Exhibit 99.1

 

Yongye International Announces Second Quarter 2012 Financial Results

 

BEIJING, August 9 , 2012 -- 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 June 30, 2012.

 

Second Quarter 2012 Financial Highlights

 

• Revenue increased 14.8% to $177.6 million from $154.7 million in the second quarter of 2011
• Gross profit increased 17.8% year-over-year to $108.1 million
• Income from operations increased 3.9% to $53.5 million
• Net income attributable to Yongye increased 4.0% to $41.1 million from $39.5 million for the same period of 2011. Diluted earnings per share for the quarter was $0.74, compared to $0.77 for the same period of 2011
• Adjusted net income attributable to Yongye, which excludes non-cash expenses related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities, was $43.0 million, or $0.78 per diluted share, compared to $40.5 million, or $0.82 per diluted share, in the same period last year*
• Cash flows from operating activities was $8.1 million for six months ended June 30, 2012, compared to cash flows used in operating activities of $(27.8) million in the same period of 2011

It is important to note that, since the fourth quarter of 2011, for those provincial-level distributors with prolonged payment records, the Company has recognized revenue upon the receipt of cash, instead of upon shipments. We continue to provide these provincial-level distributors with six-month credit terms. During the second quarter of 2012, the Company primarily collected cash for sales to these distributors with shipments made in the fourth quarter of 2011, which is a non-peak season for us. Consequently, a significant amount of sales and related profits were not recorded in the Company’s financial statements. Despite this fact, orders, shipments and the profitability of our business remain very strong. The shipments of crop and animal nutrient products made by the Company in the second quarter of 2012 and 2011 were 18,300 tons and 13,349 tons, respectively, representing a 37.1% increase over the prior year quarter, while our selling prices have remained stable. We have collected all of the outstanding accounts receivable balance at the end of 2011. None of Yongye’s distributors have an overdue accounts receivable balance at the end of this quarter.

 

Mr. Zishen Wu, Chairman and Chief Executive Officer of Yongye International, stated, “The underlying fundamentals of our business are strong. Shipments increased 37.1% over the prior year quarter, and we continue to see robust demand for our Shengmingsu products. Additionally, we are particularly pleased with the solid performance of our two new liquid crop nutrient products, which is a testament to the strength of the Yongye brand. We also made significant progress with our capacity expansion efforts and mine exploration initiative during the quarter, both of which are consistent with our long-term strategy to realize significant competitive advantages and meet the growing demand for our products. With these initiatives in place and our expanding branded retailer network, I am confident that Yongye is well positioned for sustainable long-term growth.”

 

 

Second Quarter 2012 Results

 

Sales increased by $22.9 million, or 14.8%, to $177.6 million in the second quarter of 2012, from $154.7 million for the same period of 2011. In the second quarter of 2012, $176.3 million, or 99.3% of the total sales, were from the liquid crop nutrient, and $1.3 million, or 0.7% of the total sales, were from the powder animal nutrient. For the liquid crop nutrient, the original crop nutrient product contributed $155.6 million, or 88.2% of total liquid crop nutrient sales, while the two new products for crop seeds and roots contributed $20.7 million, or 11.8% of the total liquid crop nutrient sales. During the second quarter of 2012, the number of branded retailers increased from 30,886 to 32,015, with the majority of newly recruited branded retailers located in Hebei, Shanxi, Jiangsu and Henan provinces.

 

Gross profit was $108.1 million in the second quarter of 2012, compared to $91.8 million in the same period of 2011, an increase of 17.8%. Gross margin was 60.9% in the second quarter of 2012, compared to 59.3% for the same period of 2011. The increase in gross margin was mainly due to the decreased purchase price of certain raw materials.

 

Selling expenses increased by $9.4 million, or 32.2%, to $38.6 million in the second quarter of 2012, from $29.2 million for the same period of 2011. The increase in selling expenses was primarily due to an increase in advertising and promotion expense, and distributors’ seminar expenditure of $9.3 million related to marketing and promotional activities in our markets.

 

General and administrative (“G&A”) expenses increased by $3.0 million, or 54.8%, to $8.6 million in the second quarter of 2012, from $5.6 million for the same period of 2011. The increase in general and administrative expenses was mainly due to an increase in management equity compensation expenses and other administrative related expenditure for the three months ended June 30, 2012.

 

Research and development ("R&D") expenses were $7.4 million in the second quarter of 2012, compared to $5.6 million for the same period of 2011. The R&D expenses mainly consisted of field testing expenses for new products and tests on different crops and in newly developed markets.

 

Income from operations was $53.5 million in the second quarter of 2012, compared to $51.5 million in the same period of 2011. Excluding non-cash expenses related to share-based compensation for management and independent directors and the amortization of the acquired Hebei customer list, second quarter 2012 adjusted income from operations was $55.4 million, or 31.2% of sales.* The increase in income from operations was mainly due to the sales growth combined with lower purchase price of certain raw materials.

 

Net income attributable to Yongye was $41.1 million, or $0.74 per diluted share in the second quarter of 2012, compared to a net income of $39.5 million, or $0.77 per diluted share, in the same period of 2011. The Company recorded non-cash income related to a change in fair value of derivative liabilities of $9,889 in the second quarter of 2012. Excluding the impact of non-cash expenses related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities, adjusted net income attributable to Yongye for the second quarter of 2012 was $43.0 million, or $0.78 per diluted share, compared to adjusted net income of $40.5 million, or $0.82 per diluted share in the same period of 2011.*

 

 

Six Month Financial Results

 

Revenue for the six months ended June 30, 2012 increased 18.1% to $242.0 million from $204.9 million for the comparable period in 2011, while gross profit was $143.5 million, compared to $119.1 million in the first six months of 2011. Gross margin was 59.3% for the six months ended June 30, 2012, as compared to 58.1% for the same period of 2011. Income from operations in the first six months of 2012 was $75.4 million, compared to $62.8 million in the first six months of 2011. Net income attributable to Yongye for the first six months of 2012 was $57.5 million, compared to $47.9 million in the prior year period. In the first six months 2012, net income per diluted share was $1.02, as compared to $0.94 diluted earnings per share for the same period of 2011.

 

(*) 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 share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, 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

 

As of June 30, 2012, the Company had $82.0 million in cash and restricted cash, compared to $81.2 million as of December 31, 2011. Working capital was $329.6 million, compared to $270.4 million at the end of 2011. The Company had $25.3 million in short-term bank loans and $11.0 million in long-term debt as of June 30, 2012.  Stockholders' equity totaled $395.7 million as of June 30, 2012, compared to $331.9 million at the end of 2011. Cash flow provided by operating activities was $8.1 million and cash flow used in operating activities was $(27.8) million for the six months ended June 30, 2012 and 2011, respectively. The change was primarily due to the decrease of $31.7 million in working capital consumption. That was mainly driven by collection of accounts receivable, partially offset by a higher inventory balance. Other factor includes an increase of $9.6 million in earnings.

 

Recent Developments

 

• On June 8, 2012, the Company held its 2012 Annual Meeting of Shareholders at the Company's offices in Hohhot, Inner Mongolia, China. At the meeting, Yongye shareholders approved the reelection of Zishen Wu, Nan Xu, Xiaochuan Guo, Sean Shao, Xindan Li and Rijun Zhang as members of the Board of Directors for a one-year term expiring at the 2013 annual meeting of shareholders. Additionally, holders of the Company's Series A preferred shares reappointed Homer Sun as their designee to the Board of Directors and the Company's shareholders ratified the appointment of KPMG as the Company's independent auditors for the fiscal year ending December 31, 2012.
• On April 3 2012, the Company provided an update on accounts receivable collection as of the quarter ended March 31, 2012. During the first quarter of 2012, the Company collected $140 million of $154 million accounts receivable, net of allowance for doubtful accounts at the end of the year of 2011. The Company has taken measures to increase its collection efforts and closely monitor its distributors' financial status. In the second quarter of 2012, the Company collected the accounts receivable balance of $71 million including the remaining $14 million at the end of 2011.

 

 

• On March 23, 2012, the Company announced that it had launched two new fulvic acid based crop nutrient products, Zhongbaosheng and Qianggenbao, in the first quarter of 2012. The two products are complementary to Yongye's existing Shengmingsu products and help the Company break into the nutrient market for seed and root nutrient products in China. Both products were developed by the Company's industry leading research and development team, and have been successfully field tested extensively throughout China. 
• On March 5, 2012, the lead plaintiffs in the previously announced class action lawsuit filed against the Company by Robbins Geller Rudman & Dowd LLP in the United States District Court Southern District of New York in May 2011 voluntarily dismissed by the suit with prejudice as to themselves as named plaintiffs. Yongye did not incur any material legal fees, charges or costs related to this class action lawsuit or its voluntary dismissal.

Business Outlook

 

For the full year 2012, the Company reiterates its expected sales between $495 million and $515 million and adjusted net income between $110 million and $120 million, which excludes the impact of non-cash expenses related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities. The Company also expects that its branded retailer network will be expanded to 35,000 by the end of 2012, which represents a 16.3% increase over the 2011 year-end number of 30,086.

 

Conference Call

 

The Company will host a conference call at 8:30 a.m. Eastern Time on August 9, 2012, to discuss its second quarter and half year 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 175 57 831.

 

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 August 9 to 23:59 Eastern Time on August 23. To access the replay, please dial +1 (866) 214-5335. International callers should dial +1 (718) 354-1232. The replay pass code is 175 57 831. 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 and six months ended June 30, 2012 and 2011 include non-cash items related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, 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 2011. 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, Inc.

Ms. Kelly Wang

Finance Director – Capital Markets

Phone: +86-10-8231-9608

E-mail: ir@yongyeintl.com

 

Ms. Wendy Xuan

Business Associate

Phone: +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

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

 

		June 30, 2012				December 31, 2011
Current assets
Cash		US$	81,952,040			US$	81,154,880
Restricted cash			40,000				40,000
Accounts receivable, net of allowance for doubtful accounts			188,359,652				153,629,522
Inventories			103,720,614				86,117,000
Deposits to suppliers			25,240,430				2,664,360
Prepaid expenses			774,372				4,954,359
Other receivables			253,299				385,263
Deferred tax assets			1,349,974				2,283,388
Total Current Assets			401,690,381				331,228,772
Property, plant and equipment, net			21,787,890				21,929,444
Intangible asset, net			20,346,860				21,649,890
Land use right, net			6,111,971				6,129,151
Prepayment for mining project			35,760,100				35,511,520
Other assets			44,682,486				31,621,465
Goodwill			10,769,499				10,694,636
Total Assets			541,149,187				458,764,878
Current liabilities
Short-term bank loans			25,339,309				28,308,563
Long-term loans and payables - current portion			7,518,593				4,279,234
Accounts payable			12,175,256				13,098,183
Income tax payable			8,802,549				3,161,538
Advance from customers			138,951				4,095,580
Accrued expenses			14,888,397				4,437,220
Other payables			2,956,623				3,159,070
Derivative liabilities - fair value of warrants			247,896				317,183
Total Current Liabilities			72,067,574				60,856,571
Long-term loans and payables			11,036,284				7,464,683
Other non-current liability			4,327,927				4,297,842
Deferred tax liabilities			6,831,827				4,857,800
Total Liabilities			94,263,612				77,476,896
Redeemable Series A convertible preferred shares: par value $.001; 7,969,044  shares authorized; 6,079,545 shares and 5,681,818 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively			51,208,657				49,399,990
Equity
Common stock: par value $.001; 75,000,000 shares authorized; 49,370,711 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively			49,371				49,371
Additional paid-in capital			153,079,165				150,654,849
Retained earnings			204,488,483				148,804,997
Accumulated other comprehensive income			19,594,212				17,078,758
Total equity attributable to Yongye International, Inc.			377,211,231				316,587,975
Noncontrolling interest			18,465,687				15,300,017
Total Equity			395,676,918				331,887,992
Commitments and Contingencies			-				-
Total Liabilities, Redeemable Series A Convertible Preferred Shares and Equity			541,149,187				458,764,878

 

 

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

		For the Three Months Ended								For the Six Months Ended
		June 30, 2012				June 30, 2011				June 30, 2012				June 30, 2011
Sales		US$	177,625,986			US$	154,704,865			US$	241,991,630			US$	204,926,076
Cost of sales			69,535,733				62,939,174				98,488,872				85,860,458
Gross profit			108,090,253				91,765,691				143,502,758				119,065,618
Selling expenses			38,554,590				29,152,923				52,757,647				36,834,243
Research and development expenses			7,384,804				5,555,634				8,893,542				6,608,614
General and administrative expenses (including a reversal of allowance for doubtful accounts of US$6,334,832 and nil for six months ended June 30, 2012 and 2011, respectively)			8,646,763				5,586,019				6,437,292				12,864,324
Income from operations			53,504,096				51,471,115				75,414,277				62,758,437
Other income/(expenses)
Interest expense			(1,102,126	)			(291,751	)			(2,106,295	)			(309,862	)
Interest income			75,336				16,860				135,410				27,164
Subsidy income			-				655,071				-				655,071
Other income, net			2,662				26,560				34,716				101,619
Change in fair value of derivative liabilities			9,889				83,435				69,287				413,587
Total other (expenses) /income, net			(1,014,239	)			490,175				(1,866,882	)			887,579
Earnings before income tax expense			52,489,857				51,961,290				73,547,395				63,646,016
Income tax expense			9,272,206				10,127,255				13,012,428				12,760,047
Net income			43,217,651				41,834,035				60,534,967				50,885,969
Less: Net income attributable to the noncontrolling interest			2,107,788				2,297,271				3,042,814				2,982,777
Net income attributable to Yongye International, Inc.			41,109,863				39,536,764				57,492,153				47,903,192
Net income per share of common stock:
Basic			0.75				0.78				1.02				0.95
Diluted			0.74				0.77				1.02				0.94
Weighted average shares used in computation:
Basic			49,370,711				49,276,070				49,370,711				48,734,565
Diluted			49,445,176				49,378,396				49,453,572				48,845,281
Net income			43,217,651				41,834,035				60,534,967				50,885,969
Other comprehensive income
Foreign currency translation adjustment, net of nil income taxes			297,059				3,845,490				2,638,310				5,672,157
Comprehensive income			43,514,710				45,679,525				63,173,277				56,558,126
Less: Comprehensive income attributable to the noncontrolling interest			2,121,775				2,469,167				3,165,670				3,234,579
Comprehensive income attributable to Yongye International, Inc.			41,392,935				43,210,358				60,007,607				53,323,547

 

 

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the Six Months Ended
		June 30, 2012				June 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		US$	60,534,967			US$	50,885,969
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization			7,072,522				3,261,186
Reversal of allowance for doubtful accounts			(6,334,832	)			-
Change in fair value of derivative liabilities			(69,287	)			(413,587	)
Stock compensation expense			2,424,316				4,950,600
Deferred tax expense			300,108				162,234
Changes in operating assets and liabilities:
Accounts receivable			(27,170,173	)			(115,140,649	)
Inventories			(17,028,433	)			23,582,770
Deposit to suppliers			(22,118,726	)			(41,373,219	)
Prepaid expenses			4,212,958				(693,128	)
Other receivables			134,726				(5,805	)
Other assets			(5,099,274	)			(1,995,399	)
Accounts payable			(1,002,120	)			12,662,550
Income tax payable			5,610,204				8,251,950
Advance from customers			(3,988,722	)			606,546
Accrued expenses			10,413,691				26,366,405
Other payables			193,633				1,108,043
Net Cash Provided by/(Used in) Operating Activities			8,085,558				(27,783,534	)
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for intangible asset			-				(3,000,000	)
Purchase of property, plant and equipment			(1,449,852	)			(1,608,789	)
Net Cash Used in Investing Activities			(1,449,852	)			(4,608,789	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term bank loans			25,318,859				15,384,852
Repayment of long-term loans and payables			(3,091,865	)			(351,242	)
Repayment of short-term bank loans			(28,483,717	)			-
Proceeds from preferred shares, net of issuance cost of $600,010			-				49,399,990
Net Cash (Used in)/Provided by Financing Activities			(6,256,723	)			64,433,600
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH			418,177				878,510
NET INCREASE IN CASH			797,160				32,919,787
Cash at beginning of period			81,154,880				41,913,469
Cash at end of period			81,952,040				74,833,256
Supplemental cash flow information:
Cash paid for income taxes			7,128,066				4,345,862
Cash paid for interest expense			2,069,219				309,862
Noncash investing and financing activities:
Acquisition of property, plant and equipment included in other payables			422,754				1,081,041
Acquisition of other assets by assuming long-term loans and payables			9,820,930				1,977,956
Paid-in-kind dividends on redeemable Series A convertible preferred shares			1,808,667				-

 

 

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL DATA

 

		Gross Profit
		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
GAAP amount per consolidated statement of income		$	108,090,253			$	91,765,691			$	143,502,758			$	119,065,618
Amortization of the acquired Hebei customer list		$	723,827			$	703,727			$	1,448,871			$	1,398,845
Adjusted Amount		$	108,814,080			$	92,469,418			$	144,951,629			$	120,464,463

 

		Income from Operations
		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
GAAP amount per consolidated statement of income		$	53,504,096			$	51,471,115			$	75,414,277			$	62,758,437
Amortization of the acquired Hebei customer list		$	723,827			$	703,727			$	1,448,871			$	1,398,845
Non-cash management compensation expense		$	1,212,158			$	370,866			$	2,424,316			$	4,950,600
Adjusted Amount		$	55,440,081			$	52,545,708			$	79,287,464			$	69,107,882

 

		Net income (attributable to Yongye)
		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
GAAP amount per consolidated statement of income		$	41,109,863			$	39,536,764			$	57,492,153			$	47,903,192
Amortization of the acquired Hebei customer list		$	723,827			$	703,727			$	1,448,871			$	1,398,845
Non-cash management compensation expense		$	1,212,158			$	370,866			$	2,424,316			$	4,950,600
Change in fair value of derivative liabilities		$	(9,889	)		$	(83,435	)		$	(69,287	)		$	(413,587	)
Adjusted Amount		$	43,035,959			$	40,527,922			$	61,296,053			$	53,839,050
Weighted average shares -- diluted			49,445,176				49,378,396				49,453,572				48,845,281
Adjusted diluted earnings per share		$	0.78			$	0.82			$	1.09			$	1.10