
|
|
3,201
|
|
International
curriculum programs
|
|
|
15,966
|
|
|
|
13,997
|
|
|
|
|
70,377
|
|
|
|
66,621
|
|
Amortization
expenses of acquired intangible assets with definite lives were RMB8,548,
RMB8,746 and RMB5,237 for the years ended December 31, 2007, 2008 and 2009,
respectively. Amortization expenses for acquired intangible assets
with definite lives for the next five years are follows:
Years ending December 31,
|
|
RMB
|
|
|
|
|
|
2010
|
|
|
4,325
|
|
2011
|
|
|
3,550
|
|
2012
|
|
|
3,197
|
|
2013
|
|
|
3,048
|
|
2014
|
|
|
2,899
|
|
|
(a)
|
Intangible
assets impairment
|
Management
performed the annual intangible assets impairment test as of December 31, 2007,
2008 and 2009. The Group recorded impairment loss of intangible assets with
definite lives of RMB nil, RMB29,057 and RMB nil for the year ended December 31,
2007, 2008 and 2009 respectively. The impairment loss for the year
ended December 31, 2008 was related to the international curriculum programs
operating segment, for which management has significantly reduced its
profitability forecast due to adverse changes in the government regulatory
environment and the resulting early termination of an agreement with a previous
overseas partner of the Group.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
11.
|
IMPAIRMENT
- continued
|
Management
performed the annual goodwill test as of December 31, 2007, 2008 and
2009. No impairment losses were recorded in 2009. Based on
the impairment assessment performed by management, the Group incurred a goodwill
impairment charge of RMB16,192 and RMB41,036 for the years ended December 31,
2007 and 2008, respectively.
The
impairment charge for the year ended December 31, 2007 relates to the Friendly
Experimental Class program reporting unit (the "FEC program") which is a
component of the international curriculum programs operating segment, as
management has significantly adjusted downward the profitability forecast for
this portion of the Group's business.
Of the
RMB41,036 impairment charge for the year ended December 31, 2008, RMB39,112 was
related to the international curriculum programs operating segment, for which
management has significantly reduced its profitability forecast due to adverse
change in government regulatory environment and the resulting early termination
of its agreement with an overseas partner. The remaining impairment charge of
RMB1,924 was related to the impairment charge taken for the private primary and
secondary schools operating segment in 2008 and was primarily due to
management's assessment that construction of Jingzhou School's South campus will
be further delayed, and as a result there is no definite expected enrollment
period.
The fair
values of the reporting units were established using a combination of market
approach and income approach valuation methodology. The discounted
cash flows for each reporting unit were based on discrete five year financial
forecasts developed by management for planning purposes. Cash flows
beyond the five year discrete forecast were estimated using a terminal value
calculation, which incorporated historical and forecasted financial trends for
each reporting unit and considered long-term earnings growth rates for publicly
traded peer companies. Specifically, the income approach valuations
included reporting unit cash flow discount rate at approximately 24%, 20% and
26.5%, and a terminal value growth rate at 3% for the international curriculum
programs, online degree programs and online tutoring programs operating
segments, respectively. Publicly available information regarding the
market capitalization of the Group was also considered in assessing the
reasonableness of the cumulative fair values of the reporting units estimated
using the discounted cash flow methodology.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
11.
|
IMPAIRMENT
- continued
|
|
(b)
|
Goodwill
impairment - continued
|
The
changes in the carrying amount of goodwill by operating segments for the years
ended December 31, 2008 and 2009 were as follows:
|
|
Online
|
|
|
Private primary
|
|
|
Online
|
|
|
International
|
|
|
|
|
|
|
degree
|
|
|
and secondary
|
|
|
tutoring
|
|
|
curriculum
|
|
|
|
|
|
|
programs
|
|
|
schools
|
|
|
programs
|
|
|
programs
|
|
|
Total
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2008
|
|
|
12,860
|
|
|
|
1,924
|
|
|
|
14,926
|
|
|
|
43,609
|
|
|
|
73,319
|
|
Goodwill
acquired during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
5,872
|
|
|
|
-
|
|
|
|
5,872
|
|
Goodwill
impairment during the year
|
|
|
-
|
|
|
|
(1,924
|
)
|
|
|
-
|
|
|
|
(39,112
|
)
|
|
|
(41,036
|
)
|
Balance
as of December 31, 2008
|
|
|
12,860
|
|
|
|
-
|
|
|
|
20,798
|
|
|
|
4,497
|
|
|
|
38,155
|
|
Goodwill
acquired during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Goodwill
impairment during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance
as of December 31, 2009
|
|
|
12,860
|
|
|
|
-
|
|
|
|
20,798
|
|
|
|
4,497
|
|
|
|
38,155
|
|
12.
|
ACCRUED
EXPENSES AND OTHER CURRENT
LIABILITIES
|
Accrued
expenses and other current liabilities consisted of the following:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Advances
from students
|
|
|
10,774
|
|
|
|
9,976
|
|
Accrued
expenses
|
|
|
1,918
|
|
|
|
7,742
|
|
Accrued
professional fees
|
|
|
5,571
|
|
|
|
3,771
|
|
Accrued
employee payroll and welfare benefits
|
|
|
28,294
|
|
|
|
40,186
|
|
Other
payables
|
|
|
5,072
|
|
|
|
7,242
|
|
|
|
|
51,629
|
|
|
|
68,917
|
|
Advances
from students represented amounts received for books and materials, which the
Group collected from students on behalf of third party vendors.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
Other
taxes payable consisted of the following:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Value-added
taxes payable
|
|
|
5,272
|
|
|
|
4,614
|
|
Business
taxes payable
|
|
|
6,156
|
|
|
|
10,634
|
|
Individual
income taxes payable
|
|
|
488
|
|
|
|
572
|
|
Real
estate taxes payable
|
|
|
92
|
|
|
|
80
|
|
|
|
|
12,008
|
|
|
|
15,900
|
|
The Group
is subject to business taxes at a rate of 5% to 5.5%, which are applied to
service revenue generated from online education programs. The Group
is also required to withhold PRC individual income taxes on employees' payroll
for remittance to the tax authorities.
The
Company's original employee share option plan (the "Original Plan") was
effective on August 10, 2000 and allowed the Company to offer a variety of
incentive awards to employees and non-employee directors of the Group and any
consultant who performs services for the Group. Pursuant to the
Original Plan, an incentive option could only be granted to employees and a
non-qualified option could be granted to employees, non-employee directors and
consultants. The number of option shares granted under the Original
Plan was not permitted to exceed 15% of the aggregate number of the issued and
outstanding shares of the Company, calculated on a fully-diluted
basis. Under the terms of the Original Plan, the exercise price for
an incentive option shall not be less than 100% of the fair market value of the
ordinary share on the date of grant. Option vesting schedule shall be
more than three years and no acceleration for option vesting schedule shall be
permitted, unless approved by Board of Directors. On December 13,
2004, an Amended and Restated Share Option Plan (the "Amended Plan") became
effective, and replaced the Original Plan. Under the Amended Plan,
options to purchase ordinary shares increased to 12,846,621.
In March
2007, the Company adopted the Second Amended and Restated Share Option Plan (the
"Second Amended Plan"), which replaced the Amended Plan and provided for the
grant of restricted shares as well as options. Under the Second
Amended Plan, the Company was permitted to grant options to purchase up to
12,846,621 ordinary shares to the Group's employees, directors and
consultants. The minimum option vesting period for any option grants
under the Second Amended Plan was three years and acceleration of option vesting
was not permitted, unless approved by the Board of Directors.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
14.
|
SHARE
OPTION PLAN - continued
|
The terms
of the Second Amended Plan did not permit incentive share options to be granted
to greater than 10% shareholders unless the exercise price equaled at least 110%
of the fair market value.
The
Company adopted the equity incentive plan (the "Equity Incentive Plan") in
November 2007. The Equity Incentive Plan replaced the Second Amended
Plan adopted in March 2007. The Equity Incentive Plan allows the
Company to offer a variety of incentive awards to employees and non-employee
directors of the Group and any consultant who performs services for the
Group. Pursuant to the Equity Incentive Plan, an incentive share
option ("ISO") may only be granted to employees and a non-qualified option may
be granted to employees, non-employee directors and consultants. Not
more than 12,846,621 shares may be issued under the Equity Incentive Plan;
provided, however, that there shall be an annual increase on January 1 of each
year in an amount equal to two percent (2%) of the total number of the Company's
outstanding shares at December 31 of the preceding calendar
year. Under the terms of the Equity Incentive Plan, the exercise
price for an ISO shall not be less than 100% of the fair market value per share
on the grant date. However, in the case of an ISO awarded to a
grantee who at the time of grant owned shares representing more than 10% of the
combined voting power of all classes of the Company's share capital (including
any equity of any of the Company's Chinese subsidiaries), the exercise price of
option may not be less than 110% of the fair market value of the ordinary shares
on the date of grant of such ISO and the option period may not be greater than
five years from the date of grant. The minimum option vesting period
for any option grant is three years and acceleration of vesting is not
permitted, unless approved by the Board of Directors.
The
Company's shareholders approved certain amendments to its Equity Incentive Plan
(as amended, the "Amended Equity Incentive Plan") at the Extraordinary General
Meeting held on March 6, 2009. The amendments (i) provide for the
administration of the Amended Equity Incentive Plan by the Compensation
Committee of the Company's Board of Directors; (ii) delegate to the Compensation
Committee authority to, among other things, amend or modify outstanding awards
under the Amended Equity Incentive Plan, including the repricing of "underwater"
options; and (iii) eliminate the requirement that subsequent amendments to the
Amended Equity Incentive Plan be submitted for shareholder
approval.
All
options granted will vest over periods ranging from immediately to four years
and any unexercised options will expire ten years from the date of
grant. As of December 31, 2008 and 2009, respectively, options to
purchase 9,892,800 and 10,703,803 ordinary shares were outstanding, and options
to purchase 565,685 and 289,778 ordinary shares remained available for future
grants.
On May
18, 2009, the Compensation Committee authorized the Company to reprice 1,255,500
"underwater" options exercise price at the fair market value on the approval
date. The Compensation Committee authorized this in order to enhance
the Group's ability to retain and motivate its employees, directors and
consultants. The number of employees affected was 91. This was accounted for as
a modification. The total incremental compensation cost resulting from the
modifications was RMB1,400.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
14.
|
SHARE
OPTION PLAN - continued
|
In June
2008, the Company transferred 8,344,305 ordinary shares to its depositary bank
representing 2,781,435 ADSs, to be issued to employees and non-employees upon
the exercise of their vested share options. 306,825 and 565,677 ordinary shares
out of these 8,344,305 ordinary shares had been issued to employees and
non-employees upon the exercise of their share options for the year ended
December 31, 2008 and 2009 respectively. 7,471,803 ordinary shares remain for
future issuance.
Options to
employees
Through
December 31, 2009, the Group had granted to its employees, officers, and
directors an accumulated total of 15,785,400 share options to purchase ordinary
shares, all of which were exercisable in US$.
For the
share options granted after January 1, 2006, the Group recorded compensation
expense based on the fair value of each option granted, using the Black-Scholes
option pricing model. The Group recorded a total compensation expense
of RMB3,643, RMB5,226 and RMB7,410 for the years ended December 31, 2007, 2008
and 2009, respectively.
The
following assumptions were used in the employee option pricing model on the date
of grant/modification:
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average risk-free interest rate
|
|
|
4.45
|
%
|
|
|
2.62
|
%
|
|
|
2.19
|
%
|
Weighted
average expected option life (years)
|
|
|
5.0
|
|
|
|
6.0
|
|
|
|
5.3
|
|
Weighted
average volatility rate
|
|
|
44.1
|
%
|
|
|
46.6
|
%
|
|
|
49.4
|
%
|
Weighted
average dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options to
non-employees
On
January 21, 2008, the Group granted 4,000 share options with an exercise price
of US$2.07 (RMB14.12) per share to two consultants. The Group
recorded compensation expense of RMB nil, RMB5 and RMB6 for the years ended
December 31, 2007, 2008 and 2009, respectively, estimated using the
Black-Scholes option pricing model.
The
following assumptions were used in the non-employee option pricing
model:
|
|
2008
|
|
|
|
|
|
Weighted
average risk-free interest rate
|
|
|
2.64
|
%
|
Weighted
average expected option life (years)
|
|
|
6.0
|
|
Weighted
average volatility rate
|
|
|
44
|
%
|
Weighted
average dividend yield
|
|
|
-
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
14.
|
SHARE
OPTION PLAN - continued
|
Options to
non-employees
- continued
The following
assumptions were used in the employee and non-employee option pricing
model:
The
volatility of the underlying ordinary shares during the life of the options was
estimated based on the historical stock price volatility of the Company's
ordinary shares and listed shares of comparable companies over a period
comparable to the expected term of the options.
|
(2)
|
Risk-free
interest rate
|
Risk-free
interest rate was estimated based on the yield to maturity of treasury bonds of
the United States with a maturity period close to the expected term of the
options.
As the
Company did not have sufficient historical data on the exercise of share
options, it estimated the expected term as the average between the weighted
average vesting period of the options and the contractual
term.
The
Company assumed a zero dividend yield based on its expected dividend policy over
the expected term of the options. The Company anticipates growing its
business with internally generated cash and does not expect to pay dividends in
the foreseeable future, nor has it paid any dividends to date.
The
exercise price of the options was determined by the Board of
Directors.
|
(6)
|
Fair
value of underlying ordinary shares
|
When
estimating the fair value of the ordinary shares on the grant dates before the
Company's initial public offering ("IPO"), management considered a number of
factors, including the result of equity transactions of the Company, while
taking into account standard valuation methods and the achievement of certain
events. After the IPO, the closing market price of the Company's
ordinary shares as of the grant date was used as the fair value of the
underlying ordinary shares on that date.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
14.
|
SHARE
OPTION PLAN - continued
|
Summary of share options to
employees and non-employee
A summary
of the share option activity, including grants to both employees and
non-employees, was as follows. Each of the fair value of the ordinary
shares, and exercise prices set forth in the tables below are denominated in US$
because the share options are exercisable in US$.
|
|
Outstanding options
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted average
|
|
|
|
|
|
|
average
|
|
|
grant-date
|
|
|
|
Number of
|
|
|
exercise
|
|
|
fair value of
|
|
|
|
options
|
|
|
price per share
|
|
|
ordinary shares
|
|
|
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2007
|
|
|
8,682,600
|
|
|
|
1.22
|
|
|
|
1.10
|
|
Granted
|
|
|
925,000
|
|
|
|
2.85
|
|
|
|
3.05
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
(172,600
|
)
|
|
|
1.43
|
|
|
|
1.43
|
|
Outstanding
at December 31, 2007
|
|
|
9,435,000
|
|
|
|
1.38
|
|
|
|
1.29
|
|
Granted
|
|
|
1,279,000
|
|
|
|
1.86
|
|
|
|
1.86
|
|
Exercised
|
|
|
(306,825
|
)
|
|
|
0.85
|
|
|
|
0.72
|
|
Cancelled
|
|
|
(413,306
|
)
|
|
|
2.77
|
|
|
|
3.00
|
|
Expired
|
|
|
(101,069
|
)
|
|
|
1.60
|
|
|
|
1.60
|
|
Outstanding
at December 31, 2008
|
|
|
9,892,800
|
|
|
|
1.40
|
|
|
|
1.30
|
|
Granted
|
|
|
1,431,000
|
|
|
|
2.12
|
|
|
|
2.12
|
|
Exercised
|
|
|
(565,677
|
)
|
|
|
1.08
|
|
|
|
0.67
|
|
Cancelled
|
|
|
(53,000
|
)
|
|
|
2.07
|
|
|
|
2.10
|
|
Expired
|
|
|
(1,320
|
)
|
|
|
1.60
|
|
|
|
1.60
|
|
Outstanding
at December 31, 2009
|
|
|
10,703,803
|
|
|
|
1.39
|
*
|
|
|
1.44
|
|
|
*
|
The
weighted average exercise price per option as of December 31, 2009
has reflected the impact of the exercise price modification in May
2009.
|
The
weighted average per share fair values of options as of their respective
grant/modification dates were as follows:
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
1.28
|
|
|
|
0.89
|
|
|
|
0.63
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
14.
|
SHARE
OPTION PLAN - continued
|
Summary of share options to
employees and non-employee
- continued
The
following table summarizes information regarding options issued within the
12-month period prior to December 31, 2009:
|
|
|
|
|
|
|
|
Fair value of
|
|
|
Intrinsic value
|
|
Grant date
|
|
No. of shares
|
|
|
Exercise price
|
|
|
ordinary shares
|
|
|
at grant date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
18, 2009
|
|
|
400,000
|
|
|
US$
|
1.80
|
|
|
US$
|
1.80
|
**
|
|
|
-
|
|
December
8, 2009
|
|
|
1,031,000
|
|
|
|
2.25
|
|
|
|
2.25
|
**
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Fair value of
|
|
|
Intrinsic value
|
|
Repricing date
|
|
No. of shares
|
|
|
Exercise price
|
|
|
ordinary shares
|
|
|
at grant date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
18, 2009
|
|
|
1,255,500
|
|
|
US$
|
1.80
|
|
|
US$
|
1.80
|
**
|
|
|
-
|
|
|
**
|
Determined
based on the closing market price of the ADS, as quoted on the NASDAQ
Global Market on the grant dates and repricing date, divided by
three.
|
The
following table summarizes information with respect to employee and non-employee
share options outstanding at December 31, 2009:
|
|
Options outstanding
|
|
|
Options
exercisable
|
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
|
average
|
|
Weighted
|
|
|
average
|
|
|
|
|
average
|
|
Weighted
|
|
|
average
|
|
|
|
Number
|
|
remaining
|
|
average
|
|
|
intrinsic
|
|
|
Number
|
|
remaining
|
|
average
|
|
|
intrinsic
|
|
|
|
outstanding
|
|
contractual life
|
|
exercise price
|
|
|
value
|
|
|
exercisable
|
|
contractual life
|
|
exercise price
|
|
|
value
|
|
|
|
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
exercise price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.50
|
|
|
846,000
|
|
2.80 years
|
|
|
0.50
|
|
|
|
1.95
|
|
|
|
846,000
|
|
2.80 years
|
|
|
0.50
|
|
|
|
1.95
|
|
0.86
|
|
|
1,092,000
|
|
4.93 years
|
|
|
0.86
|
|
|
|
1.59
|
|
|
|
1,092,000
|
|
4.93 years
|
|
|
0.86
|
|
|
|
1.59
|
|
1.00
|
|
|
410,000
|
|
1.58 years
|
|
|
1.00
|
|
|
|
1.45
|
|
|
|
410,000
|
|
1.58 years
|
|
|
1.00
|
|
|
|
1.45
|
|
1.09-1.85
|
|
|
7,221,570
|
|
6.12 years
|
|
|
1.46
|
|
|
|
0.99
|
|
|
|
5,918,970
|
|
5.58 years
|
|
|
1.41
|
|
|
|
1.04
|
|
1.86-2.85
|
|
|
1,134,233
|
|
9.77 years
|
|
|
2.23
|
|
|
|
0.22
|
|
|
|
34,411
|
|
8.06 years
|
|
|
2.07
|
|
|
|
0.38
|
|
|
|
|
10,703,803
|
|
5.95 years
|
|
|
1.39
|
|
|
|
1.06
|
|
|
|
8,301,381
|
|
5.02 years
|
|
|
1.23
|
|
|
|
1.22
|
|
The
weighted average intrinsic value in the table above represents the aggregate
difference between the Company's closing stock price as of December 31, 2009 and
the exercise price for in the money options.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
14.
|
SHARE
OPTION PLAN - continued
|
Summary of share options to
employees and non-employee
- continued
Total
intrinsic value of options exercised for the years ended December 31, 2007, 2008
and 2009 was RMB nil, RMB1,629 and RMB5,301, respectively.
As of
December 31, 2009, there was RMB12,751 unrecognized share-based compensation
cost related to share options. Such deferred cost is expected to be
recognized over a weighted-average vesting period of 2.25 years. To
the extent the actual forfeiture rate is different from the Company's original
estimate; the actual share-based compensation cost related to these awards may
differ from such estimate.
For
share-based compensation awards that were granted to employees prior to January
1, 2006 that are not yet vested and continue to be reported under an
authoritative pronouncement on accounting for stock issued to employees, the
following is the Group's pro forma net income (loss) that would have been
reported if such awards were accounted for under authoritative pronouncement
regarding to Stock Compensation. All options granted prior to January 1, 2006
were fully vested at the end of 2008; therefore, there was no share-based
compensation awards were accounted for under APB Opinion 25 for the year ended
December 31, 2009.
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to
|
|
|
|
|
|
|
|
|
|
ChinaEdu
Corporation shareholders, as reported
|
|
|
2,487
|
|
|
|
(43,019
|
)
|
|
|
34,779
|
|
Add:
Share-based compensation as reported
|
|
|
3,643
|
|
|
|
5,231
|
|
|
|
7,416
|
|
Less:
Share-based compensation determined using the fair value
method
|
|
|
(7,108
|
)
|
|
|
(5,686
|
)
|
|
|
(7,416
|
)
|
Pro
forma net income (loss) attributable to ChinaEdu Corporation
shareholders
|
|
|
(978
|
)
|
|
|
(43,474
|
)
|
|
|
34,779
|
|
Basic
income (loss) per share attributable to ChinaEdu Corporation
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
|
0.06
|
|
|
|
(0.75
|
)
|
|
|
0.71
|
|
Pro
forma
|
|
|
(0.02
|
)
|
|
|
(0.75
|
)
|
|
|
0.71
|
|
Diluted
income (loss) per share attributable to ChinaEdu Corporation
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
|
0.05
|
|
|
|
(0.75
|
)
|
|
|
0.66
|
|
Pro
forma
|
|
|
(0.02
|
)
|
|
|
(0.75
|
)
|
|
|
0.66
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
Cayman
Islands
The
Company is a tax-exempt entity incorporated in the Cayman Islands.
British
Virgin Islands
Under the
current BVI law, income from BJ-BCIT and BJ-WITT are not subject to
taxation.
PRC
The
Group's PRC entities were subject to PRC Enterprise Income Tax ("EIT") on the
taxable income in accordance with the relevant PRC income tax laws. In 2007, the
EIT rate for companies operating in the PRC was 33%.
Prior to
January 1, 2008, the Group's PRC entities which qualified as "high and new
technology enterprises" ("HNTE") under the EIT Law included CMR Web, Hongcheng
Technology, Hongcheng Liye, Hongcheng Education, Beijing Xuezhi, WITT Education,
Zhongnongda Network, Beijing Mingdao, Beiyuda, Dongcai,
Chongda. Among those, CMR Web, Hongcheng Technology, Hongcheng Liye,
Hongcheng Education, Beijing Xuezhi, WITT Education, Zhongnongda Network,
Beijing Mingdao and Beiyuda were entitled to a preferential tax rate of 15% with
three-year exemption followed by a reduced tax rate of 7.5% for the subsequent
three years. Dongcai and Chongda were entitled to a preferential tax
rate of 15% with two-year exemption followed by a reduced tax rate of 7.5% for
the subsequent three years.
On March
16, 2007, the National People's Congress adopted the Enterprise Income Tax Law
("the New EIT Law") which became effective on January 1, 2008. The New EIT Law
applies a uniform 25% enterprise income tax rate to both foreign invested
enterprises and domestic enterprises.
Under the
New EIT Law, an enterprise which qualifies as a "high and new technology
enterprise" ("the new HNTE") is entitled to a tax rate of 15%. CMR
Web, Hongcheng Liye, Hongcheng Education, Gotop Hongcheng, Beiyuda, Dongcai, and
Zhongnongda Network obtained the new HNTE in 2008, Hongcheng Technology obtained
the new HNTE in 2009.
One of
the Company's subsidiaries, Chongda, which qualified as a "software enterprise"
under the new EIT law is entitled to a preferential tax rate of 12.5% for 2008,
2009 and 2010.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
15.
|
INCOME
TAXES - continued
|
PRC
- continued
The
preferential tax rates, different from the statutory rates, which were used to
calculate the tax provision based on the Group's interpretation of the New EIT
Law as of the balance sheet date (see Note 27 Subsequent Events), are presented
in the following table.
PRC
entities
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMR
Web
(1)
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
Hongcheng
Technology
(1)
|
|
|
15.0
|
%
|
|
|
25.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
Hongcheng
Liye(1)Web
(1)
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
Hongcheng
Education
(1)
|
|
|
0.0
|
%
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
|
|
15.0
|
%
|
Beijing
Xuezhi
|
|
|
7.5
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
WITT
Education
|
|
|
7.5
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Zhongnongda
Network
(1)
|
|
|
7.5
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
Beijing
Mingdao
|
|
|
0.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Beiyuda
(1)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
7.5
|
%
|
|
|
15.0
|
%
|
Dongcai
(1)
|
|
|
7.5
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
Chongda
|
|
|
0.0
|
%
|
|
|
12.5
|
%
|
|
|
12.5
|
%
|
|
|
12.5
|
%
|
|
|
25.0
|
%
|
Gotop
Hongcheng
(1)
|
|
|
33.0
|
%
|
|
|
0.0
|
%
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
|
(1)
|
The
new HNTE status obtained by CMR Web, Hongcheng Technology, Hongcheng Liye,
Hongcheng Education, Zhongnongda Network, Beiyuda, Dongcai and Gotop
Hongcheng under the New EIT Law is valid for three years and qualifying
entities can then apply to renew for an additional three years provided
their business operations continue to qualify for the new HNTE status. The
Group believes it is highly likely that its qualifying entities will
continue to obtain the renewal in the
future.
|
Accordingly,
in calculating deferred tax assets and liabilities, the Group assumed its
qualifying entities will continue to renew the new HNTE status at the conclusion
of the initial three year period.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
15.
|
INCOME
TAXES - continued
|
PRC
- continued
The
current and deferred components of the income tax expense appearing in the
consolidated statements of operation were as follows:
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Current
tax
|
|
|
16,286
|
|
|
|
11,860
|
|
|
|
18,981
|
|
Deferred
tax
|
|
|
(1,283
|
)
|
|
|
(8,387
|
)
|
|
|
306
|
|
|
|
|
15,003
|
|
|
|
3,473
|
|
|
|
19,287
|
|
The
principal components of the Group's deferred income tax assets and liabilities
were as follows:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Current
deferred tax assets:
|
|
|
|
|
|
|
Deferred
revenues
|
|
|
3,986
|
|
|
|
3,309
|
|
Total
current deferred tax assets
|
|
|
3,986
|
|
|
|
3,309
|
|
Non-current
deferred tax assets
|
|
|
|
|
|
|
|
|
Acquired
intangible assets
|
|
|
1,204
|
|
|
|
804
|
|
Deferred
revenues
|
|
|
219
|
|
|
|
179
|
|
Net
operating loss carryforwards
|
|
|
3,129
|
|
|
|
4,068
|
|
Total
non-current deferred tax assets
|
|
|
4,552
|
|
|
|
5,051
|
|
Less:
valuation allowance on deferred tax assets
|
|
|
(2,456
|
)
|
|
|
(3,510
|
)
|
Total
net non-current deferred tax assets
|
|
|
2,096
|
|
|
|
1,541
|
|
Non-current
deferred tax liabilities
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
249
|
|
|
|
109
|
|
Acquired
intangible assets
|
|
|
10,820
|
|
|
|
10,034
|
|
Total
deferred tax liabilities
|
|
|
11,069
|
|
|
|
10,143
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
15.
|
INCOME
TAXES - continued
|
PRC
- continued
The Group
has net operating loss carryforwards of RMB22,361 from its PRC entities for the
year ended December 31, 2009 that will expire on various dates between December
31, 2010 and December 31, 2014.
As of
December 31, 2009, a valuation allowance of RMB3,510 was provided against
deferred tax assets including net operating loss carryforwards of certain of the
Group's PRC entities due to the Group's determination that it is more likely
than not that these deferred tax assets related to the respective entities will
not be realized. Adjustments will be made to the valuation allowance
if events occur in the future that indicate changes in the amount of deferred
tax assets that may be realized.
The Group
operates through multiple PRC entities and the valuation allowances are
considered separately for each PRC entity. The Group does not file
consolidated tax returns, and, therefore, losses and deferred taxes from one PRC
entity may not be used to offset another entity's earnings or deferred
taxes.
Reconciliation
between total income tax expense and the amount computed by applying the
statutory income tax rate to income before income taxes was as
follows:
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
rate
|
|
|
33
|
|
|
|
25
|
|
|
|
25
|
|
Tax
holiday
|
|
|
(42
|
)
|
|
|
406
|
|
|
|
(15
|
)
|
Effect
on tax rates in different tax jurisdiction
|
|
|
7
|
|
|
|
(116
|
)
|
|
|
5
|
|
Permanent
book-tax differences
|
|
|
27
|
|
|
|
(356
|
)
|
|
|
3
|
|
Changes
in valuation allowance
|
|
|
-
|
|
|
|
(34
|
)
|
|
|
1
|
|
Increased
in unrecognized tax benefit
|
|
|
1
|
|
|
|
(36
|
)
|
|
|
3
|
|
Effect
of new tax law
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
Effective
tax rates
|
|
|
35
|
|
|
|
(111
|
)
|
|
|
22
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
15.
|
INCOME
TAXES - continued
|
PRC
- continued
For the
years ended December 31, 2007, 2008 and 2009, if the Group's PRC entities had
not been awarded tax holidays or received special tax concessions, provision for
income taxes, net income (loss), and net income (loss) per share would have been
as follows:
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to ChinaEdu Corporation shareholders, as
reported
|
|
|
2,487
|
|
|
|
(43,019
|
)
|
|
|
34,779
|
|
Less:
Increase in provision for income taxes
|
|
|
(18,006
|
)
|
|
|
(10,862
|
)
|
|
|
(12,530
|
)
|
Pro
forma net income (loss) attributable to ChinaEdu Corporation
shareholders
|
|
|
(15,519
|
)
|
|
|
(53,881
|
)
|
|
|
22,249
|
|
Pro
forma net income (loss) per share attributable to ChinaEdu Corporation
shareholders-basic
|
|
|
(0.37
|
)
|
|
|
(0.93
|
)
|
|
|
0.46
|
|
Pro
forma net income (loss) per preferred A share-basic
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Pro
forma net income (loss) per preferred B share-basic
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Pro
forma net income (loss) per preferred C share-basic
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Pro
forma net income (loss) per preferred D share-basic
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Pro
forma net income (loss) per share attributable to ChinaEdu Corporation
shareholders-diluted
|
|
|
(0.37
|
)
|
|
|
(0.93
|
)
|
|
|
0.42
|
|
The Group
recognized RMB3,744 accumulated impact of unrecognized tax benefit to
accumulated deficits as of January 1, 2007 and the accumulated
unrecognized tax benefits was RMB5,473 and RMB7,727 as of December 31, 2008 and
2009, respectively.
RMB93
interest and RMB872 penalties were recognized in the consolidated financial
statements for the year ended December 31, 2009.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
15.
|
INCOME
TAXES - continued
|
PRC
- continued
A
reconciliation of the beginning and ending amount of unrecognized tax benefit
was as follows:
|
|
RMB
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
|
4,332
|
|
Additions
based on tax positions related to the current year
|
|
|
872
|
|
Additions
for tax positions of prior years
|
|
|
-
|
|
Reductions
for tax positions of current year
|
|
|
-
|
|
Audit
settlement paid in current year
|
|
|
-
|
|
Other
- interest and penalty
|
|
|
269
|
|
Balance
at January 1, 2009
|
|
|
5,473
|
|
Additions
based on tax positions related to the current year
|
|
|
1,289
|
|
Additions
for tax positions of prior years
|
|
|
-
|
|
Reductions
for tax positions of current year
|
|
|
-
|
|
Audit
settlement paid in current year
|
|
|
-
|
|
Other
- interest and penalty
|
|
|
965
|
|
Balance
at December 31, 2009
|
|
|
7,727
|
|
The
Group's PRC entities are subject to taxation in the PRC. There are no
ongoing examinations by taxing authorities at this time. Tax years of
each of the Group's PRC entities from 2004 through 2009 remain subject to review
and potential recourse by the PRC.
The Group
does not anticipate any significant change within 12 months of this reporting
date of its uncertain tax positions.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
15.
|
INCOME
TAXES - continued
|
PRC
- continued
The EIT
Law includes a provision specifying that legal entities organized outside China
will be considered residents for Chinese income tax purposes if their place of
effective management or control is within China. If legal entities organized
outside China were considered residents for Chinese income tax purpose, they
would become subject to the EIT Law on their worldwide income. This would cause
any income legal entities organized outside China earned to be subject to
China's 25% EIT. The Implementation Rules to EIT Law provide that non-resident
legal entities will be considered China residents if substantial and overall
management and control over the manufacturing and business operations,
personnel, accounting, properties, etc. resides within China. Pursuant to the
additional guidance released by the Chinese government on April 22, 2009,
management does not believe that the legal entities organized outside China
should be characterized as China tax residents for EIT Law
purposes.
Under the
PRC tax laws effective prior to January 1, 2008, dividends paid to foreign
investors by foreign-invested enterprises, such as dividends paid to the
overseas holding companies by the PRC subsidiaries, were exempt from PRC
withholding tax. Under the EIT Law and its implementation rules which became
effective on January 1, 2008, dividends generated after January 1, 2008 and
payable by a foreign-invested enterprise in China to its foreign investors who
are nonresident enterprises are subject to a 10% withholding tax, unless any
such foreign investor's jurisdiction of incorporation has a tax treaty with
China that provides for a different withholding arrangement.
The
Company's subsidiaries located in the PRC had aggregate accumulated gain of
approximately RMB38,513 as of December 31, 2009. Since the Company have decided
to reinvest those profits for future development, no provision has been made for
the Chinese dividend withholding taxes that would be payable upon the
distribution of those amounts to the Company. Accordingly, no
deferred tax liability has been accrued for the Chinese dividend withholding
taxes that would be payable upon the distribution of those amounts to the
Company as of December 31, 2009.
Under
applicable accounting principles, a deferred tax liability should be recorded
for taxable temporary differences attributable to the excess of carrying amount
over tax basis, including those differences attributable to a more than 50%
interest in a domestic subsidiary. However, recognition is not
required in situations where the tax law provides a means by which reported
amounts of such interest can be recovered tax-free and the enterprise expects
that it will ultimately use that means. The Group has not recorded
any such deferred tax liability attributable to the financial interest in its
variable interest entities because the variable interest entities were in an
accumulated loss position as of December 31, 2009.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
16.
|
NET
INCOME (LOSS) PER SHARE
|
The
following table sets forth the computation of basic and diluted net income
(loss) per share for the periods indicated:
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)-basic (numerator):
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to ChinaEdu Corporation
shareholders
|
|
|
1,215
|
|
|
|
(43,019
|
)
|
|
|
34,779
|
|
Net
income allocated to Series A preferred shares
|
|
|
295
|
|
|
|
-
|
|
|
|
-
|
|
Net
income allocated to Series B preferred shares
|
|
|
682
|
|
|
|
-
|
|
|
|
-
|
|
Net
income allocated to Series C preferred shares
|
|
|
190
|
|
|
|
-
|
|
|
|
-
|
|
Net
income allocated to Series D preferred shares
|
|
|
105
|
|
|
|
-
|
|
|
|
-
|
|
Net
income (loss) attributable to ChinaEdu Corporation shareholders-diluted
(numerator)
|
|
|
2,487
|
|
|
|
(43,019
|
)
|
|
|
34,779
|
|
Shares
(denominator):
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average ordinary shares outstanding used in computing basic net income
(loss) per share
|
|
|
20,585,074
|
|
|
|
57,679,504
|
|
|
|
48,844,606
|
|
Weighted
average preferred A shares using if-converted method
|
|
|
4,991,507
|
|
|
|
-
|
|
|
|
-
|
|
Weighted
average preferred B shares using if-converted method
|
|
|
11,561,814
|
|
|
|
-
|
|
|
|
-
|
|
Weighted
average preferred C shares using if-converted method
|
|
|
3,221,030
|
|
|
|
-
|
|
|
|
-
|
|
Weighted
average preferred D shares using if-converted method
|
|
|
1,787,745
|
|
|
|
-
|
|
|
|
-
|
|
Incremental
weighted average ordinary shares from assumed conversions of share option
and warrants using treasury stock method:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
options (treasury share effect)
|
|
|
3,714,016
|
|
|
|
-
|
|
|
|
3,262,419
|
|
Non-employee
options (treasury share effect)
|
|
|
436,936
|
|
|
|
-
|
|
|
|
331,920
|
|
Warrants
(treasury share effect)
|
|
|
1,024,062
|
|
|
|
-
|
|
|
|
80,738
|
|
Weighted
average ordinary shares outstanding used in computing diluted net income
(loss) per share
|
|
|
47,322,184
|
|
|
|
57,679,504
|
|
|
|
52,519,683
|
|
Net
income (loss) per share attributable to ChinaEdu Corporation
shareholders-basic
|
|
|
0.06
|
|
|
|
(0.75
|
)
|
|
|
0.71
|
|
Net
income (loss) per preferred A share-basic
|
|
|
0.06
|
|
|
|
-
|
|
|
|
-
|
|
Net
income (loss) per preferred B share-basic
|
|
|
0.06
|
|
|
|
-
|
|
|
|
-
|
|
Net
income (loss) per preferred C share-basic
|
|
|
0.06
|
|
|
|
-
|
|
|
|
-
|
|
Net
income (loss) per preferred D share-basic
|
|
|
0.06
|
|
|
|
-
|
|
|
|
-
|
|
Net
income (loss) per share attributable to ChinaEdu Corporation
shareholders-diluted
|
|
|
0.05
|
|
|
|
(0.75
|
)
|
|
|
0.66
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
16.
|
NET
INCOME (LOSS) PER SHARE - continued
|
Ordinary
share equivalents of options and warrants are calculated using the treasury
stock method. Under the treasury stock method, the proceeds from the
assumed conversion of options and warrants are used to repurchase outstanding
ordinary shares using the average fair value for the period. The
Group has determined that its convertible preferred shares are participating
securities as the preferred shares participate in undistributed earnings on an
as-if-converted basis. The holders of the preferred shares are
entitled to receive dividends on a pro rata basis, as if their shares had been
converted into ordinary shares. Accordingly, the Group uses the
two-class method of computing net income per share, for ordinary and preferred
shares according to participation rights in undistributed earnings. All
convertible preferred shares have been automatically converted into one ordinary
share upon the qualified IPO on December 14, 2007.
For the
years ended December 31, 2007, 2008, and 2009, the Group had the following
securities outstanding, which could potentially dilute basic net income per
share in the future, but were excluded from the computation of diluted net
income (loss) per share in 2007, 2008 and 2009 because their effect would be
anti-dilutive:
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
employee options to purchase ordinary shares
|
|
|
-
|
|
|
|
9,892,800
|
|
|
|
-
|
|
Outstanding
warrants to purchase ordinary shares
|
|
|
-
|
|
|
|
1,933,677
|
|
|
|
-
|
|
Pursuant
to the terms of the Series B preferred share agreement dated December 13, 2004,
the Company granted warrants to one of its Series B preferred shareholders,
Tiger Global Private Investment Partners II, L.P. and Tiger Global II, L.P.
(collectively, "Tiger Global"), to purchase up to 1,768,300 ordinary
shares. These warrants have an exercise price of US$1.48 per share
and are exercisable at any time prior to December 13, 2009. The fair
value and the allocated value of the warrants were approximately RMB4,719
(US$570) and RMB4,487 (US$542) at the grant date, respectively.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
In
November 2008, the Company entered into a share repurchase agreement with Tiger
Global. The share repurchase agreement stipulated that 1,768,300
warrants held by Tiger Global, which represented the right to purchase an
aggregate of 1,768,300 ordinary shares, would be cancelled. The
Company recorded the first batch of cancelled warrants in November 2008,
representing 321,109 underlying ordinary shares, and has recorded the second
batch of cancelled warrants in January 2009, representing an additional
1,447,191 underlying ordinary shares.
Pursuant
to the terms of the Series C preferred share agreement dated July 14, 2005, the
Company granted warrants to Series C preferred shareholders to purchase up to
608,108 ordinary shares. The warrants have an exercise price of
US$1.85 per share and are exercisable commencing on July 14, 2005 and ending on
August 12, 2010. The fair value and the allocated value of the
warrants were approximately RMB2,459 (US$305) and RMB2,353 (US$292),
respectively, at the grant date.
Up to the
end of 2009, 121,622 warrants were exercised at US$1.85 to purchase the same
number of ordinary shares. The fair value of the exercised warrants was
approximately RMB471 (US$65).
As of
December 31, 2009, the outstanding warrants have a carrying value of RMB1,883.
The total number of shares underlying the above referenced warrants was
486,486.
Pursuant
to the November 2008 share repurchase agreement with Tiger Global (discussed in
Note 17), the Company agreed to purchase from Tiger Global an aggregate of
8,364,634 ordinary shares (2,788,211 ADSs) at US$1.3167 per ordinary share
(US$3.95 per ADS), for an aggregate purchase price of RMB75,315
(US$11,014). The agreement also stipulated that all warrants held by
Tiger Global, which represented the right to purchase an aggregate of 1,768,300
ordinary shares, would be cancelled.
In
addition, the Company Board approved a share repurchase plan in
2008. Pursuant to this plan, the Company repurchased an aggregate of
2,183,634 ordinary shares in open market transactions conducted in 2008 for a
cash consideration of RMB20,522 (US$3,002). The repurchases were made
at an average price of US$1.37 per ordinary share (US$4.11 per ADS). In 2009,
the Company repurchased an aggregate of 983,115 ordinary shares in open market
transactions conducted between October and December 2009 for a cash
consideration of RMB14,738 (US$2,159). The repurchases were made at
an average price of US$2.20 per ordinary share (US$6.6 per
ADS).
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
19.
|
MAINLAND
CHINA CONTRIBUTION PLAN AND PROFIT
APPROPRIATION
|
Full time
employees of the Group in the PRC participate in a government-mandated
multi-employer defined contribution plan pursuant to which certain pension
benefits, medical care, unemployment insurance, employee housing fund and other
welfare benefits are provided to employees. Chinese labor regulations
require the Group to accrue for these benefits based on certain percentages of
the employees' salaries. Total provisions for such employee benefits
were RMB14,659, RMB20,225 and RMB23,231 for the years ended December 31, 2007,
2008 and 2009, respectively.
|
(a)
|
Pursuant
to a contract signed between Hongcheng Technology and another university,
Hongcheng Technology has committed to contribute RMB35,000 for the use of
the university's education resources. As of December 31, 2009,
the remaining commitment was approximately RMB1,000, which is expected to
be paid within 2010.
|
|
(b)
|
Pursuant
to a contract signed between Hongcheng Education and a middle school for
the use of the school's education resources in 2005, Hongcheng Education
has committed to pay a royalty fee of RMB650 per annum from 2005 to 2007,
RMB1,000 per annum from 2008 to 2010, and RMB1,200 per annum from 2011 to
2024. The aggregate fees committed through 2024 were recognized
as expenses on a straight-line basis, and the difference between the
amount paid and the amount recognized reported as deferred commitment
fees. For the years ended December 31, 2008 and 2009, the
amounts reported as expenses were RMB1,088 during both
periods. The amounts recorded as deferred commitment fees as of
December 31, 2008 and 2009 were RMB1,400 and RMB1,488,
respectively.
|
|
(c)
|
The
Group leases certain office premises under non-cancelable operating leases
through 2014. Rent expenses under operating leases for 2007,
2008, and 2009 were RMB9,088, RMB10,814 and RMB10,355,
respectively.
|
Future
minimum lease payments under non-cancelable operating leases agreements are as
follows:
Years ending December 31
|
|
RMB
|
|
|
|
|
|
2010
|
|
|
7,041
|
|
2011
|
|
|
4,017
|
|
2012
|
|
|
2,684
|
|
2013
|
|
|
1,124
|
|
2014
|
|
|
705
|
|
|
|
|
15,571
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
20.
|
COMMITMENTS
- continued
|
|
(d)
|
As
of December 31, 2009, the Group had commitments totaling RMB75,834 for the
expansion of the schools in Anqing, Pingdingshan and Jingzhou, which
included capital commitments for on-going construction in progress of
RMB16,654. Since the construction of Jinzhou School is delayed,
the Group is unable to make reasonable estimates regarding the timing of
capital commitments for Jingzhou School. The capital commitments totaling
RMB11,082 of Anqing and Pingdingshan are expected to be paid within
2010.
|
21.
|
SEGMENT
AND GEOGRAPHIC INFORMATION
|
The Group
has been organized as four business segments:
|
(i)
|
Online
degree programs, which enables leading higher education institutions in
the PRC to operate and grow their online degree-granting
programs. The Group provides online education technical and
consulting services to these institutions. In addition, the
Group also licenses online education technology platform and courseware to
them. Moreover, the Group provides recruiting, enrollment marketing and
other student services through its learning centers network to the online
degree programs of leading Chinese
universities.
|
|
(ii)
|
Online
tutoring programs, which provides online tutoring services for students to
obtain review course through the online
program.
|
|
(iii)
|
Private
primary and secondary schools, which provide educational services to the
students through traditional classroom
education.
|
|
(iv)
|
International
curriculum programs, which includes an integrated English language
learning service for high schools in the PRC and international polytechnic
curriculum programs through traditional classroom
education.
|
The
Group's chief operating decision maker is its chief executive
officer. Segment information provided to the chief operating decision
maker is prepared using US GAAP.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
21.
|
SEGMENT
AND GEOGRAPHIC INFORMATION -
continued
|
The
following sets forth the relevant information for the Group's operating
segments:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Online
degree programs
|
|
|
516,138
|
|
|
|
605,210
|
|
Online
tutoring programs
|
|
|
44,118
|
|
|
|
50,662
|
|
Private
primary and secondary schools
|
|
|
94,920
|
|
|
|
141,669
|
|
International
curriculum programs
|
|
|
40,949
|
|
|
|
31,818
|
|
Reconciling
amounts
|
|
|
222,555
|
|
|
|
106,933
|
|
Total
assets
|
|
|
918,680
|
|
|
|
936,292
|
|
Significant
reconciling item:
|
|
|
|
|
|
|
|
|
Corporate
assets
|
|
|
222,555
|
|
|
|
106,933
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
101,215
|
|
|
|
93,527
|
|
Online
tutoring programs
|
|
|
30,332
|
|
|
|
36,440
|
|
Private
primary and secondary schools
|
|
|
71,596
|
|
|
|
117,664
|
|
International
curriculum programs
|
|
|
26,992
|
|
|
|
14,914
|
|
Reconciling
amounts
|
|
|
14,401
|
|
|
|
11,594
|
|
Total
liabilities
|
|
|
244,536
|
|
|
|
274,139
|
|
Significant
reconciling item:
|
|
|
|
|
|
|
|
|
Corporate
liabilities
|
|
|
14,401
|
|
|
|
11,594
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
21.
|
SEGMENT
AND GEOGRAPHIC INFORMATION -
continued
|
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
202,185
|
|
|
|
255,388
|
|
|
|
285,178
|
|
Online
tutoring programs
|
|
|
18,013
|
|
|
|
15,436
|
|
|
|
19,584
|
|
Private
primary and secondary schools
|
|
|
13,356
|
|
|
|
19,289
|
|
|
|
30,627
|
|
International
curriculum programs
|
|
|
31,434
|
|
|
|
27,607
|
|
|
|
19,317
|
|
Total
net revenue
|
|
|
264,988
|
|
|
|
317,720
|
|
|
|
354,706
|
|
Cost
of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
58,027
|
|
|
|
76,224
|
|
|
|
95,428
|
|
Online
tutoring programs
|
|
|
3,875
|
|
|
|
4,017
|
|
|
|
5,713
|
|
Private
primary and secondary schools
|
|
|
10,944
|
|
|
|
17,572
|
|
|
|
26,109
|
|
International
curriculum programs
|
|
|
23,503
|
|
|
|
19,920
|
|
|
|
11,112
|
|
Total
cost of revenue
|
|
|
96,349
|
|
|
|
117,733
|
|
|
|
138,362
|
|
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
144,158
|
|
|
|
179,164
|
|
|
|
189,750
|
|
Online
tutoring programs
|
|
|
14,138
|
|
|
|
11,419
|
|
|
|
13,871
|
|
Private
primary and secondary schools
|
|
|
2,412
|
|
|
|
1,717
|
|
|
|
4,518
|
|
International
curriculum programs
|
|
|
7,931
|
|
|
|
7,687
|
|
|
|
8,205
|
|
Total
gross profit
|
|
|
168,639
|
|
|
|
199,987
|
|
|
|
216,344
|
|
The Group
does not allocate operating expenses to individual segments when making
decisions about allocating resources to such segments and assessing their
performance. The Group primarily operates in the PRC. All
of the Group's long-lived assets are located in the PRC.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
21.
|
SEGMENT
AND GEOGRAPHIC INFORMATION -
continued
|
Net
revenue from each type of services the Group provides was as
follows:
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Third
parties:
|
|
|
|
|
|
|
|
|
|
Online
education technical, consulting and recruiting services
|
|
|
40,801
|
|
|
|
45,618
|
|
|
|
64,517
|
|
Traditional
classroom education services
|
|
|
44,790
|
|
|
|
46,896
|
|
|
|
49,944
|
|
Online
tutoring services
|
|
|
18,013
|
|
|
|
15,436
|
|
|
|
19,584
|
|
|
|
|
103,604
|
|
|
|
107,950
|
|
|
|
134,045
|
|
Related
parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
education technical, consulting and recruiting services
|
|
|
161,384
|
|
|
|
209,770
|
|
|
|
220,661
|
|
Traditional
classroom education services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Online
tutoring services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
161,384
|
|
|
|
209,770
|
|
|
|
220,661
|
|
|
|
|
264,988
|
|
|
|
317,720
|
|
|
|
354,706
|
|
The
carrying amounts of goodwill and acquired intangible assets by operating
segments were as follows:
|
|
December
31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
Acquired
intangible assets, net:
|
|
|
|
|
|
|
Online
degree programs
|
|
|
46,313
|
|
|
|
45,001
|
|
Online
tutoring programs
|
|
|
4,645
|
|
|
|
4,422
|
|
Private
primary and secondary schools
|
|
|
3,453
|
|
|
|
3,201
|
|
International
curriculum programs
|
|
|
15,966
|
|
|
|
13,997
|
|
|
|
|
70,377
|
|
|
|
66,621
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
Online
degree programs
|
|
|
12,860
|
|
|
|
12,860
|
|
Online
tutoring programs
|
|
|
20,798
|
|
|
|
20,798
|
|
Private
primary and secondary schools
|
|
|
-
|
|
|
|
-
|
|
International
curriculum programs
|
|
|
4,497
|
|
|
|
4,497
|
|
|
|
|
38,155
|
|
|
|
38,155
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
22.
|
RELATED
PARTY TRANSACTIONS
|
The
noncontrolling shareholders of a number of the Company's subsidiaries are
universities that also purchase online education technical, consulting and
recruiting services from the Group. These universities are considered
related parties of the Group. Revenue generated from services
provided to these universities was as follows:
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Online
education technical, consulting and recruiting services:
|
|
|
|
|
|
|
|
|
|
Online
Education School of Dongbei University of Finance and
Economics
|
|
|
34,132
|
|
|
|
42,403
|
|
|
|
42,701
|
|
Online
Education School of Renmin University of China
|
|
|
54,743
|
|
|
|
70,197
|
|
|
|
71,722
|
|
Online
Education School of Chongqing University
|
|
|
19,391
|
|
|
|
28,719
|
|
|
|
34,474
|
|
Online
Education School of China Agricultural University
|
|
|
43,995
|
|
|
|
48,315
|
|
|
|
47,335
|
|
Online
Education School of Beijing Language and Culture
University
|
|
|
9,123
|
|
|
|
19,153
|
|
|
|
23,907
|
|
Online
Education School of Central University of Finance and
Economics
|
|
|
-
|
|
|
|
983
|
|
|
|
104
|
|
Online
Education School of Guangxi Radio and TV University
|
|
|
-
|
|
|
|
-
|
|
|
|
152
|
|
Asset
Management Company of Beijing Forestry University
|
|
|
-
|
|
|
|
-
|
|
|
|
266
|
|
Total
|
|
|
161,384
|
|
|
|
209,770
|
|
|
|
220,661
|
|
Deferred
revenues associated with services provided to related parties were as
follows:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Online
Education School of Dongbei University of Finance and
Economics
|
|
|
7,657
|
|
|
|
8,998
|
|
Online
Education School of Renmin University of China
|
|
|
17,395
|
|
|
|
17,594
|
|
Online
Education School of Chongqing University
|
|
|
8,668
|
|
|
|
7,741
|
|
Online
Education School of China Agricultural University
|
|
|
11,815
|
|
|
|
9,896
|
|
Online
Education School of Beijing Language and Culture
University
|
|
|
10,080
|
|
|
|
8,932
|
|
|
|
|
55,615
|
|
|
|
53,161
|
|
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
22.
|
RELATED
PARTY TRANSACTIONS - continued
|
As of
December 31, 2008 and 2009, the following balances were due from related
parties:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Schools
owned by the noncontrolling shareholders of the Company's
subsidiaries:
|
|
|
|
|
|
|
Online
Education School of Dongbei University of Finance and Economics
(i)
|
|
|
28,275
|
|
|
|
22,176
|
|
Online
Education School of Renmin University of China (i)
|
|
|
65,792
|
|
|
|
90,746
|
|
Online
Education School of Chongqing University (i)
|
|
|
30,312
|
|
|
|
46,727
|
|
Online
Education School of China Agricultural University of China
(i)
|
|
|
3,617
|
|
|
|
3
|
|
Online
Education School of Beijing Language and Culture University
(i)
|
|
|
20,397
|
|
|
|
17,120
|
|
Online
Education School of Central University of Finance and Economics
(i)
|
|
|
49
|
|
|
|
-
|
|
Former
noncontrolling shareholders of the Company's subsidiaries:
|
|
|
|
|
|
|
|
|
Shanghai
Guangdian Communication Network Co., Ltd.
|
|
|
1,000
|
|
|
|
-
|
|
Company
owned by shareholder or management:
|
|
|
|
|
|
|
|
|
Wellent
Institute of Education International (Asia) Limited
|
|
|
1,000
|
|
|
|
-
|
|
Equity
owners of the Company's subsidiaries:
|
|
|
|
|
|
|
|
|
Wu
Jiayong
|
|
|
30
|
|
|
|
30
|
|
|
|
|
150,472
|
|
|
|
176,802
|
|
|
(i)
|
The
fees for services provided to the online schools are collected on a
periodic basis. The excess amount of revenue recognized over
the cash collection is recorded as amounts due from related
parties.
|
All of
the amounts due from related parties are unsecured and non-interest
bearing. The Group expects the amounts to be received within the next
12 months.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
22. RELATED
PARTY TRANSACTIONS - continued
As of
December 31, 2008 and 2009, the following balances were due to related
parties:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Former
owner of an entity consolidated by the Company:
|
|
|
|
|
|
|
Fourth
Middle School of Anqing (ii)
|
|
|
3,632
|
|
|
|
2,065
|
|
Schools
owned by the noncontrolling shareholders of the Company's
subsidiaries:
|
|
|
|
|
|
|
|
|
Online
Education School of Dongbei University of Finance and Economics
(i)
|
|
|
22,018
|
|
|
|
20,709
|
|
Online
Education School of Chongqing University (i)
|
|
|
79
|
|
|
|
204
|
|
Online
Education School of Central University of Finance and Economics
(i)
|
|
|
40
|
|
|
|
1,003
|
|
Online
Education School of Guangxi Radio and TV University (i)
|
|
|
-
|
|
|
|
19
|
|
Online
Education School of Beijing Language and Culture University
(iii)
|
|
|
-
|
|
|
|
1,668
|
|
|
|
|
25,769
|
|
|
|
25,668
|
|
|
(i)
|
The
amounts represented cash collected on behalf of the related
parties.
|
|
(ii)
|
The
amount primarily represents royalty fees to be
paid.
|
|
(iii)
|
The
amount primarily represents declared dividend which will be paid to
related party.
|
All the
amounts due to related parties are non-interest bearing and
unsecured. The Group expects the amounts to be repaid within one
year.
PRC legal
restrictions permit payments of dividends by the Company's PRC subsidiaries only
out of their retained earnings, if any, determined in accordance with PRC
accounting standards and regulations. Prior to payment of dividends,
pursuant to the laws applicable to the PRC's Foreign Investment Enterprises, the
Company's subsidiaries and variable interest entities in the PRC must make
appropriations from after-tax profit to non-distributable reserve funds as
determined by the Board of Directors of each company. These reserves
include (i) general reserve, (ii) enterprise expansion reserve, and (iii) a
staff bonus and welfare reserve. The PRC subsidiaries and variable interest
entities elected not to make any appropriations to the enterprise expansion
reserve and staff bonus and welfare reserve in any of the years
presented.
CHINAEDU
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
23.
|
STATUTORY
RESERVES - continued
|
Subject
to certain cumulative limits, the general reserve requires annual appropriations
of 10% of after-tax profits (as determined under generally accepted accounting
principles in the PRC ("PRC GAAP") at each year-end); the other reserve
appropriations are at the Company's discretion. These reserves may be
applied against prior year losses, if any, and may be used for business
expansion and increase in registered capital of the subsidiaries. For
the years ended December 31, 2007, 2008 and 2009, the Company's PRC subsidiaries
and variable interest entities made appropriations to the general reserve of
RMB7,540, RMB2,700 and RMB4,064, respectively. For the year ended December 31,
2008, general reserve of RMB5,264 was used to increase registered capital for
one of the Group's subsidiaries, as permitted by PRC law.
24.
|
RESTRICTED
NET ASSETS
|
Relevant
PRC statutory laws and regulations restrict the payments of dividends by the
Company's PRC subsidiaries and variable interest entities from their retained
earnings, if any, as determined in accordance with PRC accounting standards and
regulations. In addition, general reserve (see Note 23) requires
annual appropriations of 10% of after-tax profit should be set aside prior to
the payment of dividends.
As a
result of these PRC laws and regulations, the Company's PRC subsidiaries and
variable interest entities are restricted in their ability to transfer a portion
of their net assets to the Company. As of December 31, 2008 and 2009,
the amounts of restricted net assets were approximately RMB341,505 and
RMB379,725, respectively.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
25.
|
NONCONTROLLING
INTERESTS
|
A summary
of the percentage of noncontrolling interests in the Company's subsidiaries and
variable interest entities as of December 31, 2009 was as follows:
|
|
Date of incorporation
|
|
Percentage of
|
|
Percentage of
|
|
|
|
Name
|
|
or acquisition
|
|
legal ownership
|
|
noncontrolling interests
|
|
Principal activities
|
|
|
|
|
|
|
|
|
|
|
|
CMR
Web-learning Co., Ltd. ("CMR Web")
|
|
July
29, 1999
|
|
70%
|
|
30%
|
|
Online
degree program
|
|
|
|
|
|
|
|
|
|
|
|
Dalian
Dongcai Technology Co., Ltd. ("Dongcai")
|
|
June
4, 2003
|
|
70%
|
|
30%
|
|
Online
degree program
|
|
|
|
|
|
|
|
|
|
|
|
Chongqing
Chongda Yuanxing Co., Ltd. ("Chongda")
|
|
December
24, 2003
|
|
51%
|
|
49%
|
|
Online
degree program
|
|
|
|
|
|
|
|
|
|
|
|
Beijing
Beiyuda Education Technology Co., Ltd. ("Beiyuda")
|
|
September
26, 2006
|
|
51%
|
|
49%
|
|
Online
degree program
|
|
|
|
|
|
|
|
|
|
|
|
Beijing
Mingdaoyuan Technology Co., Ltd. ("Beijing Mingdao")
|
|
March
27, 2007
|
|
51%
|
|
49%
|
|
Online
degree program
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai
Shangcai Education Technology Co., Ltd. ("Shanghai
Shangcai")
|
|
April
18, 2008
|
|
51%
|
|
49%
|
|
Online
degree program
|
|
|
|
|
|
|
|
|
|
|
|
Dongcai
Online Training Center ("Dongcai Online")
|
|
July
10, 2008
|
|
70%
|
|
30%
|
|
Online
degree program
|
|
|
|
|
|
|
|
|
|
|
|
Beijing
Zhonglin Technology Co., Ltd. ("Zhonglin")
|
|
November
3, 2008
|
|
51%
|
|
49%
|
|
Online
degree program
|
|
|
|
|
|
|
|
|
|
|
|
Guangxi
Hongcheng Times Technology Development Co., Ltd. ("Guangxi
Hongcheng")
|
|
February
10, 2009
|
|
51%
|
|
49%
|
|
Online
degree program
|
|
|
|
|
|
|
|
|
|
|
|
Fuzhou
Haojiaoshi Distance Education Service Co., Ltd. ("Fuzhou Good
Teacher")
|
|
December
7, 2009
|
|
51%
|
|
49%
|
|
Online
degree program
|
|
|
|
|
|
|
|
|
|
|
|
Jingzhou
Tianchang Investment Co., Ltd. ("Tianchang")
|
|
September
6, 2005
|
|
72.5%
|
|
27.5%
|
|
Private
primary and secondary schools
|
|
|
|
|
|
|
|
|
|
|
|
Jingzhou
Middle School South Campus ("South Campus")
|
|
December
28, 2005
|
|
54%
|
|
46%
|
|
Private
primary and secondary schools
|
|
|
|
|
|
|
|
|
|
|
|
Beijing
Distance Education Technology Co., Ltd. ("Yuancheng
Education")
|
|
March
31, 2006
|
|
65%
|
|
35%
|
|
Online
tutoring program
|
|
|
|
|
|
|
|
|
|
|
|
Zhong
Nongda Networks Development Co., Ltd. ("Zhongnongda
Networks")
|
|
October
30, 2001
|
|
55%
|
|
45%
|
|
Online
degree program
|
|
26.
|
ADOPTION
OF AUTHORITATIVE GUIDANCE REGARDING NONCONTROLLING
INTEREST
|
Effective
January 1, 2009, the Group adopted authoritative guidance regarding
noncontrolling interests in consolidated financial statements, which clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity and should be reported as equity on the financial
statements. The authoritative guidance requires consolidated net income to be
reported at amounts that include the amounts attributable to both the parent and
the noncontrolling interests. Furthermore, disclosure of the amounts of
consolidated net income attributable to the parent and to the noncontrolling
interests is required on the face of the financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In
thousands, except share-related data)
26.
|
ADOPTION
OF AUTHORITATIVE GUIDANCE REGARDING NONCONTROLLING INTEREST -
continued
|
For the
Group, this authoritative guidance is effective as of the beginning of the year
ended December 31, 2009. However, the adoption of this authoritative guidance
requires retrospective application of the presentation and disclosure
requirements of the standard to all periods presented. Consequently, the Group
adjusted its previously issued financial statements for the years ended December
31, 2007 and 2008, contained in its annual report on Form 20-F for the year
ended December 31, 2008, for the adoption of this authoritative guidance. The
following adjustments have been made:
|
(a)
|
the
noncontrolling interests (previously described as minority interest) has
now been included as a component of total equity whereas previously it was
shown outside of equity;
|
|
(b)
|
the
net income or loss attributable to the noncontrolling interests is now
shown as an allocation of net income for the year rather than being
deducted in arriving at net income;
and
|
|
(c)
|
consolidated
comprehensive income or loss now includes the comprehensive income or loss
attributable to the noncontrolling
interests.
|
On April
21, 2010, the State Administration of Taxation issued Circular 157
Further Clarification on
Implementation of Preferential EIT Rate during Transition Periods
("Circular 157"). Circular 157 seeks to provide additional guidance on the
interaction of certain preferential tax rates under the transitional rules of
the New EIT Law. Prior to Circular 157, the Group interpreted the law to mean
that if an entity was in a period where it was entitled to a 50% reduction in
the tax rate and was also entitled to a 15% rate of tax due to HNTE status under
the New EIT Law then it was entitled to pay tax at the rate of 7.5%. Circular
157 appears to have the effect that such an entity is entitled to pay tax at
either 15% or 50% of the standard PRC tax rate. The effect of Circular 157 is
retrospective and would apply to 2008 and 2009.
As a
consequence of Circular 157, the preferential tax rate enjoyed by Hongcheng
Liye, Hongcheng Education, Gotop Hongcheng, and Beiyuda which each qualified as
a HNTE during their 50% reduction period will be 12.5% for the relevant years
rather than 7.5% which is the rate the Group had used prior to the issuance of
Circular 157. Because the Group believes that Circular 157 is similar to a
change in tax law the cumulative effect of which should be reflected in the
period of the change.
As a
result, the Group will adjust the deferred tax asset and deferred tax liability
as of December 31, 2009 for those impacted entities. The resulting additional
tax charge of RMB680 will be recorded in the quarter ending June 30,
2010.
ADDITIONAL
INFORMATION - FINANCIAL STATEMENT SCHEDULE I
CONDENSED
FINANCIAL INFORMATION OF PARENT COMPANY
BALANCE
SHEETS
(In
thousands, except share-related data)
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
150,578
|
|
|
|
12,379
|
|
|
|
1,814
|
|
Term
deposit
|
|
|
-
|
|
|
|
27,304
|
|
|
|
4,000
|
|
Short-term
investments
|
|
|
-
|
|
|
|
4,706
|
|
|
|
689
|
|
Prepaid
expenses and other current assets
|
|
|
1,258
|
|
|
|
1,464
|
|
|
|
214
|
|
Amounts
due from related parties
|
|
|
70,720
|
|
|
|
61,079
|
|
|
|
8,948
|
|
Total
current assets
|
|
|
222,556
|
|
|
|
106,932
|
|
|
|
15,665
|
|
Investments
in subsidiaries and variable interest entities
|
|
|
381,674
|
|
|
|
464,630
|
|
|
|
68,070
|
|
Total
assets
|
|
|
604,230
|
|
|
|
571,562
|
|
|
|
83,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
expenses and other current liabilities
|
|
|
5,654
|
|
|
|
5,713
|
|
|
|
836
|
|
Amount
due to related parties
|
|
|
5,321
|
|
|
|
1,799
|
|
|
|
263
|
|
Total
current liabilities
|
|
|
10,975
|
|
|
|
7,512
|
|
|
|
1,099
|
|
Deferred
other income
|
|
|
3,426
|
|
|
|
4,077
|
|
|
|
597
|
|
Total
liabilities
|
|
|
14,401
|
|
|
|
11,589
|
|
|
|
1,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares (RMB0.08 (US$0.01) par value;
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000,000
shares authorized; 63,076,129 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
and outstanding in 2008; 55,247,329 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
and outstanding in 2009)
|
|
|
4,573
|
|
|
|
4,076
|
|
|
|
597
|
|
Additional
paid-in capital
|
|
|
734,733
|
|
|
|
673,847
|
|
|
|
98,719
|
|
Warrants
|
|
|
5,555
|
|
|
|
1,883
|
|
|
|
276
|
|
Accumulated
deficits
|
|
|
(134,112
|
)
|
|
|
(99,333
|
)
|
|
|
(14,550
|
)
|
Accumulated
other comprehensive loss
|
|
|
(20,920
|
)
|
|
|
(20,500
|
)
|
|
|
(3,003
|
)
|
Total
equity
|
|
|
589,829
|
|
|
|
559,973
|
|
|
|
82,039
|
|
Total
liabilities and equity
|
|
|
604,230
|
|
|
|
571,562
|
|
|
|
83,735
|
|
ADDITIONAL
INFORMATION - FINANCIAL STATEMENT SCHEDULE I
CONDENSED
FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS
OF OPERATIONS
(In
thousands, except share-related data)
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative (including share-based compensation of RMB1,225,
RMB2,603 and RMB3,707 for 2007, 2008 and 2009,
respectively)
|
|
|
8,176
|
|
|
|
15,016
|
|
|
|
12,887
|
|
|
|
1,888
|
|
Loss
from operations
|
|
|
(8,176
|
)
|
|
|
(15,016
|
)
|
|
|
(12,887
|
)
|
|
|
(1,888
|
)
|
Other
income
|
|
|
394
|
|
|
|
562
|
|
|
|
1,748
|
|
|
|
256
|
|
Interest
income
|
|
|
1,179
|
|
|
|
6,879
|
|
|
|
830
|
|
|
|
122
|
|
Interest
expense
|
|
|
(1,715
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
-
|
|
Equity
in earnings of subsidiaries and variable interest entities (including
share-based compensation of RMB2,418, RMB2,628 and RMB3,709 for 2007, 2008
and 2009, respectively)
|
|
|
10,805
|
|
|
|
(35,444
|
)
|
|
|
45,090
|
|
|
|
6,606
|
|
Net
income (loss)
|
|
|
2,487
|
|
|
|
(43,019
|
)
|
|
|
34,779
|
|
|
|
5,096
|
|
ADDITIONAL
INFORMATION - FINANCIAL STATEMENT SCHEDULE I
CONDENSED
FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS
OF SHAREHOLDERS' DEFICIENCY AND COMPREHENSIVE INCOME (LOSS)
(In
thousands, except share-related data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Series
A convertible
|
|
|
Series
B convertible
|
|
|
Series
C convertible
|
|
|
Series
D convertible
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
preferred
shares
|
|
|
preferred
shares
|
|
|
preferred
shares
|
|
|
preferred
shares
|
|
|
Ordinary
shares
|
|
|
paid-in
|
|
|
Subscription
|
|
|
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
receivable
|
|
|
Warrants
|
|
|
deficits
|
|
|
income
(loss)
|
|
|
Total
|
|
|
income
(loss)
|
|
|
|
|
|
|
RMB
|
|
|
|
|
|
RMB
|
|
|
|
|
|
RMB
|
|
|
|
|
|
RMB
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2007
|
|
|
5,150,000
|
|
|
|
426
|
|
|
|
12,140,495
|
|
|
|
1,005
|
|
|
|
3,378,379
|
|
|
|
272
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,007,408
|
|
|
|
1,710
|
|
|
|
343,167
|
|
|
|
(1,117
|
)
|
|
|
8,076
|
|
|
|
(89,836
|
)
|
|
|
616
|
|
|
|
264,319
|
|
|
|
|
|
Issuance
of Series D convertible preferred shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,598,503
|
|
|
|
200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,322
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,522
|
|
|
|
|
|
Repurchase
of ordinary share as treasury stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,300,000
|
)
|
|
|
(178
|
)
|
|
|
(49,869
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,047
|
)
|
|
|
|
|
Issuance
of treasury shares to new shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,300,000
|
|
|
|
178
|
|
|
|
49,869
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,047
|
|
|
|
|
|
Collection
of subscription receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,117
|
|
|
|
|
|
Amortization
of share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,643
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,643
|
|
|
|
|
|
Accumulated
adjustment of unrecognized tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,744
|
)
|
|
|
-
|
|
|
|
(3,744
|
)
|
|
|
|
|
Repurchase
and cancellation of ordinary shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(600,000
|
)
|
|
|
(46
|
)
|
|
|
(12,767
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,813
|
)
|
|
|
|
|
Repurchase
and cancellation of Series B convertible preferred shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(30,000
|
)
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(638
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(640
|
)
|
|
|
|
|
Exercise
of warrants for Series A convertible preferred shares
|
|
|
300,000
|
|
|
|
23
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,386
|
|
|
|
-
|
|
|
|
(1,235
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,174
|
|
|
|
|
|
Exercise
warrants for ordinary shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
121,622
|
|
|
|
9
|
|
|
|
2,126
|
|
|
|
-
|
|
|
|
(471
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,664
|
|
|
|
|
|
Conversion
of series A, B, C, D preferred shares
|
|
|
(5,450,000
|
)
|
|
|
(449
|
)
|
|
|
(12,110,495
|
)
|
|
|
(1,003
|
)
|
|
|
(3,378,379
|
)
|
|
|
(272
|
)
|
|
|
(2,598,503
|
)
|
|
|
(200
|
)
|
|
|
23,537,377
|
|
|
|
1,924
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Issuance
of ordinary shares on IPO (net of insurance cost of
RMB25,665)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,368,000
|
|
|
|
1,208
|
|
|
|
347,619
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
348,827
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,822
|
)
|
|
|
(2,822
|
)
|
|
|
(2,822
|
)
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,487
|
|
|
|
-
|
|
|
|
2,487
|
|
|
|
2,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58,434,407
|
|
|
|
4,805
|
|
|
|
760,858
|
|
|
|
-
|
|
|
|
6,370
|
|
|
|
(91,093
|
)
|
|
|
(2,206
|
)
|
|
|
678,734
|
|
|
|
(335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares converted to ADS shares for future exercise of share
options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,344,305
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization
of share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,231
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,231
|
|
|
|
|
|
Repurchase
of ordinary shares and forfeiture of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,702,583
|
)
|
|
|
(253
|
)
|
|
|
(33,122
|
)
|
|
|
-
|
|
|
|
(815
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(34,190
|
)
|
|
|
|
|
Exercise
of share options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
1,766
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,787
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,714
|
)
|
|
|
(18,714
|
)
|
|
|
(18,714
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(43,019
|
)
|
|
|
-
|
|
|
|
(43,019
|
)
|
|
|
(43,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63,076,129
|
|
|
|
4,573
|
|
|
|
734,733
|
|
|
|
-
|
|
|
|
5,555
|
|
|
|
(134,112
|
)
|
|
|
(20,920
|
)
|
|
|
589,829
|
|
|
|
(61,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,416
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,416
|
|
|
|
|
|
Repurchase
of ordinary shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,828,800
|
)
|
|
|
(536
|
)
|
|
|
(76,098
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(76,634
|
)
|
|
|
|
|
Forfeiture
of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,672
|
|
|
|
-
|
|
|
|
(3,672
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercise
of share options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39
|
|
|
|
4,124
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,163
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
276
|
|
|
|
276
|
|
|
|
276
|
|
Unrealized
gains
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
144
|
|
|
|
144
|
|
|
|
144
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,779
|
|
|
|
-
|
|
|
|
34,779
|
|
|
|
34,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,247,329
|
|
|
|
4,076
|
|
|
|
673,847
|
|
|
|
-
|
|
|
|
1,883
|
|
|
|
(99,333
|
)
|
|
|
(20,500
|
)
|
|
|
559,973
|
|
|
|
35,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
597
|
|
|
US$
|
98,719
|
|
|
|
|
|
|
US$
|
276
|
|
|
US$
|
(14,550
|
)
|
|
US$
|
(3,003
|
)
|
|
US$
|
82,039
|
|
|
|
|
|
CHINAEDU
CORPORATION
ADDITIONAL
INFORMATION - FINANCIAL STATEMENT SCHEDULE I
CONDENSED
FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS
OF CASH FLOWS
(In
thousands, except share-related data)
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
2,487
|
|
|
|
(43,019
|
)
|
|
|
34,779
|
|
|
|
5,096
|
|
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based compensation
|
|
|
1,225
|
|
|
|
2,603
|
|
|
|
3,707
|
|
|
|
543
|
|
Gain
on conversion of warrants of series D convertible preferred
shares
|
|
|
(394
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest
expense
|
|
|
1,715
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Equity
in earnings of subsidiaries and variable interest entities
|
|
|
(10,805
|
)
|
|
|
35,444
|
|
|
|
(45,090
|
)
|
|
|
(6,606
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
717
|
|
|
|
(861
|
)
|
|
|
(205
|
)
|
|
|
(30
|
)
|
Amounts
due from related parties
|
|
|
(1,302
|
)
|
|
|
(3,929
|
)
|
|
|
9,608
|
|
|
|
1,408
|
|
Accrued
expense and other liabilities
|
|
|
7,767
|
|
|
|
(6,985
|
)
|
|
|
57
|
|
|
|
8
|
|
Amount
due to a related party
|
|
|
1,479
|
|
|
|
821
|
|
|
|
(3,522
|
)
|
|
|
(516
|
)
|
Deferred
revenue
|
|
|
-
|
|
|
|
3,435
|
|
|
|
648
|
|
|
|
95
|
|
Net
cash provided by (used in) operating activities
|
|
|
2,889
|
|
|
|
(12,491
|
)
|
|
|
(18
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in subsidiaries and variable interest entities
|
|
|
(62,505
|
)
|
|
|
(116,671
|
)
|
|
|
(34,156
|
)
|
|
|
(5,002
|
)
|
Purchase
of term deposits
|
|
|
-
|
|
|
|
-
|
|
|
|
(27,298
|
)
|
|
|
(4,000
|
)
|
Purchase
of investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,568
|
)
|
|
|
(669
|
)
|
Net
cash used in investing activities
|
|
|
(62,505
|
)
|
|
|
(116,671
|
)
|
|
|
(66,022
|
)
|
|
|
(9,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from IPO (net of issuance cost of RMB25,665)
|
|
|
348,827
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from issuance of Series D convertible preferred shares (net of issuance
costs of RMB2,598)
|
|
|
72,033
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from exercise of warrants
|
|
|
3,838
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Repurchase
and cancellation of Series B convertible preferred shares
|
|
|
(640
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Repurchase
and cancellation of ordinary shares
|
|
|
(12,813
|
)
|
|
|
(34,190
|
)
|
|
|
(76,634
|
)
|
|
|
(11,226
|
)
|
Repayment
of convertible notes
|
|
|
(27,783
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Collection
of subscription receivable
|
|
|
1,117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from exercise of share options
|
|
|
-
|
|
|
|
1,787
|
|
|
|
4,163
|
|
|
|
610
|
|
Net
cash provided by (used in) financing activities
|
|
|
384,579
|
|
|
|
(32,403
|
)
|
|
|
(72,471
|
)
|
|
|
(10,616
|
)
|
Effect
of exchange rate changes
|
|
|
(4,930
|
)
|
|
|
(19,182
|
)
|
|
|
312
|
|
|
|
43
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
320,033
|
|
|
|
(180,747
|
)
|
|
|
(138,199
|
)
|
|
|
(20,246
|
)
|
Cash
and cash equivalents, beginning of year
|
|
|
11,292
|
|
|
|
331,325
|
|
|
|
150,578
|
|
|
|
22,060
|
|
Cash
and cash equivalents, end of year
|
|
|
331,325
|
|
|
|
150,578
|
|
|
|
12,379
|
|
|
|
1,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible notes into Series D preferred shares
|
|
|
2,489
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Conversion
of Series A,B,C,D preferred shares into ordinary shares
|
|
|
1,924
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
CHINAEDU
CORPORATION
NOTES
TO ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I
CONDENSED
FINANCIAL INFORMATION OF PARENT COMPANY
(In
thousands, except share-related data)
The
condensed financial information of the Company has been prepared using the same
accounting policies as set out in the Company's consolidated financial
statements, except that the Company used the equity method to account for
investments in its subsidiaries and variable interest entities.
2.
|
INVESTMENTS
IN SUBSIDIARIES AND VARIABLE INTEREST
ENTITIES
|
The
Company and its subsidiaries and variable interest entities are included in the
consolidated financial statements where the inter-company balances and
transactions are eliminated upon consolidation. For the purpose of
the Company's stand-alone financial statements, its investments in subsidiaries
and variable interest entities are reported using the equity method of
accounting. The Company's share of income and losses from its
subsidiaries and variable interest entities is reported as earnings from
subsidiaries and variable interest entities in the accompanying condensed
financial information of the parent company.
The
Company is a Cayman Islands company, and therefore is not subject to income
taxes for all the years presented.
4.
|
RELATED
PARTY TRANSACTIONS
|
The
following represents related party balances as of December 31, 2008 and 2009:
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB
|
|
|
RMB
|
|
Amounts
due from related parties:
|
|
|
|
|
|
|
Former
director-Yang Xueshan (i)
|
|
|
14,840
|
|
|
|
14,840
|
|
Vice
President-Xie Changqing (i)
|
|
|
39,360
|
|
|
|
39,360
|
|
CMR
Web (ii)
|
|
|
12,026
|
|
|
|
4,249
|
|
Hongcheng
Liye
|
|
|
2,754
|
|
|
|
2,499
|
|
Others
|
|
|
1,740
|
|
|
|
131
|
|
|
|
|
70,720
|
|
|
|
61,079
|
|
|
|
|
|
|
|
|
|
|
Amount
due to related parties:
|
|
|
|
|
|
|
|
|
Hongcheng
Technology
|
|
|
5,121
|
|
|
|
1,380
|
|
Others
|
|
|
200
|
|
|
|
419
|
|
|
|
|
5,321
|
|
|
|
1,799
|
|
|
(i)
|
The
amounts represent loans to the two equity owners of Hongcheng
Education.
|
|
(ii)
|
The
amount represents the receivable of profit distribution from a subsidiary
company.
|