Feihe International, Inc. Reports Third Quarter 2012 Financial Results

BEIJING -- (Marketwire) -- 11/09/12 -- Feihe International, Inc. (NYSE: ADY) ("Feihe International" or the "Company"), one of the leading producers and distributors of premium infant formula, milk power and soybean, rice and walnut products in China, today announced financial results for the third quarter of 2012. The Company will hold a conference call today at 6:00 am Eastern Time.

Third Quarter 2012 Financial Highlights:

  • Revenue increased approximately $2.7 million, or 4.3%, to $66.1 million in 3Q12 vs. $63.4 million in 2Q12:
    • Revenue from branded milk powder products was $62.7 million in 3Q12, up $2.0 million from $60.7 million of 2Q12 and up $7.2 million from $55.5 million of 3Q11.
    • Revenue from raw milk powder was $15,000 in 3Q12 vs. $33,000 in 2Q12 and $16.9 million in 3Q11.
  • Gross profit increased approximately $8.8 million, or 32.0%, to $36.3 million in 3Q12 from $27.5 million in 3Q11, and up $1.0 million, or 2.6%, sequentially from $35.3 million in 2Q12.
  • Gross profit margin was 54.9% in 3Q12 vs. 36.5% in 3Q11.
  • Net income attributable to common shareholders of the Company was $7.5 million in 3Q12, up approximately $7.1 million from $473,000 in 3Q11 and up approximately $1.7 million, or 29.0%, sequentially from $5.8 million in 2Q12.
  • Diluted net income from continuing operations per common share ("EPS") was $0.38 in 3Q12, up significantly from $0.11 in 3Q11, and increased from $0.29 in 2Q12.

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are pleased with our third quarter results. Our improved gross profit and significantly improved net income attributable to common shareholders reflects the success of our efforts to control costs and to focus our sales on higher margin products. In particular, sales of infant milk powder were up 15% from the third quarter 2011, especially our Feifan and AstroBaby series. We plan to continue this strategy and to enhance our premium quality brand awareness."

The Company's revenue was $66.1 million for the three month period ended September 30, 2012, up $2.7 million, or 4.3%, from $63.4 million in the second quarter of 2012, and representing a decrease of $9.3 million, or 12.4% compared to $75.4 million revenue for the third quarter of 2011. This year-over-year decrease was primarily attributable to a decrease in sales of raw milk powder, a high cost and low gross profit product, of approximately $16.9 million offset by an increase in sales of branded milk powder of approximately $7.2 million. The increase in sales compared to the last quarter in 2012 was primarily attributable to an increase in sales of branded infant milk powder. Sales of milk powder, our highest margin products, increased to $62.7 million from $55.5 million in the third quarter of 2011.

The Company's gross profit was $36.3 million in the third quarter of 2012, an increase of approximately $8.8 million, or 32.0%, compared to $27.5 million in the third quarter of 2011. Our gross profit margin was 54.9% compared with 36.5% in the third quarter of 2011. The substantial growth was primarily attributable to general increases in the sales of high end milk powder and a decrease in the cost of raw milk powder.

The Company's income from operations was $5.4 million in the third quarter of 2012, an increase of approximately $2.2 million, or 69.4%, compared to $3.2 million in the third quarter of 2011. Our total operating expenses increased by approximately $6.4 million, or 25.8%, from approximately $24.8 million in the three month period ended September 30, 2011 to approximately $31.2 million in the three month period ended September 30, 2012. This increase was primarily attributable to an increase of $8.9 million, or 48.9%, in sales and marketing expenses from approximately $18.2 million for the three month period ended September 30, 2011 to $27.1 million in the three month period ended September 30, 2012, and primarily related to increases in advertisement fees, marketing promotion and transportation expenses.

Net income attributable to common shareholders of the Company for the third quarter of 2012 was $7.5 million, or diluted EPS of $0.38, a significant increase from $473,000, or diluted EPS of $0.11, in the third quarter of 2011, and an increase from $5.8 million, or diluted EPS of $0.29, in the second quarter of 2012.

Nine Months Ended September 30, 2012

Revenue was $192.4 million for the nine month period ended September 30, 2012, a decrease of approximately $13.5 million, or 6.6%, from $205.9 million for the nine month period ended September 30, 2011. This decrease was primarily attributable to a decrease in sales of raw milk power of approximately $37.2 million and a decrease in sales of soybean powder of approximately $2.9 million, offset by an increase in sales of milk powder of approximately $25.4 million and an increase in sales of other products of approximately $2.1 million. Gross profit was $105.6 million in the nine month ended September 30, 2012, up $24.2 million from $81.4 million in the same period of 2011. Gross profit margin increased from 39.5% for the nine month period ended September 30, 2011 to 54.9% for the same period of 2012. The increase was primarily attributable to general increases in the sales of high end milk powder and a decrease in the cost of raw milk powder. Income from operations was $20.3 million in the nine month period ended September 30, 2012 compared to $13.4 million in the same period of 2011. Net income attributable to the common shareholders of the Company for the nine month period ended September 30, 2012 was $21.6 million, or diluted EPS of $1.07, as compared to net income attributable to the common shareholders of the Company of $10.3 million, or diluted EPS of $0.60, in the prior year period.

As of September 30, 2012, the Company had cash and cash equivalents of $2.3 million and total current assets of $201.1 million compared to cash and cash equivalents of $15.4 million and total current assets of $200.5 million as of December 31, 2011. The Company had a working capital of approximately $31.1 million as of September 30, 2012, compared to a working capital deficiency of approximately $8.0 million as of December 31, 2011.

Mr. Liu Hua, the Company's Vice Chairman and Chief Financial Officer, stated, "We are pleased with our financial results so far in 2012. We have upgraded the product mix for our sales and significantly improved our profit margins, with sales of our premium Feifan series products representing 60.8%, our super-premium AstroBaby series representing 5.3%, and our super-premium Feifan series representing 8.5%, of our infant milk powder sales this quarter. We are confident in our decision to focus on infant milk powder and decrease raw milk powder sales, and we believe that we can improve our footprint as a leading infant formula company in the PRC in the coming years."

Conference Call Details
The Company will also hold a conference call on November 9, 2012 at 6:00 a.m. Eastern Standard Time to discuss its third quarter results. Listeners may access the call by dialing the following numbers:

United States toll free:
1-888-437-9357

Hong Kong toll free:
800-968-103

Northern China toll free:
10 800 712 0046

Southern China toll free:
10 800 120 0046

International:
1-719-325-2142

The replay will be accessible through November 16, 2012 by dialing the following numbers:

United States toll free:
1-877-870-5176

International:
1-858-384-5517

Password:
8043064

About Feihe International, Inc.
Feihe International, Inc. (NYSE: ADY) is one of the leading producers and distributors of premium infant formula, milk powder, and soybean, rice and walnut products in the People's Republic of China. Feihe International conducts operations in China through its wholly owned subsidiary, Feihe Dairy, and other subsidiaries. Founded in 1962, Feihe Dairy is headquartered in Beijing, China, and has processing and distribution facilities in Kedong, Qiqihaer, Gannan, Longjiang, Shanxi, and Langfang. Using proprietary processing techniques, Feihe International makes products that are specially formulated for particular ages, dietary needs and health concerns. Feihe International has over 200 company-owned milk collection stations, six production facilities with an aggregate milk powder production capacity of approximately 2,020 tons per day and an extensive distribution network that reaches over 80,000 retail outlets throughout China. For more information about Feihe International, Inc., please visit http://ady.feihe.com.

Cautionary Note Regarding Forward-Looking Statements
This document contains forward-looking information about the Company's operating results and business prospects that involve substantial risks and uncertainties. Statements that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These statements include, but are not limited to, statements about the Company's plans, objectives, expectations, strategies, intentions or other characterizations of future events or circumstances and are generally identified by the words "may," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "targets," "could," "would," and similar expressions. Because these forward-looking statements are subject to a number of risks and uncertainties, the Company's actual results could differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the heading "Risk Factors" in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2011, as amended, and in other reports filed with the United States Securities and Exchange Commission and available at www.sec.gov. The Company assumes no obligation to update any such forward-looking statements.

                          FEIHE INTERNATIONAL, INC
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (unaudited)
                                       September 30, 2012  December 31, 2011
                                       ------------------ ------------------
                                               US$                US$
Assets
Current assets:
  Cash and cash equivalents                     2,274,955         15,353,882
  Restricted cash                               6,769,629          1,056,579
  Notes and loans receivable, net of                    -                  -
   allowance for doubtful accounts of
   $3,350,056, as of September 30,
   2012 and December 31, 2011,
   respectively
  Trade receivables, net of allowance
   for doubtful accounts of $812,090
   and $810,864, as of September 30,
   2012 and December 31, 2011,
   respectively                                16,607,970         40,690,638
  Due from related parties                         37,791            194,759
  Advances to suppliers                        27,475,374         11,841,936
  Inventories, net                             44,782,639         33,328,949
  Prepayments and other current assets                  -             50,427
  Income taxes receivable                       1,408,779          1,406,653
  Input value-added taxes                       1,297,389            965,685
  Other receivables                            17,649,157         13,742,625
  Consideration receivable- current            80,291,499         79,337,423
  Investment in mutual funds -
   available-for-sale                             116,546            111,116
  Assets held for sale                          2,387,996          2,384,391
                                       ------------------ ------------------
Total current assets                          201,099,724        200,465,063
                                       ------------------ ------------------

Investments:                                      286,422            285,990
                                       ------------------ ------------------
  Investment at cost                              286,422            285,990
                                       ------------------ ------------------

Property, plant and equipment:
  Property, plant and equipment, net          123,683,509        128,739,637
  Construction in progress                     17,137,526         14,895,512
                                       ------------------ ------------------
                                              140,821,035        143,635,149
                                       ------------------ ------------------

Other assets:
  Advance to suppliers - non-current            6,382,308          3,741,454
  Long term deposit                            78,336,834         46,139,913
  Consideration receivables - non-
   current                                              -         19,450,201
  Deferred tax assets - non-current             2,863,870          9,805,701
  Prepaid leases for land use rights           17,987,709         18,280,745
                                       ------------------ ------------------
Total assets                                  447,777,902        441,804,216
                                       ------------------ ------------------

Liabilities
Current liabilities:
  Short term bank loans                        59,035,071         54,616,375
  Accounts payable                             44,465,872         39,077,499
  Notes payable                                 3,182,484                  -
  Accrued expenses                              6,371,885          6,943,370
  Income tax payable                              514,361            734,389
  Advances from customers                      10,799,243         17,899,560
  Due to related parties                           50,920             86,213
  Advances from employees                         328,888            415,253
  Employee benefits and salary payable          8,013,360          9,777,537
  Other payables                               31,150,099         39,561,388
  Current portion of long term bank
   loans                                        5,953,631          5,945,439
  Current portion of capital lease
   obligation                                     134,710            288,066
  Accrued interest                                      -            395,783
  Redeemable common stock (US$0.001                     -
   par value, nil and 1,312,500 shares
   issued and outstanding as of
   September 30, 2012 and December 31,
   2011), respectively                                            32,696,658
                                       ------------------ ------------------
Total current liabilities                     170,000,524        208,437,530

Long term bank loans, net of current
 portion                                        2,976,293          5,943,726
Capital lease obligation, net of
 current portion                                  288,683            430,180
Other long term loan                           59,222,577         32,803,289
Accrued interest                                        -            170,555
Unrecognized tax benefits - non-
 current                                       10,654,787         14,806,768
Deferred income                                 4,607,006          3,711,033
                                       ------------------ ------------------
Total liabilities                             247,749,870        266,303,081
                                       ------------------ ------------------

Commitments and contingencies (see
 Note 23)

Equity
Feihe International, Inc.
 shareholders' equity:
  Common stock (US$0.001 par value,
   50,000,000 shares authorized;
   19,784,291 and 19,714,291 shares
   issued and outstanding as of
   September 30, 2012 and December 31,
   2011, respectively)                             19,784             19,714
  Additional paid-in capital                   61,380,588         58,920,283
  Common stock warrants                         1,774,151          1,774,151
  Statutory reserves                           11,341,427         11,341,427
  Accumulated other comprehensive
   income                                      43,216,008         42,730,802
  Retained earnings                            82,296,074         60,696,815
                                       ------------------ ------------------
Total Feihe International, Inc.
 shareholders' equity                         200,028,032        175,483,192
Noncontrolling interests                                -             17,943
                                       ------------------ ------------------
Total equity                                  200,028,032        175,501,135
                                       ------------------ ------------------
Total liabilities and equity                  447,777,902        441,804,216
                                       ------------------ ------------------



                           FEIHE INTERNATIONAL, INC
         CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                (unaudited)

                         Three months ended           Nine months ended
                            September 30,               September 30,
                     --------------------------  --------------------------
                         2012          2011          2012          2011
                     ------------  ------------  ------------  ------------

Sales                  66,063,396    75,372,031   192,382,797   205,920,601

Cost of goods sold    (29,810,627)  (47,897,512)  (86,832,560) (124,487,794)
                     ============  ============  ============  ============

Gross profit           36,252,769    27,474,519   105,550,237    81,432,807
                     ------------  ------------  ------------  ------------

Operating and
 administrative
 expenses:
  Sales and
   marketing          (27,084,010)  (18,189,157)  (70,834,189)  (54,013,376)
  General and
   administrative      (4,109,154)   (6,620,974)  (14,841,476)  (17,376,737)
                     ------------  ------------  ------------  ------------
Total operating
 expenses             (31,193,164)  (24,810,131)  (85,675,665)  (71,390,113)
                     ============  ============  ============  ============

Other operating
 income, net              311,666       506,956       405,569     3,367,465

                     ------------  ------------  ------------  ------------
Income from
 operations             5,371,271     3,171,344    20,280,141    13,410,159

Other income
 (expenses):
  Interest income          14,604        20,067        55,109        65,486
  Interest and
   finance costs         (635,644)   (1,076,261)   (2,920,757)   (3,123,153)
  Government subsidy    1,841,887     3,418,184     8,040,128     7,391,065
  Gain on
   deregistration of
   subsidiaries                 -             -       180,077             -
                     ------------  ------------  ------------  ------------
Income from
 continuing
 operations before
 income tax expenses
 and noncontrolling
 interests              6,592,118     5,533,334    25,634,698    17,743,558

Income tax credit
 (expenses)               936,679    (2,546,209)   (4,002,635)   (5,178,588)
                     ============  ============  ============  ============
Net income from
 continuing
 operations             7,528,797     2,987,125    21,632,063    12,564,970
Loss from
 discontinued
 operations, net of
 tax                            -    (1,969,820)            -    (1,629,948)
                     ------------  ------------  ------------  ------------
Net income              7,528,797     1,017,305    21,632,063    10,935,022
  Net income
   attributable to
   noncontrolling
   interests                    -      (544,655)      (24,209)     (599,442)
                     ------------  ------------  ------------  ------------
  Net income
   attributable to
   common
   stockholders of
   Feihe
   International,
   Inc.                 7,528,797       472,650    21,607,854    10,335,580
                     ------------  ------------  ------------  ------------

Net income              7,528,797     1,017,305    21,632,063    10,935,022
Other comprehensive
 income, net of tax
  Foreign currency
   translation
   adjustments          2,920,875     3,543,477       429,029     8,995,227
  Change in fair
   value of
   available for
   sale investments        (1,988)      (16,522)        5,430       (15,618)
                     ------------  ------------  ------------  ------------
Other comprehensive
 income                 2,918,887     3,526,955       434,459     8,979,609
                     ------------  ------------  ------------  ------------
Comprehensive income   10,447,684     4,544,260    22,066,522    19,914,631
  Comprehensive
   income
   attributable to
   the
   noncontrolling
   interest                     -        54,065        17,943        10,692
                     ------------  ------------  ------------  ------------
  Comprehensive
   income
   attributable to
   common
   stockholders of
   Feihe
   International,
   Inc.                10,447,684     4,598,325    22,084,465    19,925,323
                     ============  ============  ============  ============

Net income from
 continuing
 operations per
 share of common
 stock
  Basic                      0.38          0.11          1.07          0.60
  Diluted                    0.38          0.11          1.07          0.60

Net income from
 continuing
 operations per
 share of redeemable
 common stock
  Basic                         -          0.11          1.07          0.55
  Diluted                       -          0.11          1.07          0.55

Net income from
 discontinued
 operations, net of
 tax per share of
 common stock
  Basic                         -         (0.09)            -         (0.07)
  Diluted                       -         (0.09)            -         (0.07)

Net income from
 discontinued
 operations, net of
 tax per share of
 redeemable common
 stock
  Basic                         -         (0.09)            -         (0.07)
  Diluted                       -         (0.09)            -         (0.07)

Weighted average
 shares used in
 calculating net
 income per share of
 common stock
  Basic                19,784,291    19,694,117    19,747,247    19,678,983
  Diluted              19,784,291    19,694,117    19,747,247    19,688,903

Weighted average
 shares used in
 calculating net
 income per share of
 redeemable common
 stock
  Basic                         -     1,968,750       364,051     2,252,404
  Diluted                       -     1,968,750       364,051     2,252,404



CONTACT

In the U.S.:
Renee Ren
Email Contact

In China:
Renee Ren
86-10-8457-4688 x8810
Email Contact

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