ZHONGPIN INC. 
By BEIJING and CHANGGE, China, March 14, 2013 /PRNewswire/ -- Zhongpin Inc. ("Zhongpin" or the "Company," Nasdaq: HOGS), a leading meat and food processing company in the People's Republic of China, today reported higher sales revenues and lower net income for the year ended December 31, 2012 compared with the year 2011.
Year 2012 highlights:
-- Sales revenues increased 13% to $1,639.6 million in 2012 from $1,456.2
million in 2011 primarily due to higher sales volume for pork products
sold at lower average selling prices.
-- Net income decreased 31% to $44.1 million in 2012 from $64.2 million in
2011 primarily due to a lower gross profit margin, the cost of more
employees to support expansion, higher salaries, higher promotional
activities, rising labor and utility costs, and higher interest
expenses. The higher expenses were mainly due to the higher volume of
business and intense competitive pressure in the pork market due to the
ongoing industry consolidation.
-- Basic earnings per share (based on net income attributable to Zhongpin
shareholders) decreased 29% to $1.18 in 2012 from $1.66 in 2011.
Weighted average basic shares outstanding decreased 3% to 37,273,652
shares in 2012 from 38,505,027 shares in 2011.
-- Diluted earnings per share (based on net income attributable to Zhongpin
shareholders) decreased 29% to $1.18 in 2012 from $1.66 in 2011.
Weighted average diluted shares outstanding decreased 3% to 37,328,792
shares in 2012 from 38,539,880 shares in 2011.
-- As of December 31, 2012, Zhongpin had 40,376,182 shares of common stock
issued, of which 37,209,344 were outstanding and 3,166,838 were held as
treasury stock.
Mr. Xianfu Zhu, Chairman and Chief Executive Officer of Zhongpin, said, "In 2012, our sales revenues increased 13 percent on higher tonnage at lower average prices, compared with 2011, primarily due to the intense competitive market pressure generated mainly by the continuing pork industry consolidation in China.
"Our costs continued to increase, mainly in support of our current operations and planned expansions. As a result, our gross profit margin declined to 9.4% in 2012 from 10.7% in 2011 and our net profit margin declined to 2.7% in 2012 from 4.4% in 2011.
"We are sustaining our prudent expansions in geographic markets and operations to gain market share for our long-term success in the face of the ongoing industry consolidation. We are managing our costs to maintain as much gross and net profit margin as possible and are aggressively working to further increase our asset utilization, effectiveness, and efficiency.
"In 2013, we expect that the demand for pork in China should remain strong and that Zhongpin's revenues from pork and pork products are likely to increase modestly based on higher tonnage sold at lower average prices, while live hog prices will remain at current levels, compared with 2012. We anticipate that our net profit margin in 2013 will decrease due to increased competition in the industry, the expected increase in labor cost and overheads, and the expected increase in quality assurance and control costs in response to increased importance on food safety placed by the government and consumers."
Capacity and market expansions in 2012
Zhongpin is investing approximately $58.5 million to build a new production, research and development, and training complex in Changge, Henan province, excluding the cost of land use rights that it has already obtained. When completed, this new facility is expected to have an annual production capacity of about 100,000 metric tons for prepared pork products. Adjacent to this new production facility, Zhongpin plans to develop a center for research and development, training, and quality assurance and control. Construction for the first phase with a production capacity of approximately 50,000 metric tons for prepared pork products started in the second quarter of 2011 and was completed in the second quarter of 2012. Trial production started in July 2012, and the plant has been in regular production since the end of the third quarter of 2012.
Zhongpin established a joint venture company in June 2011, of which the Company owns 65%, with Henan Xinda Animal Husbandry Company Limited. The joint venture company is financed by capital contributions and bank loans. All capital contributions to the joint venture company have been made. The joint venture company is expected to provide 20,000 sire boars annually. Upon the completion of the building of infrastructures for sire boar breeding in the third quarter of 2012, we leased the facility to a third party for annual rental in the amount of RMB 5.0 million.
Zhongpin is investing approximately $18.0 million in a cold-chain logistics distribution center in Anyang, Henan province. This distribution center will have a temperature-adjustable warehouse with a floor area of approximately 27,000 square meters, processing capacity, a distribution center, and a quality control center. The distribution center will be used for third-party cold-chain logistics service. Zhongpin expects to put this distribution center into operation in the third quarter of 2013.
Zhongpin is investing approximately $87.5 million in a chilled and frozen food processing and distribution center in Kunshan, Jiangsu province, which is near Shanghai. The center will be built in three phases. The first phase will include a processing center, cold-chain logistics center, and business complex. Zhongpin invested about $35.0 million on the first phase that was put into operation in February 2013.
Zhongpin put a new by-products production facility in Changge, Henan province, into operation in November 2012, eight months after the construction began in March 2012. The new plant has an annual production capacity for 100 million meters of sausage casings and 300 billion units of raw material to make heparin sodium. Cost was approximately $10.5 million.
Zhongpin will be investing approximately $47.6 million to build a cold-chain logistics distribution center in Tangshan, Hebei province. This distribution center will have a 27,000 square meter temperature-adjustable warehouse, processing capacity, distribution center, and quality control center. This distribution center will be used for third-party cold-chain logistics service and is expected to be in operation in the fourth quarter of 2013.
In November 2012, Zhongpin decided to stop production in its Deyang Zhongpin facility in Sichuan province because its western location was inconsistent with Zhongpin's strategy to focus on Central China, North China, East China, and Northeast China markets. As a result, Zhongpin's annual capacity for chilled and frozen pork was reduced by 45,000 metric tons in 2012.
As of March 1, 2013, Zhongpin had an annual capacity of 683,760 metric tons for chilled and frozen pork, 176,000 tons for prepared pork products, 20,000 tons for pork oil, and 30,000 tons for vegetables and fruits, for a combined total of 909,760 metric tons. In addition, its annual capacity for sausage casings was 100 million meters and for the raw material to make heparin sodium was 300 billion units.
Detailed guidance discontinued
In light of the pending going-private transaction, Zhongpin has discontinued its detailed guidance for the year 2013.
Sales revenues in 2012
Total sales revenues increased $183.4 million or 13% to $1,639.6 million in 2012 from $1,456.2 million in 2011 primarily due to higher sales volume for pork and pork products sold at lower average selling prices.
The higher revenues resulted mainly from continued increases in the number of retail outlets, geographic expansion of its distribution network and processing facilities, and higher sales to food service distributors in China, which were partially offset by the lower average pork price resulting from market fluctuations and industry competition. The following table shows tonnage, sales revenues, and average price per metric ton by product division for 2012 and 2011.
Sales by Product Division
-------------------------
Year ended Year ended
December 31, 2012 December 31, 2011
----------------- -----------------
Metric Sales revenues (millions) Average price per Metric Sales revenues (millions) Average price per metric
ton
tons metric ton tons
---- ---------- ----
Pork and Pork
Products
Chilled pork 393,462 $1,018.6 $2,589 309,545 $890.1 $2,876
Frozen pork 137,810 332.3 $2,411 134,537 347.7 $2,584
Prepared pork
products 107,996 273.5 $2,533 88,505 202.5 $2,288
Vegetables and
Fruits 15,427 15.2 $985 17,668 15.9 $900
------ ---- ------ ----
Total 654,695 $1,639.6 $2,504 550,255 $1,456.2 $2,646
Chilled pork revenues increased on higher tonnage at lower average prices per metric ton. Chilled pork revenues increased 14% in 2012 from 2011. Chilled pork tonnage increased 27% and the average price per metric ton decreased 10% in 2012 from 2011. The higher revenues from chilled pork were mainly due to higher tonnage sold as a result of higher capacity, increased sales to existing customers, and increased volume of sales from new geographic markets, expanded points of sales, and added new customers, partly offset by the lower average selling price that resulted from fluctuations in market prices for chilled pork or chilled pork-related products in a more competitive market.
Frozen pork revenues decreased on higher tonnage at lower average prices. Frozen pork revenues decreased 4% in 2012 from 2011. Frozen pork tonnage increased 2% and the average price per metric ton decreased 7% in 2012 from 2011. The lower average selling price of frozen pork products was the result of fluctuations in market prices for frozen pork or frozen pork-related products in a more competitive market, which was partly offset by higher tonnage sold.
Prepared pork revenues increased on higher tonnage at higher average prices. Revenues from prepared pork products increased 35% in 2012 from 2011. Prepared pork tonnage increased 22% and the average price per metric ton increased 11% in 2012 from 2011. Prepared pork products are becoming more important to our business since customers are increasingly demanding them for their flavor and convenience and are willing to pay higher average prices for these products. We plan to gradually increase sales from prepared pork products by increasing our brand recognition and expanding our capacity for these products.
Pork products totaled 99.1% of total sales revenues in 2012 and 98.9% in 2011.
Geographic coverage and distribution channels
The sales of pork and vegetable products are closely related to the particular regional markets in which our distribution channels are located. Therefore, the increase in metric tons sold in 2012 was partly attributable to our efforts to expand our geographic coverage and broaden our distribution channels since 2011.
The following table shows sales revenues by distribution channel. In 2012, sales to wholesalers and distributors accounted for 41% of sales revenues, restaurants and food services were 28%, retail channels were 29%, and import and export were 2%.
Sales Revenues by Distribution Channel
--------------------------------------
U.S. $ in millions except
% Year ended Net change Percent change
December 31,
------------
2012 2011
---- ----
Wholesalers and
distributors $679.7 $536.4 $143.3 27%
Restaurants and food
services 460.1 416.2 43.9 11%
Retail channels 469.2 466.5 2.7 1%
Import and export 30.6 37.1 (6.5) (18)%
---- ---- ----
Total $1,639.6 $1,456.2 $183.4 13%
The increase in sales revenues from different distribution channels was mainly due to the following factors: (a) our production capacity has increased because we completed the expansion of our chilled and frozen pork processing facilities in Taizhou, Jiangsu province and in Changchun, Jilin province in December 2011, and the expansion of our prepared meat processing facilities in Changge, Henan province in July 2012. To increase the utilization of our new facilities, we focused our sales efforts on the wholesalers and distributors, as it is easier to achieve higher volume sales within this channel. As a result, we had significantly higher sales in the wholesalers and distributors channel than in other distribution channels, with the overall capacity utilization rate that was lower in 2012 from 2011 due to the capacity added by the new production facilities that were put into operation at the end of 2011 and middle of 2012; (b) we have built our brand image and brand recognition through general advertising, display promotions, and sales campaigns; (c) we have increased the number of stores and other channels through which we sell our products; and (d) we believe consumers are placing more importance on food safety and are willing to pay higher prices for safe food products.
As of December 31, 2012, Zhongpin's customers included 156 international and domestic fast food companies, 162 processing factories, and 1,389 school cafeterias, factory canteens, hotels, army bases, hospitals, and government departments. As of December 31, 2012, Zhongpin also sold directly to consumers in 3,490 retail outlets, including supermarkets, in China.
The following table shows the retail channels and number of stores and counters that generated sales volume in 2012 and 2011.
Numbers of Retail Stores and Counters
(Generating Sales Volume)
------------------------
As of December 31, Net Percent
change change
------ ------
Retail channels 2012 2011
---- ----
Showcase stores 158 162 (4) (2)%
Branded stores 1,476 1,310 166 13%
Supermarket counters 1,856 1,956 (100) (5)%
----- ----- ----
Total 3,490 3,428 62 2%
Geographic expansion and broader channel coverage together have been important factors in our long-term success, including in 2012. The table below shows the number of cities, subdivided by the size, in which we distribute our products through all of our distribution channels at the end of 2012 and 2011.
Number of Cities by Tier
for All Distribution Channels
-----------------------------
As of Deceember 31, Net Percent
change change
------ ------
2012 2011
---- ----
First-tier cities
(largest) 29 29 - 0%
Second-tier cities 136 134 2 1%
Third-tier cities 438 432 6 1%
--- --- ---
Total cities 603 595 8 1%
Cost of Sales
Cost of sales primarily includes the costs of raw materials, labor costs, and overhead. Of the total cost of sales, the cost of raw materials typically accounts for about 96.0% to 96.4%, overhead typically accounts for 2.1% to 2.6%, and labor costs typically account for 1.4% to 1.5%, with slight variations from period to period. All of our meat products are derived from the same raw materials, which are live hogs. Vegetable and fruit products are purchased from farmers located close to Zhongpin's processing facility in Changge in Henan province. As a result, the purchasing costs of live hogs and vegetables and fruits represent substantially all of the costs of raw materials. The increase in the cost of sales was consistent with but considerably higher than the increase in sales revenues.
Cost of Sales by Product Division
---------------------------------
Year ended Year ended
December 31, 2012 December 31, 2011
----------------- -----------------
Metric tons Amount Average Metric Amount (millions) Average
(millions) cost per tons cost per
metric metric
ton ton
--- ---
Pork and Pork
Products
Chilled pork 393,462 $930.1 $2,364 309,545 $803.1 $2,594
Frozen pork 137,810 313.1 $2,272 134,537 324.1 $2,409
Prepared pork
products 107,996 229.8 $2,128 88,505 164.5 $1,859
Vegetables and
Fruits 15,427 13.2 $856 17,668 13.2 $747
------ ---- ------ ----
Total 654,695 $1,486.2 $2,270 550,255 $1,304.9 $2,371
Gross profit margin (gross profit divided by sales revenues) decreased to 9.4% in 2012 from 10.4% in 2011 primarily due to (a) increased competition in the market, (b) the increase in write-off of VAT recoverable, (c) increased promotional activities to grow our market share, (d) the increase in overhead due to the higher labor costs and utility costs, and (e) higher quality control costs in response to increased importance placed by the government and consumers on food safety. As a result, the gross profit margin was lower than the level Zhongpin would expect to achieve once it fully integrates its new production facilities and expands into new regional markets for its products.
General, administrative, and selling expenses
General and administrative expenses increased $9.6 million or 33% to $38.8 million in 2012 from $29.2 million in 2011. As a percent of revenues, general and administrative expenses increased to 2.4% in 2012 from 2.0% in 2011. The higher general and administrative expenses in 2012 were primarily due to a $2.5 million increase in salary expenses resulted from hiring more employees required to support the expansion of the business, an increase in the average salary we paid to our employees, a $1.1 million increase in legal fees due to the proposed going private transaction, a $1.9 million increase in the bad debt provision due to increases in revenues and accounts receivable, and a $1.8 million increase in other taxes due to land and property placed into service in December 2011 for two new facilities in Taizhou and Changchun on which the Company started paying land and property taxes in the first quarter of 2012.
Selling expenses increased $4.0 million or 12% to $37.6 million in 2012 from $33.6 million in 2011. Selling expenses as a percent of revenues remained at 2.3% in 2012 and 2011. The higher selling expenses were primarily the result of a $1.4 million increase in salary expenses, a $0.9 million increase in supermarket management fees, and a $1.0 million increase in promotion expenses.
Impairment loss
Impairment loss increased $2.4 million or 150% to $4.0 million in 2012 from $1.6 million in 2011 primarily due to a $2.7 million increase in a provision for plant and equipment in our Deyang Zhongpin operation. In November 2012, we decided to stop production in the Deyang facility in Sichuan province in western China because our strategy is to focus on the Central China, North China, East China, and Northeast China markets. We will concentrate our resources on these markets. We evaluated the plant and equipment of Deyang Zhongpin and decided to accrue an impairment loss based on the difference between the book value and the estimated fair value of the plant and equipment.
Interest expense, net
Interest expense, net of interest income, increased $8.9 million or 41% to $30.4 million in 2012 from $21.5 million in 2011. The increase in interest expense was primarily the result of an increase of $113.0 million in short-term bank loans, an increase of $40.7 million in long-term bank loans, an increase of $41.7 million in bank notes payable, and an increase in the interest rates published by the People's Bank of China, which increases were partly offset by an increase in interest income.
Other income and government subsidies
Other income and government subsidies increased $3.3 million or 79% to $7.5 million in 2012 from $4.2 million in 2011 primarily due to an increase in government subsidies of $1.4 million and an increase in other income of $2.0 million as a result of recognizing the exempted output VAT for fruits and vegetables as other income and the recognition of rental income from renting out the sire boar breeding facility in Henan.
Provision for income taxes
The enterprise income tax rate in China on income generated from the sale of prepared products is 25% and there is no income tax on income generated from the sale of raw products, including raw meat products and raw vegetable and fruit products. The provision for income taxes increased $0.9 million in 2012 from 2011 due to higher sales of prepared pork products.
Net income
As a result of the foregoing, net income decreased $20.1 million or 31% to $44.1 million in 2012 from $64.2 million in 2011. The Company's net profit margin (net income divided by sales revenues) declined to 2.7% in 2012 from 4.4% in 2011.
Earnings per share
The earnings per share numbers below are based on net income attributable to Zhongpin Inc. shareholders.
Basic earnings per share decreased 29% to $1.18 in 2012 from $1.66 in 2011. Weighted average basic shares outstanding decreased 3% to 37,273,652 shares in 2012 from 38,505,027 shares in 2011.
Diluted earnings per share decreased 29% to $1.18 in 2012 from $1.66 in 2011. Weighted average diluted shares outstanding decreased 3% to 37,328,792 shares in 2012 from 38,539,880 shares in 2011.
As of December 31, 2012, Zhongpin had 40,376,182 shares of common stock issued, of which 37,209,344 were outstanding and 3,166,838 were held as treasury stock.
For a discussion of Zhongpin's results for 2011 compared with 2010, please see the Form 10-K that Zhongpin will file with the Securities and Exchange Commission on March 18, 2013.
Liquidity and capital resources
During the year 2012, Zhongpin's cash and cash equivalents increased by $40.6 million. Cash and cash equivalents (excluding restricted cash) totaled $176.4 million as of December 31, 2012 compared with $135.8 million as of December 31, 2011. As of December 31, 2012, working capital (current assets minus current liabilities) was a negative $41.7 million, which is primarily because (i) we borrowed more short-term loans in 2012 in light of the proposed going private transaction, which resulted in more short-term loans outstanding at December 31, 2012, and (ii) we had a larger balance of the current portion of long-term loans outstanding at December 31, 2012 as a larger portion of the long-term loans we borrowed in prior years will mature in twelve months from December 31, 2012. We do not believe we have material risks to our financial position or results of operations in connection with our negative working capital. In 2013, we plan to borrow more long-term loans and use more operating cash to pay back short-term loans, in order to achieve a positive working capital balance.
Net cash provided by operating activities in 2012 was $35.4 million, primarily from net income that provided $44.1 million, depreciation and amortization that provided $25.8 million, a provision for allowance for bad debts that provided $2.5 million, an impairment loss that provided $4.0 million, accounts receivable and accounts payable that used a total of $50.9 million, purchase deposits that provided $7.5 million, inventories that provided $4.1 million, VAT tax refund receivable that used $3.5 million, and other items that provided $1.8 million, net.
Net cash used in investing activities in 2012 was $119.4 million, primarily for construction in progress, additions to land use rights, and prepayment and additions to property, plant, and equipment that together used $122.4 million.
Net cash provided by financing activities in 2012 was $124.0 million, primarily from the proceeds from loans and notes, net of repayments, that provided $134.2 million, repayment of a capital lease obligation that used $5.8 million, repurchases of common stock that used $2.8 million, and another item that provided $0.2 million.
As a result, including the effect from foreign currency exchange rate changes on cash, Zhongpin increased its cash and cash equivalents in 2012 by $40.6 million. Cash and cash equivalents on December 31, 2012 totaled $176.4 million compared with $135.8 million as of December 31, 2011.
Zhongpin believes its existing cash and cash equivalents, together with its ability to secure bank borrowings, will be sufficient to finance its investment in new facilities, with budgeted capital expenditures of about $102.0 million over the next 12 months, and to satisfy its working capital needs. It intends to satisfy its short-term debt obligations that mature over the next 12 months through additional short-term bank loans, in most cases by rolling over the maturing loans into new short-term loans with the same lenders as the Company has done in the past.
Conference call and webcast
Zhongpin will host its year 2012 earnings conference call and live webcast at 8:00 a.m. Eastern Daylight Time (New York) on Friday, March 15, 2012, which is also 8:00 p.m. in China and Hong Kong on the same day.
The dial-in details for the live conference call are:
1 866 978 9970 U.S. toll free
1 800 033 457 Australia toll free
1 855 790 8866 Canada toll free
800 803 6103 China mainland toll free land
line
400 681 6405 China mainland (small access
fee) mobile
400 658 8165 China mainland (small access
fee) mobile
8025 0180 Denmark toll free
0805 631 899 France toll free
3027 5500 Hong Kong local
180 940 6949 Israel toll free
005 3112 2600 Japan toll free
8002 8922 Luxembourg toll free
0800 022 7874 Netherlands toll free
800 120 6122 Singapore local
800 600 667 Spain toll free
0800 279 7785 United Kingdom toll free
1 866 978 9970 United States toll free
+852 3027 5500 International dial-in toll call
326 957# Live call --participant access
code
The live webcast and archive of the conference call will be available on the Investor Relations section of Zhongpin's website at http://www.zpfood.com.
A telephone playback of the call will be available after the conclusion of the conference call through 8:00 a.m. Eastern Daylight Time, March 29, 2013.
The dial-in details for the telephone playback are:
1 866 753 0743 U.S. toll free
1 800 792 965 Australia toll free
1 866 518 1652 Canada toll free
800 876 5016 China mainland toll free land
line
8088 6774 Denmark toll free
0800 901 585 France toll free
3027 5520 Hong Kong local
0053 1121 925 Japan toll free
800 852 3586 Singapore toll free
0808 234 7126 United Kingdom toll free
1 866 753 0743 United States toll free
+852 3027 5520 International toll call
145 136# Playback --conference
reference
About Zhongpin
Zhongpin Inc. is a leading meat and food processing company that specializes in pork and pork products, vegetables, and fruits in China. Its distribution network in China covers 20 provinces plus Beijing, Shanghai, Tianjin, and Chongqing and includes 3,490 retail outlets as of December 31, 2012. Zhongpin's export markets include Europe, Hong Kong, and other countries in Asia.
For more information about Zhongpin, please visit Zhongpin's website at http://www.zpfood.com.
Safe harbor statement
Certain statements in this news release may be forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Zhongpin has based its forward-looking statements largely on its current expectations and projections about future events and trends that it believes may affect its business strategy, results of operations, financial condition, and financing needs.
These projections involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, which may include but are not limited to such factors as downturns in the Chinese economy, unanticipated changes in product demand, interruptions in the supply of live pigs and or raw pork, the effects of weather on hog feed production, poor performance of the retail distribution network, delivery delays, freezer facility malfunctions, Zhongpin's ability to build and commence new production facilities according to intended timelines, the ability to prepare Zhongpin for growth, the ability to predict Zhongpin's future financial performance and financing ability, changes in regulations, the impacts of the proposed going private transaction, and other information detailed in Zhongpin's filings with the United States Securities and Exchange Commission. These filings are available from www.sec.gov or from Zhongpin's website at www.zpfood.com.
You are urged to consider these factors carefully in evaluating Zhongpin's forward-looking statements and are cautioned not to place undue reliance on those forward-looking statements, which are qualified in their entirety by this cautionary statement. All information provided in this news release is as of the date of this release. Zhongpin does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.
For more information, please contact:
Zhongpin Inc.
Mr. Sterling Song (English and Chinese)
Director of Investor Relations
Telephone +86 10 8455 4188 extension 106 in Beijing
ir@zhongpin.com
Mr. Warren (Feng) Wang (English and Chinese)
Chief Financial Officer
Telephone +86 10 8455 4388 in Beijing
warren.wang@zhongpin.com
Christensen
Mr. Victor Kuo (English and Chinese)
Telephone +86 10 5826 4939 in Beijing
vkuo@christensenir.com
Mr. Tom Myers (English)
Mobile +86 139 1141 3520 in Beijing
tmyers@christensenir.com
www.zpfood.com
Financial statements follow.
ZHONGPIN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in U.S. dollars)
Years Ended December 31,
------------------------
2012 2011 2010
---- ---- ----
Revenues
Sales revenues $1,639,603,334 $1,456,208,266 $946,720,275
Cost of sales (1,486,217,828) (1,304,879,663) (835,990,804)
-------------- -------------- ------------
Gross profit 153,385,506 151,328,603 110,729,471
Operating expenses
General and administrative expenses (38,828,805) (29,232,976) (24,062,697)
Selling expenses (37,553,595) (33,581,604) (20,726,564)
Research and development expenses (573,508) (495,815) (638,899)
Impairment loss (4,048,453) (1,614,167) (1,015,780)
Total operating expenses (81,004,361) (64,924,562) (46,443,940)
Income from operations 72,381,145 86,404,041 64,285,531
Other income (expense)
Interest expenses, net (30,426,753) (21,547,864) (7,910,006)
Other income, net 2,223,272 233,075 1,953,667
Gain on disposal of a subsidiary 285,159 - -
Government subsidies 5,310,979 3,933,821 4,184,302
Total other expense (22,607,343) (17,380,968) (1,772,037)
Net income before taxes 49,773,802 69,023,073 62,513,494
Provision for income taxes (5,658,623) (4,808,041) (4,233,525)
---------- ---------- ----------
Net income after taxes 44,115,179 64,215,032 58,279,969
Net income (loss) attributable to
non-controlling interests (46,502) 5,695 -
Net income attributable to Zhongpin
Inc. shareholders 44,068,677 64,220,727 58,279,969
Foreign currency translation
adjustment 1,511,134 23,361,288 10,638,236
Foreign currency translation
adjustment attributable to non-
controlling interests (2,227) (33,388) -
Foreign currency translation
adjustment attributable to
Zhongpin Inc. shareholders 1,508,907 23,327,900 10,638,236
--------- ---------- ----------
Comprehensive income $45,626,313 $87,576,320 $68,918,205
=========== =========== ===========
Comprehensive income attributable
to noncontrolling interests (48,729) (27,693) -
Comprehensive income
attributable to
Zhongpin Inc.
shareholders $45,577,584 $87,548,627 $68,918,205
=========== =========== ===========
Basic earnings per
common share $1.18 $1.66 $1.67
Diluted earnings per
common share $1.18 $1.66 $1.65
Basic weighted average shares
outstanding 37,273,652 38,505,027 34,837,656
Diluted weighted average shares
outstanding 37,328,792 38,539,880 35,270,410
ZHONGPIN INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in U.S. dollars)
December 31, 2012 December 31, 2011
----------------- -----------------
ASSETS
Current assets
Cash and cash
equivalents $176,441,332 $135,845,095
Restricted cash 109,954,161 91,444,216
Bank notes receivable 72,369,700 29,171,060
Accounts receivable, net of
allowance for doubtful accounts
of $4,775,526 and $2,323,920 85,167,801 40,161,898
Other receivables, net of
allowance for doubtful accounts
of $493,484 and $449,048 865,060 1,081,311
Purchase deposits 6,798,356 14,320,357
Inventories 37,979,226 41,944,020
Prepaid expenses 449,127 379,633
Allowance receivables 956,166 3,116,108
VAT recoverable (net) 32,719,543 30,472,864
Deferred tax assets 800,179 572,791
Other current assets 73,413 1,545,534
------ ---------
Total current assets 524,574,064 390,054,887
Long-term investment 477,289 476,122
Property, plant and equipment
(net) 470,447,775 427,929,871
Deposits for purchase of land
usage rights 17,285,461 27,930,404
Construction in progress 86,509,865 47,887,224
Land usage rights 116,785,769 96,981,393
Deferred charges - 8,665
Other non-current assets 2,554,680 -
--------- ---
Total assets $1,218,634,903 $991,268,566
============== ============
LIABILITIES AND EQUITY
Current liabilities
Short-term loans $228,632,849 $115,653,574
Bank notes payable 219,333,386 177,627,006
Long-term loans - current portion 52,183,597 16,016,419
Capital lease obligation -current
portion - 5,769,600
Accounts payable 11,918,351 15,693,948
Other payables 24,053,321 26,873,586
Accrued liabilities 18,353,887 12,596,651
Deposits from customers 9,935,877 12,550,096
Tax payable 1,778,724 1,822,812
Deferred subsidy - current portion 84,852 68,773
------ ------
Total current liabilities 566,274,844 384,672,465
Deferred tax liabilities 743,869 524,399
Deposits from customers - long-
term portion - 2,615,449
Long-term loans 101,792,652 97,261,330
Deferred subsidy - long-term
portion 2,386,002 1,988,693
--------- ---------
Total liabilities 671,197,367 487,062,336
Equity
Common stock:par value $0.001;
100,000,000 authorized;
40,376,182 and 40,355,502 shares
issued as of December 31, 2012
and 2011; and 37,209,344 and
37,556,964 shares outstanding as
of December 31, 2012 and 2011 40,376 40,355
Additional paid-in capital 240,063,993 239,364,449
Retained earnings 278,268,748 234,200,071
Treasury stock, at cost: 3,166,838
and 2,798,538 shares as of
December 31, 2012 and 2011 (26,225,646) (23,131,074)
Accumulated other comprehensive
income 54,413,960 52,905,053
---------- ----------
Total Zhongpin Inc. shareholders'
equity 546,561,431 503,378,854
Non-controlling interests 876,105 827,376
------- -------
Total shareholders' equity 547,437,536 504,206,230
----------- -----------
Total liabilities and
shareholders' equity $1,218,634,903 $991,268,566
============== ============
ZHONGPIN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in U.S. dollars)
Years Ended December 31,
------------------------
2012 2011 2010
---- ---- ----
Cash flows from operating activities:
Net income $44,115,179 $64,215,032 $58,279,969
Adjustments to
reconcile net
income to net
cash provided by
(used in)
operations:
Depreciation 23,364,078 17,415,069 13,613,922
Amortization of land use rights 2,390,501 1,886,475 1,422,251
Staff welfare amortization - - (356,074)
Provision for allowance for bad
debt 2,478,601 714,685 464,311
Impairment loss 4,048,453 1,614,167 1,015,780
Other income (148,961) (43,123) (1,139,783)
Deferred subsidy (68,647) - -
Stock-based compensation 515,566 1,610,815 2,343,771
Changes in
operating assets
and liabilities:
Accounts receivable (47,150,874) (8,129,664) (10,049,304)
Other receivables (107,773) (193,590) (289,947)
Purchase deposits 7,524,762 (6,366,517) (1,552,498)
Prepaid expenses (68,486) 29,478 (195,997)
Inventories 4,050,162 (13,711,256) 8,194,171
Allowance receivables 2,158,305 (499,119) (2,424,121)
VAT receivable (3,498,272) (9,611,116) (7,150,913)
Deferred tax asset/liability, net (7,765) (10,696) (26,560)
Other current assets 1,469,594 29,527 60,677
Long-term deferred charges 8,650 13,782 18,984
Accounts payable (3,797,735) 6,542,278 (975,453)
Other payables (2,745,655) 10,003,595 1,637,437
Deferred subsidy 475,248 2,007,167 -
Accrued liabilities 5,704,541 1,835,646 3,506,546
Taxes payable (48,347) 132,678 (364,633)
Deposits from customers (2,633,655) 3,778,601 2,693,920
Deposits from customers - long-
term portion (2,610,642) 542,973 (88,463)
---------- ------- -------
Net cash provided by operating activities 35,416,828 73,806,887 68,637,993
Cash flows from investing activities:
Prepayment on property, plant, and
equipment (2,543,754) - -
Deposits for purchase of land use
rights (1,722,313) (17,581,832) (7,895,121)
Construction in progress (98,675,648) (134,970,620) (55,719,217)
Additions to property and
equipment (9,416,974) (16,504,812) (10,925,116)
Additions to land use rights (10,138,124) - (23,282,316)
Proceeds from sale of fixed assets 326,300 91,298 -
Increase in restricted cash - (71,236,828) (2,530,627)
Long term investment - - (443,151)
Proceeds from disposal of a
subsidiary 2,740,042 - -
--------- --- ---
Net cash used in investing activities (119,430,471) (240,202,794) (100,795,548)
Cash flows from financing activities:
Proceeds from (repayment of) bank
notes, net (1,848,050) 145,479,016 (2,199,139)
Proceeds from short-term loans 296,364,990 159,472,347 107,559,768
Repayment of short-term loans (184,151,102) (140,749,090) (103,171,859)
Proceeds from long-term loans 48,325,615 24,772,404 66,681,885
Repayment of long-term loans (8,077,545) (15,382,141) (20,086,899)
Repayment of capital lease
obligation (5,758,997) (6,576,095) (6,729,655)
Proceeds from common stock
issuance - 66,356,662 -
Repurchase of common stock (2,812,322) (23,131,074) -
Proceeds from exercised warrants
and options 184,000 - 2,888,992
Capital contribution by non-
controlling interest - 799,953 -
Increase in restricted cash (18,207,686) - -
----------- --- ---
Net cash provided by financing activities 124,018,903 211,041,982 44,943,093
Effect of rate
changes on cash 590,977 7,026,834 2,404,389
Increase in cash
and cash
equivalents $40,596,237 $51,672,909 $15,189,927
Cash and cash
equivalents,
beginning of
year 135,845,095 84,172,186 68,982,259
Cash and cash
equivalents, end
of year $176,441,332 $135,845,095 $84,172,186
===
Supplemental disclosures of cash flow
information:
Cash paid for
interest $33,002,672 $22,387,434 $8,717,320
Cash paid for
income taxes $5,714,735 $4,675,144 $3,880,679
ZHONGPIN INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Amounts in U.S. dollars)
Additional
Common Stock Treasury stock paid-in
Part 1 Shares Par value Shares Total cost capital
------ --------- ------ ---------- -------
Balance as of
December 31, 2009 34,662,314 34,662 - - 166,169,902
Warrants exercised
(cashless) 135,057 135 - - (135)
Warrants exercised
(cash) 497,789 498 - - 2,503,454
Option exercised 43,000 43 - - 384,997
Compensation expense
for stock option
granted - - - - 2,343,771
Net income for the
year - - - - -
Translation
adjustment - - - - -
--- --- --- --- ---
Balance as of
December 31, 2010 35,338,160 35,338 - - 171,401,989
Warrants exercised
(cashless) 17,342 17 - - (17)
Compensation expense
for stock option
granted - - - - 1,610,815
Common shares
offering 5,000,000 5,000 - - 66,351,662
Common share
repurchase - - (2,798,538) (23,131,074) -
Net income for the
year - - - - -
Translation
adjustment - - - - -
Capital contribution
from non-
controlling
interests - - - - -
--- --- --- --- ---
Balance as of
December 31, 2011 40,355,502 40,355 (2,798,538) (23,131,074) 239,364,449
Warrants exercised
(cashless) 680 1 - - (1)
Option exercised 20,000 20 - - 183,980
Compensation expense
for stock option
granted - - - - 515,565
Common share
repurchase - - (368,300) (3,094,572) -
Net income for the
year - - - - -
Translation
adjustment - - - - -
--- --- --- --- ---
Balance as of
December 31, 2012 40,376,182 40,376 (3,166,838) (26,225,646) 240,063,993
Retained Accumulated Total Non-controlling Total
other Zhongpin shareholders'
comprehensive Inc.
shareholders'
Part 2 earnings income equity interest equity
-------- ------ ------ -------- ------
Balance as of
December 31, 2009 111,699,375 18,938,917 296,842,856 - 296,842,856
Warrants exercised
(cashless) - - - - -
Warrants exercised
(cash) - - 2,503,952 - 2,503,952
Option exercised - - 385,040 - 385,040
Compensation expense
for stock option
granted - - 2,343,771 - 2,343,771
Net income for the
year 58,279,969 - 58,279,969 - 58,279,969
Translation
adjustment - 10,638,236 10,638,236 - 10,638,236
--- ---------- ---------- --- ----------
Balance as of
December 31, 2010 169,979,344 29,577,153 370,993,824 - 370,993,824
Warrants exercised
(cashless) - - - - -
Compensation expense
for stock option
granted - - 1,610,815 - 1,610,815
Common shares
offering - - 66,356,662 - 66,356,662
Common share
repurchase - - (23,131,074) - (23,131,074)
Net income for the
year 64,220,727 - 64,220,727 (5,695) 64,215,032
Translation
adjustment - 23,327,900 23,327,900 33,388 23,361,288
Capital contribution
from non-
controlling
interests - - - 799,683 799,683
--- --- --- ------- -------
Balance as of
December 31, 2011 234,200,071 52,905,053 503,378,854 827,376 504,206,230
Warrants exercised
(cashless) - - - - -
Option exercised - - 184,000 - 184,000
Compensation expense
for stock option
granted - - 515,565 - 515,565
Common share
repurchase - - (3,094,572) - (3,094,572)
Net income for the
year 44,068,677 - 44,068,677 46,502 44,115,179
Translation
adjustment - 1,508,907 1,508,907 2,227 1,511,134
--- --------- --------- ----- ---------
Balance as of
December 31, 2012 278,268,748 54,413,960 546,561,431 876,105 547,437,536
SOURCE Zhongpin Inc.
