American Dairy, Inc. Reports Third Quarter 2009 Financial Results

Conference Call to be Held Today at 8:00 am ET


BEIJING and LOS ANGELES, Nov. 16  /PRNewswire-FirstCall/ -- American Dairy, Inc. (NYSE: ADY; "American Dairy" or the "Company"), one of the leading producers and distributors of premium infant formula, milk powder and soybean, rice and walnut products in China, today announced financial results for the third quarter of 2009.

  Third Quarter 2009 Financial Highlights
  --  Revenue increased 94.1% to $72.1 million from $37.2 million in 3Q08
  --  Gross profit increased 196.6% to $37.0 million from $12.5 million in
      3Q08
  --  Gross margin was 51.3% in 3Q09 compared to 33.6% in 3Q08
  --  Income from continuing operations increased to $3.9 million from a
      loss of $8.5 million in 3Q08
  --  Net income from continuing operations increased to $11.1 million from
      a loss of $22.1 million in 3Q08

  --  EPS per diluted share increased to $0.52 from a loss of $1.19 in 3Q08




Mr. Leng You-Bin, the Company's Chief Executive Officer, stated, "We are pleased with our third quarter results, which reflected our strengthening competitive position and our trusted, premium national brands.  In the third quarter we continued our focus on expanding our presence, consumer education and quality control.  Additionally, we remain focused on driving long term profitability through the growth of our premium brands, which we continue to strengthen through our ongoing investment in advertising and media, including national as well as provincial television commercials."

Revenue increased 94.1% to $72.1 million in the third quarter of 2009 from $37.2 million in the third quarter of 2008.  Contributions from milk powder products, which consist primarily of the Company's higher margin infant formula products, were approximately $55.9 million, or 77.5%, of sales in the third quarter of 2009, up 209% from $18.1 million, or 48.7% of sales, in the prior year period.  Revenue performance was primarily attributable to an ongoing demand for the Company's high quality products, the strong market acceptance of these products, and the Company's increased distribution network and presence in new geographic areas in China.  On a year over year basis, the Company continued to increase its market share in the infant formula market, which was disrupted in the wake of the melamine crisis.

Gross profit increased 196.6% to $37.0 million in the third quarter of 2009 from $12.5 million in the third quarter of 2008. Gross margin for the third quarter of 2009 was 51.3%, compared to 33.6% in the third quarter of 2008, reflecting a product mix shift to higher margin infant formula products. On a sequential basis, compared to gross margin of 58.6% in the second quarter of 2009, gross margin for the third quarter of 2009 reflects an increase in the cost of raw milk and select nutritional ingredients.

Income from continuing operations increased to $3.9 million in the third quarter of 2009 from a loss of $8.5 million in the prior year period. Sales and marketing expenses increased 75.2% to $27.5 million in the third quarter of 2009 from $15.7 million in the third quarter of 2008. General and administrative expenses increased 7.8% to $5.7 million in the third quarter of 2009 from $5.2 million in the third quarter of 2008. Operating expenses reflected costs associated with the Company's continued expansion of its distribution network throughout China, efforts to drive brand awareness, and non-cash expenses related to the issuance of performance stock options under the Company's 2009 Stock Incentive Plan.

The Company recognized other income of $5.6 million during the third quarter of 2009, which included a government tax refund of approximately $7.9 million received in the quarter.  In the prior year period, the Company had other expense of $16.1 million, which included an $8.7 million non-cash loss on derivatives.

Net income from continuing operations for the third quarter of 2009 was $11.1 million, or $0.52 per diluted share, compared to a loss of $22.1 million, or ($1.32) per diluted share, in the prior year period. Net income attributable to ordinary shareholders increased to $11.1 million, or $0.52 per diluted share, from a loss of $20.2 million, or ($1.19) per diluted share in the prior year's period.

Nine Months Ended September 30, 2009 Financial Highlights

Revenue increased 100.0% to $227.1 million in the nine months ended September 30, 2009 from $113.6 million in the same period of 2008.  Contributions from milk powder products, which consist primarily of the Company's higher margin infant formula products, were approximately $195.5 million, or 86.0%, of sales in the nine months ended September 30, 2009, up 215.6% from $61.9 million, or 54.5% of sales, in the prior year period.  Gross profit increased 238.9% to $133.7 million in the nine months ended September 30, 2009 from $39.4 million in the same period of 2008. Gross margin for the nine months ended September 30, 2009 was 58.9%, compared to 34.7% in the prior year's period, primarily reflecting a product mix shift to higher margin infant formula products and a decrease in sales of low margin raw milk powder. Income from continuing operations increased to $37.0 million in the nine months ended September 30, 2009, compared to a loss of $3.2 million in the prior year's period. Net income from continuing operations for the first nine months of 2009 increased to $43.3 million, or $2.21 per diluted share, from a loss of $11.4 million, or ($0.67) per diluted share, in the prior year's period. Net income attributable to ordinary shareholders increased to $46.6 million, or $2.38 per diluted share, from a loss of $8.1 million, or ($0.47) per diluted share in the prior year's period.

Balance Sheet

As of September 30, 2009, the Company had cash and cash equivalents of $43.5 million and total current assets of $181.7 million, compared with cash and cash equivalents of $42.2 million and total current assets of $160.0 million as of June 30, 2009.

In September 2009, the Company paid down $34.0 million, or 75%, of the $46.0 million outstanding of its 1% Guaranteed Senior Secured Convertibles Notes due 2012.  The remaining payment, which was approximately $11.5 million, was completed at the end of October 2009.  Additionally, the Company's 7.75% Convertible Notes due 2009 were fully converted as of October 2, 2009 and the Company has no convertible notes remaining.

On August 26, 2009, the Company issued 2.1 million shares of its common stock to Sequoia Capital for an aggregate purchase price of $63.0 million. The aggregate purchase price included $47.0 million in cash as well as the conversion of a $16.0 million bridge loan into equity.

Jonathan H. Chou, the Company's Chief Financial Officer, stated, "We are delighted to share with investors our financial results and operational improvements we achieved during the third quarter of 2009.  We strengthened our balance sheet and enhanced our financial flexibility so that we support our future growth in this unique and dynamic infant milk formula market."

Financial Outlook

Today, the Company adjusted its full year 2009 revenue guidance.  The Company now anticipates that revenue for the full year 2009 will be between $270 million to $290 million, which represents year over year growth of 40% to 50%.

Mr. Chou concluded, "We believe it is prudent to adjust our full year revenue expectation today after reviewing our preliminary October results, combined with recent industry data that suggests that the seasonal strength we typically experience in the fourth quarter may be less than previously expected.  Additionally, our fourth quarter comparison is particularly difficult due to the exceptional growth we exhibited last year, in the wake of the melamine crisis.  With this in mind, our revised guidance anticipates at least 40% year over year revenue growth, and we remain confident in our leading competitive position based on our unique vertically integrated business model.  Our addressable market remains exciting and continues to exhibit strong fundamentals with compelling long term growth opportunities for American Dairy."

Conference Call Details

The Company will hold a conference call to discuss third quarter results today at 8:00 am ET. Listeners may access the call by dialing 1-800-211-3767 or 1-719-457-2600 for international callers, access code: 3746752. A live webcast will also be available through the Company's website at http://www.americandairyinc.com/ and http://irpage.net/ady/events_presentations.html.

The replay of the call will be available through November 23, 2009. Listeners may access the replay by dialing 1-888-203-1112 or 1-719-457-0820 for international callers, access code: 3746752.

About American Dairy, Inc.

American Dairy, Inc. (NYSE:ADY) is one of the leading producers and distributors of premium infant formula, milk powder, and soybean, rice and walnut products in the People's Republic of China. American Dairy conducts operations in China through its wholly owned subsidiary, Feihe Dairy, and other subsidiaries. Founded in 1962, Feihe Dairy is headquartered in Beijing, China, and has processing and distribution facilities in Kedong, Qiqihaer, Baiquan, Gannan, Longjiang, Shanxi, and Langfang. Using proprietary processing techniques, American Dairy makes products that are specially formulated for particular ages, dietary needs and health concerns. American Dairy has over 200 company-owned milk collection stations, two dairy farms, six production facilities with an aggregate milk powder production capacity of approximately 1,220 tons per day and an extensive distribution network that reaches over 90,000 retail outlets throughout China. For more information about American Dairy, please visit http://www.americandairyinc.com/.

Cautionary Note Regarding Forward-Looking Statements

This document contains forward-looking information about the Company's operating results and business prospects that involve substantial risks and uncertainties. Statements that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These statements include, but are not limited to, statements about the Company's plans, objectives, expectations, strategies, intentions or other characterizations of future events or circumstances and are generally identified by the words "may," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "targets," "could," "would," and similar expressions. Because these forward-looking statements are subject to a number of risks and uncertainties, the Company's actual results could differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the heading "Risk Factors" in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2008, quarterly report on Form 10-Q for its third quarter in 2009, and in current reports on Form 8-K filed with the United States Securities and Exchange Commission and available at http://www.sec.gov/. The Company assumes no obligation to update any such forward-looking statements.

  CONTACT
  Integrated Corporate Relations, Inc.
  In the New York: Ashley M. Ammon: 1-646-277-1227
  In Beijing: Wei-Jung Yang: 86-10-6599-7968


                             AMERICAN DAIRY, INC.
  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                                (unaudited)

                           Three months ended        Nine months ended
                             September 30,             September 30,
                           2009         2008         2009         2008
                            US$          US$          US$          US$

  Sales                 72,110,934   37,153,003  227,119,247  113,568,304

  Cost of goods sold    35,129,532   24,685,354   93,427,854   74,119,818

  Gross profit          36,981,402   12,467,649  133,691,393   39,448,486

  Operating and
   administrative
   expenses:
  Sales and marketing   27,455,572   15,674,769   79,771,636   32,448,651
  General and
   administrative        5,656,116    5,248,778   16,957,199   10,165,737
  Total operating
   expenses             33,111,688   20,923,547   96,728,835   42,614,388

  Income (loss) from
   Continuing
   operations            3,869,714   (8,455,898)  36,962,558   (3,165,902)

  Other income
   (expenses):
  Interest income           62,248      138,320      273,333      369,739
  Interest and finance
   costs                (1,700,702)  (5,152,481)  (5,114,679) (15,525,803)
  Amortization of
   deferred charges        (33,914)    (184,897)    (101,742)    (554,691)
  Registration rights
   penalty                       -     (720,324)           -   (2,160,974)
  Gain (loss) on
   derivatives            (790,000)  (8,692,027)    (790,000)   7,015,618
  Government
   subsidy-tax
   refund (reversal)     7,895,626   (1,495,494)  14,640,034    2,375,240
  Other income
   (expenses), net         158,410      (22,331)     852,290      421,944

  Income (loss) from
   Continuing
   operations before
   income tax
   expense and
   noncontrolling
   interests             9,461,382  (24,585,132)  46,721,794  (11,224,829)

  Income tax expense
   (benefit)            (1,672,167)  (2,479,496)   3,502,574      153,879
  Net income (loss)
   from continuing
   operations before
   noncontrolling
   interests            11,133,549  (22,105,636)  43,219,220  (11,378,708)

  Noncontrolling
   interests                 7,548      (14,200)      50,193      (24,402)
  Net income (loss)
   from continuing
   operations          (22,119,836)  43,269,413  (11,403,110)  11,141,097
  Net income from
   Discontinued
   operations            1,963,565    3,289,908    3,315,595            -
  Net income (loss)
   attributable to
   ordinary
   shareholders         11,141,097  (20,156,271)  46,559,321   (8,087,515)

  Other comprehensive
   income (loss):
  Cumulative currency
   translation
   adjustments             254,556   (3,139,688)     593,949    9,138,266
  Change in fair
   value of available
   for sale
   investments              (2,429)     (20,159)      40,933      (99,226)

  Total comprehensive
   income (loss)        11,393,224  (23,316,118)  47,194,203      951,525

  Earnings (loss)
   per ordinary
   share - Basic
  Net income (loss)
   from continuing
   operations                 0.57        (1.32)        2.39        (0.67)
  Net income from
   discontinued
   operations,
   net of tax                    -         0.13         0.18         0.20
  Net income (loss)           0.57        (1.19)        2.57        (0.47)
  Earnings (loss)
   per ordinary
   share - Diluted
  Net income (loss)
   from continuing
   operations                 0.52        (1.32)        2.21        (0.67)
  Net income (loss)
   from discontinued
   operations,
   net of tax                    -         0.13         0.17         0.20
  Net income (loss)           0.52        (1.19)        2.38        (0.47)

  Weighted average
   ordinary shares
   outstanding
  Basic                 19,659,657   16,964,768   18,093,104   16,964,122
  Diluted               21,597,188   16,964,768   19,541,775   16,964,122



                             AMERICAN DAIRY, INC.
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                               (unaudited)

                                         September 30,      December 31,
                                             2009               2008
                                              US$                US$
  ASSETS
  Current assets:
  Cash and cash equivalents                43,491,803        11,785,408
  Notes and loans receivable, net                   -         1,493,245
  Trade receivables, net of allowance
   of $1,002,883 and $1,311,331,
   respectively                            32,308,418        12,275,497
  Due from related parties                  2,250,874           265,479
  Employee receivables                        199,563           307,249
  Advances to suppliers                    27,120,715        24,943,046
  Receivable from discontinued operations           -        31,002,897
  Inventories, net of allowance of
   $546,503 and $575,916, respectively     65,959,828        52,330,333
  Prepayments and other current assets         97,218            63,711
  Refundable taxes                          4,135,779           488,938
  Other receivables                         6,138,410         4,598,359
  Current assets of discontinued
   operations                                       -        12,392,384
  Total current assets                    181,702,608       151,946,546

  Investments:
  Investment in mutual funds -
   available for sale                         118,437            77,504
  Investment at cost                          263,249           262,611
                                              381,686           340,115
  Property and equipment:
  Property and equipment, net              96,780,672        88,289,858
  Construction in progress                 62,272,749        28,847,959
                                          159,053,421       117,137,817
  Biological assets:
  Immature biological assets               35,901,697        23,784,479
  Mature biological assets, net            11,589,288         1,483,355
                                           47,490,985        25,267,834

  Other assets:
  Deferred tax assets                         730,491           730,490
  Prepaid leases                           29,367,017        29,146,748
  Goodwill                                  2,288,380         2,282,838
  Deferred charges, net                         5,653           107,396
  Long term assets of
   discontinued operations                          -        31,587,018
  Total assets                            421,020,241       358,546,802

  LIABILITIES AND EQUITY
  Liabilities
  Current liabilities:
  Current maturities of long term debt      3,919,504         4,018,704
  Convertible debt redeemable
   within one year                          4,500,000        17,732,033
  Short term debt                          11,106,018        73,809,893
  Notes and loans payable                  39,634,714         8,055,450
  Accounts payable                         42,127,814        36,643,041
  Accrued expenses                          9,298,412        10,620,393
  Income tax payable                        1,367,039         1,185,528
  Advances from customers                   3,958,534         9,864,080
  Due to related parties                      594,057         1,017,399
  Advances from employees                     469,731         1,016,173
  Accrued employee benefits                 2,760,033         2,873,889
  Other payable                            20,076,776        19,513,681
  Current liabilities of
   discontinued operations                          -        35,063,603
  Total current liabilities               139,812,632       221,413,867

  Long term debt, net of current portion   19,626,770         9,146,034
  Long term tax payable                     5,883,747         2,750,887
  Deferred income                           7,695,346         8,416,492
  Contingent share obligation              10,010,000                 -
  Long term liability of
   discontinued operations                          -           395,176
  Total liabilities                       183,028,495       242,122,456
  Commitments and contingencies                     -                 -

  Temporary equity
  Redeemable ordinary shares
   (2,100,000 and 0 shares issued
   and outstanding, respectively)          53,780,010                 -

  Equity
  Shareholders' equity:
  Ordinary shares (US$0.001 par value,
   50,000,000 shares authorized;
   19,183,492 and 17,253,907 issued
   and outstanding)                            19,184            17,254
  Additional paid-in capital               48,366,564        26,758,425
  Ordinary share warrants                   2,119,485         3,003,448
  Statutory reserves                        6,861,224         6,861,224
  Accumulated other comprehensive income   25,780,937        25,146,055
  Retained earnings                       100,650,814        54,091,493
  Total shareholders' equity              183,798,208       115,877,899
  Noncontrolling interests                    413,528           546,447

  Total equity                            184,211,736       116,424,346

  Total liabilities and equity            421,020,241       358,546,802


DATASOURCE: American Dairy, Inc.



CONTACT:  New York, Ashley M. Ammon, [phone], Beijing, Wei-Jung

Yang, 86-10-6599-7968, both of Integrated Corporate Relations, Inc., for

American Dairy, Inc.



Web Site:  http://www.americandairyinc.com/ 

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