ACQUISITIONS

For the year ended December 31, 2012

Acquisition of CAH

As a part of the Group's business expansion strategy to expand into hospital services in the PRC, on June 21, 2012, the Company, through its wholly owned subsidiaries MSC and Cyber, purchased 52% equity interest of CAH, a private general hospital located in the City of Xi'an, through capital injection into CAH, for a total cash consideration of RMB248,784. The cash consideration was net of the pre-existing receivables of RMB128,573, which were effectively settled between the Group and CAH upon acquisition and preexisting favorable agreements to the Company with a fair value of RMB1,248.


	RMB			US$
Purchase consideration		378,605			60,770
Cash		248,784			39,933
Pre-existing receivables from CAH		128,573			20,637
Pre-existing favorable agreements		1,248			200

	RMB			US$
Purchase consideration		378,605			60,770
Current assets		72,188			11,587
Indemnification assets		61,706			9,904
Intangible assets		40,000			6,420
Other long lived assets (excluding intangible assets)		421,598			67,672
Current liabilities		(186,484	)		(29,933	)
Unrecognized tax benefits, non current		(61,706	)		(9,904	)
Non-current liabilities		(56,439	)		(9,059	)
Deferred tax assets		17,299			2,777
Deferred tax liabilities		(26,263	)		(4,216	)

Total net assets		281,899			45,248
Noncontrolling interests		(196,179	)		(31,489	)
Goodwill		292,885			47,011

There were pre-existing agreements between the Group and CAH as at the acquisition date. There were no terms of settlement provision in these agreements. The Group recognized a gain from the settlement of these pre-existing agreements with its acquisition date fair value and concurrently adjusted the consideration of the business combination by RMB1,248. The gain from the settlement of the pre-existing agreements was recorded in the "other operating income" in the consolidated statements of comprehensive income.

As at the acquisition date, the Group had outstanding balances due from CAH of RMB128,573. Meanwhile, CAH had the corresponding RMB128,573 payables to the Group. The consideration transferred for the business combination was adjusted by the previously recognized amount which was effectively settled upon acquisition and there was no impact to the consolidated statements of comprehensive income or goodwill account.

The valuation used in the purchase price allocation described above was determined by the Company with the assistance of an independent third party valuation firm. The valuation report utilizes and considers generally accepted valuation methodologies including the income, market and cost approach.

The Company has evaluated the fair value of the acquired intangible assets and has assigned the following value and the estimated useful lives to those intangible assets: medical insurance coverage qualification of RMB30,000 (US$4,815) with a 10-year estimated useful life, which is based CAH's remaining business license period and radiotherapy permits of RMB10,000 (US$1,605) with a 7-year estimated useful life, which is based on the remaining estimated useful lives of radiotherapy equipment.

Pursuant to the terms of the acquisition, New Chang'an, the sole shareholder of CAH before the acquisition and noncontrolling shareholder after the acquisition, made an undertaking that it would be responsible for tax liabilities of CAH arising from the period before the acquisition. Such indemnification assets were recognized at the same time that the Group recognized the indemnified item of tax liabilities, measured on the same basis as such liabilities, subject to the need for a valuation allowance for uncollectible amounts.

The tax liabilities, related to uncertain tax positions in CAH up to the acquisition date, amounted to RMB61,706, mainly arising from the deductibility of certain losses claimed in the previous tax filings. In March 2013, CAH submitted documentation related to claims amounting RMB174,576 (impact of tax amount of RMB43,644) to the local tax bureau with respect to losses incurred in the previous years. The local tax bureau accepted the claim, pending the final approval. The initial accounting of the uncertain tax positions is provisional and incomplete because the Group has yet completed its assessment of the tax liabilities prior to the acquisition date.

Accordingly, the initial accounting of the indemnification assets is also provisional and incomplete. In addition, as described in note 26, the amount due to Shaanxi Juntai Real Estate Co., Ltd. ("Shaanxi Juntai"), a related party of New Chang'an, of RMB19,301 will only be settled in 2014 pending the finalization of the outstanding balances among CAH, New Chang'an and the related party. The Group hence considers that the indemnification assets up to RMB19,301 is recoverable. The remaining amount is effectively unsecured and is subject to adjustments depending on the outcome of the finalized assessment of the valuation allowance required.

Based on the acquisition agreement, a put option was issued by New Chang'an pursuant to which the Company could put all its equity interests in CAH to New Chang'an with a consideration which should be not less than the original cost, including the consideration of the acquisition of CCICC in 2010. This Put Option will expire after 39 months from the date on which the Company legally becomes a shareholder of CAH. Based on the Company's assessment, the fair value of the Put Option was immaterial considering the likelihood of exercising the option and the corresponding expected benefits.

The goodwill which is not tax deductible is primarily attributable to synergies expected to be achieved from the acquisition. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired, the liabilities assumed and the noncontrolling interest. The goodwill arising from the acquisition of CAH was assigned to the hospital segment and there was no impairment in the amount of goodwill resulting from the acquisition of CAH.

The Group derived the fair value of the acquired business as a whole, which included a control premium and subtract the consideration transferred by the Group for the controlling interest to identify the fair value of the noncontrolling interest. There were no significant acquisition related costs.

The following unaudited pro forma consolidated financial information for the years ended December 31, 2010, 2011 and 2012 are presented as if the acquisition had occurred at the beginning of the periods presented. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisition actually taken place on the date indicated.


	Pro forma (unaudited)
	For the Years Ended December 31,
	2010		2011			2012		2012
	RMB		RMB			RMB		US$
Net revenues		506,269		653,335			812,178		130,364

Net income (loss)		67,520		(433,493	)		117,104		18,796

The results of operations of CAH since the acquisition date included in the consolidated statement of comprehensive income for the year ended December 31, 2012 is as follows:


	RMB		US$
Net revenues		197,309		31,670
Net income		13,036		2,092

For the year ended December 31, 2011

Acquisition of a medical center in Chengdu Military Hospital

In order to expand the Group's network in cancer radiotherapy and diagnosis, on January 10, 2011, the Group acquired certain medical equipment and the related business located in Chengdu Military Hospital in Chengdu, PRC from a third party for a cash consideration of RMB18,000. These acquired assets and activities were considered to constitute businesses in accordance with ASC 805.

The Group, with the assistance of an independent appraiser, determined the fair value of the intangible assets to be approximately RMB7,963. The Company amortizes acquisition related intangible assets on a straight basis over their estimated economic lives.

Unaudited pro forma consolidated financial information has not been provided due to the overall insignificance of the acquisition relative to the Company's results of operations and financial condition. The results of the operations have been included in the Company's consolidated financial statements since consummation of the acquisition.

Acquisition of a medical center in Chengdu Military Hospital (continued)

The purchase price allocation for the acquisition is primarily based on valuations determined by the Group with the assistance of an independent appraiser. The purchase price was allocated to net assets acquired at estimated fair value as follows:


	RMB

Current assets		3,465
Property, plant and equipment		6,600
Contract with hospitals		7,963
Deferred tax assets		1,984
Deferred tax liabilities		(2,012	)


Total purchase price allocated		18,000

Cash consideration		18,000

For the year ended December 31, 2010

Acquisition of TKM

TKM was established in Tianjin, the PRC, on November 16, 2007 as a limited liability company. The registered and paid-in capital of TKM amounted to RMB5,000. Similarly, TKM is principally engaged in the provision of leasing of medical equipment and management services. On April 22, 2010, the Group consummated 100% of the equity interest of TKM for RMB42,000 and contingent consideration of up to RMB18,000 based on the achievement of pre-determined net profit and accumulated net profit targets of the existing contracts entered into by TKM up to March 2013. The acquisition of TKM was designed to strengthen the Group's presence in northern China, an important market for the Group's business.

The contingent consideration has been recorded at its present value of RMB16,536 at the date of acquisition, and subsequently remeasured to fair value at each reporting date until the contingency is resolved, with changes in fair value recognized in the consolidated statement of comprehensive income. As at December 31, 2010 and 2011, RMB14,072 and RMB11,999 (US$1,906) was recorded in "Contingent business acquisition consideration", respectively.

The Group, with the assistance of an independent appraiser, determined the fair value of the acquired intangible assets to be approximately RMB22,579. The Company amortizes acquisition related intangible assets on a straight basis over their estimated economic lives.

Unaudited pro forma consolidated financial information has not been provided due to the overall insignificance of the acquisition relative to the Company's results of operations and financial condition for the year ended December 31, 2010. The results of TKM's operations have been included in the Company's consolidated financial statements since consummation of the acquisition.


	RMB

Current assets		4
Property, plant and equipment		41,217
Contract with hospitals		22,579
Deferred tax assets		381
Deferred tax liabilities		(5,645	)


Total purchase price allocated		58,536

Acquisition of CCICC

CCICC was established in Xi'an, the PRC on March 2, 2009 as a limited liability company. The registered and paid-in capital of CCICC amounted to RMB150,000. On July 6, 2010, the Group consummated 52% of the equity interest of CCICC for total consideration of approximately RMB103,181. The transaction was accounted for as an acquisition of assets pursuant to ASC 805, given the assets acquired consisted mainly of a building and prepaid land lease payments and did not constitute a business. The carrying value of the acquired assets were allocated based on their relative fair value, and subsequently depreciated or amortized over the straight line method over their respective estimated economic lives.

Including:

cash consideration

fair value of contingent consideration