Attached files
Exhibit 99.1
CHINDEX INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 2010 AND
SIX MONTHS ENDED SEPTEMBER 30, 2010
Introduction
Chindex International, Inc. (“Chindex”) and Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“Fosun Pharma”), a leading manufacturer and distributor of western and Chinese medicine and devices in China, announced the formation of a joint venture to independently operate certain combined medical device businesses, including Chindex’s Medical Products division. The formation of the joint venture represents a basis of the strategic alliance between the two companies, which aims to capitalize on the long-term opportunity presented by medical product sectors in China.
The joint venture entity, Chindex Medical Limited (the “Joint Venture”), a Hong Kong entity, will focus on marketing, distributing, selling and servicing medical devices in China, including in Hong Kong, as well as activities in R&D and manufacturing of medical devices for the Chinese and export markets. The Joint Venture is owned 51% by Fosun Pharma and 49% by Chindex.
The Joint Venture owns the Chindex-contributed businesses (principally the Medical Products division) and is entitled to a pending and obligatory final investiture of the Fosun Pharma-contributed businesses. The Fosun Pharma-contributed businesses have been segregated and, until such investiture, will be operated and managed by the Joint Venture under an entrustment arrangement. Such investiture will be finished once all requisite governmental and other approvals and other closing conditions have been satisfied.
Fosun Pharma has a controlling financial interest in the Joint Venture. Accordingly, Chindex will deconsolidate its Medical Products Division, effective December 31, 2010. The Joint Venture will commence operations on January 1, 2011, and Chindex will then follow the equity method of accounting to recognize its interest in the earnings of the joint venture on an on-going basis.
The following unaudited pro forma condensed consolidated financial statements and accompanying notes present the financial statements of the Company assuming the transaction occurred as of September 30, 2010 with respect to the Unaudited Pro Forma Condensed Consolidated Balance Sheet and as of April 1, 2009 with respect to the Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six months ended September 30, 2010 and the year ended March 31, 2010.
The adjustments presented in the unaudited pro forma condensed consolidated financial statements are based on currently available information and certain estimates and assumptions. Therefore, actual results may differ from the pro forma adjustments. However, management believes that the estimates and assumptions used provide a reasonable basis for presenting the significant effects of the transaction. Management also believes the pro forma adjustments give appropriate effect to the estimates and assumptions and are applied in conformity with U.S. generally accepted accounting principles.
CHINDEX INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2010
(in thousands of U.S. Dollars)
|
Historical
Consolidated
Chindex
|
Pro Forma
Adjustments:
Deconsolidate
MPD
Division
|
[a] |
Pro Forma
Consolidated
Chindex
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|||||||||||
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Current Assets:
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||||||||||||||
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Cash and cash equivalents
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$ | 52,579 | $ | (6,415 | ) | $ | 46,164 | |||||||
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Restricted cash
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2,859 | (1,873 | ) | 986 | ||||||||||
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Investments
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39,704 | - | 39,704 | |||||||||||
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Accounts receivable
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33,052 | (21,711 | ) | 11,341 | ||||||||||
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Inventories, net
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17,238 | (15,912 | ) | 1,326 | ||||||||||
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Deferred income taxes
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3,118 | (199 | ) | 2,919 | ||||||||||
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Other current assets
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3,614 | (1,958 | ) | 1,656 | ||||||||||
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Total current assets
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152,164 | (48,068 | ) | 104,096 | ||||||||||
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Restricted cash and sinking funds
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980 | (698 | ) | 282 | ||||||||||
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Investments in marketable securities
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2,441 | - | 2,441 | |||||||||||
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Receivables from affiliates
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- | 10,283 | [b] | 10,283 | ||||||||||
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Investment in joint venture
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- | - | [c] | - | ||||||||||
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Property and equipment, net
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30,865 | (532 | ) | 30,333 | ||||||||||
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Noncurrent deferred income taxes
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310 | - | 310 | |||||||||||
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Other assets
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2,866 | (456 | ) | 2,410 | ||||||||||
| $ | 189,626 | $ | (39,471 | ) | $ | 150,155 | ||||||||
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Current Liabilities:
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||||||||||||||
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Accounts payable
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$ | 16,825 | $ | (14,219 | ) | $ | 2,606 | |||||||
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Accrued expenses
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10,876 | (4,773 | ) | 6,103 | ||||||||||
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Other current liabilities
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4,739 | (2,352 | ) | 2,387 | ||||||||||
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Deferred revenue
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2,664 | (2,664 | ) | - | ||||||||||
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Income taxes payable
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2,034 | (304 | ) | 1,730 | ||||||||||
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Total current liabilities
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37,138 | (24,312 | ) | 12,826 | ||||||||||
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Long-term debt
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22,894 | - | 22,894 | |||||||||||
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Long-term accrued liabilities
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126 | (126 | ) | - | ||||||||||
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Long-term deferred revenue
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784 | (784 | ) | - | ||||||||||
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Long-term deferred tax liabilities
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240 | - | 240 | |||||||||||
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Total liabilities
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61,182 | (25,222 | ) | 35,960 | ||||||||||
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Preferred stock
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- | - | - | |||||||||||
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Common stock
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149 | - | 149 | |||||||||||
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Common stock, Class B
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12 | - | 12 | |||||||||||
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Additional paid-in capital
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114,645 | (6,527 | ) | 108,118 | ||||||||||
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Accumulated other comprehensive income
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4,089 | (884 | ) | 3,205 | ||||||||||
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Retained earnings
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9,549 | (6,838 | ) | 2,711 | ||||||||||
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Total stockholders’ equity
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128,444 | (14,249 | ) | 114,195 | ||||||||||
| $ | 189,626 | $ | (39,471 | ) | $ | 150,155 | ||||||||
CHINDEX INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended September 30, 2010
(in thousands except share data)
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Historical
Consolidated
|
Pro Forma
Adjustments:
Deconsolidate
MPD
Division
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[a] |
Pro Forma
Consolidated
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|||||||||||
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Product Sales
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$ | 38,552 | $ | (38,552 | ) | $ | - | |||||||
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Healthcare Services Revenue
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48,110 | - | 48,110 | |||||||||||
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Total revenue
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86,662 | (38,552 | ) | 48,110 | ||||||||||
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Cost of product sales
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26,756 | (26,756 | ) | - | ||||||||||
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Cost of healthcare services
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36,952 | - | 36,952 | |||||||||||
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Selling & marketing
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7,868 | (7,868 | ) | - | ||||||||||
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General & administrative
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8,360 | (5,129 | ) | 3,231 | ||||||||||
| 79,936 | (39,753 | ) | 40,183 | |||||||||||
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Operating income
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6,726 | 1,201 | 7,927 | |||||||||||
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Interest expense
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(420 | ) | 5 | (415 | ) | |||||||||
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Interest income
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273 | (35 | ) | 238 | ||||||||||
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Equity in earnings of joint venture
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- | - | [c] | - | ||||||||||
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Other
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3 | 40 | 43 | |||||||||||
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Income (loss) before taxes
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6,582 | 1,211 | 7,793 | |||||||||||
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Tax (expense) benefit
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(2,509 | ) | 128 | [e] | (2,381 | ) | ||||||||
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Net income (loss)
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$ | 4,073 | $ | 1,339 | $ | 5,412 | ||||||||
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EPS - Basic
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$ | 0.27 | $ | 0.36 | ||||||||||
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Weighted average shares outstanding
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15,000,464 | 15,000,464 | ||||||||||||
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EPS - Diluted
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$ | 0.26 | $ | 0.34 | ||||||||||
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Weighted average shares outstanding
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16,399,650 | 16,399,650 | ||||||||||||
CHINDEX INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended March 31, 2010
(in thousands except share data)
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Historical
Consolidated
|
Pro Forma
Adjustments:
Deconsolidate
MPD
Division
|
[a] |
Pro Forma
Consolidated
|
|||||||||||
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Product Sales
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$ | 85,413 | $ | (85,413 | ) | $ | - | |||||||
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Healthcare Services Revenue
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85,778 | - | 85,778 | |||||||||||
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Total revenue
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171,191 | (85,413 | ) | 85,778 | ||||||||||
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Cost of product sales
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62,059 | (62,059 | ) | - | ||||||||||
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Cost of healthcare services
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66,467 | - | 66,467 | |||||||||||
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Selling & marketing
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14,361 | (14,361 | ) | - | ||||||||||
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General & administrative
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13,892 | (9,346 | ) | 4,546 | ||||||||||
| 156,779 | (85,766 | ) | 71,013 | |||||||||||
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Operating income
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14,412 | 353 | 14,765 | |||||||||||
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Interest expense
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(983 | ) | 12 | (971 | ) | |||||||||
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Interest income
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1,487 | (108 | ) | 1,379 | ||||||||||
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Equity in earnings of joint venture
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- | - | [c] | - | ||||||||||
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Other
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(616 | ) | (357 | ) | (973 | ) | ||||||||
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Income (loss) before taxes
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14,300 | (100 | ) | 14,200 | ||||||||||
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Tax (expense) benefit
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(6,096 | ) | 1,199 | [e] | (4,897 | ) | ||||||||
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Net income (loss)
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$ | 8,204 | $ | 1,099 | $ | 9,303 | ||||||||
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EPS - Basic
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$ | 0.56 | $ | 0.64 | ||||||||||
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Weighted average shares outstanding
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14,579,759 | 14,579,759 | ||||||||||||
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EPS - Diluted
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$ | 0.52 | $ | 0.59 | ||||||||||
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Weighted average shares outstanding
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16,132,339 | 16,132,339 | ||||||||||||
CHINDEX INTERNATIONAL, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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1.
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Basis of Presentation
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The historical amounts as of and for the six months ended September 30, 2010 and for the year ended March 31, 2010 are derived from and should be read in conjunction with the Company’s Form 10-K for the year ended March 31, 2010, filed on June 14, 2010, and Form 10-Q for the six months ended September 30, 2010, which was filed on November 8, 2010.
On December 28, 2010, Chindex International, Inc. (“Chindex”) and Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“Fosun Pharma”), a leading manufacturer and distributor of western and Chinese medicine and devices in China, announced the formation of a joint venture to independently operate certain combined medical device businesses, including Chindex’s Medical Products division (MPD). The formation of the joint venture represents a basis of the strategic alliance between the two companies, which aims to capitalize on the long-term opportunity presented by medical product sectors in China. The joint venture entity, Chindex Medical Limited (the “Joint Venture”), a Hong Kong entity, will focus on marketing, distributing, selling and servicing medical devices in China, including in Hong Kong, as well as activities in R&D and manufacturing of medical devices for the Chinese and export markets. The Joint Venture is owned 51% by Fosun Pharma and 49% by Chindex.
The Joint Venture owns the Chindex-contributed businesses (principally the Medical Products division) and is entitled to a pending and obligatory final investiture of the Fosun Pharma-contributed businesses. The Fosun Pharma-contributed businesses have been segregated and, until such investiture, will be operated and managed by the Joint Venture under an entrustment arrangement. Such investiture will be finished once all requisite governmental and other approvals and other closing conditions have been satisfied.
Fosun Pharma has a controlling financial interest in the Joint Venture. Accordingly, Chindex will deconsolidate its Medical Products Division, effective December 31, 2010. Chindex expects to record a gain or loss upon the deconsolidation of MPD, but the amount has not yet been determined. The Joint Venture will commence operations on January 1, 2011, and Chindex will then follow the equity method of accounting to recognize its interest in the earnings of the joint venture on an on-going basis.
The steps to form the joint venture include (1) the contribution of the Chindex MPD division to the newly-formed joint venture, (2) the contribution by Fosun Pharma of a secured note to the joint venture, and, upon receipt of certain government approvals expected in the first half of 2011, the contribution of the Fosun Phama medical device companies to the joint venture and the cancellation of the secured note. During the period between closing of the joint venture in December 2010 and final government approval, the joint venture will control and operate the Fosun medical device companies under an entrustment agreement. Accordingly, Chindex has prepared this Form 8-K to reflect only the “disposal” of the Chindex MPD business. Chindex expects to prepare an additional Form 8-K within approximately 71 days to reflect the “acquisition” of the investment in the joint venture.
The pro forma adjustments in the accompanying Unaudited Pro Forma Condensed Consolidated Balance Sheet have been prepared as if the closing of the Chindex Medical Limited Joint Venture was completed on September 30, 2010. The pro forma adjustments in the accompanying Unaudited Pro Forma Condensed Consolidated Statements of Operations have been prepared as if the Closing of the Chindex Medical Limited Joint Venture was completed on April 1, 2009. The Unaudited Pro Forma Condensed Consolidated Financial Statements do not contend to be indicative of the financial position or results of the Company’s operations as of such dates or for such periods, nor are they necessarily indicative of future results.
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2.
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Pro Forma Adjustments and Assumptions
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The Unaudited Pro Forma Condensed Consolidated Financial Statements give pro forma effect to the following:
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(a)
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Reflects the deconsolidation of the Chindex Medical Products Division (MPD) upon the formation of the Chindex Medical Limited joint venture.
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(b)
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Receivables from affiliates represent amounts due to Chindex International, Inc. from the previously wholly-owned MPD entities which have been deconsolidated and contributed to the joint venture.
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(c)
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The pro forma investment in the Chindex Medical Limited joint venture has not been reflected in this Form 8-K, but is expected to be reflected in a subsequent Form 8-K that will be filed within approximately 71 days and reflect the acquisition of the interest in the joint venture on a pro forma basis.
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(d)
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The equity in the pro forma earnings of the Chindex Medical Limited joint venture has not been reflected in this form 8-K, but is expected to be reflected in a subsequent Form 8-K that will be filed in approximately 71 days and reflect the pro forma earnings of the interest in the joint venture.
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(e)
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The effective tax rate for MPD differs significantly from the statutory rates in the U.S. and China due to the effect of losses in entities for which no tax benefit is recognized.
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