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Loeb
& Loeb LLP
345
Park Avenue
New
York, NY 10154-1895
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Direct
212.407.4000
Main
212.407.4000
Fax
212.407.4990
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VIA EDGAR
October
4, 2010
Tia
Jenkins
Securities
and Exchange Commission
100 F
Street, N.E.
Washington,
D.C. 20549
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Re:
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China
Cord Blood Corporation
Form
20-F for the Year Ended March 31, 2010
Filed
July 16, 2010
File No.
001-34541
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Dear Ms.
Jenkins:
On behalf
of our client, China Cord Blood Corporation, a Cayman Islands corporation (the
“Company”), we hereby provide responses to comments issued on September 24, 2010
regarding the Company’s Annual Report on Form 20-F for the fiscal year ended
March 31, 2010 (the “Annual Report”) and addressed to the Company’s Chief
Financial Officer, Mr. Albert Chen (the “Staff’s Letter”).
In order
to facilitate your review we have responded to each of the comments set forth in
the Staff’s Letter on a point-by-point basis. The numbered paragraphs
set forth below respond to the Staff’s comments and correspond to the numbered
paragraphs in the Staff’s Letter and all page references are to the Annual
Report.
[remainder of page intentionally left
blank]
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Tia
Jenkins
October
4, 2010
Page
2
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Form 20-F for the Year Ended
March 31, 2010
General
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1.
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We
remind you to provide us the acknowledgements listed in the closing
comments of our letter.
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| COMPANY RESPONSE: The acknowledgements referenced in the Staff’s comment are included at the end of this letter. |
Critical Accounting
Policies, page 70
Valuation of Inventories,
page 72
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2.
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We
note your response to comment nine of our letter dated August 19,
2010. Please expand your discussion of critical accounting
estimates related to valuation of inventories to quantify your estimates
of growth in the number of matches and explain the basis for your
estimates. Furthermore, please describe the range of years you
estimate it will take for you to recover the costs capitalized in
inventory.
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| COMPANY RESPONSE: | ||
| We propose to revise the disclosure under the heading “Valuation of inventories” on page 73 as follows: | ||
| “[. . .] The number of cord blood units that can be matched for a fee involves estimates of the future demand for cord blood units for transplants, the probability of finding a match in light of number of donated cord blood units stored and our industry knowledge. As of March 31, 2010, the weighted average remaining useful life of the donated cord blood units was estimated to be at least 19 years. Based on the historical increase in the number of cord blood matching inquiries and the number of successful matches of donated units, the Company estimates the number of successful matches of donated units will increase by 7% to 10% per annum. Based on the estimation, the carrying amount of the donated units will be recovered in approximately 13 years. If medical research discovers new and more effective medical procedures that make cord blood transplants more effective, or if medical research discovers more diseases that cord blood transplants can be used to treat, the estimated number of cord blood units that can be matched may increase. Conversely, if there are no new developments in medical science to overcome some of the current technical and therapeutic limitations on the use of cord blood in medical treatment, the estimated number of cord blood units that can be matched may decrease. Any of the estimation variables which differ from our expectations may result in material adjustments to direct costs in future periods.” |
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Tia
Jenkins
October
4, 2010
Page
3
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3.
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We
note from your response to comment nine of our letter dated August 19,
2010 that you believe no provision is necessary to reduce inventory to its
net realizable value and that you expect it will be recovered in 13
years. Please tell us how you took into account the time value
of money and the discounting of future cash flows in determining that no
provision was necessary.
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| COMPANY RESPONSE: | ||
| The Company believes that undiscounted cash flow should be used to estimate the net realizable value in considering the recoverability of the carrying value of inventories. With reference to Concepts Statement 5, paragraph 67(d), the term net realizable value is defined as the non-discounted amount of cash or cash equivalents into which an asset is expected to be converted in due course of business less direct costs, if any, necessary to make that conversion. The recoverability of the donated units is estimated by the forecast matching fees to be generated in the future without applying present value discounting. We propose to add the following disclosure on page 73: “The estimates are calculated based on forecast fees to be generated from estimated successful matches in the future without discounting the fees to their present values.” |
Notes to the consolidated
financial statements, page F-16
Note 2(k) Revenue
recognition, page F-21
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4.
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Please
tell us whether you cease recognizing storage revenue related to
subscribers who are delinquent beyond a certain period that would indicate
that collection was no longer reasonably assured. If so, tell
us the delinquency period that serves as the point at which you determine
revenue is no longer reasonably assured. If not, explain to us
why you believe collection continues to be reasonably assured in light of
the delinquency. In your response, tell us the number of
subscribers as of March 31, 2010 who are delinquent in payments for
periods over six months, one year and two years along with the related
amounts.
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COMPANY
RESPONSE:
The
Company respectfully advises that no storage revenue is recognized if the
Company believes that the collection is no longer reasonably assured. The
Company ceases the recognition of the storage revenue if the customer has unpaid
invoices that are more than 18 months past due.
We
propose to add the following disclosure on page F-21: “The Company ceases to
recognize storage revenue from subscribers who are delinquent beyond 18 months
as the Company believes that collectability of future storage fees from such
subscribers is not reasonably assured.”
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Tia
Jenkins
October
4, 2010
Page
4
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The
number of subscribers as of March 31, 2010 who are delinquent in payments of
storage fees for periods over six months, one year and two years were 12,285,
9,191 and 2,451, respectively and the related gross storage fees outstanding
aged for six months to one year, one year to two years and over two years were
RMB5,314,955, RMB5,077,348 and RMB2,205,012, respectively. The
corresponding allowance for doubtful debts were RMBNil, RMB1,574,621 and
RMB1,386,240, respectively, as follows:
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Over
6 months to 1 year
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1-2
years
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Over
2 years
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||||||||||
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Number
of subscribers
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12,285 | 9,191 | 2,451 | |||||||||
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Outstanding
balance (RMB 000's)
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5,315 | 5,077 | 2,205 | |||||||||
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Less:
allowance for doubtful accounts
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- | (1,575 | ) | (1,386 | ) | |||||||
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Net
balance (RMB 000's)
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5,315 | 3,502 | 819 | |||||||||
The
storage fees outstanding aged over two years without corresponding allowance for
doubtful debts (RMB819,000) were subsequently recovered by the Company after the
balance sheet date.
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5.
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We
note from your response to comment 7 of our letter dated August 19, 2010
that current processing fees accounts receivable represent amounts due and
subject to payment within one year. Please explain to us the
payment terms related to your invoicing of fees. In other
words, clarify whether amounts billed are due upon receipt of the invoice
or within one year.
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COMPANY
RESPONSE:
The
Company respectfully advises that the invoice for a processing fee installment
is billed once a year and is due upon receipt of the invoice. For
balance sheet classification purpose, processing fee installments that will be
invoiced in the coming year (i.e. the next installment for each subscriber which
will be due within 12 months under the installment payment option) are
classified as current processing fees accounts receivable.
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6.
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We
note from your response to comment 7 of our letter dated August 19, 2010
that 14.3% of your processing fees receivable related to Option Three is
aged for over 1 year. Please explain to us why you believe
collection is reasonably assured when over 14% of your current accounts
receivable for processing fees remain unpaid for over one
year.
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COMPANY
RESPONSE:
The
Company respectfully advises the Staff that, as suggested in the Company’s
submission dated August 19, 2010, only 1% of the current processing fee accounts
receivables are aged over two years. While some of the customers delayed payment
for over one year, the historical track record is that a majority of the
subscribers will eventually settle outstanding debts within 2 years in response
to the Company’s debt chasing efforts. Based on such historical track
record, the Company believes it has demonstrated a satisfactory collection
history and determined that collection is reasonably assured in respect of the
processing fees receivable.
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Tia
Jenkins
October
4, 2010
Page
5
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7.
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We
note from your response to comment 7 of our letter dated August 19, 2010
that the allowance for doubtful accounts related to current processing
fees receivable is RMB3.3 million. Please clarify for us
whether this allowance represents the allowance on the entire balance of
current processing fees receivable or the balance that is aged over one
year.
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COMPANY
RESPONSE:
The
Company respectfully advises that the RMB3.3 million allowance for doubtful
accounts corresponds to the entire balance of the current processing fees
receivables under Payment Option Three.
Note 20 Net income/(loss)
per share
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8.
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Please
provide us with an analysis showing how you computed earnings per share
for the year ended March 31, 2010.
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COMPANY
RESPONSE:
In
computing the earnings per share for the year ended March 31, 2010, the Company
considered the effect of the share exchange transaction at June 30, 2009 (the
“Share Exchange”) which, as further described in note 19(b) to the consolidated
financial statements, has been accounted for as a reverse acquisition involving
a public shell company and as the issuance of securities by China Cord Blood
Services Corporation (“CCBS”, the legal acquiree) in exchange for the assets and
liabilities of the Company (the legal acquirer), accompanied by a
recapitalization.
In
accordance with the guidance set out in ASC 805-40-45-4, when calculating the
weighted-average number of common shares outstanding during the period in which
the reverse acquisition occurs, the number of common shares outstanding from the
beginning of that period to the acquisition date shall be computed on the basis
of the weighted-average number of common shares of the legal acquiree
(accounting acquirer) outstanding during the period multiplied by the exchange
ratio established in the merger agreement and the number of common shares
outstanding from the acquisition date to the end of that period shall be the
actual number of common shares of the legal acquirer (the accounting acquiree)
outstanding during that period.
The
Company’s calculation of earnings per share for the year ended March 31, 2010,
which includes the three-month pre-exchange period ended June 30, 2009 and the
nine-month post-exchange period ended March 31, 2010, is based on the above
guidance in ASC 805-40-45-4. In addition, since CCBS had both ordinary shares
and redeemable ordinary shares outstanding during the three-month period ended
June 30, 2009, the two class method was adopted in accordance with ASC
480-10-S99-21 and the net income for such period was allocated between the
ordinary shares and the redeemable ordinary shares. On June 30, 2009,
the participating shareholders of CCBS who held redeemable ordinary shares
exchanged their holdings in CCBS for the ordinary shares of the
Company. Certain holders of the redeemable ordinary shares of CCBS
did not participate in the Share Exchange and continued to hold their redeemable
ordinary shares of CCBS. Upon the completion of the Share Exchange,
the carrying value of the remaining redeemable ordinary shares of CCBS was
reclassified as redeemable noncontrolling interests. As further described in
note 14, in August 2009 these remaining redeemable ordinary shares of CCBS were
exchanged for ordinary shares of the Company. Since then, the Company has only
one class of ordinary shares and has not issued any redeemable ordinary
shares.
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Tia
Jenkins
October
4, 2010
Page
6
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To
further assist the Staff in understanding the earnings per share calculation for
the year ended March 31, 2010, the Company has included the detailed calculation
in Appendix A:
Earnings Per Share Calculation and provides the following summary of the
components of the numerator and the denominator used in the calculation of the
basic earnings per share:
| Basic earnings per ordinary share | Basic earnings per redeemable ordinary share | ||||
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Numerator
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● |
Net
income/(loss) of CCBS for the three months ended June 30, 2009
attributable to CCBS ordinary
shareholders, adjusted for the accretion to the redeemable ordinary shares
redemption
value; plus,
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● |
Net
income/(loss) of CCBS for the three months ended June 30, 2009
attributable to CCBS redeemable ordinary shareholders
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●
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Net income of the Company for the nine months ended March 31, 2010 attributable to the Company’s ordinary shareholders, adjusted for the accretion to redemption value of the redeemable noncontrolling interests (i.e. redeemable CCBS ordinary shares that were outstanding from July 1, 2009 through August 2009) | ||||
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Denominator
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● |
The
weighted-average number of ordinary shares of CCBS outstanding during the
three-month period ended June 30, 2009, as adjusted by the exchange ratio
effected in the Share Exchange; plus,
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● |
The
weighted-average number of redeemable ordinary shares of CCBS outstanding
during the three-month period ended June 30, 2009, as adjusted by the
exchange ratio effected in the Share Exchange.
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●
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The weighted-average number of ordinary shares of the Company for the nine-month period ended March 31, 2010. | ||||
[Remainder
of page intentionally left blank]
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Tia
Jenkins
October
4, 2010
Page
7
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The
Company has authorized me to acknowledge on its behalf that:
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·
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the
Company is responsible for the adequacy and accuracy of the disclosure in
the filing;
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·
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Staff
comments of changes to disclosure in response to Staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
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·
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the
Company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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| Sincerely, | |||
| /s/ Mitchell Nussbaum | |||
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Mitchell
Nussbaum
Partner
Loeb
& Loeb LLP
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|||
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cc:
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Albert
Chen, China Cord Blood Corporation
Virginia
Tam, Jones Day
Harry
Yu, KPMG
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Tia
Jenkins
October
4, 2010
Page
8
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Appendix
A: Earnings Per Share Calculation
(shown in
thousands except shares data)
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The
Company has two class of ordinary shares for the year ended March 31,
2010, being ordinary shares and redeemable ordinary shares. The
Company calculated the earnings per share applying two class
method. On June 30, 2009, the Participating Shareholders who
held redeemable ordinary shares of China Cord Blood Services Corporation
("CCBS") exchanged the redeemable shares for the ordinary shares of the
Company and therefore, in calculating the earnings per
share.
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1.Basic
earnings per redeemable ordinary share can be analyzed as
follows:
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Net
loss attributable to parent company from April 1, 2009 to June
30, 2009
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A
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(4,592)
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Accretion
to redeemable ordinary shares redemption value
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B
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(5,870)
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Net
loss attributable to ordinary shareholders
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C =
A + B
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(10,462)
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Denominator
(weighted average number of shares outstanding from April 1, 2009 to
June 30, 2009)
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-
Ordinary shares
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D
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43,237,100
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-
Redeemable ordinary shares
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E
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14,614,140
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F =
D + E
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57,851,240
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Allocation
of undistributed loss
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-
Ordinary shares
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G =
C x D / F
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(7,819)
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-
Redeemable ordinary shares
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H =
C x E / F
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(2,643)
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(10,462)
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Allocation
of net (loss)/income (numerator):
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-
Ordinary shares
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I =
G
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(7,819)
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-
Redeemable ordinary shares
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J =
K – I
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3,227
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K =
A
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(4,592)
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Basic
earnings per redeemable ordinary shares
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= J
/ E
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0.22
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Tia
Jenkins
October
4, 2010
Page
9
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Appendix
A: Earnings Per Share Calculation (Cont.)
(shown in
thousands except shares data)
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2.Basic
earnings per ordinary share for the year ended March 31, 2010 can be
analyzed as follows:
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||||
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Weighted
average number of redeemable ordinary shares for the year =
14,614,190 * 91/365
=3,643,525
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Adjusted
net income attributable to the parent company for the year ended
March 31, 2010:
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Net
income attributable to parent company for the year ended
March 31, 2010
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49,177
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Accretion
to redemption value of redeemable noncontrolling interests
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(99)
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Adjusted
net income attributable to the parent company
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49,078
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Net
income allocated to ordinary shares = 49,078 - 3,643,525*0.22/1000 =
48,273
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Weighted
average number of ordinary shares for the year ended March 31, 2010 =
58,854,605
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Earnings
per ordinary shares = 48,273/58,854,605*1000 = 0.82
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3.Diluted
earnings per redeemable ordinary share
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As
of June 30, 2009, there were 2,051,981 dilutive potential ordinary shares,
being the share options granted to the directors and executives of
CCBS. As the Company was subject to a loss for the period, the
dilutive potential shares have an anti-dilutive effect on earnings per
redeemable ordinary share
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4.Diluted
earnings per ordinary share
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As
of March 31, 2010, there were 3,180,716 dilutive potential ordinary
shares. The diluted earnings per ordinary share can be analyzed
as follows:
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Net
income allocated to ordinary share
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48,273
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Weighted
average number of ordinary shares for the year ended
March 31, 2010
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58,854,605
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Dilutive
potential ordinary shares
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3,180,716
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62,035,321
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Diluted
earnings per ordinary share
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0.78
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