Zhongpin Reports Higher Revenues, Net Income, and EPS for the Year 2010

Mar 04, 2011, 16:10 ET from Zhongpin Inc.

NEW YORK, March 4, 2011 /PRNewswire-Asia-FirstCall/ -- Zhongpin Inc. ("Zhongpin" or "the company," Nasdaq: HOGS), a leading meat and food processing company in the People's Republic of China ("China"), today reported higher revenues, net income, and earnings per share for the year 2010. Zhongpin also announced guidance for higher sales, net income, and earnings per share for the year 2011.

Year 2010 highlights:

  • Revenues increased 30% to $946.7 million in 2010 from $726.0 million in 2009.
  • Net income increased 28% to $58.3 million in 2010 from $45.6 million in 2009.
  • Basic earnings per share increased 13% to $1.67 in 2010 from $1.48 in 2009 with average basic shares outstanding being 13% higher than 2009.
  • Diluted earnings per share increased 13% to $1.65 in 2010 from $1.46 in 2009 on average diluted shares outstanding being 13% higher than 2009.
  • Zhongpin's 2010 results exceeded the Company's guidance of revenues within a range of $900 million to $940 million, net income within the range of $52 million to $57 million, and diluted earnings per share within the range of $1.49 to 1.64 per share.
  • Gross profit margin decreased to 11.7% in 2010 from 11.9% in 2009.
  • Zhongpin added 89,000 metric tons of annual capacity for pork products, vegetables, and fruits during 2010 to bring total capacity at year end to 703,760 metric tons.

Mr. Xianfu Zhu, Chairman and Chief Executive Officer for Zhongpin, said, "The year 2010 was a very good year in operations and financial results, especially given some unusual sustained increases in hog prices during part of the year. Our revenues increased mainly due to our capacity expansions, higher sales to existing customers, new sales volume in new geographic markets, expanded points of sales, new customers, and emphasis on our higher margin products. These factors together with the marketing of our brand, advertising, in-store promotions, and the effort of the sales team helped to grow revenues by 30% in 2010."

Capacity and market expansions in 2010

Zhongpin put its new facility in Tianjin into operation in January 2010. The new plant has a production capacity of about 100,000 metric tons for chilled and frozen pork. The construction of phase two of the facility, with a production capacity of about 36,000 metric tons for prepared pork products, started in October 2010. It is expected to be operational in the second quarter of 2011.

In April 2010, the company opened a new facility to produce premium pork oil, with an annual production capacity of 20,000 metric tons. The cost of the plant was approximately $5.6 million and is located in Changge, Henan province.

The capacity expansion project in Anyang city was also completed in August 2010, as planned. The Anyang facility's pre-cooling room and equipment have increased the plant's annual capacity to 85,000 metric tons from 63,000 tons.

Zhongpin is investing about $61.5 million to build a slaughtering and processing plant, low temperature prepared pork plant, logistics center, and research and development center in Nongan county, Changchun, Jilin province of China. This facility will have a production capacity of about 70,000 metric tons for chilled pork, 25,000 metric tons for frozen pork, and 30,000 metric tons for prepared pork products. Construction started in September 2010. The company expects to put the chilled and frozen pork facility into operation in the fourth quarter of 2011 and the prepared pork products facility into operation in the third quarter of 2012.

Zhongpin is also investing approximately $63.0 million to build a production facility, warehouse, and distribution center in Taizhou, Jiangsu province. This facility will have a production capacity of about 100,000 metric tons for chilled and frozen pork, of which 80% will be for chilled pork including easy-to-cook products, 20% for frozen pork, plus 30,000 metric tons for prepared pork products. Construction work started in October 2010. The company expects to put the chilled and frozen pork facility into operation in the third quarter of 2011 and the prepared pork products facility into operation in the first quarter of 2012.

On December 31, 2010, Zhongpin had annual capacity of 563,760 metric tons for chilled and frozen pork, 90,000 tons for prepared pork products, 20,000 tons for pork oil, and 30,000 tons for vegetables and fruits, for a total annual capacity of 703,760 metric tons.

Planned capacity and market expansions for 2011

Mr. Zhu continued, "In 2011, we will continue to execute our proven strategic plan to expand our sales, profits, market share, and the geographic regions that we serve. We expect to sustain the trend-line growth we have achieved over the last five years."

Zhongpin expects to invest 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 it has already obtained. When completed, this new facility will have a production capacity of approximately 100,000 metric tons for prepared pork products. Adjacent to this new facility, the company expects to develop a center for research and development, training, and quality control. Construction for the first phase with an annual production capacity of approximately 50,000 metric tons for prepared pork products is scheduled to start in the first quarter of 2011 and to be completed by the third quarter of 2011. The second phase, with a production capacity of approximately 50,000 metric tons for prepared pork products, is scheduled to be completed by the fourth quarter of 2012. Zhongpin plans to open the research and development and training center by the fourth quarter of 2012.

Mr. Zhu continued, "To further expand our business and grow Zhongpin into a national brand, we intend to expand our production into other provinces in which pork is traditionally consumed in significant quantities and in which there is a sufficient hog supply. To minimize our risk when expanding into new markets, we, at times, enter certain markets by leasing, rather than purchasing or constructing our production facilities because we believe that, even after conducting comprehensive market research and professional due diligence, there can be a significant risk that a market will not generate the level of sales we expect. We are in the process of replicating our success in Henan province in other provinces in northern and eastern China where we expect to build capacity clusters similar to the cluster we have constructed successfully in Henan. We expect to lease, acquire, or build new facilities to support development in our northern and eastern target markets."

Update on distribution networks

Zhongpin has established distribution networks in 20 provinces, Beijing, Shanghai, Tianjin, and Chongqing, covering portions of the north, east, south, and mid-south regions of China, and has also formed strategic business alliances with leading supermarket chains within China. The company also exports its products to Europe, Hong Kong, and other countries in Asia.

Outlook for pork demand in China

Mr. Zhu continued, "Our fundamental strategy has proven its effectiveness in the past several years. The major objectives, which are designed to create additional value for our shareholders, include:

  • increase our brand recognition and sales,
  • expand our market presence,
  • increase our production capacity,
  • expand and optimize our product lines, and
  • maintain our technological superiority.

"China's economy continues to grow rapidly, and pork continues to be Chinese consumers' preferred protein. We believe the outlook for China's pork processing industry remains quite positive. We plan to build a leading brand and gain increased market share and are expanding our processing plants and distribution networks to satisfy increasing demand for our high quality products."

In 2011, Zhongpin expects demand for pork in China and the results of the pork and pork products segment of its business to remain strong. While supply is expected to be ample, live hog prices are expected to increase in the first half of 2011. Zhongpin anticipates that its gross profit margin in 2011 will remain stable.

Mr. Zhu continued, "The outlook for the Chinese economy, Chinese food processing industry, and for Zhongpin continues to be encouraging, so for our guidance for the year 2011, we expect to report higher revenues, net income and earnings per share. We believe it will be another very good year for Zhongpin."

Guidance for the year 2011

Mr. Warren Wang, Zhongpin's Chief Financial Officer, said, "For the year 2011, we expect that Zhongpin's sales revenues should be within a range of US$1.18 billion to $1.23 billion, with gross profit margin within the range of 11.7% to 12.4%, and net income margin within the range of 5.7% to 6.3%. The resulting diluted earnings per share for the year 2011 is currently expected to be within the range of $1.89 to $2.18 per share, assuming average diluted common shares outstanding of about 35.5 million shares in 2011.

"This guidance is based on several assumptions and strategies that include:

  • Continuation of China's policies designed to stimulate domestic consumption and economic growth.
  • Average pork prices in China are assumed to increase between 5 and 10% in 2011 from 2010, which would be consistent with steady economic growth and relatively modest inflation.
  • A higher percentage of sales from our higher-margin chilled pork and prepared pork products in 2011 than in 2010, while continuing to increase the sales volume of processed pork products to optimize our product structure.  
  • Average capacity utilization for the year of about 79% for pork products.
  • Increasing distribution efficiencies and reduction in the duration of delivery times by expanding our cold-chain logistics system, networks, and services.
  • Continuing to expand awareness, recognition, and selection of Zhongpin brand products in the major regional markets, to reinforce awareness of the brand across China, and to increase market share and the brand's price premium.
  • And continuation of the Chinese government's support and subsidies for producers of agricultural products, such as Zhongpin. Total government subsidies for Zhongpin could exceed $5 million in 2011.

"Zhongpin believes that China's food processing industry will continue to consolidate in 2011 at a more rapid pace than in 2010, which may result in higher market shares for our main competitors. However, we believe Zhongpin is equipped to meet the challenge of increasing competition and that our guidance for 2011 can be achieved."

Sales revenues

Total revenue increased $220.7 million or 30% to $946.7 million in 2010 from $726.0 million in 2009, primarily due to increased sales volume in its meat and meat products segment resulting from Zhongpin's geographic expansion, more retail stores, and increased sales to food service distributors in China.

The following table presents Zhongpin's sales by product division for 2010 and 2009.

Sales by Division

Year Ended December 31, 2010

Year Ended December 31, 2009

Metric Tons

Sales Revenues (in millions)

Average Price/ Metric Ton

Metric Tons

Sales Revenues (in millions)

Average Price/ Metric Ton

Pork and Pork Products

 Chilled pork

265,315

$514.6

$1,940

214,253

$396.1

$1,849

 Frozen pork

152,766

258.5

1,692

133,034

224.8

1,690

 Prepared pork products

77,078

157.4

2,042

41,360

93.0

2,249

Vegetables and Fruits

20,497

16.2

790

16,825

12.1

719

Total

515,656

$946.7

$1,836

405,472

$726.0

$1,791

The pork market in China is highly fragmented, and in the markets where the company sells its products, no single supplier has a significant effect on the market price of pork or related pork products. Zhongpin has been pricing our products based on the value of its brand, the quality of its products, hog prices during the period, and pricing trends for similar products in the regions where it operates.

Chilled pork revenues increased on higher tonnage at higher average prices. Revenues from chilled pork products increased 30% in 2010 from 2009. Chilled pork tonnage increased 24% in 2010 from 2009. The average price per metric ton for chilled pork increased 5% in 2010 from 2009.

Frozen pork revenues increased on higher tonnage at slightly higher average prices. Revenues from frozen pork products increased 15% in 2010 from 2009. Frozen pork tonnage increased 15% in 2010 from 2009. The average price per metric ton for frozen pork increased 0.1% in 2010 from 2009.

Prepared pork revenues increased on higher tonnage at lower average prices. Revenues from prepared pork products increased 69% in 2010 from 2009. Prepared pork tonnage increased 86% in 2010 from 2009. The average price per metric ton for prepared pork products decreased 9.2% in 2010 from 2009.

Pork and pork products contributed to 98% of total revenues in 2010 and 2009.

Vegetables and fruits revenues increased on higher tonnage at higher average prices. Vegetables and fruits revenues increased 34% in 2010 from 2009. Tonnage of vegetables and fruits increased 22% in 2010 from 2009. Average price per metric ton for vegetables and fruits increased 10% in 2010 from 2009. Vegetables and fruits contributed to 2% of total revenues in 2010 and 2009.

The sales of meat and vegetable products are closely related to the particular regional markets in which the company's distribution channels are located. Therefore, the increase in metric tons sold in 2010 was partly attributable to company's effort to expand its distribution channels. The following table shows the changes in Zhongpin's distribution channels.

Numbers of Stores and Cities Generating Sales Volume

Net

Percentage

December 31,

Change

of Change

2010

2009

Showcase store

157

145

12

8%

Network stores

1,072

1,012

60

6%

Supermarket counters

2,097

2,048

49

2%

Total

3,326

3,205

121

4%

First-tier cities

29

29

--

--

Second-tier cities

130

120

10

8%

Third-tier cities

421

383

 38

10%

Total

580

532

48

9%

The expansion in Zhongpin's distribution channels and geographical coverage has been a significant factor in the increase in its sales volume. The following table shows revenues by distribution channel.

Sales by Distribution Channel (U.S. dollars in millions)

Net

Percentage

Years Ended December 31

Change

of Change

2010

2009

Retail channels

$ 363.4

$ 301.1

$ 62.3

21%

Wholesalers and distributors

308.1

217.4

90.7

42%

Restaurants and food service

263.0

200.4

62.6

31%

Export

12.2

7.1

      5.1

72%

Total

$ 946.7

$ 726.0

$ 220.7

30%

The increase in sales to different distribution channels was primarily due to the following factors:

  • Zhongpin's production capacity has increased since it put new facilities into operation in 2010 and has maintained its utilization rate for all facilities;
  • the company has built up its brand image and brand recognition through general advertising display promotions and sales campaigns;
  • the company has increased the number of stores and other channels through which it sells its products; and
  • Zhongpin believes consumers are placing increased importance on food safety and are willing to pay higher prices for safe food products.

Cost of Sales  

As discussed above, meat products are derived from the same raw materials-- live hogs. We purchase vegetable and fruit products primarily from farmers located close to the company's processing facility in Changge, Henan. As a result, the purchasing costs of live hogs and vegetables and fruits represent substantially all the costs of raw materials. Costs of sales primarily include costs of raw materials, labor costs, and overhead. Of the total costs of sales, the costs of raw materials typically accounts for about 96% to 97%, overhead typically accounts for 2% to 2.5%, and labor costs typically account for 1% to 1.3%, with slight variations from period to period.

Costs of Sales by Division

Year Ended                 December 31, 2010  

Year Ended                 December 31, 2009  

Metric Tons

Amount (in millions)

Average Cost/Metric Ton

Metric Tons

Amount (in millions)

Average Cost/Metric Ton

Pork and Pork Products

 Chilled pork

265,315

$458.3

1,727

214,253

$352.7

1,646

 Frozen pork

152,766

238.6

1,562

133,034

205.6

1,545

 Prepared pork products

77,078

125.7

1,631

41,360

71.2

1,722

Vegetables and Fruits

20,497

   13.4

654

16,825

   10.1

599

Total

515,656

$836.0

1,621

405,472

$639.6

1,577

Gross profit margin (gross profit divided by revenue) decreased to 11.7% in 2010 from 11.9% in 2009. The decrease in the gross profit margin in 2010 was primarily due to (i) the percentage increase in pork prices being less than the percentage increase in hog prices during most of 2010, which is the main part of the cost of sales, (ii) the company is not able to adjust the selling price of its frozen and prepared pork products as frequently as it is able for its chilled pork products, so while hog prices increased, the margins for prepared and frozen products became lower, and (iii) Zhongpin's strategic decision to take steps to increase its market share as well as capacity utilization rate, at a time when production capacity increased due to the opening of new production facilities. 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. The company intends to adjust its production levels, product mix, and the percentages of its sales through its various sales channels to increase its gross profit margin going forward.

General, administrative, and selling expenses

General and administrative expenses increased $5.3 million or 28% to $24.1 million in 2010 from $18.8 million in 2009 primarily due to a $1.0 million increase in salary expenses from the expansion of the business, which required the company to hire more employees and management, and a $1.5 million increase in depreciation due to capacity expansions that added more property, plant, and equipment. As a percentage of revenues, general and administrative expenses decreased to 2.5% in 2010 from 2.6% in 2009.

Selling expenses increased $6.0 million or 41% to $20.7 million in 2010 from $14.7 million in 2009, mainly due to a $1.5 million increase in salary expenses, a $1.2 million increase in advertising expenses, and a $1.8 million increase in transportation expenses. Selling expenses as a percentage of revenue increased to 2.2% in 2010 from 2.0% in 2009.

Research & development expenses

Research and development expenses increased to $0.6 million in 2010 from $0.1 million in 2009.

Interest expense

Interest expense increased $1.8 million or 30% to $7.9 million in 2010 from $6.1 million in 2009 primarily due to an increase of $7.1 million in short-term bank loans, an increase of $49.2 million in long-term bank loans, and an increase in the interest rates published by the People's Bank of China, the central bank of China. Those increases were partly offset by an increase in interest income.

Other income and government subsidies

Other income and government subsidies increased $3.5 million or 135% to $6.1 million in 2010 from $2.6 million in 2009. The increase was due to receiving more government subsidies during the year. By expanding into new regional markets and constructing new facilities in new areas, Zhongpin has qualified to apply for additional subsidies. The Chinese government provides subsidies to support businesses in the agriculture and related industries. The company's business, including hog breeding, pork processing, processing of vegetables and fruits, and cold-chain logistics, as well as related food safety and technological innovations, all enjoy policy support from the Chinese government. Zhongpin expects to continue receiving government subsidies in future periods, as China continues its policy of promoting agriculture and related industries.

Provision for income taxes

The effective tax rate in China on income generated from the sale of prepared products is 25%. 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 increase of $0.4 million in the provision for income taxes in 2010 over 2009 resulted from higher sales of prepared meat products.

Net income

Net income increased 28% to $58.3 million in 2010 from $45.6 million in 2009 primarily due to higher revenues from higher tonnage sold at higher average prices, effective control of expenses, and higher other income and government subsidies, partly offset by higher interest expenses and by higher income taxes on higher-margin prepared pork products.

Zhongpin's net profit margin (net income divided by revenues) declined slightly to 6.2% in 2010 from 6.3% in 2009, primarily due to higher hog prices that could not be immediately passed on in pork prices during some periods in 2010.

Earnings per share

Basic earnings per share increased 13% to $1.67 in 2010 from $1.48 in 2009. Average basic shares outstanding increased 13% to 34,837,656 shares in 2010 from 30,750,054 shares in 2009.

Diluted earnings per share increased 13% to $1.65 in 2010 from $1.46 in 2009. Average diluted shares outstanding increased 13% to 35,270,410 shares in 2010 from 31,230,536 shares in 2009.

Liquidity and capital resources

Net cash provided by operating activities increased by $27.8 million to $68.6 million in 2010 from $40.8 million in 2009. Of the $27.8 million increase, net income accounted for $12.7 million, non-cash items accounted for $6.4 million, and changes in operating assets and liabilities accounted for $8.8 million.

Net cash used in investing activities decreased $18.2 million to $100.8 million in 2010 from $119.0 million in 2009. The company invested $28.2 million less on the construction of new production facilities, $2.7 million more on acquiring land use rights, and $5.1 million more in restricted cash so that the company could issue bank payable notes. The cash invested for building new production facilities was part of the company's development strategy to increase its geographical market coverage.

Net cash provided by financing activities decreased $60.5 million to $44.9 million in 2010 from $105.4 million in 2009. In 2009, the company received $57.1 million of net proceeds from issuing common stock but the company did not issue common stock in 2010. In 2010, it received $20.8 million more in net proceeds from long-term bank loans (net of repayments), and $21.1 million less in net proceeds from capital lease obligations. In addition, it repaid $12.4 million more in short-term bank loans during 2010.

Zhongpin believes its existing cash and cash equivalents, together with our ability to secure bank borrowings, will be sufficient to finance its investment in new facilities, with budgeted capital expenditures of about $142.8 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 it has done in the past.

Conference call and webcast 

Zhongpin will host its quarterly conference call and live webcast at 8:00 a.m. Eastern Standard Time (New York) on Monday, March 7, 2011, which is 9:00 p.m. in Beijing on the same day.

The dial-in details for the live conference call are:

U.S. toll-free number

1-866-549-1292

International dial-in number

+852-3005-2050

Mainland China toll-free number

400-681-6949

Participant PIN code

326957#

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 replay of the call will be available after the conclusion of the conference call through 9:00 a.m. Eastern Standard Time, March 14, 2010. The dial-in details for the telephone replay are:

U.S. toll-free number

1-866-753-0743

International dial-in number

+852-3005-2020

Conference reference

145136#

About Zhongpin

Zhongpin Inc. is a meat and food processing company that specializes in pork and pork products, vegetables, and fruits in China. Its distribution network in the China covers 20 provinces plus Beijing, Shanghai, Tianjin, and Chongqing and includes more than 3,300 retail outlets. Zhongpin's export markets include Europe, Hong Kong, and 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 are 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 forward-looking statements can be recognized by the use of words such as "anticipates," "estimates," "expects," "intends," "plans," "projects," "will," or words of similar meaning. These forward-looking statements are not guarantees of future performance and are based on a number of assumptions about the Company's operations, and are subject to risks, uncertainties, and other factors beyond the Company's control.

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, 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)

Investor Relations Manager

Telephone +86 10 8286 1788 extension 101 in Beijing

ir@zhongpin.com

Mr. Warren (Feng) Wang (English and Chinese)

Chief Financial Officer

Telephone +86 10 8286 1788 extension 104 in Beijing

warren.wang@zhongpin.com

Christensen

Mr. Tom Myers (English)

Mobile +86 139 1141 3520 in Beijing

tmyers@christensenir.com

Ms. Kathy Li (English and Chinese)

Telephone +1 212 618 1978

kli@christensenir.com

Financial statements follow.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Amount in U.S. dollars)

Years Ended

December 31,

2010

2009

Revenues

  Sales revenues

$

946,720,275

$

726,037,187

  Cost of sales

(835,990,804)

(639,559,678)

     Gross profit

110,729,471

86,477,509

Operating expenses

   General and administrative expenses

(24,062,697)

(18,802,329)

   Selling expenses

(20,726,564)

(14,707,582)

   Research and development

(638,899)

(56,948)

   Impairment loss

(1,015,780)

(56,103)

   Gain on disposal of a subsidiary

-

654,249

   Loss from sale-leaseback transaction

-

(600,759)

       Total operating expenses

(46,443,940)

(33,569,472)

Income from operations

64,285,531

52,908,037

Other  income  (expense)

   Interest expense

(7,910,006)

(6,099,667)

   Other  income (expenses)

1,953,667

(839,491)

   Government subsidies

4,184,302

3,440,569

      Total other income (expense)

(1,772,037)

(3,498,589)

Net income before taxes

62,513,494

49,409,448

   Provision for income taxes

(4,233,525)

(3,819,068)

Net income after taxes

58,279,969

45,590,380

Foreign currency translation adjustment

10,638,236

(155,673)

Comprehensive income

$

68,918,205

$

45,434,707

Basic earnings per common share

1.67

1.48

Diluted earnings per common share

1.65

1.46

Basic weighted average shares outstanding

34,837,656

30,750,054

Diluted weighted average shares outstanding

35,270,410

31,230,536

CONSOLIDATED  BALANCE  SHEETS

(Amount in U.S. dollars)

December 31,

December 31,

2010

2009

ASSETS

Current assets

  Cash and cash equivalents

84,172,186

68,982,259

  Restricted cash

17,527,056

14,490,575

  Bank notes receivable

19,282,740

7,997,172

  Accounts receivable, net of allowance for doubtful accounts of $1,708,479 and $1,132,038

30,784,463

20,419,797

  Other receivables, net of allowance for doubtful accounts of $232,751 and $290,436

1,035,850

652,523

  Purchase deposits

7,415,567

5,653,192

  Inventories

26,534,014

33,859,420

  Prepaid expenses

391,386

186,030

  Allowance receivables

2,477,928

-

  VAT recoverable

20,771,902

14,064,185

  Deferred tax assets

397,744

256,151

  Other current assets

442,080

120,709

Total current assets

211,232,916

166,682,013

  Long term investment

452,987

-

  Property, plant and equipment (net)

291,567,396

189,588,904

  Deposits for purchase of land usage rights

17,059,644

8,718,740

  Construction in progress

30,433,905

70,192,150

  Land usage rights

86,475,708

61,128,431

  Deferred charges

21,686

39,855

  Other noncurrent assets

1,436,726

1,761,709

Total assets

638,680,968

498,111,802

LIABILITIES  AND  EQUITY

Current liabilities

  Short-term loans

91,774,025

84,661,697

  Bank notes payable

18,646,473

9,560,353

  Long-term loans - current portion

14,943,260

4,539,215

  Capital lease obligation-current portion

7,282,720

7,480,098

  Accounts payable

8,551,003

9,260,750

  Other payables

15,842,331

12,882,316

  Accrued liabilities

9,794,474

7,377,850

  Deposits from customers

8,255,194

5,335,907

  Tax payable

1,604,847

1,918,057

Total current liabilities

176,694,327

143,016,242

  Deferred tax liabilities

362,135

247,945

  Deposits from customers

1,958,827

1,987,579

  Capital lease obligation

4,999,454

11,104,435

  Long-term loans

83,672,401

44,912,744

Total liabilities

267,687,144

201,268,946

Equity

 Common stock: par value $0.001; 100,000,000 authorized; 35,338,160 and 34,662,314 shares issued and outstanding

35,338

34,662

  Additional paid in capital

171,401,989

166,169,902

  Retained earnings

169,979,344

111,699,375

  Accumulated other comprehensive income

29,577,153

18,938,917

Total equity

370,993,824

296,842,856

Total liabilities and equity

638,680,968

498,111,802

CONSOLIDATED STATEMENTS OF CASH FLOW

(Amount in U.S. dollars)

Years Ended December 31,

2010

2009

2008

Cash flows from operating activities:

  Net income

$  58,279,969

$  45,590,380

$  31,376,946

  Adjustments to reconcile net income to net cash provided by (used in) operations:

    Depreciation

13,613,922

8,512,431

4,764,421

    Amortization of  intangible assets

1,422,251

1,019,363

602,511

    Loss from sale-leaseback

-

600,759

-

    Staff welfare amortization

(356,074)

-

-

    Provision for allowance for bad debt

464,311

(291,767)

274,615

    Impairment loss

1,015,780

56,103

3,180,951

    Other income

(1,139,783)

-

-

    Gain on disposal of a subsidiary

-

(649,831)

-

    Warrant expenses

-

-

145,791

    Stock-based compensation

2,343,771

1,679,959

1,329,977

    Changes in operating assets and liabilities:

       Accounts receivable

(10,049,304)

35,615

(381,737)

       Other receivables

(289,947)

1,461,708

2,700,131

       Purchase deposits

(1,552,498)

(1,546,363)

2,167,512

       Prepaid expense

(195,997)

173,854

(159,685)

       Inventories

8,194,171

(17,150,749)

10,830,892

       Allowance receivables

(2,424,121)

-

-

       Tax refunds receivable

(7,150,913)

(6,691,406)

(3,495,617)

       Deferred tax asset/liability, net

(26,560)

207,771

(212,347)

       Other current assets

60,677

(24,377)

-

       Long term deferred charges

18,984

8,287

(17,018)

       Accounts payable

(975,453)

(241,155)

4,998,410

       Other payable

1,637,437

5,804,828

2,942,790

       Research and development grants payable

-

-

(273,807)

       Accrued liabilities

3,506,546

2,320,858

491,730

       Taxes payable

(364,633)

536,402

2,220,364

       Deposits from customers

2,693,920

708,045

2,280,645

       Deposits from customersLong term portion

(88,463)

-

-

       Other noncurrent assets

-

(1,348,997)

-

  Net cash provided by (used in) operating activities

68,637,993

40,771,718

65,767,475

Cash flows from investing activities:

  Deposits for purchase of land usage rights

(7,895,121)

(7,130,023)

(4,783,718)

  Construction in progress

(55,719,217)

(83,916,886)

(76,572,004)

  Additions to property and equipment

(10,925,116)

(10,459,534)

(15,031,502)

  Additions to land usage rights

(23,282,316)

(21,347,416)

(11,573,776)

  Proceeds on sale of fixed assets

-

113,291

238,450

  Increase in restricted cash

(2,530,672)

2,534,362

(12,990,885)

  Long-term investment

(443,151)

-

-

  Proceeds from disposal of a subsidiary

-

1,226,487

-

       Net cash used in investing activities

(100,795,593)

(118,979,719)

(120,713,435)

Cash flows from financing activities:

  Proceeds from (repayment of) bank notes

(2,199,139)

(10,405,839)

5,290,384

  Proceeds from(repayment of) short-term loans, net

4,387,909

16,818,596

16,552,240

  Proceeds from long-term loans

66,681,885

31,844,612

21,589,878

  Repayments of long-term loans

(20,086,899)

(6,004,498)

(145,275)

  Proceeds from capital lease obligation

(6,729,655)

14,329,464

4,176,107

  Proceeds from common stock

-

57,143,000

-

  Proceeds from exercised warrants

2,888,992

1,671,200

1,543,587

       Net cash provided by financing activities

44,943,093

105,396,535

49,006,921

  Effect of rate changes on cash

2,404,434

(63,441)

2,654,070

  Increase (decrease) in cash and cash equivalents

$  15,189,927

$  27,125,093

$   (3,284,969)

  Cash and cash equivalents, beginning of period

68,982,259

41,857,166

45,142,135

  Cash and cash equivalents, end of period

84,172,186

68,982,259

41,857,166

Supplemental disclosures of cash flow information:

  Cash paid for interest

$    8,717,320

$    7,218,082

$    5,462,627

  Cash paid for income taxes

$    3,880,679

$    3,195,434

$    1,162,359

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(Amount in U.S. dollars)

Accumulated

Additional

Other

Preferred Stock

Common Stock

Paid In

Retained  

Comprehensive

Shares

Par value

Shares

Par value

Capital

Earnings

Income

Total

Balance December 31, 2007

3,125,000

3,125

25,891,567

25,892

100,070,571

34,732,049

8,185,957

143,017,594

 Preferred stock converted to common    

(995,800)

(996)

995,800

996

-

-

-

-

 Common Stock and warrants (net of offering cost) - cash exercise

-

-

303,671

303

1,543,284

-

-

1,543,587

 Common Stock and warrants - cashless exercise

-

-

313,880

314

(314)

-

-

-

 Shareholder's donation

-

-

-

-

2,591,463

-

-

2,591,463

 Compensation expense-option granted

-

-

-

-

1,475,768

-

-

1,475,768

 Net income for the year

-

-

-

-

-

31,376,946

-

31,376,946

 Foreign currency translation adjustment

-

-

-

-

-

-

10,908,633

10,908,633

Balance December 31, 2008

2,129,200

$2,129

27,504,918

$27,505

$105,680,772

$66,108,995

$19,094,590

$190,913,991

Preferred stock converted to common

(2,129,200)

(2,129)

2,129,200

2,129

-

-

-

-

Common Stock and warrants - cashless exercise

-

-

248,196

248

(248)

-

-

-

Common Stock and warrants - cash exercise

-

-

180,000

180

1,671,020

-

-

1,671,200

Compensation expense - options granted

-

-

-

-

1,679,958

-

-

1,679,958

Common shares offering (net of offering cost)

-

-

4,600,000

4,600

57,138,400

-

-

57,143,000

Net income for the period

-

-

-

-

-

45,590,380

-

45,590,380

Translation adjustment

-

-

-

-

-

-

(155,673)

(155,673)

Balance December 31,2009

-

-

34,662,314

34,662

166,169,902

111,699,375

18,938,917

296,842,856

Warrants exercised (cashless)

-

-

135,057

135

(135)

-

-

-

Warrants exercised (cash)

-

-

497,789

498

2,503,454

-

-

2,503,952

Option exercised

-

-

43,000

43

384,997

-

-

385,040

Compensation expense for stock option granted

-

-

-

-

2,343,771

-

-

2,343,771

Net income for the period

-

-

-

-

-

58,279,969

-

58,279,969

Translation adjustment

-

-

-

-

-

-

10,638,236

10,638,236

Balance December 31,2010

-

-

35,338,160

35,338

171,401,989

169,979,344

29,577,153

370,993,824

SOURCE Zhongpin Inc.



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