- Revenue and Net Income Exceed Company's Expectations - BEIJING,
April 2 /PRNewswire-FirstCall/ -- American Dairy, Inc. (NYSE Arca:
ADY), one of the leading producers and distributors of milk powder
and soybean products in China, today announced fourth quarter and
full year 2006 financial results. The Company plans to file its
2006 Form 10K today. Key Highlights from 2006 include: -- Revenue
up 81% year over year to $122.8 million, above previously announced
expectations -- Net income per diluted share increased by 54% to
$1.14, above previously announced expectations and despite the
increase in the average diluted share count from 16.1 million to
18.1 million -- Continued strategic penetration of the market via
increased advertising expenditure, to bolster the strength of the
Feihe brand -- Total sales volume grew 68% to 29.1 million
kilograms from 17.3 million kilograms in 2005 Leng You Bin, Chief
Executive Officer and President of American Dairy stated, "Our
financial results for 2006 exceeded our expectations and we
generated revenue growth of 81% off of sales volume growth of 68%.
Despite significant investment in the Feihe brand and expenses
related to the build out of new facilities in 2006, we still
increased our net income by 71% for the year. Congratulations and
thank you to all of our employees who made 2006 a spectacular year
for American Dairy." Leng You Bin continued, "There are two key
points to consider when evaluating our fiscal year performance.
First, more and more consumers are seeking out quality and
consistency and buying Feihe products. This drove our revenue to
almost $123.0 million in 2006 and we are very proud of that
achievement. Second, we are actively using our capital to create
future growth. Throughout the year, and especially in the fourth
quarter, we strategically invested in our brand and our
infrastructure. While we have yet to see the revenue and margin
benefits from these material investments, our financials reflect
the cost of planning for future success as we build one of China's
leading consumer companies, and create significant shareholder
value for many years to come." For the year ended December 31,
2006, revenue increased 81% to $122.8 million from $68.0 million in
2005. Depreciation expense accounted for in cost of goods sold
roughly doubled in 2006 to $1.5 million and reflects the
depreciation related to new production facilities. During this same
period, gross profit improved 79% to $52.6 million from $29.3
million in 2005. Income from operations increased 78% to $17.7
million from $9.9 million in 2005, and includes the impact of
higher expenses such as advertising, distribution and general and
administrative expense. Net income improved 71% to $19.9 million
from $11.6 million in 2005. Diluted EPS income available to common
shareholders was $20.6 million, or $1.14 per diluted share. Please
refer to Table 1 for an explanation of the net income per diluted
share calculation. Key Highlights from the Fourth Quarter of 2006
include: -- Revenue up 49% year over year to $38.2 million,
reflecting the strongest quarter in Company history -- Gross profit
up 66% year over year to $15.5 million, gross margin of 40%
reflects reclassification of certain promotional expenses as
detailed in Table 2 -- Operating income increased 57% to $3.3
million from $2.1 million in 4Q05 -- Net income increased 9% to
$4.4 million, or $0.22 per diluted share, from $4.0 million, or
$0.25 per diluted share in 4Q05 -- Fourth quarter net margin of 11%
directly reflects strategic investments in advertising and
branding. Company spent $2.8 million, or 7% of revenue, on
advertising and marketing in 4Q06, up substantially from $500,000,
or 2% of revenue, spent in 4Q05. -- Legal and accounting costs
related to financing totaled $224,000, or $0.01 per diluted share,
in 4Q06 "Our strategic investment in advertising and marketing is
an essential part of our plan to build American Dairy into one of
China's leading consumer companies. While this strategy meant lower
net margins in the fourth quarter, we believe this is the right
strategy that will enhance our brand awareness and continue to
increase revenues over the longer term. China is a vast and
fragmented consumer marketplace that we are actively penetrating
with the right promotional and marketing expenditure. For example,
we invested $2.8 million in the fourth quarter to enhance our brand
for long-term growth, compared to only $500,000 in the fourth
quarter of the prior year. Despite the significantly higher year
over year branding investment, we still increased our net income by
9% and we are very pleased with these results," commented Leng You
Bin. Revenue for the fourth quarter was $38.2 million, up 49% from
$25.6 million in the fourth quarter of 2005. The increased
popularity of the Feihe brand in China continued to drive revenue
growth in the fourth quarter. Sales quantities increased 47% to 8.7
million kilograms in the fourth quarter of 2006, up from 5.9
million kilograms in the prior year period, driven by increased
sales quantities of major products. Specifically, sales volume for
the Company's Ca+Zn product increased 160% to 2.8 million
kilograms, milk power with nucleotides increased 152% to 1.1
million kilograms, CPP series increased 33% to 1.3 million
kilograms, and the soybean series increased 381% to 662,000
kilograms, as compared to the fourth quarter of 2005. Gross profit
increased 66% to $15.5 million from $9.3 million in the fourth
quarter of 2005. Gross margin of 40% reflects the significant
increase in sales volume offset by the reclassification of certain
promotional expenses out of distribution expense and into cost of
goods sold, as detailed in Table 2. These reclassifications had no
impact on net income or net earnings per share. Income from
operations increased 57% to $3.3 million from $2.1 million in the
fourth quarter of 2005, despite significant increases in
distribution and general and administrative expenses. The Company's
distribution expenses increased 58% to $10.7 million, which
includes the previously discussed advertising expenditure as well
as larger incentive bonuses paid to the Company's network of
promotional salespeople during the fourth quarter. The Company did
not experience similar advertising and promotional costs in the
prior year period. General and administration expenses, which
increased 65% during the fourth quarter of 2006 compared to the
prior year's period, reflect accounting and legal costs associated
with increased business and financing activities, mostly at the
parent company level. This includes legal and accounting costs
specific to financing in 4Q06 which totaled $224,000, or $0.01 per
diluted share. The Company benefited from $1.6 million of other
income in the fourth quarter of 2006, which as expected includes
approximately $1.9 million of VAT rebates received from the
Heilongjiang Province. Interest and finance costs were $582,000
during the fourth quarter, partly reflecting the issuance of
convertible notes in the fourth quarter 2006. Net income increased
9% to $4.4 million in the fourth quarter of 2006 from $4.0 million
in the fourth quarter of 2005. The Company reported diluted
earnings per share of $0.22 in the fourth quarter of 2006. Balance
Sheet As of December 31, 2006, the Company had $39.5 million of
cash, compared to $13.0 million at December 31, 2005 and $23.5
million at September 30, 2006. American Dairy had working capital
of approximately $28.8 million at December 31, 2006. The Company
had long term debt of $16.9 million as of December 31, 2006.
Business Update -- Gannan County processing plant: As of today,
American Dairy has completed the installation of milking and other
equipment including fillers, product tanks, pasteurizers, and
storage. 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. -- Langfang
packaging plant: American Dairy expects that the Langfang
construction project will create one of China's biggest milk powder
packaging plants. The Company expects to begin Langfang packaging
operations in 2007, and expects an initial packaging capacity of
35,000 tons of milk powder per year. The Company is currently
testing the Langfang production lines. -- U.S. corporate presence:
American Dairy announced in December that it hired a Vice President
of U.S. Operations in order to facilitate communications between
U.S. based auditors, lawyers and investors. -- New company website:
American Dairy has launched its new corporate website, including an
enhanced investor relations section, at
http://www.americandairyinc.com/. Financial Outlook "We expect
first quarter revenue to increase by at least 39% year over year to
at least $36.0 million, and we believe that macroeconomic trends
continue to be encouraging for Feihe products. Ultimately the year
2007 is a year to invest in our future growth as we focus on
increasing our capacity, enhancing our brand and expanding our
distribution reach. While we continue to strive for long-term
shareholder value, we expect to reach a net margin in the first
quarter of 2007 of at least 14%." stated Roger Liu, Chief Financial
Officer of American Dairy. American Dairy is currently evaluating
its fundraising needs and will do so with an emphasis on what is
best for the Company and for shareholders. Due to this process,
management is refraining from giving full year 2007 guidance at
this time. However, the Company does expect the following during
2007: -- Cost of Goods Sold: The Company anticipates increased
utility costs as new production facilities come online, which may
not be immediately offset by revenue generation. This could affect
the Company's near- term gross margin in 2007. -- Advertising and
Marketing Expenses: The Company is actively investing in the
long-term growth of the Feihe brand and anticipates continued
expenditure related to these efforts. It is likely that advertising
and marketing expenses will be roughly 10% of total revenue in
2007. -- VAT Tax: The Company expects to continue to receive VAT
rebates at certain times throughout the year. 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.feihe.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 Twelve Months Ended December 31, December 31, 2006
2005 2006 2005 SALES $38,184,536 $25,599,650 $122,799,191
$68,023,903 COST OF GOODS SOLD 22,728,001 16,295,578 70,221,023
38,715,895 Gross Profit 15,456,535 9,304,072 52,578,168 29,308,008
OPERATING AND ADMINISTRATIVE EXPENSES: Distribution expenses
10,680,709 6,770,702 29,397,910 16,742,578 General and
administrative expenses 1,380,507 837,885 5,218,526 2,484,039
Depreciation 59,184 (428,350) 266,154 161,450 12,120,400 7,180,237
34,882,590 19,388,067 Income from operations 3,336,135 2,123,835
17,695,578 9,919,941 OTHER INCOME (EXPENSE): Other income
(expenses) 1,646,106 2,141,346 3,409,544 2,220,751 Gain on disposal
of assets (147) 9,125 (147) 9,125 Interest and finance costs
(581,551) (282,578) (1,196,694) (522,812) 1,064,408 1,867,893
2,212,703 1,707,064 MINORITY INTEREST (46,468) 2,424 - 2,424 INCOME
BEFORE INCOME TAXES 4,354,075 3,994,152 19,908,281 11,629,429
(PROVISION FOR) BENEFIT FROM INCOME TAXES - - - - NET INCOME
4,354,075 3,994,152 19,908,281 11,629,429 Other comprehensive
income, net of tax: Foreign currency translation adjustment
(82,406) (56,837) 1,111,395 605,261 TOTAL COMPREHENSIVE INCOME
$4,271,669 $3,937,315 $21,019,676 $12,234,690 BASIC NET INCOME PER
COMMON SHARE $0.28 $0.28 $1.35 $0.83 WEIGHTED AVERAGE BASIC SHARES
OUTSTANDING 15,369,133 14,075,682 14,755,576 13,931,006 DILUTED NET
INCOME PER COMMON SHARE $0.22 $0.25 $1.14 $0.74 WEIGHTED AVERAGE
DILUTED SHARES OUTSTANDING 18,669,699 16,817,936 18,056,143
16,057,073 Income and expenses as reported for the three months
ended December 31, 2006 take into consideration certain
reclassifications between expense categories to conform to the
classifications used in the December 31, 2006 audited financial
statements. These reclassifications had no impact on income or
income per share. AMERICAN DAIRY, INC. CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2006 AND 2005 ASSETS 2006 2005 Current assets:
Cash $39,473,910 $12,958,435 Accounts receivable Trade-net of
allowance for bad debts of $322,520 and $309,461, respectively
5,459,760 4,132,931 Employees 433,121 488,413 Other 452,728
1,516,105 Notes receivable 230,179 - Inventories 13,913,766
9,622,347 Prepaid expenses 664,530 875,031 Advances to suppliers
1,301,935 1,216,172 Other tax refundable 1,365,214 500,892 Total
current assets 63,295,143 31,310,326 Property and equipment: Fixed
assets, net of accumulated depreciation 36,981,569 34,685,898
Construction in progress 9,433,148 3,373,833 46,414,717 38,059,731
Other assets: Goodwill 1,460,695 - 1,460,695 - Total assets
$111,170,555 $69,370,057 LIABILITIES AND STOCKHOLDERS' EQUITY 2006
2005 Current liabilities: Accounts payable and accrued expenses
$13,263,315 $11,855,430 Current portion of long term debt 5,103,197
102,466 Advances from related parties 119,911 932,942 Advances from
employees 735,294 947,596 Deferred income 2,145,325 12,073,781
Short-term notes and loans payable 13,122,868 7,323,801 Total
current liabilities 34,489,910 33,236,016 Long term debt, net of
current portion shown above, net of discount of $1,715,871 at
December 31, 2006 16,936,654 5,543,517 Minority interest - 493,500
Stockholders' equity: Common stock, $.001 par value; 50,000,000
shares authorized; 15,831,820 and 14,132,824 shares issued and
outstanding at December 31, 2006 and 2005, respectively 15,832
14,133 Additional paid-in capital 17,834,429 9,208,837 Retained
earnings 40,177,074 20,268,793 Accumulated other comprehensive
income 1,716,656 605,261 Total stockholders' equity 59,743,991
30,097,024 Total liabilities and stockholders' equity $111,170,555
$69,370,057 Table 1: Reconciliation of Numerator and Denominator in
earnings per share calculation Income Shares Per Share (Numerator)
(Denominator) Amount For the year ended December 31, 2006 Basic EPS
income available to Common shareholders $19,908,281 14,755,576
$1.35 Effect of dilutive securities: Convertible notes 723,707
1,833,285 $0.11 Warrants issued 1,467,282 $0.10 Diluted EPS income
available to Common shareholders $20,631,988 18,056,143 $1.14 For
the year ended December 31, 2005 Basic EPS income available to
Common shareholders $11,629,000 13,931,006 $0.83 Effect of dilutive
securities: Warrants issued - 1,643,533 $0.08 Convertible notes
304,000 482,534 $0.01 Diluted EPS income available to Common
shareholders $11,933,000 16,057,073 $0.74 For the year ended
December 31, 2004 Basic EPS income available to Common shareholders
$6,258,000 12,077,085 $0.52 Effect of dilutive securities: Warrants
issued 1,378,615 $0.05 Diluted EPS income available to Common
shareholders $6,258,000 13,455,700 $0.47 Table 2: Summarized
unaudited quarterly financial data for 2006 and 2005 The table
below for fiscal year 2006 includes certain reclassifications of
expenses previously reported as distribution expenses to cost of
goods sold to conform to the classifications used in the December
31, 2006 audited financial statements. These reclassifications had
no impact on net income or net earnings per share. March 31, June
30, September 30, 2006 2006 2006 Total revenues $25,893,000
$26,110,028 $32,611,627 Gross profit $11,908,000 $9,997,007
$15,236,726 Gross Margin: 46% 38% 47% Net income $4,764,000
$5,261,967 $5,528,239 Net earnings per common share: Basic $0.34
$0.36 $0.37 Diluted $0.29 $0.31 $0.32 December 31, Fiscal Year 2006
2006 Total revenues $38,184,536 $122,799,191 Gross profit
$15,456,435 $52,578,168 Gross Margin: 40% 43% Net income $4,354,075
$19,908,281 Net earnings per common share: Basic $0.28 $1.35
Diluted $0.22 $1.14 March 31, June 30, September 30, 2005 2005 2005
Total revenues $13,560,731 $14,589,807 $14,273,618 Gross profit
$6,263,478 $6,996,110 $6,744,356 Gross Margin: 46% 48% 47% Net
income $2,632,757 $2,823,250 $2,178,699 Net earnings per common
share: Basic $0.19 $0.21 $0.16 Diluted $0.17 $0.18 $0.14 December
31, Fiscal Year 2005 2005 Total revenues $25,599,747 $68,023,903
Gross profit $9,304,064 $29,308,008 Gross Margin: 36% 43% Net
income $3,994,723 $11,629,429 Net earnings per common share: Basic
$0.27 $0.83 Diluted $0.25 $0.74 DATASOURCE: American Dairy, Inc.
CONTACT: Ashley Ammon MacFarlane of Integrated Corporate Relations,
Inc., +1-203-682-8200 (Investor Relations), for American Dairy,
Inc. Web site: http://www.americandairyinc.com/
http://www.feihe.com/
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