6-K 1 d259824d6k.htm FORM 6-K Form 6-K
Table of Contents

 

 

FORM 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

 

REPORT OF FOREIGN ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE

SECURITIES EXCHANGE ACT OF 1934

For the month of November, 2011

Commission File Number: 000-51440

 

 

CHINA MEDICAL TECHNOLOGIES, INC.

(Translation of registrant’s name into English)

 

 

No. 24 Yong Chang North Road

Beijing Economic-Technological Development Area

Beijing 100176

People’s Republic of China

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  x            Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨             No  x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- N/A

 

 

 


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CHINA MEDICAL TECHNOLOGIES, INC.

Form 6-K

TABLE OF CONTENTS

 

      Page  

Signature

     3   

Exhibit 99.1 – Press Release

     4   


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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

CHINA MEDICAL TECHNOLOGIES, INC.
By:  

/s/ Takyung (Sam) Tsang

Name:   Takyung (Sam) Tsang
Title:   Chief Financial Officer

Date: November 21, 2011

 

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Exhibit 99.1

LOGO

China Medical Technologies Reports Second Fiscal Quarter Financial Results

Beijing, China, November 18, 2011 - China Medical Technologies, Inc. (the “Company”) (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic (“IVD”) company, announced its unaudited financial results for the second fiscal quarter ended September 30, 2011 (“2Q FY2011”) today.

2Q FY2011 and Six Months Ended September 30, 2011 Highlights

 

     For the Three Months Ended         
     September 30,
2010
    September 30,
2011
     September 30,
2011
        
     RMB     RMB      US$      % change  
     (in thousands except for per ADS information)         

Net revenues

     201,834        238,450         37,386         18.1

Net income (loss)

     (2,936     33,343         5,228         n/a   

Diluted earnings (loss) per ADS*

     (0.11     1.26         0.20         n/a   

Non-GAAP net income

     65,401        89,557         14,042         36.9

Non-GAAP diluted earnings per ADS*

     2.50        3.38         0.53         35.2

Adjusted EBITDA

     116,314        151,351         23,730         30.1
     For the Three Months Ended         
     June 30,
2011
    September 30,
2011
     September 30,
2011
        
     RMB     RMB      US$      % change  
     (in thousands)         

Net cash provided by operating activities

     62,243        79,053         12,395         27.0
     For the Six Months Ended         
     September 30,
2010
    September 30,
2011
     September 30,
2011
        
     RMB     RMB      US$      % change  
     (in thousands except for per ADS information)         

Net revenues

     388,004        475,561         74,563         22.6

Net income

     30,742        69,071         10,830         124.7

Diluted earnings per ADS*

     1.18        2.61         0.41         121.2

Non-GAAP net income

     122,412        180,009         28,224         47.1

Non-GAAP diluted earnings per ADS*

     4.68        6.79         1.07         45.1

Adjusted EBITDA

     221,466        305,640         47,921         38.0

 

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Outlook for the Third Fiscal Quarter Ending December 31, 2011

 

     For the Three Months Ending December 31, 2011      Year over Year  
     RMB      US$      % change  
     (in millions except for per ADS information)         

Target net revenues

     245.0 – 250.0         38.4 – 39.2         9.4 – 11.6

Target non-GAAP net income

     85.0 – 88.0         13.3 – 13.8         12.4 – 16.3

Target non-GAAP diluted earnings per ADS*

     3.20 – 3.30         0.50 – 0.52         11.5 – 15.0
Outlook for the Full Fiscal Year Ending March 31, 2012
     For the Fiscal Year Ending March 31, 2012      Year over Year  
     RMB      US$      % change  
     (in millions except for per ADS information)         

Target net revenues

     970.0 – 980.0         152.1 – 153.7         15.2 – 16.3

Target non-GAAP net income

     335.0 – 340.0         52.5 – 53.3         22.7 – 24.5

Target non-GAAP diluted earnings per ADS*

     12.40 – 12.60         1.94 – 1.98         19.3 – 21.3

The above targets are based on the Company’s current views on operating and market conditions, which are subject to change.

 

* One American Depositary Share (“ADS”) = 10 ordinary shares

See “Non-GAAP Measure Disclosures” below, where the impact of certain items on reported results is discussed.

“We are pleased to receive SFDA approval on our second PCR-based companion diagnostic assay on KRAS mutation for colorectal cancer targeted drug. We see huge potential on personalized medicine for cancer patients in China and will continue to develop this market segment.” commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company.

2Q FY2011 Unaudited Financial Results

The Company reported net revenues of RMB238.5 million (US$37.4 million) for 2Q FY2011, representing an 18.1% increase from the corresponding period of FY2010.

The Company’s revenues are currently generated from two segments, molecular diagnostic systems and immunodiagnostic systems. The molecular diagnostic system segment mainly includes FISH products and SPR products while the immunodiagnostic system segment consists of ECLIA products.

Molecular diagnostic system sales for 2Q FY2011 were RMB164.0 million (US$25.7 million), representing a 38.5% increase from the corresponding period of FY2010. The year-over-year increase was primarily due to the increase in usage of the Company’s FISH probes by hospitals as well as the significant increase in sales of SPR-based HPV-DNA chips to hospitals during 2Q FY2011.

Immunodiagnostic system sales for 2Q FY2011 were RMB74.5 million (US$11.7 million), representing a 10.8% decrease from the corresponding period of FY2010. The year-over-year decrease was primarily due to more stringent control over credit sales to distributors so as to mitigate the risk and magnitude of bad debts.

Gross margin was 64.9% for 2Q FY2011 which increased year-over-year from 55.2% for the corresponding period of FY2010. Non-GAAP gross margin was 84.8% for 2Q FY2011 which increased year-over-year from 79.7% for the corresponding period of FY2010. The year-over-year increase in gross margins was primarily due to more contribution from the sales of FISH probes and HPV-DNA chips which generated higher gross margin and a substantial reduction in the Company’s provision of free ECLIA analyzers and SPR analyzers. The reduction in the provision of free analyzers resulted from the above-mentioned more stringent control over credit sales to ECLIA distributors and the research and development of a new generation of SPR analyzer.

 

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Research and development expenses were RMB11.0 million (US$1.7 million) for 2Q FY2011, representing a 1.3% year-over-year increase. Non-GAAP research and development expenses were RMB10.4 million (US$1.6 million) for 2Q FY2011, representing a 6.9% year-over-year increase.

Sales and marketing expenses were RMB30.2 million (US$4.7 million) for 2Q FY2011, representing a 40.6% year-over-year increase. Non-GAAP sales and marketing expenses were RMB30.0 million (US$4.7 million) for 2Q FY2011, representing a 41.0% year-over-year increase. The year-over-year increases were primarily due to the increase in direct sales efforts for molecular diagnostic systems and sales incentives to direct sales personnel.

General and administrative expenses were RMB21.9 million (US$3.4 million) for 2Q FY2011, representing a 12.7% year-over-year decrease. The year-over-year decrease was primarily due to a decrease in stock compensation expense. Non-GAAP general and administrative expenses were RMB17.2 million (US$2.7 million) for 2Q FY2011, representing a 0.4% year-over-year decrease.

Interest expense on convertible notes was RMB32.7 million (US$5.1 million) for 2Q FY2011. Non-GAAP interest expense on convertible notes was RMB31.8 million (US$5.0 million) for 2Q FY2011. As of September 30, 2011, the Company had outstanding convertible notes of US$16.7 million in principal value which bore interest at 3.5% and matured in November 2011, and US$246.5 million and US$150.0 million in principal value of outstanding convertible notes which bear interest at 4% and 6.25% per annum, respectively, and will mature in August 2013 and December 2016, respectively.

Interest expense related to amortization of convertible notes issuance costs was RMB3.9 million (US$0.6 million) for 2Q FY2011.

Interest expense related to amortization of share lending costs was RMB2.3 million (US$0.4 million) for 2Q FY2011.

Other income was RMB1.2 million (US$0.2 million) for 2Q FY2011.

Income tax expense was RMB29.4 million (US$4.6 million) for 2Q FY2011. The consistently high effective tax rate was due to the fact that certain expenses of the Company such as stock compensation expense, amortization of acquired intangible assets and interest expense of convertible notes were not deductible for income tax purpose. In addition, the Company accrues for withholding income tax on distributable earnings generated in China which the Company does not intend to permanently reinvest in China.

Net income was RMB33.3 million (US$5.2 million) for 2Q FY2011, compared to net loss of RMB2.9 million for the corresponding period of FY2010. Non-GAAP net income was RMB89.6 million (US$14.0 million) for 2Q FY2011, representing a 36.9% increase from the corresponding period of FY2010. The year-over-year increases were primarily due to the increase in molecular diagnostic system sales and other reasons mentioned above.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) was RMB145.5 million (US$22.8 million) for 2Q FY2011, representing a 35.9% increase from the corresponding period of FY2010. The year-over-year increase was primarily due to the increase in molecular diagnostic system sales.

Adjusted EBITDA was RMB151.4 million (US$23.7 million) for 2Q FY2011, representing a 30.1% increase from the corresponding period of FY2010. The year-over-year increase was primarily due to the increase in molecular diagnostic system sales.

 

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Stock compensation expense for 2Q FY2011 was RMB5.9 million (US$0.9 million), of which RMB0.4 million was allocated to cost of revenues, RMB0.6 million to research and development expenses, RMB0.2 million to sales and marketing expenses and RMB4.7 million to general and administrative expenses. The Company approved the grant of 4,500,000 restricted shares, equivalent to 450,000 ADSs, to directors, officers and certain employees on November 7, 2011. The restricted shares vest at the end of a two-year period.

Amortization of acquired intangible assets for 2Q FY2011 was RMB47.2 million (US$7.4 million) which was all allocated to cost of revenues.

As of September 30, 2011, the Company’s cash and cash equivalents were RMB1,316.8 million (US$206.5 million). Net cash generated from operating activities for 2Q FY2011 was RMB79.1 million (US$12.4 million). Net cash used in investing activities for 2Q FY2011 was RMB0.6 million (US$0.1 million). There was no financing activity for 2Q FY2011.

As of September 30, 2011, the Company’s net accounts receivable balance was RMB638.5 million (US$100.1 million), representing an increase of 13.0% from the balance at June 30, 2011. The increase in net accounts receivable was primarily due to the increase in molecular diagnostic system sales to hospital customers which normally pay in 6 to 12 months and slower payments from certain distributors of immunodiagnostic systems.

The Company evaluates the collectability of its accounts receivable based on the aging of account balances, collection history, credit quality of the customer and current economic conditions that may affect a customer’s ability to pay. The Company has recognized an allowance for doubtful accounts in its consolidated financial statements. The allowance for doubtful accounts increased by RMB4.8 million (US$0.8 million) to RMB33.6 million (US$5.3 million) as of September 30, 2011 from RMB28.8 million as of June 30, 2011.

Six Months Ended September 30, 2011 Unaudited Financial Results

Revenues were RMB475.6 million (US$74.6 million) for the six months ended September 30, 2011, representing a 22.6% increase from the corresponding period of FY2010. The year-over-year increase in revenues was primarily due to the increase in molecular diagnostic system sales which was offset in part by the decrease in immunodiagnostic system sales.

Gross margin was 63.9% for the six months ended September 30, 2011 which increased year-over-year from 60.9% for the corresponding period of FY2010. Non-GAAP gross margin was 84.0% for the six months ended September 30, 2011 which increased year-over-year from 79.4% for the corresponding period of FY2010. The year-over-year increase in gross margins was primarily due to more contribution from the sales of FISH probes and HPV-DNA chips which generated higher gross margin and the substantial reduction in the Company’s provision of free ECLIA analyzers and SPR analyzers as noted above.

Research and development expenses were RMB21.8 million (US$3.4 million) for the six months ended September 30, 2011, representing a 1.2% year-over-year increase. Non-GAAP research and development expenses were RMB20.1 million (US$3.2 million) for the six months ended September 30, 2011, representing a 6.1% year-over-year increase.

Sales and marketing expenses were RMB53.4 million (US$8.4 million) for the six months ended September 30, 2011, representing a 34.5% year-over-year increase. Non-GAAP sales and marketing expenses were RMB53.0 million (US$8.3 million) for the six months ended September 30, 2011, representing a 34.3% year-over-year increase. The year-over-year increase was primarily due to the increase in direct sales efforts for molecular diagnostic systems and sales incentives to direct sales personnel.

 

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General and administrative expenses were RMB44.5 million (US$7.0 million) for the six months ended September 30, 2011, representing an 11.4% year-over-year decrease. The year-over-year decrease was primarily due to a decrease in stock compensation expense. Non-GAAP general and administrative expenses were RMB33.5 million (US$5.3 million) for the six months ended September 30, 2011, representing a 0.5% year-over-year decrease.

Net income was RMB69.1 million (US$10.8 million) for the six months ended September 30, 2011, which improved significantly from RMB30.7 million for the corresponding period of FY2010. Non-GAAP net income was RMB180.0 million (US$28.2 million) for the six months ended September 30, 2011, representing a 47.1% increase from the corresponding period of FY2010.

EBITDA was RMB296.1 million (US$46.4 million) for the six months ended September 30, 2011, representing an 18.9% increase from the corresponding period of FY2010.

Adjusted EBITDA was RMB305.6 million (US$47.9 million) for the six months ended September 30, 2011, representing a 38.0% increase from the corresponding period of FY2010.

Stock compensation expense for the six months ended September 30, 2011 was RMB13.7 million (US$2.1 million), of which RMB0.6 million was allocated to cost of revenues, RMB1.7 million to research and development expenses, RMB0.4 million to sales and marketing expenses and RMB11.0 million to general and administrative expenses.

Amortization of acquired intangible assets for the six months ended September 30, 2011 was RMB94.8 million (US$14.9 million), which was all allocated to cost of revenues.

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.3780 to US$1.00, the noon buying rate in New York City for cable transfers of RMB per U.S. dollar as set forth in the H.10 weekly statistical release of the Federal Reserve Board, as of Friday, September 30, 2011. No representation is made that the RMB amounts could have been or could be converted into U.S. dollars at that rate or at any other rate on September 30, 2011 or at any other dates.

 

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Non-GAAP Measure Disclosures

The Company reported its operating results in accordance with U.S. generally accepted accounting principles (“GAAP”) for the three months and six months ended September 30, 2010 and 2011, respectively. The Company also presented non-GAAP information for the three months and six months ended September 30, 2010 and 2011. The non-GAAP measures are defined below:

 

 

Non-GAAP gross profit represents gross profit reported in accordance with GAAP, excluding the effects of stock compensation expense and amortization of acquired intangible assets.

 

 

Non-GAAP gross margin represents non-GAAP gross profit divided by net revenues.

 

 

Non-GAAP research and development expenses represent research and development expenses reported in accordance with GAAP, excluding the effects of stock compensation expense.

 

 

Non-GAAP sales and marketing expenses represent sales and marketing expenses reported in accordance with GAAP, excluding the effects of stock compensation expense.

 

 

Non-GAAP general and administrative expenses represent general and administrative expenses reported in accordance with GAAP, excluding the effects of stock compensation expense.

 

 

Non-GAAP operating income represents operating income reported in accordance with GAAP, excluding the effects of stock compensation expense and amortization of acquired intangible assets.

 

 

Non-GAAP interest expense on convertible notes represents interest expense on convertible notes reported in accordance with GAAP, excluding the effects of non-cash interest expense of convertible notes.

 

 

Non-GAAP interest expense on amortization of share lending costs represents the exclusion of interest expense on amortization of share lending costs reported in accordance with GAAP, as this item is non-cash.

 

 

Non-GAAP other income (expense), net represents other income and expense, net reported in accordance with GAAP, excluding the effects of gain on repurchase of convertible notes.

 

 

Non-GAAP net income represents net income reported in accordance with GAAP, excluding the effects of stock compensation expense, amortization of acquired intangible assets, non-cash interest expense of convertible notes, interest expense for amortization of share lending costs as well as gain on repurchase of convertible notes.

 

 

Non-GAAP earnings per ADS represents non-GAAP net income divided by the weighted average number of ADSs used in computing basic and diluted earnings per ADS in accordance with GAAP.

 

 

EBIT represents net income reported in accordance with GAAP, excluding the effects of interest income, interest expense and income tax expense.

 

 

EBITDA represents net income reported in accordance with GAAP, excluding the effects of interest income, interest expense, income tax expense, depreciation and amortization.

 

 

Adjusted EBITDA represents EBITDA excluding the effects of stock compensation expense as well as gain on repurchase of convertible notes.

 

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Non-GAAP financial measures are used by the Company in its financial and operating decision-making because management believes they reflect the Company’s ongoing business in a manner that allows meaningful period-to-period comparison. The Company’s management believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Company’s current operating performance and future prospects in the same manner as management does, if they so choose.

The presentation of this additional financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the financial information included with this earnings announcement.

Conference Call

The Company’s senior management team will host an earnings conference call at 8:00 a.m. U.S. Eastern Time on November 18, 2011 (or 9:00 p.m. Beijing/Hong Kong time on the same date) to discuss the results following this earnings announcement.

The dial-in details for the live conference call are as follows:

 

 

U.S. Toll Free Number 1-866-519-4004

 

 

International Dial-in Number 1-718-354-1231

Passcode: CMEDCALL

A live webcast of the conference call will be available on http://ir.chinameditech.com.

A replay of this webcast will be available for one month on this website.

A telephone replay of the call will be available after the conclusion of the conference call through 10:00 a.m. U.S. Eastern Time on November 19, 2011.

The dial-in details for the replay are as follows:

 

 

U.S. Toll Free Number 1-866-214-5335

 

 

International Dial-in Number 1-718-354-1232

Passcode: 22980262

About China Medical Technologies, Inc.

China Medical Technologies, Inc. is a leading China-based advanced IVD company using molecular diagnostic technologies including Fluorescent in situ Hybridization (FISH) and Surface Plasmon Resonance (SPR) and an immunodiagnostic technology, Enhanced Chemiluminescence Immunoassay (ECLIA), to develop, manufacture and distribute diagnostic products used for the detection of various cancers, diseases and disorders as well as companion diagnostic tests for targeted cancer drugs. The Company generates all of its revenues in China through the sale of diagnostic consumables including FISH probes, SPR-based DNA chips and ECLIA reagent kits to hospitals which are recurring users of the consumables for their patients. The Company sells FISH probes and SPR chips to large hospitals through its direct sales personnel and ECLIA reagent kits to small and mid-size hospitals through distributors. For more information, please visit http://www.chinameditech.com.

 

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Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the quotations from management in this press release, as well as its outlook for the third fiscal quarter ending December 31, 2011 and full fiscal year ending March 31, 2012, contain forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks is included in the Company’s filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

Contacts

Winnie Yam

Tel: 852-2511-9808

Email: IR@chinameditech.com

 

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China Medical Technologies, Inc.

Unaudited Condensed Consolidated Balance Sheets

 

     As of  
     June 30, 2011     September 30, 2011  
     RMB     RMB     US$  
     (in thousands)  

Assets

      

Current assets

      

Cash and cash equivalents

     1,239,458        1,316,837        206,466   

Trade accounts receivable, net (1)

     565,061        638,506        100,110   

Inventories

     20,315        20,406        3,199   

Prepayments and other receivables

     12,833        11,985        1,879   
  

 

 

   

 

 

   

 

 

 

Total current assets

     1,837,667        1,987,734        311,654   

Property, plant and equipment, net

     134,562        129,661        20,330   

Land use rights

     6,811        6,763        1,060   

Goodwill

     8,654        8,654        1,357   

Intangible assets, net

     2,891,353        2,810,152        440,601   

Convertible notes issuance costs

     51,148        46,713        7,324   

Share lending costs

     19,804        17,244        2,704   
  

 

 

   

 

 

   

 

 

 

Total assets

     4,949,999        5,006,921        785,030   
  

 

 

   

 

 

   

 

 

 

Liabilities

      

Current liabilities

      

Trade accounts payable

     51,575        53,385        8,370   

Accrued liabilities and other payables

     206,260        222,334        34,860   

Convertible notes

     107,136        106,622        16,717   

Income taxes payable

     91,939        110,749        17,364   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     456,910        493,090        77,311   

Convertible notes

     2,562,778        2,528,877        396,500   

Deferred income taxes

     98,985        106,155        16,644   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     3,118,673        3,128,122        490,455   
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity

      

Ordinary shares US$0.1 par value:
500,000,000 authorized; 322,680,001 issued and outstanding as of June 30, 2011 and 324,080,001 issued and outstanding as of September 30, 2011

     258,840        259,738        40,724   

Additional paid-in capital

     881,287        895,888        140,465   

Treasury stock

     (201,362     (201,362     (31,571

Accumulated other comprehensive loss

     (78,120     (79,489     (12,463

Retained earnings

     970,681        1,004,024        157,420   
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     1,831,326        1,878,799        294,575   
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

     4,949,999        5,006,921        785,030   
  

 

 

   

 

 

   

 

 

 

Note:

 

     As of  
     June 30, 2011     September 30, 2011  
     RMB’000     RMB’000     US$’000  

(1) Trade accounts receivable

     593,814        672,154        105,386   

Allowance for doubtful accounts

     (28,753     (33,648     (5,276
  

 

 

   

 

 

   

 

 

 

Trade accounts receivable, net

     565,061        638,506        100,110   
  

 

 

   

 

 

   

 

 

 

 

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China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Income and

Reconciliations of GAAP Measures to Non-GAAP Measures

 

    For the Three Months Ended     For the Three Months Ended  
    September 30, 2010     September 30, 2011  
   

GAAP

RMB

   

Adjustments

RMB

   

Non-GAAP

RMB

   

GAAP

RMB

   

Adjustments

RMB

   

Non-GAAP

RMB

 
    (in thousands except for per ADS information)  

Net revenues (1)

    201,834        —          201,834        238,450        —          238,450   

Cost of revenues (2)

    (90,477     49,539        (40,938     (83,713     47,523        (36,190
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    111,357        49,539        160,896        154,737        47,523        202,260   

Operating expenses

           

Research and development (3)

    (10,877     1,145        (9,732     (11,014     607        (10,407

Sales and marketing (3)

    (21,473     204        (21,269     (30,183     191        (29,992

General and administrative (3)

    (25,048     7,772        (17,276     (21,877     4,673        (17,204
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    (57,398     9,121        (48,277     (63,074     5,471        (57,603
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    53,959        58,660        112,619        91,663        52,994        144,657   

Interest income

    5,119        —          5,119        8,820        —          8,820   

Interest expense – convertible notes (4)

    (32,019     7,221        (24,798     (32,699     908        (31,791

Interest expense – amortization of convertible notes issuance costs

    (3,906     —          (3,906     (3,943     —          (3,943

Interest expense – amortization of share lending costs (5)

    (2,456     2,456        —          (2,312     2,312        —     

Other income (expense), net

    (1,802     —          (1,802     1,193        —          1,193   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax

    18,895        68,337        87,232        62,722        56,214        118,936   

Income tax expense

    (21,831     —          (21,831     (29,379     —          (29,379
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (2,936     68,337        65,401        33,343        56,214        89,557   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per ADS

           

- basic (6)

    (0.11     2.61        2.50        1.26        2.12        3.38   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

- diluted (6)

    (0.11     2.61        2.50        1.26        2.12        3.38   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of ADS

           

- basic (6)

    26,117,308        —          26,117,308        26,495,308        —          26,495,308   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

- diluted (6)

    26,117,308        —          26,117,308        26,513,672        —          26,513,672   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

13


Table of Contents

China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Income and

Reconciliations of GAAP Measures to Non-GAAP Measures

Convenience Translation for Reference Only

 

     For the Three Months Ended  
     September 30, 2011  
    

GAAP

US$

   

Adjustments

US$

    

Non-GAAP

US$

 
     (in thousands except for per ADS information)  

Net revenues (1)

     37,386        —           37,386   

Cost of revenues (2)

     (13,125     7,451         (5,674
  

 

 

   

 

 

    

 

 

 

Gross profit

     24,261        7,451         31,712   

Operating expenses

       

Research and development (3)

     (1,727     95         (1,632

Sales and marketing (3)

     (4,732     30         (4,702

General and administrative (3)

     (3,430     733         (2,697
  

 

 

   

 

 

    

 

 

 

Total operating expenses

     (9,889     858         (9,031
  

 

 

   

 

 

    

 

 

 

Operating income

     14,372        8,309         22,681   

Interest income

     1,383        —           1,383   

Interest expense – convertible notes (4)

     (5,127     143         (4,984

Interest expense – amortization of convertible notes issuance costs

     (619     —           (619

Interest expense – amortization of share lending costs (5)

     (362     362         —     

Other income (expense), net

     187        —           187   
  

 

 

   

 

 

    

 

 

 

Income before income tax

     9,834        8,814         18,648   

Income tax expense

     (4,606     —           (4,606
  

 

 

   

 

 

    

 

 

 

Net income

     5,228        8,814         14,042   
  

 

 

   

 

 

    

 

 

 

Earnings per ADS

       

- basic (6)

     0.20        0.33         0.53   
  

 

 

   

 

 

    

 

 

 

- diluted (6)

     0.20        0.33         0.53   
  

 

 

   

 

 

    

 

 

 

Weighted average number of ADS

       

- basic (6)

     26,495,308        —           26,495,308   
  

 

 

   

 

 

    

 

 

 

- diluted (6)

     26,513,672        —           26,513,672   
  

 

 

   

 

 

    

 

 

 

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.3780 to US$1.00, the noon buying rate in New York City for cable transfers of RMB per U.S. dollar as set forth in the H.10 weekly statistical release of the Federal Reserve Board, as of Friday, September 30, 2011. No representation is made that the RMB amounts could have been or could be converted into U.S. dollars at that rate or at any other rate on September 30, 2011 or at any other dates.

 

14


Table of Contents

Notes:

 

     For the Three Months Ended  
     September 30, 2010      September 30, 2011  
     RMB’000      RMB’000      US$’000  

(1) Net revenues

        

- Molecular diagnostic systems

     118,347         163,941         25,704   

- Immunodiagnostic systems

     83,487         74,509         11,682   
  

 

 

    

 

 

    

 

 

 
     201,834         238,450         37,386   
  

 

 

    

 

 

    

 

 

 

Molecular diagnostic systems

        

- HPV-DNA chips

     3,802         16,319         2,559   
  

 

 

    

 

 

    

 

 

 

 

(2) Non-GAAP numbers exclude stock compensation expense and amortization of acquired intangible assets.

 

     For the Three Months Ended  
     September 30, 2010      September 30, 2011  
     RMB’000      RMB’000      US$’000  

Stock compensation expense

     117         373         58   

Amortization of acquired intangible assets

     49,422         47,150         7,393   
  

 

 

    

 

 

    

 

 

 
     49,539         47,523         7,451   
  

 

 

    

 

 

    

 

 

 

 

(3) Non-GAAP numbers exclude stock compensation expense.
(4) Non-GAAP numbers exclude non-cash interest expense of convertible notes.
(5) Non-GAAP numbers exclude interest expense for amortization of share lending costs.
(6) Interest expense and amortization in connection with convertible notes were not added back in computing GAAP diluted earnings per ADS because they were anti-dilutive. Non-GAAP earnings per ADS represents non-GAAP net income divided by the weighted average number of ADSs used in computing basic and diluted earnings per ADS in accordance with GAAP.

 

15


Table of Contents

China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Income and

Reconciliations of GAAP Measures to Non-GAAP Measures

 

     For the Six Months Ended     For the Six Months Ended  
     September 30, 2010     September 30, 2011  
     GAAP     Adjustments     Non-GAAP     GAAP     Adjustments     Non-GAAP  
     RMB     RMB     RMB     RMB     RMB     RMB  
     (in thousands except for per ADS information)  

Net revenues (1)

     388,004        —          388,004        475,561        —          475,561   

Cost of revenues (2)

     (151,831     72,005        (79,826     (171,593     95,443        (76,150
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     236,173        72,005        308,178        303,968        95,443        399,411   

Operating expenses

            

Research and development (3)

     (21,509     2,563        (18,946     (21,766     1,655        (20,111

Sales and marketing (3)

     (39,739     295        (39,444     (53,446     456        (52,990

General and administrative (3)

     (50,197     16,803        (33,394     (44,490     10,943        (33,547

Amortization of SPR intangible assets (4)

     (27,329     27,329        —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     (138,774     46,990        (91,784     (119,702     13,054        (106,648
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     97,399        118,995        216,394        184,266        108,497        292,763   

Interest income

     9,716        —          9,716        16,156        —          16,156   

Interest expense – convertible notes (5)

     (64,524     15,137        (49,387     (66,046     1,898        (64,148

Interest expense – amortization of convertible notes issuance costs

     (7,918     —          (7,918     (7,950     —          (7,950

Interest expense – amortization of share lending costs (6)

     (4,931     4,931        —          (4,655     4,655        —     

Other income (expense), net (7)

     41,493        (47,393     (5,900     5,987        (4,112     1,875   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax

     71,235        91,670        162,905        127,758        110,938        238,696   

Income tax expense

     (40,493     —          (40,493     (58,687     —          (58,687
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     30,742        91,670        122,412        69,071        110,938        180,009   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per ADS

            

- basic (8)

     1.18        3.52        4.70        2.62        4.20        6.82   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

- diluted (8)

     1.18        3.50        4.68        2.61        4.18        6.79   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of ADS

            

- basic (8)

     26,061,946        —          26,061,946        26,398,319        —          26,398,319   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

- diluted (8)

     26,147,246        —          26,147,246        26,499,427        —          26,499,427   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

16


Table of Contents

China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Income and

Reconciliations of GAAP Measures to Non-GAAP Measures

Convenience Translation for Reference Only

 

     For the Six Months Ended  
     September 30, 2011  
     GAAP     Adjustments     Non-GAAP  
     US$     US$     US$  
     (in thousands except for per ADS information)  

Net revenues (1)

     74,563        —          74,563   

Cost of revenues (2)

     (26,904     14,964        (11,940
  

 

 

   

 

 

   

 

 

 

Gross profit

     47,659        14,964        62,623   

Operating expenses

      

Research and development (3)

     (3,413     260        (3,153

Sales and marketing (3)

     (8,380     72        (8,308

General and administrative (3)

     (6,976     1,716        (5,260

Amortization of SPR intangible assets (4)

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     (18,769     2,048        (16,721
  

 

 

   

 

 

   

 

 

 

Operating income

     28,890        17,012        45,902   

Interest income

     2,533        —          2,533   

Interest expense – convertible notes (5)

     (10,355     297        (10,058

Interest expense – amortization of convertible notes issuance costs

     (1,246     —          (1,246

Interest expense – amortization of share lending costs (6)

     (730     730        —     

Other income (expense), net (7)

     939        (645     294   
  

 

 

   

 

 

   

 

 

 

Income before income tax

     20,031        17,394        37,425   

Income tax expense

     (9,201     —          (9,201
  

 

 

   

 

 

   

 

 

 

Net income

     10,830        17,394        28,224   
  

 

 

   

 

 

   

 

 

 

Earnings per ADS

      

- basic (8)

     0.41        0.66        1.07   
  

 

 

   

 

 

   

 

 

 

- diluted (8)

     0.41        0.66        1.07   
  

 

 

   

 

 

   

 

 

 

Weighted average number of ADS

      

- basic (8)

     26,398,319        —          26,398,319   
  

 

 

   

 

 

   

 

 

 

- diluted (8)

     26,499,427        —          26,499,427   
  

 

 

   

 

 

   

 

 

 

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.3780 to US$1.00, the noon buying rate in New York City for cable transfers of RMB per U.S. dollar as set forth in the H.10 weekly statistical release of the Federal Reserve Board, as of Friday, September 30, 2011. No representation is made that the RMB amounts could have been or could be converted into U.S. dollars at that rate or at any other rate on September 30, 2011 or at any other dates.

 

17


Table of Contents

Notes:

 

     For the Six Months Ended  
     September 30, 2010      September 30, 2011  
     RMB’000      RMB’000      US$’000  

(1) Net revenues

        

- Molecular diagnostic systems

     226,439         320,085         50,186   

- Immunodiagnostic systems

     161,565         155,476         24,377   
  

 

 

    

 

 

    

 

 

 
     388,004         475,561         74,563   
  

 

 

    

 

 

    

 

 

 

Molecular diagnostic systems

        

- HPV-DNA chips

     3,820         30,369         4,762   
  

 

 

    

 

 

    

 

 

 

 

(2) Non-GAAP numbers exclude stock compensation expense and amortization of acquired intangible assets.

 

     For the Six Months Ended  
     September 30, 2010      September 30, 2011  
     RMB’000      RMB’000      US$’000  

Stock compensation expense

     169         616         96   

Amortization of acquired intangible assets

     71,836         94,827         14,868   
  

 

 

    

 

 

    

 

 

 
     72,005         95,443         14,964   
  

 

 

    

 

 

    

 

 

 

 

(3) Non-GAAP numbers exclude stock compensation expense.
(4) Non-GAAP numbers exclude amortization of acquired intangible assets.
(5) Non-GAAP numbers exclude non-cash interest expense of convertible notes.
(6) Non-GAAP numbers exclude interest expense for amortization of share lending costs.
(7) Non-GAAP numbers exclude gain on repurchase of convertible notes.

 

     For the Six Months Ended  
     September 30, 2010      September 30, 2011  
     RMB’000      RMB’000      US$’000  

Gain on repurchase of convertible notes

     47,393         4,112         645   
  

 

 

    

 

 

    

 

 

 

 

(8) Interest expense and amortization in connection with convertible notes were not added back in computing GAAP diluted earnings per ADS because they were anti-dilutive. Non-GAAP earnings per ADS represents non-GAAP net income divided by the weighted average number of ADSs used in computing basic and diluted earnings per ADS in accordance with GAAP.

 

18


Table of Contents

China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

 

     For the Three Months Ended  
     June 30, 2011     September 30, 2011  
     RMB     RMB     US$  
     (in thousands)  

Cash flow from operating activities:

      

Net income

     35,728        33,343        5,228   

Adjustments to reconcile net income to net cash provided by operating activities:

      

Exchange loss (gain)

     1,180        (1,193     (187

Depreciation and amortization of property, plant and equipment

     5,501        5,501        862   

Amortization of intangible assets

     47,677        47,150        7,393   

Non-cash interest expense on convertible notes

     990        908        143   

Amortization of convertible notes issuance costs

     4,007        3,943        619   

Amortization of share lending costs

     2,343        2,312        362   

Stock compensation expense

     7,826        5,844        916   

Land use rights expense

     48        48        8   

Loss on disposal of property, plant and equipment

     41        4        1   

Deferred income taxes

     7,389        7,170        1,124   

Gain on repurchase of convertible notes

     (4,112     —          —     

Provision for allowance for doubtful accounts

     2,367        4,895        767   

Changes in operating assets and liabilities:

      

Trade accounts receivable

     (86,332     (78,340     (12,283

Prepayments and other receivables

     1,846        749        117   

Inventories

     (1,042     (91     (14

Accounts payable

     7,073        1,810        284   

Accrued liabilities and other payables

     15,728        26,190        4,106   

Income taxes payable

     13,985        18,810        2,949   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     62,243        79,053        12,395   
  

 

 

   

 

 

   

 

 

 

Cash flow from investing activities:

      

Purchase of property, plant and equipment

     (656     (604     (95

Proceeds from sale of HIFU business

     97,358        —          —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     96,702        (604     (95
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities:

      

Payment for repurchase of convertible notes

     (41,621     —          —     
  

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (41,621     —          —     
  

 

 

   

 

 

   

 

 

 

Effect of foreign currency exchange rate change on cash and cash equivalents

     (1,684     (1,070     (167
  

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

     115,640        77,379        12,133   

Cash and cash equivalents at beginning of period

     1,123,818        1,239,458        194,333   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

     1,239,458        1,316,837        206,466   
  

 

 

   

 

 

   

 

 

 

 

19


Table of Contents

China Medical Technologies, Inc.

EBITDA and Adjusted EBITDA Measures

 

     For the Three Months Ended  
     September 30, 2010     September 30, 2011  
     RMB     RMB     US$  
     (in thousands)  

Net income (loss)

     (2,936     33,343        5,228   

Adjustments:

      

Interest income

     (5,119     (8,820     (1,383

Interest expense – convertible notes

     32,019        32,699        5,127   

Interest expense – amortization of convertible notes issuance costs

     3,906        3,943        619   

Interest expense – amortization of share lending costs

     2,456        2,312        362   

Income tax expense

     21,831        29,379        4,606   
  

 

 

   

 

 

   

 

 

 

EBIT (1)

     52,157        92,856        14,559   

Adjustments:

      

Depreciation

     5,497        5,501        862   

Amortization

     49,422        47,150        7,393   
  

 

 

   

 

 

   

 

 

 

EBITDA (2)

     107,076        145,507        22,814   
  

 

 

   

 

 

   

 

 

 

EBITDA (2)

     107,076        145,507        22,814   

Adjustments:

      

Stock compensation expense

     9,238        5,844        916   
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (3)

     116,314        151,351        23,730   
  

 

 

   

 

 

   

 

 

 
     For the Six Months Ended  
     September 30, 2010     September 30, 2011  
     RMB     RMB     US$  
     (in thousands)  

Net income

     30,742        69,071        10,830   

Adjustments:

      

Interest income

     (9,716     (16,156     (2,533

Interest expense – convertible notes

     64,524        66,046        10,355   

Interest expense – amortization of convertible notes issuance costs

     7,918        7,950        1,246   

Interest expense – amortization of share lending costs

     4,931        4,655        730   

Income tax expense

     40,493        58,687        9,201   
  

 

 

   

 

 

   

 

 

 

EBIT (1)

     138,892        190,253        29,829   

Adjustments:

      

Depreciation

     10,972        11,002        1,725   

Amortization

     99,165        94,827        14,868   
  

 

 

   

 

 

   

 

 

 

EBITDA (2)

     249,029        296,082        46,422   
  

 

 

   

 

 

   

 

 

 

EBITDA (2)

     249,029        296,082        46,422   

Adjustments:

      

Stock compensation expense

     19,830        13,670        2,144   

Gain on repurchase of convertible notes

     (47,393     (4,112     (645
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (3)

     221,466        305,640        47,921   
  

 

 

   

 

 

   

 

 

 

Notes:

 

(1) EBIT represents net income reported in accordance with GAAP, excluding the effects of interest income, interest expense and income tax expense.
(2) EBITDA represents net income reported in accordance with GAAP, excluding the effects of interest income, interest expense, income tax expense, depreciation and amortization.
(3) Adjusted EBITDA represents EBITDA excluding the effects of stock compensation expense and gain on repurchase of convertible notes.

 

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