Feihe International, Inc. Reports First Quarter 2012 Financial Results

BEIJING and LOS ANGELES, May 10, 2012 /PRNewswire-Asia-FirstCall/ -- Feihe International, Inc. (NYSE: ADY; "Feihe International" or the "Company"), one of the leading producers and distributors of premium infant formula, milk powder, and soybean, rice and walnut products in China, today announced financial results for the first quarter of 2012. The Company will hold a conference call today at 8:00 am ET.

First Quarter 2012 Financial Highlights:

Revenue of $62.9 million in 1Q 2012 vs. $67.7 million in 1Q 2011:
- Revenue from branded milk powder products was $59.4 million, or 94.4% of total sales, in 1Q 2012 vs. $47.9 million, or 70.8% of total sales, in 1Q 2011
- Revenue from raw milk powder was $0.9 million, or 1.4% of total sales, in 1Q 2012 vs. $16.1 million, or 23.8% of total sales, in 1Q 2011, and $24.8 million, or 28.5% of total sales in 4Q 2011
Gross profit increased to $34.0 million, or 39.3%, in 1Q 2012 vs. $24.4 million in 1Q 2011, and up from $30.9 million in 4Q 2011
Gross margin was 54.0% in 1Q 2012 vs. 36.0% in 1Q 2011, up from 35.5% in 4Q 2011
Income from operations was $9.7 million in 1Q 2012 vs. $5.0 million in 1Q 2011, and up significantly from a loss of $3.8 million in 4Q 2011
Net income was $8.3 million in 1Q 2012 vs. $4.7 million in 1Q 2011, and up significantly from a loss of $10.5 million in 4Q 2011
Diluted net income (loss) from continuing operations per common share ("EPS") was $0.40 in 1Q 2012 vs. $0.23 in 1Q 2011, and up significantly from $(0.31) in 4Q 2011

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are extremely pleased with our first quarter results. Our high margin and strongly improved net income demonstrated the effectiveness of our decision to concentrate on the sales of our premium branded infant formula products. In particular, sales of AstroBaby grew 203.2% and Feifan grew 74.6% compared to the first quarter of 2011. Net income improved 179.0% in the first quarter of 2012 compared with the fourth quarter of 2011. We will remain focused and committed to expanding sales of our premium infant formula."

The Company's revenue of $62.9 million in the first quarter of 2012 represents a decrease of $4.8 million compared to the first quarter of 2011. This decrease was primarily attributable to a $15.2 million decrease in sales of raw milk powder and a $1.5 million decrease in sales of soybean powder, offset in part by sales of milk powder of $11.5 million. This decrease more broadly reflects the Company's decision to decrease the production of raw milk powder, which generated a negative margin during the first quarter of 2012.

The Company's gross profit was $34.0 million in the first quarter of 2012, up 39.3% from $24.4 million in the first quarter of 2011, and up 10.0% sequentially from $30.9 million in the fourth quarter of 2011. Gross margin for the first quarter of 2012 was 54.0%, compared to 36.0% in the first quarter of 2011, up from 35.5% in the fourth quarter of 2011. The increase in the Company's gross profit for the first quarter of 2012 was primarily due to increased sales of premium and super-premium milk powder and decreased cost of raw milk powder.

The Company's income from operations increased to $9.7 million in the first quarter of 2012, up from $5.0 million in the first quarter of 2011, and up significantly from a loss of $3.8 million in the fourth quarter of 2011. Sales and marketing expenses increased $2.8 million, or 18.2%, to $18.8 million in the first quarter of 2012 from $15.9 million in the first quarter of 2011, and decreased 24.8% compared to $25.0 million in the fourth quarter of 2011. General and administrative expenses decreased to $5.6 million in the first quarter of 2012 from $5.7 million in the first quarter of 2011, and decreased $4.1 million, or 42.3%, compared to $9.7 million in the fourth quarter of 2011.

The Company's net income attributable to the Company for the first quarter of 2012 was $8.3 million, or diluted EPS of $0.40, an increase from $4.7 million, or diluted EPS of $0.23, in the first quarter in 2011, and a significant increase from the net loss attributable to the Company of $10.5 million, or diluted EPS of $(0.31), in the fourth quarter of 2011.

As of March 31, 2012, the Company had cash and cash equivalents of $9.8 million and total current assets of $194.8 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 working capital of $18.6 million as of March 31, 2012.

Mr. Liu Hua, the Company's Vice Chairman and Chief Financial Officer, stated, "We are pleased to report our first quarter 2012 financial results today. Given our strong growth, we are very confident in our business going forward. In addition, we completed the redemption of all of Sequoia's redeemable common stock in April 2012. We are continuing our plan of focusing on sales of premium products and look forward to bringing value to consumers and our shareholders."

Conference Call Details

The Company will also hold a conference call on May 10, 2012 at 8:00 am Eastern Time to discuss its results. Listeners may access the call by dialing the following numbers:

United States toll free:	1-877-675-4753
Hong Kong toll free:	800-968-835
Northern China toll free:	10-800-714-1511
Southern China toll free:	10-800-140-1377
International:	1-719-325-4917

The replay will be accessible through May 17, 2012 by dialing the following numbers:

United States toll free:	1-877-870-5176
International:	1-858-384-5517
Password:	1811442

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 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.

CONTACT
In the U.S.:	zhangdongshu@feihe.com
In China:	Doris Zhang
	86-10-8457-4688 x8810
	zhangdongshu@feihe.com

FEIHE INTERNATIONAL, INC CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
		March 31, 2012		December 31, 2011
	US$			US$
Assets
Current assets:
Cash and cash equivalents			9,849,284		15,353,882
Restricted cash			2,777,800		1,056,579
Notes and loans receivable, net of allowance for doubtful accounts of $3,350,056, as of March 31, 2012 and December 31, 2011			-		-
Trade receivables, net of allowance for doubtful accounts of $810,323 and $810,864, as of March 31, 2012 and December 31, 2011, respectively			14,119,378		40,690,638
Due from related parties			27,280		194,759
Advances to suppliers			19,270,059		11,841,936
Inventories			33,847,620		33,328,949
Prepayments and other current assets			37,795		50,427
Income taxes receivable			2,020,559		1,406,653
Input value-added taxes			1,388,348		965,685
Other receivables			13,537,187		13,742,625
Consideration receivable- current			95,386,958		79,337,423
Investment in mutual funds – available-for-sale			113,777		111,116
Assets held for sale			2,382,801		2,384,391
Total current assets			194,758,846		200,465,063

Investments:			285,799		285,990
Investment at cost			285,799		285,990

Property, plant and equipment:
Property, plant and equipment, net			127,275,263		128,739,637
Construction in progress			15,505,095		14,895,512
			142,780,358		143,635,149

Other assets:
Advance to suppliers – non-current			3,431,727		3,741,454
Long term deposits			67,210,746		46,139,913
Consideration receivables, non-current			-		19,450,201
Deferred tax assets – non-current			9,805,701		9,805,701
Prepaid leases for land use rights			18,165,232		18,280,745
Total assets			436,438,409		441,804,216

Liabilities
Current liabilities:
Short term bank loans			53,150,950		54,616,375
Accounts payable			41,357,588		39,077,499
Accrued expenses			4,144,269		6,943,370
Income tax payable			2,515,408		734,389
Advances from customers			11,626,363		17,899,560
Due to related parties			104,111		86,213
Advances from employees			362,538		415,253
Employee benefits and salary payable			7,211,662		9,777,537
Other payable			33,163,914		39,561,388
Current portion of long term bank loans			5,941,474		5,945,439
Current portion of capital lease obligation			181,296		288,066
Accrued interest			-		395,783
Redeemable common stock (US$0.001 par value, 656,250 and 1,312,500 shares issued and outstanding as of March 31, 2012 and December 31, 2011)			16,379,092		32,696,658
Total current liabilities			176,138,665		208,437,530

Long term bank loans, net of current portion			5,939,762		5,943,726
Capital lease obligation, net of current portion			278,512		430,180
Other long term loans			49,829,495		32,803,289
Accrued interest			-		170,555
Unrecognized tax benefits – non-current			14,608,179		14,806,768
Deferred income			4,904,508		3,711,033
Total liabilities			251,699,121		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; 19,714,291 shares issued and outstanding as of March 31, 2012 and December 31, 2011)			19,714		19,714
Additional paid-in capital			60,019,602		58,920,283
Common stock warrants			1,774,151		1,774,151
Statutory reserves			11,341,427		11,341,427
Accumulated other comprehensive income			42,603,017		42,730,802
Retained earnings			68,939,218		60,696,815
Total Feihe International, Inc. shareholders' equity			184,697,129		175,483,192
Noncontrolling interests			42,159		17,943
Total equity			184,739,288		175,501,135
Total liabilities and equity			436,438,409		441,804,216

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

	Three months ended
	March 31,
	2012	2011
	US$	US$
Sales	62,936,077	67,678,513

Cost of goods sold	(28,957,473)	(43,241,942)

Gross profit	33,978,604	24,436,571

Operating and administrative expenses:
Sales and marketing	(18,768,178)	(15,944,336)
General and administrative	(5,590,235)	(5,720,233)
Total operating expenses	(24,358,413)	(21,664,569)

Other operating income, net	90,454	2,220,451

Income from operations	9,710,645	4,992,453

Other income (expenses):
Interest income	23,473	20,904
Interest and finance costs	(1,145,953)	(1,017,725)
Government subsidy	1,561,348	1,520,150
Income from continuing operations before income tax expenses and noncontrolling interests	10,149,513	5,515,782

Income tax expenses	(1,882,901)	(1,341,683)
Net income from continuing operations	8,266,612	4,174,099
Income from discontinuing operations, net of tax	-	565,444
Net income	8,266,612	4,739,543
Net income attributable to noncontrolling interests	(24,209)	(42,867)
Net income attributable to common stockholders of Feihe International, Inc.	8,242,403	4,696,676

Net income	8,266,612	4,739,543
Other comprehensive income, net of tax
Foreign currency translation adjustments	(130,439)	2,299,451
Change in fair value of available for sale investments	2,661	(1,350)
Other comprehensive income	(127,778)	2,298,101
Comprehensive income	8,138,834	7,037,644
Less: comprehensive income attributable to the noncontrolling interest	(24,216)	(24,432)
Comprehensive income attributable to common stockholders of Feihe International, Inc.	8,114,618	7,013,212

Net income from continuing operations per share of common stock
Basic	0.40	0.23
Diluted	0.40	0.23

Net income from continuing operations per share of redeemable common stock
Basic	0.40	0.18
Diluted	0.40	0.18

Net income from discontinued operations, net of tax per share of common stock
Basic	-	0.03
Diluted	-	0.03

Net income from discontinued operations, net of tax per share of redeemable common stock
Basic	-	0.03
Diluted	-	0.03

Weighted average shares used in calculating net income per share of common stock
Basic	19,714,291	19,671,291
Diluted	19,714,291	19,689,849

Weighted average shares used in calculating net income per share of redeemable common stock
Basic	879,809	2,625,000
Diluted	879,809	2,625,000