Feihe International, Inc. Reports First Quarter 2013

BEIJING--(Marketwired - May 15, 2013) - Feihe International, Inc. ( NYSE : ADY ) ("Feihe International," the "Company," "we," "us" and "our"), one of the leading producers and distributors of premium infant formula, milk powder, packed milk, and soybean, rice and walnut products in China, today announced financial results for the first quarter of 2013.

First Quarter 2013 Financial Highlights:

• Revenue was $79.8 million in 1Q 2013, an increase of $16.9 million or 26.9% from $62.9 million in 1Q 2012, and a sequential increase of $4.3 million or 5.7% from $75.5 million in 4Q 2012.
  • Sales from branded milk powder products were $76.4 million in 1Q 2013 vs. $59.4 million in 1Q 2012.
  • Sales from packed milk products were $0.7 million in 1Q 2013 vs. $0.5 million in 1Q 2012.
• Gross profit was $45.3 million, up $11.3 million or 33.2% from $34.0 million in 1Q 2012, and sequentially up $12.1 million or 36.4% from $33.2 million in 4Q 2012.
• Gross profit margin was 56.8% vs. 54.0% in 1Q 2012.
• Income from operations increased $11.5 million to $9.7 million in 1Q 2013 from a loss from operations of $1.8 million in 4Q 2012.
• Net income was $10.6 million in 1Q 2013, increased $2.3 million or 27.7% from $8.3 million in 1Q 2012, and increased $11.0 million from net loss of $0.4 million in 4Q 2012.
• Diluted net income per share of common stock ("EPS") was $0.53 in 1Q 2013 vs. $0.40 in 1Q 2012 and a loss per share of $0.02 in 4Q 2012.

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are pleased to issue our first quarter 2013 financial results today. The increased sales of Feihe branded milk powder, our higher margin products, demonstrate better market recognition and brand awareness. This is a good start for the next fifty years for Feihe International, Inc. We will continue to concentrate on producing premium quality milk powder from secured raw milk sources."

The Company's revenue was $79.8 million in the first quarter of 2013, an increase of approximately $16.9 million, or 26.9%, from approximately $62.9 million in the first quarter of 2012. This increase was primarily due to an increase in sales of milk powder of approximately $17.0 million and sales of packed milk of approximately $0.3 million, offset by a decrease in sales of raw milk powder of approximately $0.3 million and rice cereal of $0.4 million.

The Company's gross profit was $45.3 million in the first quarter of 2013, up $11.3 million, or 33.2%, from $34.0 million in the first quarter of 2012, and sequentially up $12.1 million, or 36.4%, from $33.2 million in the last quarter of 2012. Gross margin for the first quarter of 2013 was 56.8% compared to 54.0% in the first quarter of 2012. This increase was primarily attributable to a general increase in the gross profits of all of our milk powders. 

Sales and marketing expenses increased approximately $11.7 million, or 62.2%, from approximately $18.8 million for the first quarter of 2012 to approximately $30.5 million for the first quarter of 2013. This increase was primarily related to increases in advertisement fees of approximately $3.1 million, or 114.8%, from approximately $2.7 million for the first quarter of 2012 to approximately $5.8 million in the first quarter of 2013. Marketing promotion expenses increased approximately $2.3 million, or 29.1%, from approximately $7.9 million for the first quarter of 2012 to approximately $10.2 million in the first quarter of 2013. Staff cost of promoters and marketing staff increased approximately $4.6 million, or 82.1%, from approximately $5.6 million for the first quarter of 2012 to approximately $10.2 million in the first quarter of 2013.

The Company had income from operations of approximately $9.74 million in the three month period ended March 31, 2013, representing an increase of approximately $0.03 million, or 0.31%, from approximately $9.71 million in the three month period ended March 31, 2012.

The Company's net income attributable to the Company for the first quarter of 2013 was $10.6 million, or diluted EPS of $0.53, up $2.4 million, or 29.3%, from the net income of $8.2 million or diluted EPS of $0.40 in the first quarter of 2012, and a significant increase from a net loss of $446,000 or diluted loss per share of $(0.02) in the fourth quarter of 2012.

As of March 31, 2013, the Company had cash and cash equivalents of approximately $14.9 million and total current assets of approximately $221.6 million, compared to cash and cash equivalents of $9.8 million and total current assets of $194.8 million as of March 31, 2012. The Company had a working capital of approximately $46.6 million as of March 31, 2013 compared with $18.6 million as of March 31, 2012.

Mr. Liu Hua, the Company's Vice Chairman and Chief Financial Officer, stated, "We are pleased with our first quarter financial results. Our net income and EPS demonstrate our efforts to expand sales of higher margin products and improve the efficiency of our distribution network. In particular, sales of milk powder was $76.4 million compared to $59.4 million in the same period of last year and sales of our Feifan series was $49.3 million compared to $38.0 million in the first quarter of 2012. We will continue to focus our efforts on the sales of higher margin products."

About Feihe International, Inc.

Feihe International, Inc. ( NYSE : ADY ) is one of the leading producers and distributors of premium infant formula, milk powder, packed milk 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 International is headquartered in Beijing, China, and has processing and distribution facilities in Kedong, Qiqihaer, Gannan, Longjiang, Shanxi. 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, five production facilities with an aggregate milk powder production capacity of approximately 2,020 tons per day and an extensive distribution network that reaches over 105,000 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, 2012, 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)
			March 31, 2013		December 31, 2012
			US$		US$
Assets
Current assets:
	Cash and cash equivalents		14,892,735		40,425,310
	Restricted cash		1,465,359		8,081,061
	Trade receivables, net of allowance for doubtful accounts of $1,459,309 and $1,454,741, as of March 31, 2013 and December 31, 2012, respectively		18,952,195		24,535,601
	Notes and loans receivable, net of allowance for doubtful accounts of $3,350,056, as of March 31, 2013 and December 31, 2012, respectively		-		-
	Due from related parties		24,075		20,191
	Advances to suppliers		12,956,338		14,805,607
	Inventories, net		29,137,477		30,838,292
	Prepayments and other current assets		37,352		43,779
	Recoverable value-added taxes		1,393,997		1,269,443
	Loans and advances to third parties		60,879,155		30,473,435
	Consideration receivable		75,907,867		78,274,528
	Deferred tax assets		3,425,598		3,425,598
	Investment in mutual funds - available-for-sale		119,483		117,210
	Assets held for sale		2,416,333		2,408,770
Total current assets			221,607,964		234,718,825
Investments:
	Investment at cost		289,821		288,914
			289,821		288,914
Property, plant and equipment:
	Property, plant and equipment, net		113,265,430		114,990,808
	Construction in progress		21,021,622		17,996,885
			134,287,052		132,987,693
Other assets:
	Advances to suppliers - non-current		11,989,369		10,149,090
	Long term loan receivables		79,266,427		79,018,330
	Deferred tax assets - non-current		730,163		2,568,642
	Prepaid leases for land use rights		16,429,133		16,524,390
Total assets			464,599,929		476,255,884
Liabilities and shareholders' equity
Current liabilities:
	Notes payable		-		7,996,533
	Short term bank loans		61,828,779		63,240,345
	Accounts payable		41,237,423		41,115,131
	Accrued expenses		10,779,092		14,193,225
	Income tax payable		2,393,860		2,128,545
	Advances from customers		16,225,424		15,092,328
	Due to related parties		138,524		55,276
	Advances from employees		80,023		225,835
	Employee benefits and salary payable		10,668,699		9,758,312
	Other payables		25,464,200		38,683,732
	Current portion of long term bank loans		6,023,349		6,004,497
	Current portion of capital lease obligation		139,973		137,722
Total current liabilities			174,979,346		198,631,481
Capital lease obligation, net of current portion			301,756		296,856
Other long term loans			59,222,577		59,222,577
Unrecognized tax benefits - non-current			12,193,729		12,026,563
Deferred income			4,254,460		4,320,779
Total liabilities			250,951,868		274,498,256
Commitments and contingencies (see Note 21)
Equity
	Common stock (US$0.001 par value, 50,000,000 shares authorized; 19,784,291 shares issued and outstanding as of March 31, 2013 and December 31, 2012)		19,784		19,784
	Additional paid-in capital		61,762,731		61,284,217
	Common stock warrants		1,774,151		1,774,151
	Statutory reserves		13,450,739		13,450,739
	Accumulated other comprehensive income		46,343,337		45,487,528
	Retained earnings		90,297,319		79,741,209
Total shareholders' equity			213,648,061		201,757,628
Total liabilities and equity			464,599,929		476,255,884

FEIHE INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
			Three months ended March 31,
			2013			2012
			US$			US$
Sales			79,753,773			62,936,077
Cost of goods sold			(34,418,752	)		(28,957,473	)
Gross profit			45,335,021			33,978,604
Operating expenses:
	Sales and marketing		(30,497,803	)		(18,768,178	)
	General and administrative		(5,251,069	)		(5,590,235	)
	Total operating expenses		(35,748,872	)		(24,358,413	)
Other operating income, net			158,262			90,454
Income from operations			9,744,411			9,710,645
Other income (expenses):
	Interest income		44,365			23,473
	Interest and finance costs		(828,942	)		(1,145,953	)
	Government subsidy		5,146,154			1,561,348
Income before income tax expenses and noncontrolling interests			14,105,988			10,149,513
Income tax expenses			(3,549,878	)		(1,882,901	)
Net income			10,556,110			8,266,612
Net income attributable to noncontrolling interests			-			(24,209	)
Net income attributable to common shareholders of Feihe International, Inc.			10,556,110			8,242,403
Net income			10,556,110			8,266,612
Other comprehensive income, net of tax
	Foreign currency translation adjustments		853,909			(130,439	)
	Change in fair value of available for sale investments		1,900			2,661
Other comprehensive income			855,809			(127,778	)
	Less: comprehensive income attributable to the noncontrolling interest		-			(24,216	)
Comprehensive income attributable to common shareholders of Feihe International, Inc.			11,411,919			8,114,618
Net income per share of common stock
	Basic		0.53			0.40
	Diluted		0.53			0.40
Net income per share of redeemable common stock
	Basic		-			0.40
	Diluted		-			0.40
Weighted average shares used in calculating net income per share of common stock
	Basic		19,784,291			19,714,291
	Diluted		19,784,291			19,714,291
Weighted average shares used in calculating net income per share of redeemable common stock
	Basic		-			879,809
	Diluted		-			879,809