omniture

Zhongpin Reports Higher Revenues and Lower Net Income for the Year 2012

2013-03-15 04:00 1155

BEIJING and CHANGGE, China, March 15, 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
December 31, 2012


Year ended
December 31, 2011


Metric
tons


Sales revenues (millions)


Average price per
metric ton


Metric
tons


Sales revenues (millions)


Average price per metric ton

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
December 31,


Net change


Percent change



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
change


Percent
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
change


Percent
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
December 31, 2012


Year ended
December 31, 2011



Metric tons


Amount
(millions)


Average
cost per
metric
ton


Metric
tons


Amount (millions)


Average
cost per
metric
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

other

comprehensive

Total

Zhongpin

Inc.

shareholders'

Non-controlling

Total

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.
collection