Yongye International Announces First Quarter 2013 Financial Results

BEIJING, May 10, 2013 /PRNewswire-FirstCall/ -- Yongye International, Inc. (NASDAQ: YONG), ("Yongye" or the "Company") a leading developer, manufacturer, and distributor of crop nutrient products in the People's Republic of China ("PRC"), today announced its financial results for the quarter ended March 31, 2013.

First Quarter 2013 Financial Highlights

  • Revenue decreased 29.7% to $45.3 million from $64.4 million in the first quarter of 2012
  • Shipments of Yongye's agricultural nutrient products decreased 37.3% to $43.7 million in the first quarter of 2013 from $69.6 million in the first quarter of 2012
  • Gross profit decreased 38.9% year-over-year to $21.6 million
  • Income from operations was $1.1 million, compared to $21.9 million in the first quarter of 2012
  • Net loss attributable to Yongye was $0.6 million, or a loss of $0.03 per diluted share, from net income of $16.4 million, or income of $0.27 per diluted share, in the same period of 2012  
  • Adjusted net income attributable to Yongye, which excludes non-cash expenses related to the amortization of the acquired Hebei customer list, share-based compensation for management and independent directors, and a change in the fair value of derivative liabilities, was $0.1 million, or a loss of $0.01 per diluted share, compared to an adjusted net income attributable to Yongye of $18.3 million, or $0.31 per diluted share, in the same period of 2012*
  • The Company collected $226 million from its distributors during the first quarter of 2013
  • Operating cash flow was $141.1 million compared to $61.7 million in the same period of 2012

Mr. Zishen Wu, Chairman and Chief Executive Officer of Yongye International, stated, "During the first quarter of 2013, we focused our efforts on the collection of overdue account receivables. To better manage our accounts receivable and incentivize certain distributors to pay off accounts payable in a timely manner, we reduced shipment of our products to these distributors. Despite these reduced shipments, we have not seen a decrease in demand for our products based on orders received. As we progress through the second quarter, which is the peak season for our business, our shipments have been back on track. As an evidence of this, from January through April 2013, total shipments have increased approximately $28 million, or 20%, over the same period last year. The underlying fundamentals of our business remain strong and we are confident that our full year guidance for shipments and the expansion of our branded retailer network is achievable."

First Quarter 2013 Financial Results

Sales decreased by $19.1 million, or 29.7%, to $45.3 million in the first quarter of 2013, from $64.4 million for the same period of 2012. The decrease in revenue was primarily due to the decreased shipments of liquid crop products, which were meant to help manage accounts receivable and incentivize certain distributors to pay off accounts payable in a timely manner. In the first quarter of 2013, $43.9 million, or 96.9% of the total sales, were from liquid crop nutrient, and $1.4 million, or 3.1% of the total sales, were from powder animal nutrient. Of our liquid crop nutrient products, the two products for crop seeds and roots contributed $34.5 million, or 78.7% of total liquid crop nutrient sales, while the regular crop nutrient product contributed $9.4 million, or 21.3% of total liquid crop nutrient sales. During the first quarter of 2013, the number of branded retailers increased from 35,058 to 35,246; the majority of newly recruited branded retailers are from Hebei, Henan, Inner Mongolia and Shaanxi provinces.

Gross profit was $21.6 million in the first quarter of 2013, compared to $35.4 million in the first quarter of 2012, a decrease of 38.9%. Gross margin was 47.8% in the first quarter of 2013, compared to 55.0% for the same period of 2012. The decrease of gross margin for the three months ended March 31, 2013 was mainly due to the reduced sales amount and the increase of amortization of distributor vehicles recorded in cost of sales as compared to the same period of 2012.

Selling expenses increased by $1.2 million, or 8.7%, to $15.4 million in the first quarter of 2013, from $14.2 million for the same period of 2012. The increase in selling expenses was primarily due to an increase in advertising and promotion expense and distributors' seminar expenditure of $1.6 million relating to marketing and promotional activities for our products.

General and administrative ("G&A") expenses increased by $6.3 million, or 284.2%, to $4.1 million in the first quarter of 2013, from a negative $2.2 million for the same period of 2012.  The increase of G&A expenses was mainly due to the reversal of allowance for doubtful accounts of $6.3 million which was recorded in the first quarter of 2012. Higher G&A expenses mainly included increases in accrued audit expense, legal fees related to the proposed "going private" transaction, and staff salary expenditures for the three months ended March 31, 2013.

Research and development ("R&D") expenses were $1.0 million in the first quarter of 2013, compared to $1.5 million for the same period of 2012. The R&D expenses mainly field test expenses for existing and new products on different crops and in various geographic markets.

Operating income was $1.1 million in the first quarter of 2013, compared to $21.9 million for the same period of 2012. Excluding non-cash expenses related to the amortization of the acquired Hebei customer list and share-based compensation for management and independent directors, first quarter 2013 adjusted operating income was $1.9 million, or 4.1% of sales.* The decrease in income from operations was mainly due to the decreases in sales and gross margin, as well as the significant increases in selling expenses and general and administrative expenses, the latter resulting from the reversal in the first quarter of 2012 of allowance for doubtful accounts of $6.3 million whereas no such reversal was recorded in the 2013 period.

Net loss attributable to Yongye was $0.6 million, or a loss of $0.03 per diluted share in the first quarter of 2013, compared to a net income of $16.4 million, or $0.27 per diluted share, in the same period of 2012. Excluding the impact of non-cash expenses related to the amortization of the acquired Hebei customer list, share-based compensation for management and independent directors and a change in the fair value of derivative liabilities, adjusted net income attributable to Yongye for the first quarter of 2013 was $0.1 million, or a loss of $0.01 per diluted share, compared to adjusted net income of $18.3 million, or $0.31 per diluted share in the same period of 2012.*

 (*) See the table following this press release for a reconciliation of gross profit, income from operations, net income and diluted EPS to exclude non-cash items related to the amortization of the acquired Hebei customer list, share-based compensation for management and independent directors, and a change in the fair value of derivative liabilities to the comparable financial measure prepared in accordance with US Generally Accepted Accounting Principles ("U.S. GAAP").  

Financial Condition

Balance Sheet and Cash Flow

As of March 31, 2013, the Company had $184.4 million in cash and restricted cash, compared to $44.6 million as of December 31, 2012. Working capital was $387.7 million, compared to $383.3 million at the end of 2012. The Company had a $51.5 million short-term bank loan, $19.1 million in current and non-current long-term loans and payables, and $2.8 million in current and non-current capital lease obligations as of March 31, 2013.  Stockholders' equity totaled $438.8 million as of March 31, 2013, compared to $436.3 million at the end of 2012. Cash flow provided by operating activities were $141.1 million and $61.7 million for the three months ended March 31, 2013 and 2012, respectively. This was primarily driven by collection of $226 million of accounts receivable, but was partially offset by settled payment of accrued expenses.

Accounts Receivable 

Accounts receivable decreased by $179.6 million, which was mainly due to the collection of accounts receivable during the first quarter of 2013. During the first quarter of 2013, the Company collected $226 million from its distributors, including $219 million of the accounts receivable outstanding at December 31, 2012. As of March 31, 2013, the amount of gross accounts receivable outstanding was $123.0 million, of which $26.2 million was past the Company's six-month credit period. Yongye recorded an allowance for doubtful receivables in the amount of $9.1 million as of March 31, 2013, taking into account current market conditions, customers' financial condition, the accounts receivable ageing and the customers' repayment patterns. The Company continues to take measures to increase collection efforts and closely monitor its distributors' financial status.

Recent Developments

Expansion of Branded Retailer Network

The Company continued the expansion of its branded retailers from 35,058 as of December 31, 2012 to 35,246 as of March 31, 2013. The majority of the Company's newly recruited branded retailers are located in Hebei, Henan, Inner Mongolia, and Shaanxi provinces. The Company remains focused on expanding its distribution networks and deepening its penetration in its markets.

Update on NASDAQ Trading Halt

As the Company previously announced on April 1, 2013 as part of its fourth quarter and full year 2012 earnings announcement, on March 26, 2013, the Company provided a detailed written response to NASDAQ's request for certain information relating to the Company's delay in filing its Annual Report on Form 10-K with the Securities and Exchange Commission, the collection of accounts receivable as of year-end 2012, the current state of the Company's auditor's work in connection with the financial statements to be included in the Company's Form 10-K for the fiscal year ended December 31, 2012, and the status of the Company's proposed "going private" transaction.

Subsequent to the Company's initial response, NASDAQ requested certain additional information from the Company. The Company is in regular contact with NASDAQ with respect to this matter and is working diligently to address NASDAQ's requests. The Company expects that trading in its securities will remain halted while NASDAQ conducts its inquiry and that such trading will resume only upon NASDAQ being fully satisfied with the additional information provided. 

Update on Going-Private Proposal

On April 1, 2013, the Buyer Parties confirmed to the Special Committee that they remain interested in pursuing the proposed going private transaction set forth in their proposal. On the same day, the Special Committee was provided an amended and restated financing commitment letter issued by Abax to Full Alliance, which would terminate on April 15, 2013 if the common stock of the Company had not resumed trading on NASDAQ. On April 16, 2013 the Special Committee of the board of directors was provided a letter amending the amended and restated financing commitment letter issued by Abax to Full Alliance International Limited on April 1, 2013. Pursuant to the Amendment, the Commitment Letter was amended to (i) include an additional condition precedent that the common stock of the Company has resumed trading on NASDAQ, but without any requirement that the resumption must occur by a specified date, and (ii) extend the expiration of the commitment to the earliest of (A) May 15, 2013, (B) the date the definitive documentation for such financing becomes effective and (C) the date the acquisition agreement for the proposed going private transaction is terminated. Abax's commitment remains subject to a number of other conditions, including Abax's completion of its review of, and satisfaction in all respect with, the audited financial statements of the Company for the fiscal year ended December 31, 2012.

As a reminder, no decisions have been made by the Special Committee with respect to the Company's response to the proposed going private transaction. There can be no assurance that any definitive offer will be made, that any agreement will be executed, or that this or any other transaction will be approved or consummated.

Business Outlook

According to the Company's revenue recognition policy, certain distributors' revenue is being recognized on a cash basis rather than a shipment basis. In addition, the Company's distributors' payment cycle has been longer compared to prior years. As a result, the Company has difficulty knowing what its revenue will be with specificity until cash collection is completed. Yongye will continue to provide expectations on shipments, which is not impacted by the revenue recognition issue mentioned above. The Company continues to expect total shipments in 2013 to be in the range of $650 million to $680 million, representing a growth of 20% to 25% over 2012. The Company also expects that its branded retailer network will be expanded to 36,000 by the end of 2013, which represents a 3% increase over the 2012 year-end number of 35,058.

Conference Call

The Company will host a conference call at 8:30 a.m. Eastern Time on May 10, 2013, to discuss its first quarter 2012 results.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: +1 (866) 519-4004. International callers should dial +1 (718) 354-1231. The conference pass code is 686 80 863.

For those who are unable to participate on the live conference call, a replay will be available for fourteen days starting from 11:30 a.m. Eastern Time on May 10 to 11:59 p.m. Eastern Time on May 24. To access the replay, please dial +1 (866) 452-5696. International callers should dial +1 (646) 254-3697. The replay pass code is 686 80 863. A webcast recording of the conference call will be accessible through Yongye's website at www.yongyeintl.com.

Use of Non-GAAP Financial Measures

GAAP results for the three months ended March 31, 2013 and 2012 include non-cash items related to the amortization of the acquired Hebei customer list, share-based compensation for management and independent directors, and a change in the fair value of derivative liabilities.  To supplement the Company's condensed consolidated financial statements presented on a U.S. GAAP basis, the Company has provided adjusted financial information excluding the impact of these items in this release. Such adjustment is a departure of U.S. GAAP; however, the Company's management believes that these adjusted measures provide investors with a better understanding of how the results relate to the Company's historical performance. These adjusted measures should not be considered an alternative to net income, or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP.  These measures are not necessarily comparable to a similarly titled measure of another company. A reconciliation of the adjustments to U.S. GAAP results appears in the table accompanying this press release. This additional adjusted information is not meant to be considered in isolation or as a substitute for U.S. GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies.

About Yongye International, Inc.

Yongye International, Inc. is a leading crop nutrient company headquartered in Beijing, with its production facilities located in Hohhot, Inner Mongolia, China. Yongye's principal product is a liquid crop nutrient, from which the Company derived substantially all of the sales in 2012. The Company also produces powder animal nutrient product which is mainly used for dairy cows. Both products are sold under the trade name "Shengmingsu," which means "life essential" in Chinese. The Company's patented formula utilizes fulvic acid as the primary compound base and is combined with various micro and macro nutrients that are essential for the health of the crops. The Company sells its products primarily to provincial level distributors, who sell to the end-users either directly or indirectly through county-level and village-level distributors. For more information, please visit the Company's website at www.yongyeintl.com.

Safe Harbor Statement

This press release contains certain statements that may include "forward-looking statements." All statements other than statements of historical fact included herein are "forward-looking statements." These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involving known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including the risk factors discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on the SEC's website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these risk factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

Contacts

Yongye International

Ms. Kelly Wang
Finance Director – Capital Markets
Phone: +86-10-8231-9608; +86-10-8232-8866 x 8827
E-mail: ir@yongyeintl.com

FTI Consulting

Mr. John Capodanno (U.S. Contact)
Phone: +1-212-850-5705
E-mail: john.capodanno@fticonsulting.com 

(Financial Tables to Follow)

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS








March 31, 2013


December 31, 2012

Current assets




Cash

$

184,395,831


$

44,511,404

Restricted cash


40,000



40,000

Accounts receivable, net of allowance

for doubtful accounts


113,978,908



293,600,762

Inventories


140,855,471



118,693,596

Deposits to suppliers


23,358,158



24,048,028

Perpaid expenses


251,432



312,648

Other receivables


873,943



1,189,633

Deferred tax assets


11,503,113



11,591,797

Total Current Assets


475,256,856



493,987,868







Property, plant and equipment, net


26,111,149



26,224,957

Intangible assets, net


18,281,376



18,909,349

Land use right, net


4,806,695



4,807,313

Prepayment for mining project


35,989,226



35,792,410

Distributor vehicles


42,271,014



44,125,293

Total Assets

$

602,716,316


$

623,847,190







Current liabilities






Short-term bank loans

$

51,468,537


$

50,857,163

Long-term loans and payables - current

portion


9,282,861



9,149,280

Capital lease obligations - current portion


452,518



395,878

Accounts payable 


8,981,338



12,364,193

Income tax payable


3,543,045



3,196,078

Advance from customers


163,765



154,944

Accrued expenses


11,162,501



31,389,630

Other payables


2,460,217



2,828,262

Derivative liabilities- fair value of

warrants


-



348,364

Total Current Liabilities


87,514,782



110,683,792







Long-term loans and payables


9,841,664



10,254,922

Capital lease obligations - non-current


2,351,557



2,134,155

Other non-current liability


6,683,802



6,683,802

Deferred tax liabilities


6,340,652



6,618,794

Total Liabilities

$

112,732,457


$

136,375,465







Redeemable Series A convertible preferred

shares: par value $.001; 7,969,044 shares

authorized; 6,079,545 shares issued and

outstanding as of March 31, 2013 and

December 31, 2012, respectively

$

51,208,657


$

51,208,657







Equity






Common stock: par value $.001; 75,000,000

shares authorized; 50,685,216 shares and

50,604,026 shares issued and outstanding at

March 31, 2013 and December 31, 2012,

respectively

$

50,685


$

50,604

Additional paid-in capital


155,265,347



154,792,050

Retained earnings


240,066,823



240,679,395

Accumulated other comprehensive

income


22,487,695



19,950,447

Total equity attributable to Yongye

International, Inc.


417,870,550



415,472,496

Noncontrolling interest


20,904,652



20,790,572

Total Equity

$

438,775,202


$

436,263,068

Commitments and Contingencies


-



-







Total Liabilities, Redeemable Series A

Convertible Preferred Shares and Equity

$

602,716,316


$

623,847,190

  

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME








For the Three Months Ended


March 31, 2013


March 31, 2012

Sales

$

45,268,520


$

64,365,644

Cost of sales


23,636,421



28,953,139

Gross profit


21,632,099



35,412,505

Selling expenses


15,435,060



14,203,057

Research and development expenses


991,670



1,508,738

General and administrative expenses, including a reversal of

allowance for doubtful accounts of nil and US$6,334,832 for three

months ended March 31, 2013 and 2012, respectively


4,069,972



(2,209,471)

Income from operations


1,135,397



21,910,181

Other (expenses)/income






Interest expenses


(1,866,378)



(1,004,169)

Interest income


165,758



60,074

Other (expenses)/income, net


(64,336)



32,054

Change in fair value of derivative liabilities


-



59,398

Total other income, net


(1,764,956)



(852,643)

(Losses)/earnings before income tax expense


(629,559)



21,057,538

Income tax (benefit)/expense


(5,079)



3,740,222

Net (loss)/income


(624,480)



17,317,316

Less: Net (loss)/income attributable to the noncontrolling 

interest


(11,908)



935,026

Net (loss)/income attributable to Yongye International, Inc.

$

(612,572)


$

16,382,290













Net (loss)/income per share of common stock






   Basic

$

(0.03)


$

0.28

   Diluted

$

(0.03)


$

0.27

Weighted average shares used in computation:






   Basic 


50,669,880



49,370,711

   Diluted 


50,669,880



49,460,252







Net (loss)/income


(624,480)



17,317,316

Other comprehensive income






Foreign currency translation adjustment, net of US$ nil

income taxes


2,663,236



2,341,251







Comprehensive income


2,038,756



19,658,567

Less: Comprehensive income attributable to the noncontrolling

interest


114,080



1,043,895

Comprehensive income attributable to Yongye International, Inc.

$

1,924,676


$

18,614,672

  

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS








For the Three Months Ended


March 31, 2013


 March 31, 2012 

CASH FLOWS FROM OPERATING ACTIVITIES




Net (loss)/income

$

(624,480)


$

17,317,316

Adjustments to reconcile net

(loss)/income to net cash provided by

operating activities:






Depreciation and amortization


4,345,695



3,348,206

Amortized interest expense


331,335



-

Reversal of allowance for doubtful

accounts


-



(6,334,832)

Change in fair value of derivative

liabilities


-



(59,398)

Stock compensation expense


-



1,212,158

Deferred tax (benefit)/expense


(297,094)



654,850

Changes in operating assets and

liabilities:






Accounts receivable


181,025,679



79,401,906

Inventories


(21,484,206)



(24,655,838)

Deposit to suppliers


821,150



(12,373,644)

Prepaid expenses


62,851



2,242,938

Other receivables


320,144



104,013

Distributor Vehicles


50,165



(2,033,790)

Accounts payable- third parties


(3,446,833)



6,960,594

Income tax payable


292,015



(713,913)

Advance from customers


7,960



(3,958,275)

Accrued expenses


(20,375,053)



521,525

Other payables


115,944



97,839

Net Cash Provided by Operating

Activities


141,145,272



61,731,655







CASH FLOWS FROM INVESTING

ACTIVITIES






Purchase of property, plant and equipment


(502,297)



(14,723)

Net Cash Used in Investing Activities


(502,297)



(14,723)







CASH FLOWS FROM FINANCING

ACTIVITIES






Repayment of long-term loans and payables


(1,202,053)



(1,356,948)

Proceeds from warrants exercised


125,014



-

Repayment for capital lease obligations


(71,220)



-

Net Cash Provided by/(Used in)

Financing Activities


(1,148,259)



(1,356,948)

EFFECT OF FOREIGN EXCHANGE

RATE CHANGES ON CASH


389,711



375,227

NET INCREASE IN CASH


139,884,427



60,735,211

Cash at beginning of year


44,511,404



81,154,880

Cash at end of year

$

184,395,831


$

141,890,091







Supplemental cash flow information:






Cash paid for income taxes


-



3,799,284

Cash paid for interest expense


1,529,429



942,181







Noncash investing and financing activities:






Acquisition of property, plant and equipment

under capital leases


331,434



-

Acquisition of distributor vehicles by

assuming long-term loans and payables


816,126



4,780,243

Acquisition of property, plant and equipment

included in other payables


972,282



1,302,630

Exercise of warrants that were liability

classified


348,364



-

  

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL DATA




Gross Profit


Three Months Ended March 31,


2013


2012

GAAP amount per consolidated

statement of income

$21,632,099


$35,412,505

Amortization of the acquired Hebei

customer list 

$728,206


$725,044

Adjusted Amount

$22,360,305


$36,137,549






Income from Operations


Three Months Ended March 31,


2013


2012

GAAP amount per consolidated

statement of income

$1,135,397


$21,910,181

Amortization of the acquired

Hebei customer list

$728,206


$725,044

Non-cash management compensation

expense

-


$1,212,158

Adjusted Amount

$1,863,603


$23,847,383






Net income (attributable to Yongye)


Three Months Ended March 31,


2013


2012

GAAP amount per consolidated

statement of income

($612,572)


$16,382,290

Amortization of the acquired Hebei

customer list

$728,206


$725,044

Non-cash management compensation

expense

-


$1,212,158

Change in fair value of derivative

liabilities

-


($59,398)

Adjusted Amount

$115,634


$18,260,094

Weighted average shares -- diluted

50,669,880


49,460,252

Adjusted diluted earnings per share

($0.01)


$0.31


 

SOURCE Yongye International, Inc.



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