EX-99.1 2 v335587_99-1.htm EXHIBIT 99.1

 

 

 

LOGO

 

 

 

 

FOR IMMEDIATE RELEASE

 

Hollysys Automation Technologies Reports Unaudited

Financial Results for Fiscal Year 2013 Second Quarter Ended December 31, 2012

 

Q2 Financial Highlights

 

•Quarterly revenues of $87.2 million, representing an increase of 8.6% compared to $80.3 million year over year, and a decrease of 1.0% compared to $88.1 million quarter over quarter.
•Gross margin at 32.1%, as compared to 38.5% year over year, and 34.4% quarter over quarter.
•Non-GAAP net income attributable to Hollysys of $13.6 million, a 33.4% decrease compared to $20.4 million year over year, and a 13.7% decrease compared to $15.8 million quarter over quarter. Excluding $9.3 million VAT refunds recorded in the second quarter of the prior year, which was related to the VAT refund claims made for the sales from January to September 2011 that were approved in the second quarter of the prior year due to the delay in the government’s issuance of the renewed VAT refund policy, Non-GAAP net income attributable to Hollysys increased by 21.9% compared to $11.2 million year over year.
•Non-GAAP Diluted EPS at $0.24 reported for the quarter, as compared to $0.37 year over year, and $0.28 quarter over quarter.
•Backlog of $359.6 million as of December 31, 2012, a 8.3% increase compared to $332.1 million year over year, and 2.5% decrease compared to $368.7 million quarter over quarter.
•Quarterly DSO of 161 days, as compared to 150 days year over year, and 140 days quarter over quarter.
•Inventory turnover days of 42 days for the current quarter compared to 54 days year over year, and 43 days quarter over quarter.
•The total amount of cash and cash equivalents and time deposits with original maturities over three months were $133.5 million as of the current quarter end.

 

Beijing, China – February 19, 2013 – Hollysys Automation Technologies, Ltd. (NASDAQ: HOLI) ("Hollysys" or the "Company"), a leading provider of automation and control technologies and applications in China, today announced its unaudited financial results for the fiscal year 2013 second quarter ended on December 31, 2012 (see attached tables).

 

Dr. Changli Wang, Chairman and CEO of Hollysys, stated: "We continue to report another quarter with solid financial and operational performance, but we are not satisfied with overall results achieved amid the unfavorable external environment. We have to say we underestimated the impact that the downturn of the macro economy brought to our businesses including both industrial automation and rail transportation: the restart of high-speed rail construction is slower than we expected; and more importantly we underestimated the impact it brought to low- and middle-end markets of industrial automation. So in January of this new year, we conducted a thorough introspection deeply across various levels of management and the execution team and we adjusted our strategies: firstly, we will continue to intensify marketing efforts in the industrial automation field, expand our sales and service network across China and enhance market position in the low- and middle-end of the industrial automation market; secondly, we will organize professional teams to penetrate and occupy the high-end market; thirdly, we will actively work on new business opportunities and boost these businesses' growth. All in all, we believe that we did not make our full efforts and achieve satisfactory results in the past half year; in this calendar year we will spare no efforts to achieve our originally set targets with all that we can do. What's more, the recovery of China's economy in 2013 will further support our growth, incorporating with our own efforts.

"Here I would like to take this opportunity to discuss some key events that took place during this quarter: 

 
Hollysys Automation Technologies, Ltd
Feb 19, 2013		 Page 2

 

"Industrial automation continued its solid growth and performed as the largest growth driver for the whole group. During this quarter, we further segmented the process industries including chemical, petro-chemical, thermal power as well as metallurgy, new energies, etc.; we found more automation application opportunities and made several significant breakthroughs in penetrating to the high end of several industries. Also, we released several advanced technologies such as our 5th generation Distributed Control System, Safety Instrumentation System, which we believe will further complete our total solution offerings and bring us significant revenue contribution; moreover, we believe that the intention to reduce labor cost and energy consumption, protect the environment, improve safety, and increase output with higher quality will be a major trend and bring us tremendous business opportunities. With our solid research and development capability, profound industry knowledge, renowned brand name recognition and successful track record, we are more than confident that we will continue to drive our industrial automation growth to a higher level and create value for our customers.

"In the rail sector, even though the restarted pace of high-speed rail construction is not yet as fast as expected, the momentum is on the upward trend. As one of the major high-speed rail signaling system providers in China, Hollysys is well prepared for more meaningful and significant contract awards and systems providing. In this quarter, we signed a contract to provide Line-side Electronic Unit (LEU) and Balise to the Chongqing-Lichuan high-speed rail line in October. In addition, we are encouraged by the contract win of approximately RMB 67.60 million, or US $10.75 million, to supply our ground-based signaling system to the Xiamen-Shenzhen high-speed rail line, Guangdong Section in December. Given that the Ministry of Railways of China ("MOR") plans to beef up investment in railway infrastructure construction as compared to last year, we are confident that with our strong research and development capability and well-reputed track records, Hollysys will capture its fair share in China's vast high-speed rail build out. We are also well on track in completing the development of our proprietary subway signaling system, and have currently reached the last phase of certification. We expect that we will soon attain the Safety Integrity Level 4 certification of subway signaling system according to international standards, which will build us to an unparalleled place to further explore China and international subway signaling business opportunities.

"In this quarter, we are also delighted with the outstanding achievements by our wholly owned subsidiary, Concord Corporation Pte. Ltd. ("Concord"). In November last year, Concord signed a contract with SMRT Trains Ltd in Singapore to provide design, electrification and installation for station renovations on the North-South and East-West lines, valued at approximately $5.59 million. Shortly after this contract, in December the same year, Concord signed a significant contract with Thales Solutions Asia Pte Ltd to provide design, installation, testing & commission for replacing the existing signaling systems for the North-South and East-West lines and install new signaling systems for the Tuas West Extension line (TWEL) in Singapore, valued at approximately $19.14 million. The two successful records in this quarter further validate the rich experience and knowledge, capability and strong track record of Concord. We believe that it is a good synergy between Hollysys and Concord, which will greatly enhance Hollysys' international presence, and enable us to continuously create value for our shareholders."

 

 
Hollysys Automation Technologies, Ltd
Feb 19, 2013		 Page 3

 

The Second Quarter Ended December 31 Unaudited Financial Results Summary

 

To facilitate a clear understanding of Hollysys’ operational results, a summary of unaudited non-GAAP financial results is shown as below:

 

In USD thousands, except share numbers and EPS
                         
   Three months ended   Six months ended 
   December 31, 2012   December 31, 2011   %
Change		   December 31, 2012   December 31, 2011   %
Change		 
                         
Revenues  $87,206    80,288    8.6%   175,272    167,452    4.7%
Integrated contract revenue  $81,182    75,902    7.0%   164,034    159,384    2.9%
Products sales  $6,024    4,386    37.3%   11,239    8,069    39.3%
Cost of revenues  $59,195    49,412    19.8%   116,995    103,629    12.9%
Gross profit  $28,010    30,877    (9.3)%   58,277    63,824    (8.7)%
Total operating expenses  $13,269    8,870    49.6%   28,786    26,385    9.1%
Selling  $8,086    8,060    0.3%   14,679    15,042    (2.4)%
General and administrative  $4,143    7,385    (43.9)%   9,975    12,243    (18.5)%
Research and development  $8,334    6,881    21.1%   16,009    12,950    23.6%
VAT refunds and government
    subsidies		  $(7,295)   (13,456)   (45.8)%   (11,878)   (13,851)   (14.2)%
Income from operations  $14,742    22,007    (33.0)%   29,491    37,439    (21.2)%
Other income, net  $902    71    1,162.0%   2,938    259    1032.9%
Share of net (loss) income of equity investees  $(451)   207    (317.9)%   288    152    90.0%
Dividend income from cost investees  $829    -    -    829    -    - 
Interest income  $751    424    77.0%   1,732    629    175.4%
Interest expenses  $(521)   (865)   (39.7)%   (1,237)   (1,791)   (30.9)%
Income tax expenses  $2,635    1,334    97.5%   4,601    3,201    43.8%
Non-GAAP net income attributable to non-controlling interest  $18    82    (78.2)%   93    223    (58.4)%
Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.  $13,597    20,428    (33.4)%   29,348    33,265    (11.8)%
Basic Non-GAAP EPS  $0.24    0.37    (35.1)%   0.52    0.60    (13.3)%
Diluted Non-GAAP EPS  $0.24    0.37    (35.1)%   0.52    0.60    (13.3)%
                               
Stock-based compensation expenses  $527    157    234.8%   1,054    315    234.8%
Net income attributable to Hollysys Automation Technologies Ltd.(GAAP)  $13,071    20,271    (35.5)%   28,294    32,950    (14.1)%
Basic GAAP EPS  $0.23    0.36    (36.1)%   0.51    0.60    (15.0)%
Diluted GAAP EPS  $0.23    0.36    (36.1)%   0.50    0.59    (15.3)%
                               
Basic weighted average common shares
outstanding		   56,001,526    55,703,338    0.5%   56,000,221    55,356,413    1.2%
Diluted weighted average common shares
outstanding		   56,070,948    55,852,982    0.4%   56,066,950    55,592,152    0.9%

 

 
Hollysys Automation Technologies, Ltd
Feb 19, 2013		 Page 4

 

Operational Results Analysis for the Second quarter ended December 31, 2012

 

For the three months ended December 31, 2012, total revenues increased by 8.6% to $87.2 million, from $80.3 million for the same period in the prior year. Of the total revenues, revenue from integrated contracts increased by 7.0% to $81.2 million, as compared to $75.9 million for the same period of the prior year; revenue from products sales increased by 37.3% to $6.0 million, as compared to $4.4 million for the same period of the prior year. The Company’s total revenue by segment was as followings:

 

   Three months ended Dec 31,   Six months ended Dec 31, 
   2012   2011   2012   2011 
    $    % to
Total
Revenue		    $    % to
Total
Revenue		    $    % to
Total
Revenue		    $    % to
Total
Revenue		 
Industrial Automation   53.9    61.8%   48.1    59.9%   114.0    65.1%   102.9    61.5%
Rail Transportation   21.5    24.6%   24.8    30.9%   36.4    20.8%   50.4    30.1%
Miscellaneous   11.8    13.6%   7.4    9.2%   24.9    14.1%   14.1    8.4%
Total   87.2    100.0%   80.3    100.0%   175.3    100.0%   167.4    100.0%

 

 

As a percentage of total revenues, overall gross margin was 32.1% for the three months ended December 31, 2012, as compared to 38.5% for the same period of the prior year. The gross margin for integrated contracts and product sales were 29.8% and 63.8% for the three months ended December 31, 2012, as compared to 36.4% and 73.4% for the same period of the prior year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin.

 

 
Hollysys Automation Technologies, Ltd
Feb 19, 2013		 Page 5

 

For the three months ended December 31, 2012, selling expenses were $8.1 million, compared to $8.1 million for the same quarter of the prior year, representing a slight increase of 0.3% year over year. As a percentage of total revenues, selling expenses were 9.3% and 10.0% for the three months ended December 31, 2012, and 2011, respectively.

 

General and administrative expenses, excluding non-cash stock-based compensation expense, were $4.1 million for the quarter ended December 31, 2012, representing an decrease of $3.3 million, or 43.9%, as compared to $7.4 million for the same period of the prior year, mainly due to a decrease of 1.7 million of bad debt allowance. As a percentage of total revenues, G&A expenses were 4.8% and 9.2% for the three months ended December 31, 2012 and 2011, respectively. Including the non-cash stock-based compensation cost recorded on a GAAP basis, G&A expenses were $4.7 million and $7.5 million for the three months ended December 31, 2012 and 2011, respectively.

 

Research and development expenses were $8.3 million for the three months ended December 31, 2012, compared to $6.9 million for the same quarter of the prior year, representing a year over year increase of $1.4 million, or 21.1%. The increase was mainly due to the Company’s increased R&D activities. As a percentage of total revenues, R&D expenses were 9.6% and 8.6% for the quarter ended December 31, 2012 and 2011, respectively.

 

The VAT refunds and government subsidies amounted to $7.3 million for three months ended December 31, 2012, as compared to $13.5 million for the same period in the prior year, representing a decrease of $6.2 million. Of the total amount of $13.5 million for the month ended December 31, 2011, $9.3 million VAT refunds was related to the VAT refund claims made for the sales from January to September 2011 that were approved in the second quarter of the prior year due to the delay in the government’s issuance of the renewed VAT refund policy. Excluding this effect, the VAT refunds and government subsidies amounted to $7.3 million and $4.2 million for the quarter ended December 31, 2012, December 31, 2011 respectively.

 

The income tax expenses and the effective tax rate were $2.6 million and 16.8% for the three months ended December 31, 2012, as compared to $1.3 million and 6.2% for the same period of the prior year. The lower rate for the quarter ended December 31, 2011 was mainly due to the large sum of VAT refunds recognized, which was a non-taxable income.

 

 
Hollysys Automation Technologies, Ltd
Feb 19, 2013		 Page 6

 

For the three months ended December 31, 2012, the non-GAAP net income attributable to Hollysys excluding non-cash stock compensation expenses was $13.6 million or $0.24 per diluted share based on 56 million shares outstanding. This represents a decrease of $6.8 million, or 33.4%, over the $20.4 million, or $0.37 per share based on 56 million shares outstanding, reported in the prior year period. On a GAAP basis, net income attributable to Hollysys was $13.1 million, or $0.23 per diluted share representing a decrease of $7.2 million or 35.5%, over the $20.3 million, or $0.36 per diluted share reported in the prior year period. The decrease of net income is mainly due to lower VAT refunds and government subsidies.

 

Backlog Highlights

 

Hollysys’ backlog as of December 31, 2012 was $359.6 million, representing a decrease of 2.5% compared to $368.7 million as at September 30, 2012, and an increase of 8.3% compared to $332.1 million as at December 31, 2011.The detailed breakdown of the backlog by segment was as followings:

 

           Quarter-over-Quarter Analysis   Year-over-Year Analysis 
   2012-12-31   2012-9-30   2011-12-31 
   $   % to
Total
Backlog		   $   % to
Total
Backlog		   %
Change		   $   % to
Total
Backlog		   %
Change		 
Industrial Automation   125.4    34.9%   145.2    39.4%   (13.6%)   124.4    37.5%   0.8%
Rail Transportation   206.7    57.4%   185.3    50.2%   11.5%   170.4    51.3%   21.3%
Miscellaneous   27.5    7.7%   38.2    10.4%   (28.1%)   37.3    11.2%   (26.3%)
Total   359.6    100.0%   368.7    100.0%   (2.5%)   332.1    100.0%   8.3%

  

Cash Flow Highlights

 

The net cash used in operating activities was $2.9 million for the three months ended December 31, 2012; including investing and financing activities, the total net cash inflows for this quarter was $4.1 million. Of the total net cash inflows, there was a cash inflow of matured time deposits with original maturities over three months amounting to $10.0 million included in investing activities during this quarter.

 

Balance Sheet Highlights

 

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $133.5 million, $139.2 million, and $130.0 million as of December 31, 2012, September 30, 2012, and December 31, 2011, respectively. Of the total $133.5 million as of December 31, 2012, cash and cash equivalents were $125.3 million, and time deposits with original maturities over three months were $8.2 million.

 

For the three months ended December 31, 2012, Days Sales Outstanding (“DSO”) was 161 days, as compared to 150 days year over year and 140 days quarter over quarter; and inventory turnover was 42 days, as compared to 54 days year over year and 43 days quarter over quarter.

 

 
Hollysys Automation Technologies, Ltd
Feb 19, 2013		 Page 7

 

Outlook for FY 2013

 

Dr. Wang concluded, “Given our strong backlog currently on-hand and sales pipeline envisioned so far, we reiterate our guidance of fiscal year 2013 with revenue in the range of $385 million to $410 million and non-GAAP net income in the range of $63 million to $67 million unchanged.”

 

Conference Call

 

Management will discuss the current status of the Company’s operations during a conference call 9:00 a.m. Beijing Time on February 20, 2013 / 8:00 p.m. U.S. Eastern Time on February 19, 2013. Interested parties may participate in the call by dialing the following numbers approximately 10 minutes before the call is scheduled to begin and ask to be connected to the Hollysys Automation Technologies conference call. The conference call identification number is 92254065.

 

1-866-519-4004 (USA)

800-930-346 (HK)

+852-24750994 (HK)

800-819-0121 (China Landline)

400-620-8038 (China Mobile)

+ 65-67239381 (International)

 

In addition, a recorded replay of the conference call will be accessible within 24 hours via Hollysys’ website at:

http://www.hollysys.com.sg/home/index.php/investor-relations/events-a-webcast

 

About Hollysys Automation Technologies, Ltd.

 

Hollysys Automation Technologies is a leading provider of automation and control technologies and applications in China that enables its diversified industry and utility customers to improve operating safety, reliability, and efficiency. Founded in 1993, Hollysys has approximately 3,500 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 4,000 customers more than 15,000 projects in the industrial, railway, subway & nuclear industries in China, South-East Asia, and the Middle East. Its proprietary technologies are applied in its industrial automation solution suite including DCS (Distributed Control System), PLC (Programmable Logic Controller), RMIS (Real-time Management Information System), HAMS (HolliAS Asset Management System), OTS (Operator Training System), HolliAS BATCH (Batch Application Package), HolliAS APC Suite (Advanced Process Control Package), SIS (Safety Instrumentation System), high-speed railway signaling system of TCC (Train Control Center), ATP (Automatic Train Protection), Subway Supervisory and Control platform, SCADA (Surveillance Control and Data Acquisition), nuclear conventional island automation and control system and other products.

 

SAFE HARBOUR:

 

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact included herein are “forward-looking statements,” including statements regarding: the ability of the Company to achieve its commercial objectives; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as “believes,” “expects” or similar expressions, involve known and unknown risks and uncertainties. Such forward-looking statements, based upon the current beliefs and expectations of Hollysys’ management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. 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. Investors 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 those discussed in the Company’s reports that are filed with the Securities and Exchange Commission and available on its 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 factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

 

Contact Information:

 

Hollysys Automation Technologies, Ltd.

www.hollysys.com

 

Investor Relations

+8610-58981386

investors@hollysys.com

 
Hollysys Automation Technologies, Ltd
Feb 19, 2013		 Page 8

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In US Dollars except for per-share data)
                 

 

   Three months ended
December 31,		   Six months ended
December 31,		 
   2012   2011   2012   2011 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Revenues                    
Integrated contract revenue  $81,181,627   $75,901,956   $164,033,662   $159,383,839 
Products sales   6,023,980    4,386,448    11,238,563    8,068,638 
Total revenues   87,205,607    80,288,404    175,272,225    167,452,477 
                     
Cost of integrated contracts   57,013,225    48,243,403    113,040,984    101,149,057 
Cost of products sold   2,182,121    1,168,308    3,954,308    2,479,579 
Gross profit   28,010,261    30,876,693    58,276,933    63,823,841 
                     
Operating expenses                    
Selling   8,086,257    8,059,951    14,679,142    15,041,782 
General and administrative   4,670,168    7,542,441    11,029,027    12,557,924 
Research and development   8,334,000    6,880,941    16,008,707    12,950,410 
VAT refunds and government subsidies   (7,294,961)   (13,456,043)   (11,877,547)   (13,850,534)
Total operating expenses   13,795,464    9,027,290    29,839,329    26,699,582 
                     
Income from operations   14,214,797    21,849,403    28,437,604    37,124,259 
                     
Other income , net   901,645    71,443    2,938,308    259,369 
Share of net (loss) income of equity investees   (450,755)   206,872    288,263    151,697 
Dividend income from cost investees   828,567    -    828,567    - 
Interest income   750,727    424,137    1,732,438    629,115 
Interest expenses   (521,475)   (864,897)   (1,237,306)   (1,791,014)
Income before income taxes   15,723,506    21,686,958    32,987,874    36,373,426 
                     
Income taxes expenses   2,635,096    1,334,468    4,601,152    3,200,648 
Net income   13,088,410    20,352,490    28,386,722    33,172,778 
                     
Net income attributable to non-controlling interests   17,870    81,938    92,694    222,868 
Net income attributable to Hollysys Automation Technologies Ltd. stockholders  $13,070,540   $20,270,552   $28,294,028   $32,949,910 
                     
Other comprehensive income, net of tax                    
Foreign currency translation adjustments, net of nil tax   1,804,697    1,714,300    (112,757)   5,653,872 
Comprehensive income   14,893,107    22,066,790    28,273,965    38,826,650 
    　    　    　    　 
Comprehensive income attributable to non-controlling interests   31,476    90,814    99,437    248,865 
Comprehensive income attributable to Hollysys Automation Technologies Ltd. stockholders  $14,861,631   $21,975,976    28,174,528    38,577,785 
                     
Net income per ordinary share:                    
Basic   0.23    0.36    0.51    0.60 
Diluted   0.23    0.36    0.50    0.59 
Weighted average ordinary shares used in income per share computation:                    
Basic   56,001,526    55,703,338    56,000,221    55,356,413 
Diluted   56,070,948    55,852,982    56,066,950    55,592,152 
 
Hollysys Automation Technologies, Ltd
Feb 19, 2013		 Page 9

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
(In US Dollars)

 

         
   December 31,   September 30, 
   2012   2012 
   (Unaudited)   (Unaudited) 
ASSETS        
Current Assets          
Cash and cash equivalents  $125,262,261   $121,157,212 
Time deposits with original maturities over three months   8,187,751    18,015,398 
Restricted cash   3,175,576    3,829,739 
Accounts receivable, net of allowance for doubtful accounts of $15,443,730
and $15,777,271 as of December 31,2012 and September 30, 2012,
respectively		   168,168,878    136,752,983 
Costs and estimated earnings in excess of billings, net of allowance for
doubtful accounts of $1,489,477 and $1,768,528 as of December 31, 2012 and September 30, 2012,
respectively		   118,625,168    126,344,148 
Other receivables, net of allowance for doubtful accounts of $272,361
and $354,214 as of December 31, 2012 and September 30, 2012,
respectively		   6,967,259    5,948,416 
Advances to suppliers   6,981,527    8,542,288 
Amount due from related parties   14,739,788    14,750,841 
Inventories, net   25,756,160    28,553,597 
Prepaid expenses   858,274    288,241 
Income tax recoverable   102,655    319,298 
Deferred tax assets   1,994,575    652,979 
Total current assets   480,819,872    465,155,140 
           
Restricted cash   1,195,548    675,651 
Prepaid expenses   29,205    - 
Property, plant and equipment, net   70,510,908    69,137,613 
Prepaid land leases   6,829,996    6,813,632 
Acquired intangible assets, net   371,836    503,328 
Investments in equity investees   14,055,037    14,256,245 
Investments in cost investees   3,650,290    2,989,025 
Goodwill   27,686,774    27,643,846 
Deferred tax assets   466,170    1,376,462 
           
Total assets   605,615,636    588,550,942 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Current portion of long-term loans   7,959,768    7,895,145 
Accounts payable   85,760,172    83,314,254 
Construction cost payable   4,213,860    3,309,360 
Deferred revenue   72,606,208    70,235,032 
Accrued payroll and related expense   9,989,855    7,239,996 
Income tax payable   3,068,458    3,148,875 
Warranty liabilities   3,827,355    1,602,545 
Other tax payables   18,183,202    18,504,017 
Accrued liabilities   8,464,522    14,077,091 
Amounts due to related parties   1,594,749    1,835,253 
Deferred tax liabilities   200,452    1,351,906 
Total current liabilities   215,868,601    212,513,474 
           
Long-term bank loans   20,804,534    22,610,747 
Deferred tax liabilities   223,368    234,111 
Total liabilities   236,896,503    235,358,332 
           
Commitments and contingencies          
           
Equity          
Ordinary shares   56,029    55,999 
Additional paid-in capital   152,595,661    151,831,919 
Statutory reserves   23,128,214    23,091,072 
Retained earnings   159,060,872    146,157,830 
Accumulated other comprehensive income   32,595,056    30,803,965 
Total Hollysys Automation Technologies Ltd. stockholder’s equity   367,435,832    351,940,785 
           
Non-controlling interests   1,283,301    1,251,825 
Total equity   368,719,133    353,192,610 
           
Total liabilities and equity  $605,615,636   $588,550,942 

 

 
Hollysys Automation Technologies, Ltd
Feb 19, 2013		 Page 10

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In US Dollars)
           

 

   Three months
ended
December 31,
2012		   Six months
ended
December 31,
2012		 
   (Unaudited)   (Unaudited) 
Cash flows from operating activities:          
Net income  $13,088,410   $28,386,722 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation of property, plant and equipment   1,549,652    3,016,951 
Amortization of prepaid land leases   39,229    78,279 
Amortization of intangible assets   130,724    174,035 
Allowance for doubtful accounts   (424,089)   1,141,757 
Loss on disposal of property, plant and equipment   1,051    25,166 
Share of net loss (income) from equity investees   450,755    (288,263)
Stock dividends from cost investees   (828,567)   (828,567)
Gain on disposal of a subsidiary   (136,795)   (136,795)
Share based compensation expenses   526,772    1,053,545 
Deferred income tax expenses   (1,632,632)   (1,269,670)
Changes in operating assets and liabilities:          
Accounts receivable   (30,729,525)   (32,225,082)
Costs and estimated earnings in excess of billings   8,950,142    (2,408,240)
Inventories   2,941,596    1,091,660 
Advances to suppliers   1,638,898    3,373,135 
Other receivables   (892,749)   468,489 
Deposits and other assets   (435,481)   1,318,312 
Due from related parties   201,591    1,274,795 
Accounts payable   2,389,095    6,947,250 
Deferred revenue   1,919,368    12,808,899 
Accruals and other payable   (1,037,005)   3,263,634 
Due to related parties   (256,515)   (380,550)
Income tax payable   114,343    (514,921)
Other tax payables   (473,090)   (147,489)
Net cash (used in) provided by operating activities   (2,904,822)   26,223,052 
           
Cash flows from investing activities:          
Time deposits placed with banks   (72,292)   (5,289,537)
Purchases of property, plant and equipment   (1,254,877)   (5,288,117)
Maturity of time deposits   10,003,337    18,769,802 
Proceeds from disposal of a subsidiary   111,998    111,998 
Net cash provided by investing activities   8,788,166    8,304,146 
           
Cash flows from financing activities:          
Repayments of long-term bank loans   (1,985,332)   (3,961,330)
Proceeds from exercise of share options   237,000    237,000 
Net cash used in financing activities   (1,748,332)   (3,724,330)
           
Effect of foreign exchange rate changes   (29,963)   (1,873,569)
Net increase in cash and cash equivalents  $4,105,049   $28,929,299 
           
Cash and cash equivalents, beginning of period  $121,157,212   $96,332,962 
Cash and cash equivalents, end of period   125,262,261    125,262,261 
 
Hollysys Automation Technologies, Ltd
Feb 19, 2013		 Page 11

Non-GAAP Measures

In evaluating our results, the non-GAAP measures of “Non-GAAP general and administrative expenses”, “Non-GAAP net income attributable to Hollysys Automation Technologies Ltd. stockholders”, “Non-GAAP basic earnings per share”, and “Non-GAAP diluted earnings per share” serve as additional indicators of our operating performance and not as a replacement for other measures in accordance with U.S. GAAP. We believe these non-GAAP measures are useful to investors, as they exclude the stock-based compensation expenses, which is calculated based on the number of shares or options granted and the fair value as of the grant date. It will not result in any cash inflows or outflows. We believe that using non-GAAP measures help our shareholders to have a better understanding of our operating results and growth prospects. In addition, given the business nature of Hollysys, it has been a common practice for investors and analysts to use such non-GAAP measures to evaluate the Company.

 

The following table provides a reconciliation of U.S. GAAP measures to the non-GAAP measures for the periods indicated:

 

   Three months ended   Six months ended 
   December 31,   December 31, 
   2012   2011   2012   2011 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
General and administrative expenses  $4,670,168   $7,542,441   $11,029,027   $12,557,924 
Minus:                    
Stock-based compensation cost   526,772    157,356    1,053,545    314,712 
Non-GAAP general and administrative expenses  $4,143,396   $7,385,085   $9,975,482   $12,243,212 
                     
Net income attributable to Hollysys Automation Technologies Ltd. stockholders  $13,070,540   $20,270,552   $28,294,028   $32,949,910 
Add:                    
Stock-based compensation cost   526,772    157,356    1,053,545    314,712 
Non-GAAP net income attributable to
Hollysys Automation Technologies Ltd.
stockholders		  $13,597,312   $20,427,908   $29,347,573   $33,264,622 
                     
Weighted average number of ordinary shares   56,001,526    55,703,338    56,000,221    55,356,413 
Weighted average number of diluted ordinary
    shares		   56,070,948    55,852,982    56,066,950    55,592,152 
Non-GAAP basic earnings per share  $0.24   $0.37   $0.52   $0.60 
Non-GAAP diluted earnings per share  $0.24   $0.37   $0.52   $0.60