-- Expects 2007 Revenue To Reach $150 million -- BEIJING, Aug. 14
/PRNewswire-FirstCall/ -- American Dairy, Inc. (NYSE:ADY), one of
the leading producers and distributors of milk powder and soybean
products in China, today announced its second quarter 2007
financial results. The Company plans to file its 10Q today. Key
Highlights from the Second Quarter of 2007 include: * Revenue up
61% year over year to $41.5 million from $25.7 million in 2Q06 *
Gross profit up 43% year over year to $18.3 million from $12.8
million, gross margin of 44.1% * Operating income increased 21% to
$5.2 million from $4.3 million in 2Q06 * Non-cash interest expenses
of $1.2 million * Net income of $4.1 million, or $0.24 per diluted
share Mr. Leng You Bin, Chief Executive Officer of American Dairy,
stated "Our financial results for the second quarter exceeded our
expectations. Our revenue growth of 61% on production increases of
37% demonstrates the fantastic pricing power associated with our
high end products. Our second quarter 2007 financial results
reflect the growing popularity of the Feihe brand as more and more
Chinese consumers seek our trusted brand for quality and
consistency. We continue to command premium prices for our products
and, in fact, our highest margin products, the Nucleotide series
and the CPP series, continued to generate a majority of our revenue
this quarter." Roger Liu, Chief Financial Officer of American
Dairy, added " We are proud to operate a brand that is quickly
accepted in new markets due to our effective promotional efforts.
Approximately $3.1 million of our cost of sales reflects these
in-store product promotion efforts, which we execute in new
geographic areas to grow our market share. Please keep in mind that
our year over year gross margin comparison is skewed because we
didn't incur any similar promotional expense in cost of goods in
the second quarter of 2006. We are very pleased with our gross
margin performance and are excited to benefit from our brand
investment in the future as we introduce new higher margin lines."
Revenue for the second quarter was $41.5 million, up 61% from $25.7
million in the second quarter of 2006. The increased popularity of
the Feihe brand in China continued to drive revenue growth in the
second quarter. Importantly, revenue performance was led by the
Company's high margin milk powder with Nucleotides series. Sales
quantities increased 37% to 8.4 million kilograms in the second
quarter of 2007, up from 6.1 million kilograms in the prior year
period, driven by increased sales quantities of the Company's
highest ASP products. Specifically, sales volume for the Company's
milk power with Nucleotides increased 66% to 1.4 million kilograms
and the CPP infant formula series increased 7% to 2.1 million
kilograms. Together these two products generated 67.3% of revenue,
in line with 67.2% for the same period the prior year. Gross profit
increased 43% to $18.3 million from $12.8 million in the second
quarter of 2006. Gross margin of 44.1%, down year over year from
50.1% in the second quarter of 2006, reflects the increase in sales
volume offset by $3.1 million in product incentives, which did not
occur in the year-ago period. Please note that in the fourth
quarter of 2006, the Company reclassified certain promotional
expenses - such as product incentives -- out of distribution
expense and into cost of goods sold. These reclassifications had no
impact on net income or net earnings per share. The Company
allocates capital to promotional expenses and product incentives in
order to generate returns in the future, especially as it works to
penetrate new markets. Income from operations increased 21% to $5.2
million from $4.3 million in the second quarter of 2006, despite
significant increases in distribution and general and
administrative expenses. The Company's distribution expenses
increased 54% to $11.1 million from the year before, primarily
reflecting increases in advertising and promotions expenses.
General and administration expenses increased 46% to $1.9 million,
reflecting an increase in staff salaries, insurance expense, and
accounting and legal costs associated with financing activities,
mostly at the parent company level. Importantly, American Dairy has
begun to recognize operating leverage, reflected in distribution
expense as a percentage of sales, which declined 123 basis points
to 26.7% of sales, and general and administrative expenses as a
percentage of sales, which declined 34 basis points to 4.6%. In the
second quarter of 2007, the Company benefited from $984,000 of VAT
rebates received from the Heilongjiang Province. Interest expense
increased to $2.0 million in the second quarter of 2007 from
$179,000 in the second quarter of 2006. The increase in interest
expense is mainly due to $1.2 million for the non-cash accrual of
redemption premiums on the convertible bonds issued in June of
2007. (See Explanation of Redemption Accrual, below.) Due to the
non-cash accrual of redemption premiums and near-term investment in
promotional programs, net income was $4.1 million, compared to $5.3
million in the same period of 2006. Excluding non-cash interest
expenses of $1.2 million in the second quarter 2007, net income
would have been $5.3 million. On a diluted per share basis, net
income was $0.24, compared to $0.31 in the prior year period. Six
Months Ended June 30, 2007 For the six months ended June 30, 2007,
revenue increased 52% to $77.5 million from $50.9 million in the
first six months of 2006. During this same time period, gross
profit improved 40% to $35.8 million from $25.6 million. Income
from operations increased 29% to $11.7 million from $9.1 million in
the first half of 2006. Net income for the six month period in 2007
was $10.1 million, or $0.58 per diluted share. Excluding $1.2
million of non-cash interest expense, net income in the first six
months of 2007 would have been $11.3 million, an increase of 13%
from net income of $10.0 in the first half of 2006. Balance Sheet
As of June 30, 2007, the Company had $106.3 million of cash,
compared to $39.5 million at December 31, 2006 and $37.8 million at
March 31, 2007. American Dairy had working capital of approximately
$103.5 million at June 30, 2007. The Company had long term debt of
$98.3 million as of June 30, 2007. You Bin continued, "We completed
approximately $80.0 million of convertible debt financing in the
second quarter of 2007. We intend to put this money to work to
generate returns for our shareholders as well as to capitalize on
opportunities that will benefit American Dairy for years to come.
Our balance sheet currently allows us to pursue several avenues,
including acquisitions, and it is our intention to deploy the
capital to generate the highest risk adjusted returns for our
shareholders. In fact, we expect to announce an important
negotiated transaction in the near future." Business Update *
Gannan County processing plant: The construction of the Gannan
facility will be completed in September 2007. The Company will test
the production line in October 2007 and the facility will be put
into production at the end of 2007. As planned, the Gannan facility
will be able to process at least 300 tons of fresh milk per day by
the end of 2007. American Dairy expects that the Gannan plant will
process at least 1,000 tons of fresh milk per day by the end of
2009. The Company expects continued operating leverage as
production continues to come on line. * Langfang packaging plant:
American Dairy expects that the Langfang construction project will
create one of China's biggest milk powder packaging plants. Its
first production line was put into use in the second quarter 2007.
The initial packaging capacity is 30,000 tons of milk powder per
year. The second production line will be put into use in June 2008,
increasing the capacity to 50,000 tons of milk powder per year. The
Company is currently purchasing equipment for the second production
line and the expected investment will be less than $2.0 million. *
NYSE listing: The Company is actively pursuing a listing on the
NYSE. Management continues to work toward meeting all of the
requirements for a listing, and hopes to update investors in the
near future with regards to the progress. Financial Outlook "2007
is a year in which we are making planned, strategic investments in
our future growth, as we focus on increasing our capacity,
enhancing our brand recognition, and expanding our portfolio and
distribution reach," continued Roger Liu, Chief Financial Officer
of American Dairy. "Excluding any potential incremental benefits
from acquisitions and strategic partnerships, we expect revenues
for the full year 2007 will reach $150.0 million, a 22% increase
over 2006, and we expect to realize income from operations of $30.0
million for the full year 2007, a 58% increase over the full year
2006 results." Explanation of Redemption Accrual The Company raised
a total of $80.0 million through two guaranteed senior secured
convertible note financings with Citadel, and various institutional
investors on June 1, 2007 and June 27, 2007, respectively. These
notes bear interest at a rate of 1.0% per annum and are due in
2012. Under the indentures, if the notes are not converted before
their respective maturities, the notes are to be redeemed by the
Company on the maturity date at a redemption price equal to 100% of
the principal amount of the notes then outstanding plus an
additional amount of 18% per annum, calculated on an annual
compounded basis, plus any accrued and unpaid interest. As of June
30th, the Company had accrued $1.2 million as a redemption amount
payable under the notes, which was included in interest expense in
the second quarter of 2007. Unlike the annual interest rate of 1.0%
which is paid in cash to the note holders under the note indenture
on a semi-annual basis, the Company would only pay the accrued
redemption amount under the notes if the notes are not converted
into the Company's common stock at a price currently equal to
$24.00 per share before their respective maturities and are
redeemed in accordance with its terms. Nevertheless, the Company
believes that it must accrue the entire redemption amount under
U.S. generally accepted accounting principles. This accrual will
result in non-cash expense of approximately $7.0 million in the
second half of 2007. About American Dairy, Inc. American Dairy,
Inc. conducts operations in The People's Republic of China
("China") through its wholly owned subsidiary, Feihe Dairy. Founded
in 1962, Feihe Dairy is one of the leading producers and
distributors of milk powder and soybean products in China. Feihe
Dairy is located in Kedong County, China, and has been in operation
since 2001. American Dairy also has a milk powder processing plant,
BaiQuan Feihe Dairy in Kedong County, and also has a milk powder
processing plant in the city of Qiqihaer, Heilongjiang Province.
http://www.americandairyinc.com/ Certain of the statements made
herein constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Such
statements typically involve risks and uncertainties and may
include financial projections or information regarding our future
plans, objectives or performance. Actual results could differ
materially from the expectations reflected in such forward-looking
statements as a result of a variety of factors, including the risks
associated with the effect of changing economic conditions in The
People's Republic of China, variations in cash flow, reliance on
collaborative retail partners and on new product development,
variations in new product development, risks associated with rapid
technological change, and the potential of introduced or undetected
flaws and defects in products, and other risk factors detailed in
reports filed with the Securities and Exchange Commission from time
to time. AMERICAN DAIRY, INC. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited) Three Months Ended June 30 2007 2006 SALES
$41,514,018 $25,725,587 COST OF GOODS SOLD 23,196,735 12,880,859
Gross Profit 18,317,283 12,844,728 OPERATING AND ADMINISTRATIVE
EXPENSES: Distribution expenses 11,093,294 7,190,917 General and
administrative expenses 1,905,624 1,268,021 Depreciation 108,701
117,133 13,107,619 8,576,071 Income from operations 5,209,664
4,268,657 OTHER INCOME (EXPENSE): Refunds of VAT taxes 983,703
1,412,914 Other income (expense) (3,998) (258,066) Gain on disposal
of assets - - Interest and finance costs (2,048,645) (179,345)
(1,068,940) 975,503 MINORITY INTEREST - 17,807 INCOME BEFORE INCOME
TAXES 4,140,724 5,261,967 (PROVISION FOR) BENEFIT FROM INCOME TAXES
- - NET INCOME 4,140,724 5,261,967 Other comprehensive income:
Foreign currency translation adjustment 1,469,992 (65,606) TOTAL
COMPREHENSIVE INCOME $5,610,716 $5,196,361 BASIC NET INCOME PER
COMMON SHARE $0.26 $0.36 WEIGHTED AVERAGE BASIC SHARES OUTSTANDING
15,951,732 14,579,828 DILUTED NET INCOME PER COMMON SHARE $0.24
$0.31 WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 18,981,890
17,113,560 AMERICAN DAIRY, INC. CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS (Unaudited) Six Months Ended June 30 2007 2006 2004
SALES $77,521,388 $50,883,465 $37,416,223 COST OF GOODS SOLD
41,699,461 25,245,965 18,006,918 Gross Profit 35,821,927 25,637,500
19,409,305 OPERATING AND ADMINISTRATIVE EXPENSES: Distribution
expenses 20,104,071 14,011,139 13,486,232 General and
administrative expenses 3,835,168 2,336,021 1,313,358 Depreciation
203,894 167,784 54,419 24,143,133 16,514,944 14,854,009 Income from
operations 11,678,794 9,122,556 4,555,296 OTHER INCOME (EXPENSE):
Refunds of VAT taxes 1,143,221 1,536,983 1,144,060 Other income
(expense) (3,484) (250,743) 345,707 Gain on disposal of assets - -
693 Interest and finance costs (2,749,977) (402,937) (49,353)
(1,610,240) 883,303 1,441,107 MINORITY INTEREST - 20,608 356 INCOME
BEFORE INCOME TAXES 10,068,554 10,026,467 5,996,759 (PROVISION FOR)
BENEFIT FROM INCOME TAXES - - 261,621 NET INCOME 10,068,554
10,026,467 6,258,380 Other comprehensive income: Foreign currency
translation adjustment 2,412,513 469,354 - TOTAL COMPREHENSIVE
INCOME $12,481,067 $10,495,821 $6,258,380 BASIC NET INCOME PER
COMMON SHARE $0.63 $0.70 $0.52 WEIGHTED AVERAGE BASIC SHARES
OUTSTANDING 15,900,884 14,373,202 12,077,085 DILUTED NET INCOME PER
COMMON SHARE $0.58 $0.61 $0.47 WEIGHTED AVERAGE DILUTED SHARES
OUTSTANDING 18,949,528 16,860,107 13,455,700 AMERICAN DAIRY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 2007 AND DECEMBER
31, 2006 ASSETS June 30, December 31, 2007 2006 (unaudited) Current
assets: Cash $106,251,487 $39,473,910 Accounts receivable Trade-net
of allowance for bad debts of $354,844 and $322,520, respectively
5,397,826 5,459,760 Employees 879,365 433,121 Other 978,662 452,728
Intercompany 0 - Notes receivable 459,318 230,179 Inventories
15,685,612 13,913,766 Prepaid expenses 3,830,425 664,530 Advances
to suppliers 2,705,198 1,301,935 Other tax refundable 654,004
1,365,214 Total current assets 136,841,897 63,295,143 Investments:
Investment - equity method 10,104,987 - 10,104,987 - Property and
equipment: Fixed assets, net of accumulated depreciation 44,904,961
36,981,569 Construction in progress 12,134,175 9,433,148 57,039,136
46,414,717 Other assets: Deposits 10,104,987 - Goodwill 1,634,467
1,460,695 1,634,467 1,460,695 Total assets $205,620,487
$111,170,555 See accompanying notes to financial statements.
AMERICAN DAIRY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30,
2007 AND DECEMBER 31, 2006 LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31, 2007 2006 (unaudited) Current liabilities:
Accounts payable and accrued expenses $16,800,591 $13,263,315
Current portion of long term debt 5,128,216 5,103,197 Advances from
related parties 147,002 119,911 Advances from employees 587,664
735,294 Deferred income 2,666,945 2,145,325 Short-term notes and
loans payable 7,962,481 13,122,868 Total current liabilities
33,292,899 34,489,910 Long term debt, net of current portion shown
above, net of discount of $1,403,895 and $1,715,871, respectively
98,348,092 16,936,654 Minority interest 498,688 - Stockholders'
equity: Common stock, $.001 par value; 50,000,000 shares
authorized; 15,971,070 and 15,831,820 shares issued and outstanding
at June 30, 2007 and December 31, 2006, respectively 15,971 15,832
Additional paid-in capital 19,090,040 17,834,429 Retained earnings
50,245,628 40,177,074 Accumulated other comprehensive income
4,129,169 1,716,656 Total stockholders' equity 73,480,808
59,743,991 Total liabilities and stockholders' equity $205,620,487
$111,170,555 DATASOURCE: American Dairy, Inc. CONTACT: U.S., Ashley
Ammon MacFarlane, +1-203-682-8200; or Asia, Xuyang Zhang,
+86-10-8523-3087, both of Integrated Corporate Relations, Inc., for
American Dairy, Inc. Web site: http://www.americandairyinc.com/
Copyright