EX-99.1 2 v368965_ex99-1.htm EXHIBIT 99.1

Hollysys Automation Technologies Reports Unaudited Financial Results for Fiscal Year 2014

Second Quarter Ended on December 31, 2013

BEIJING, Feb. 17, 2014 /PRNewswire-FirstCall/ — 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 2014 second quarter ended on December 31, 2013 (see attached tables).

Q2 Financial Highlights

Quarterly revenues of $153.4 million, representing an increase of 75.9% compared to $87.2 million year over year, and an increase of 35.5% compared to $113.2 million quarter over quarter.

Gross margin at 31.0%, as compared to 32.1% year over year, and 35.7% quarter over quarter.

Non-GAAP net income attributable to Hollysys of $25.9 million, a 90.7% increase compared to $13.6 million year over year, and a 27.4% increase compared to $20.4 million quarter over quarter.

Non-GAAP Diluted EPS at $0.45 reported for the quarter, as compared to $0.24 year over year, and $0.35 quarter over quarter.

Backlog of $503.3 million as of December 31, 2013, a 40.0% increase compared to $359.6 million year over year, and 2.4% decrease compared to $515.9 million quarter over quarter.

Quarterly DSO of 156 days, as compared to 161 days year over year, and 175 days quarter over quarter.

Inventory turnover days of 27 days for the current quarter compared to 42 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 $150.1 million as of the current quarter end.

The management of Hollysys stated: "We are very excited to report a solid financial and operational result for the second quarter of this fiscal year, here I would like to discuss some key events during this quarter:

"During this quarter, we insisted in executing our strategies to vertically penetrate in the high-end industrial automation market and improve our market share in mid to low end markets, and to horizontally explore the potentials of each customer to supply entire automation and control solutions and service leveraging our complete and mature products and platforms. Both new orders and revenue of industrial automation delivered strong growth, there were satisfied achievements in some particular industries, for instance, thermal power, chemical, petrol chemical, cement, metallurgy and etc. Going forward, we believe that we will increase our overall market share in the industrial automation, nurture and quickly take commanding height in our new businesses leveraging our advanced technologies, experienced professionals, profound industry expertise, and customization and innovation capability.

"In rail transportation, we have seen meaningful progress and consistent revenue contribution in high-speed rail signaling field. We are encouraged by the continuous contract wins to provide the Automatic Train Protection (ATP) equipment and system for 200-250km/h and 300-350km/h high-speed trains recently. Moreover, our proprietary ZPW-2000s Track Circuit was successfully applied in Beijing Xiaohongmen - Baiziwan trial railway line, and passed the trail operation examination by Beijing Railway Bureau. This will expand our products providing in the railway transportation market and will grow to be another revenue growth driver for Hollysys in the future. All in all, as a well-recognized rail signaling system provider, we are confident that with strong R&D capability, solid execution and reliable products, Hollysys will continue to penetrate China's vast railway construction market and explore international opportunities.

"For the overseas industrial automation and rail transportation expansion, we are sending qualified and experienced engineers from China to overseas, and recruiting local engineers to expand our overseas team. With our proprietary technology, industry expertise and strong competitive advantages, together with our expanded local channels through Bond and Concord, we will continue to make exciting achievements in the international market in both industrial and rail transportation fields."

The Second Quarter Ended December 2013 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, 2013			December 31, 2012			% Change			December 31, 2013			December 31, 2012			% Change

Revenues	$	153,408			87,206			75.9	%	$	266,639			175,272			52.1	%
Integrated contract revenue	$	147,560			81,182			81.8	%	$	253,843			164,034			54.8	%
Product sales	$	5,848			6,024			(2.9	)%	$	12,795			11,239			13.9	%
Cost of revenues	$	103,854			59,195			75.4	%	$	175,628			116,995			50.1	%
Gross profit	$	49,554			28,010			76.9	%	$	91,011			58,277			56.2	%
Total operating expenses	$	20,189			13,269			52.2	%	$	38,404			28,786			33.4	%
Selling	$	9,456			8,086			16.9	%	$	16,053			14,679			9.4	%
General and administrative	$	8,909			4,143			115.0	%	$	17,098			9,975			71.4	%
Research and development	$	12,240			8,334			46.9	%	$	20,188			16,009			26.1	%
VAT refunds and government subsidies	$	(10,415	)		(7,295	)		42.8	%	$	(14,934	)		(11,878	)		25.7	%
Income from operations	$	29,365			14,742			99.2	%	$	52,607			29,491			78.4	%
Other income, net	$	1,169			902			29.6	%	$	2,253			2,938			(23.3	)%
Share of net (losses) income of equity investees	$	(1,155	)		(451	)		156.3	%	$	(1,479	)		288			(613.2	)%
Dividend income from an cost investee	$	-			829			(100.0	)%	$	-			829			(100.0	)%
Interest income	$	728			751			(3.1	)%	$	1,526			1,732			(11.9	)%
Interest expenses	$	(249	)		(521	)		(52.2	)%	$	(551	)		(1,237	)		(55.5	)%
Income tax expenses	$	3,631			2,635			37.8	%	$	7,424			4,601			61.3	%
Non-GAAP net income attributable to non- controlling interest	$	292			18			1534.7	%	$	639			93			589.8	%
Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.	$	25,934			13,597			90.7	%	$	46,293			29,348			57.7	%
Basic Non-GAAP EPS	$	0.45			0.24			87.5	%	$	0.80			0.52			53.8	%
Diluted Non-GAAP EPS	$	0.45			0.24			87.5	%	$	0.80			0.52			53.8	%

Share based compensation expenses	$	1,192			527			126.3	%	$	1,627			1,054			54.5	%
Amortization of acquired intangibles	$	2,057			-			-		$	3,077			-			-
Acquisition-related incentive share contingent consideration fair value adjustments	$	3,987			-			-		$	2,705			-			-
Acquisition-related cash contingent consideration fair value adjustments	$	380			-			-		$	537			-			-
Net income attributable to Hollysys Automation Technologies Ltd.(GAAP)	$	18,318			13,071			40.1	%	$	38,347			28,294			35.5	%
Basic GAAP EPS	$	0.32			0.23			39.1	%	$	0.67			0.51			31.4	%
Diluted GAAP EPS	$	0.31			0.23			34.8	%	$	0.66			0.50			32.0	%

Basic weighted average common shares outstanding		57,607,508			56,001,526			2.9	%		57,604,683			56,000,221			2.9	%
Diluted weighted average common shares outstanding		58,155,762			56,070,948			3.7	%		58,073,331			56,066,950			3.6	%

Operational Results Analysis for the Second Quarter Ended December 31, 2013

For the three months ended December 31, 2013, total revenues increased by 75.9% to $153.4 million, from $87.2 million for the same period in the prior year. Of the total revenues, revenue from integrated contracts increased by 81.8% to $147.6 million, as compared to $81.2 million for the same period of the prior year; revenue from products sales decreased by 2.9% to $5.8 million, as compared to $6.0 million for the same period of the prior year. The Company's total revenue by segment was as follows:

	Three months ended Dec 31,										Six months ended Dec 31,
	2013					2012					2013					2012
	$		% to Total Revenue			$		% to Total Revenue			$		% to Total Revenue			$		% to Total Revenue
Industrial Automation		65.3		42.6	%		53.9		61.8	%		123.3		46.3	%		114.0		65.1	%
Rail Transportation		55.2		36.0	%		21.5		24.6	%		91.7		34.4	%		36.4		20.8	%
Mechanical and Electrical Solutions		26.8		17.4	%		3.9		4.5	%		40.1		15.0	%		13.0		7.3	%
Miscellaneous		6.1		4.0	%		7.9		9.1	%		11.5		4.3	%		11.9		6.8	%
Total		153.4		100.0	%		87.2		100.0	%		266.6		100.0	%		175.3		100.0	%

As a percentage of total revenues, overall gross margin excluding non-cash amortization of acquired intangibles was 32.3% for the three months ended December 31, 2013, as compared to 32.1% for the same period of the prior year. The gross margin for integrated contracts and product sales excluding non-cash amortization of acquired intangibles were 30.6% and 74.2% for the three months ended December 31, 2013, as compared to 29.8% and 63.8% for the same period of the prior year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin. Including non-cash amortization of acquired intangibles, recorded on a GAAP basis, overall gross margin was 31.0% for the three months ended December 31, 2013, as compared to 32.1% for the same period of the prior year. The gross margin for integrated contracts and product sales including non-cash amortization of acquired intangibles, were 29.2% and 74.2% for the three months ended December 31, 2013, as compared to 29.8% and 63.8% for the same period of the prior year respectively.

For the three months ended December 31, 2013, selling expenses were $9.5 million, as compared to $8.1 million for the same quarter of the prior year, representing an increase of $1.4 million or 16.9% year over year. As a percentage of total revenues, selling expenses were 6.2% and 9.3% for the three months ended December 31, 2013, and 2012, respectively.

General and administrative expenses, excluding non-cash share-based compensation expense, were $8.9 million for the quarter ended December 31, 2013, representing an increase of $4.8 million, or 115.0%, as compared to $4.1 million for the same period of the prior year. The increase was mainly consisted of an increase of $1.5 million from the newly acquired company Bond Corporation Pte. Ltd. and its subsidiaries (Bond), and an increase of $1.9 million in bad debt allowance. As a percentage of total revenues, G&A expenses were 5.8% and 4.8% for the three months ended December 31, 2013 and 2012, respectively. Including the non-cash share-based compensation expense, recorded on a GAAP basis, G&A expenses were $10.1 million and $4.7 million for the three months ended December 31, 2013 and 2012, respectively.

Research and development expenses were $12.2 million for the three months ended December 31, 2013, as compared to $8.3 million for the same quarter of the prior year, representing a year over year increase of $3.9 million, or 46.9%. The increase was mainly due to an increase in certification fees. As a percentage of total revenues, R&D expenses were 8.0% and 9.6% for the quarter ended December 31, 2013 and 2012, respectively.

The VAT refunds and government subsidies amounted to $10.4 million for three months ended December 31, 2013, as compared to $7.3 million for the same period in the prior year.

The income tax expenses and the effective tax rate were $3.6 million and 16.3% for the three months ended December 31, 2013, as compared to $2.6 million and 16.8% for the same prior year period.

For the three months ended December 31, 2013, the non-GAAP net income attributable to Hollysys excluding non-cash stock compensation expenses, amortization of acquired intangibles and acquisition-related consideration fair value adjustments was $25.9 million or $0.45 per diluted share based on 58.2 million shares outstanding. This represents an increase of $12.3 million, or 90.7%, over the $13.6 million, or $0.24 per share based on 56.1 million shares outstanding, reported in the prior year period. On a GAAP basis, net income attributable to Hollysys was $18.3 million, or $0.32 per diluted share representing an increase of $5.2 million or 40.1%, over the $13.1 million, or $0.23 per diluted share reported in the prior year period.

Backlog Highlights

Hollysys' backlog as of December 31, 2013 was $503.3 million, representing a decrease of 2.4% compared to $515.9 million as of September 30, 2013, and an increase of 40.0% compared to $359.6 million as of December 31, 2013. The detailed breakdown of the backlog by segment was as follows:

						Quarter-over-Quarter Analysis								Year-over-Year Analysis
	2013-12-31					2013-9-30								2012-12-31
	$		% to Total Backlog			$		% to Total Backlog			% Change			$		% to Total Backlog			% Change
Industrial Automation		149.4		29.7	%		162.8		31.6	%		(8.2	)%		125.4		34.9	%		19.1	%
Rail Transportation		223.3		44.3	%		232.4		45.0	%		(3.9	)%		206.7		57.5	%		8.1	%
M&E		106.5		21.2	%		92.9		18.0	%		14.6	%		-		-			-
Miscellaneous		24.1		4.8	%		27.9		5.4	%		(13.6	)%		27.5		7.6	%		(12.3	)%
Total		503.3		100.0	%		515.9		100.0	%		(2.4	)%		359.6		100.0	%		40.0	%

Cash Flow Highlights

The net cash provided by operating activities was $24.4 million for the three months ended December 31, 2013; including investing and financing activities, the total net cash inflows for this quarter was $22.4 million. Of the total net cash inflows, there was a net cash inflow of matured time deposits with original maturities over three months amounting to $2.4 million and proceeds from bank loan amounting to $3.8 million, a net cash outflow of repayment bank loans amounting to $4.3 million.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $150.1 million, $129.4 million, and $133.5 million as of December 31, September 30, 2013, and December 31, 2012, respectively. Of the total $150.1 million as of December 31, 2013, cash and cash equivalents were $135.1 million, and time deposits with original maturities over three months were $15.0 million.

For the three months ended December 31, 2013, Days Sales Outstanding ("DSO") was 156 days, as compared to 161 days year over year and 175 days quarter over quarter; and inventory turnover was 27 days, as compared to 42 days year over year and 44 days quarter over quarter.

Outlook for FY 2014

Hollysys management concluded, "In view of solid industrial automation growth, strong recovery of high-speed rail signaling segment, and future exciting growth momentum envisioned, we are revising up our fiscal year 2014 revenue guidance from previous $460 million to $490 million, to $500 million to $530 million and non-GAAP net income guidance from previous $65 million to $69 million, to $84 million to $86 million. Going into the future, Hollysys will continue to leverage on its core growth pillar foundations of its proprietary technology, profound industry expertise and solution capabilities to increase its market share in respective high-growth end markets. Besides, Hollysys will continue to set up strategic alliance with industry leading organizations to penetrate into the new market and accelerate its growth pace, to create long-term value for our shareholders."

Conference Call

Management will discuss the current status of the Company's operations during a conference call at 9:00 a.m. Beijing Time on February 18, 2014 / 8:00 p.m. U.S. Eastern Time on February 17, 2014. 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 7665757.

4001-200-539 (China)

+1-855-298-3404 (United States)

800-905-927 (Hong Kong)

+852-5808-3202 (Hong Kong)

0800-015-9725 (United Kingdom)

+44(0)20 3078 7622 (United Kingdom)

800-616-3222 (Singapore)

+65 6823 2299 (Singapore)

In addition, a recorded replay of the conference call will be accessible within 24 hours via Hollysys' website at: http://ir.hollysys.com/.

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 3,800 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 5,000 customers more than 20,000 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 power 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.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In US Dollars except for per-share data)

	Three months ended December 31,						Six months ended December 31,
	2013			2012			2013			2012
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues
Integrated contract revenue	$	147,559,907		$	81,181,627		$	253,843,274			164,033,662
Product sales		5,847,987			6,023,980			12,795,251			11,238,563
Total revenues		153,407,894			87,205,607			266,638,525			175,272,225

Cost of integrated contracts		104,400,802			57,013,225			174,574,304			113,040,984
Cost of products sold		1,510,158			2,182,121			4,130,751			3,954,308
Gross profit		47,496,934			28,010,261			87,933,470			58,276,933

Operating expenses
Selling		9,455,667			8,086,257			16,052,732			14,679,142
General and administrative		10,100,717			4,670,168			18,725,030			11,029,027
Research and development		12,239,559			8,334,000			20,187,710			16,008,707
VAT refunds and government subsidies		(10,415,163	)		(7,294,961	)		(14,934,491	)		(11,877,547	)
Total operating expenses		21,380,780			13,795,464			40,030,981			29,839,329

Income from operations		26,116,154			14,214,797			47,902,489			28,437,604

Other (expenses) income, net		(2,817,923	)		901,645			(451,517	)		2,938,308
Share of net (losses) income of equity investees		(1,155,157	)		(450,755	)		(1,479,488	)		288,263
Dividend income from an cost investee		-			828,567			-			828,567
Interest income		727,502			750,727			1,526,306			1,732,438
Interest expenses		(629,496	)		(521,475	)		(1,087,617	)		(1,237,306	)
Income before income taxes		22,241,080			15,723,506			46,410,173			32,987,874

Income taxes expenses		3,630,956			2,635,096			7,423,883			4,601,152
Net income		18,610,124			13,088,410			38,986,290			28,386,722

Net income attributable to non-controlling interests		292,128			17,870			639,357			92,694
Net income attributable to Hollysys Automation Technologies Ltd. stockholders	$	18,317,996		$	13,070,540		$	38,346,933			28,294,028

Other comprehensive income, net of tax
Foreign currency translation adjustments, net of nil tax		2,616,275			1,804,697			2,924,650			(112,757	)
Comprehensive income		21,226,399			14,893,107			41,910,940			28,273,965

Comprehensive income attributable to non-controlling interest		308,629			31,476			665,450			99,437
Comprehensive income attributable to Hollysys Automation Technologies Ltd. stockholders	$	20,917,770		$	14,861,631		$	41,245,490			28,174,528

Net income per ordinary share:
Basic		0.32			0.23			0.67			0.51
Diluted		0.31			0.23			0.66			0.50
Weighted average ordinary shares used in income per share computation:
Basic		57,607,508			56,001,526			57,604,683			56,000,221
Diluted		58,155,762			56,070,948			58,073,331			56,066,950

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

(In US Dollars)

	December 31,		September 30,
	2013		2013
	(Unaudited)		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	135,085,593	$	112,666,619
Time deposits with original maturities over three months		15,035,316		16,769,482
Restricted cash		7,618,795		3,165,635
Accounts receivable, net of allowance for doubtful accounts of $23,745,875 and $21,529,390 as of December 31, 2013 and September 30, 2013, respectively		263,443,090		211,939,374
Costs and estimated earnings in excess of billings, net of allowance for doubtful accounts of $2,900,924 and $2,895,850 as of December 31, 2013 and September 30, 2013, respectively		165,498,207		159,158,183
Other receivables, net of allowance for doubtful accounts of $280,499 and $348,118 as of December 31, 2013 and September 30, 2013, respectively		9,800,695		11,561,822
Advances to suppliers		9,539,263		10,043,176
Amount due from related parties		22,150,884		28,417,610
Inventories, net		27,526,001		33,034,122
Prepaid expenses		902,317		778,081
Income tax recoverable		228,503		1,818,281
Deferred tax assets		6,375,846		3,094,984
Assets held for sale		2,777,865		2,806,821
Total current assets		665,982,375		595,254,190

Restricted cash		6,547,708		6,789,912
Prepaid expenses		417,532		342,436
Property, plant and equipment, net		83,926,203		81,147,457
Prepaid land leases		12,491,977		12,607,573
Acquired intangible assets, net		8,715,403		10,869,006
Investments in equity investees		16,590,675		15,919,888
Investments in cost investees		4,800,234		3,734,363
Goodwill		65,574,520		66,205,646
Deferred tax assets		744,481		958,238

Total assets		865,791,108		793,828,709

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term bank loans		6,656,597		6,942,396
Current portion of long-term loans		10,607,340		8,471,546
Accounts payable		143,246,660		120,481,718
Construction cost payable		6,521,670		6,580,511
Deferred revenue		107,970,201		90,355,074
Accrued payroll and related expense		13,561,845		8,069,346
Income tax payable		9,771,145		6,584,444
Warranty liabilities		2,181,282		1,778,479
Other tax payables		25,908,451		26,608,999
Accrued liabilities		18,433,648		18,962,295
Amounts due to related parties		2,880,393		2,323,540
Deferred tax liabilities		236,054		2,153,993
Current portion of acquisition-related payment		26,284,773		-
Total current liabilities		374,260,059		299,312,341

Long-term bank loans		14,498,587		16,775,048
Deferred tax liabilities		2,826,399		3,615,147
Long-term warranty liabilities		2,076,652		2,384,416
Long-term acquisition-related payment		13,116,010		35,146,657
Total liabilities		406,777,707		357,233,609

Commitments and contingencies

Equity
Ordinary shares		57,555		57,555
Additional paid-in capital		172,406,716		171,214,814
Statutory reserves		23,293,011		23,146,671
Retained earnings		221,073,738		202,902,082
Accumulated other comprehensive income		39,770,224		37,170,450
Total Hollysys Automation Technologies Ltd. stockholder's equity		456,601,244		434,491,572

Non-controlling interests		2,412,157		2,103,528
Total equity		459,013,401		436,595,100

Total liabilities and equity	$	865,791,108	$	793,828,709

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In US Dollars)

	Three months ended December 31, 2013			Six months ended December 31, 2013
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income	$	18,610,124		$	38,986,290
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of property, plant and equipment		1,416,419			3,478,625
Amortization of prepaid land leases		52,108			101,853
Amortization of intangible assets		2,056,570			3,077,112
Allowance for doubtful accounts		1,462,204			4,330,063
Gain on disposal of property, plant and equipment		(485,883	)		(30,751	)
Share of net loss from equity investees		1,155,157			1,479,488
Share based compensation expenses		1,191,902			1,627,466
Deferred income tax expenses		(5,730,921	)		(4,954,377	)
Acquisition-related contingent consideration fair value adjustments		4,367,113			3,241,871
Changes in operating assets and liabilities:
Accounts receivable		(52,041,622	)		(88,792,890	)
Costs and estimated earnings in excess of billings		(5,576,193	)		(20,757,974	)
Inventories		5,751,009			6,992,302
Advances to suppliers		566,162			(840,746	)
Other receivables		1,849,512			2,044,944
Deposits and other assets		(4,405,022	)		(3,772,884	)
Due from related parties		6,222,253			4,340,798
Accounts payable		22,332,628			31,175,376
Deferred revenue		17,143,153			40,093,970
Accruals and other payable		4,019,549			2,996,709
Due to related parties		541,226			773,506
Income tax payable		4,774,473			4,922,633
Other tax payables		(869,698	)		3,581,097
Net cash provided by operating activities		24,402,223			34,094,481

Cash flows from investing activities:
Time deposits placed with banks		(676,790	)		(4,859,284	)
Purchases of property, plant and equipment		(2,946,842	)		(5,153,126	)
Proceeds from disposal of property, plant and equipment		10,079			10,309
Maturity of time deposits		2,433,183			10,807,370
Acquisition of a subsidiary, net of cash acquired		-			(5,510,000	)
Investment of an equity investee		(3,906,886	)		(3,906,886	)
Investment of a cost investee		(1,031,106	)		(1,031,106	)
Dividend from an equity investee		2,409,247			2,409,247
Net cash used in investing activities		(3,709,115	)		(7,233,476	)

Cash flows from financing activities:
Proceeds from short-term bank loans		1,829,147			3,846,542
Repayments of short-term bank loans		(2,046,635	)		(5,499,334	)
Proceeds from long-term bank loans		2,016,109			2,016,109
Repayments of long-term bank loans		(2,294,601	)		(4,959,096	)
Net cash used in financing activities		(495,980	)		(4,595,779	)

Effect of foreign exchange rate changes		2,221,846			591,788
Net increase in cash and cash equivalents	$	22,418,974		$	22,857,014

Cash and cash equivalents, beginning of period	$	112,666,619		$	112,228,579
Cash and cash equivalents, end of period		135,085,593			135,085,593

Non-GAAP Measures

In evaluating our results, the non-GAAP measures of "Non-GAAP general and administrative expenses (hereafter "Non-GAAP G&A expenses"), "Non-GAAP cost of integrated contracts", "Non-GAAP other income, net", "Non-GAAP interest expenses", "Non-GAAP net income attributable to Hollysys" and "Non-GAAP earnings per share" serve as additional indicators of our operating performance and not as a replacement for other measures in accordance with US GAAP. We believe these non-GAAP measures are useful to investors, as they exclude the 1) share-based compensation expenses, 2) amortization of acquired intangibles and 3) acquisition-related consideration adjustments. They 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,
	2013			2012			2013			2012
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Cost of integrated contracts	$	104,400,802			57,013,225			174,574,304			113,040,984
Less: amortization of acquired intangibles		2,056,569			-			3,077,112			-
Non-GAAP cost of integrated contracts	$	102,344,233			57,013,225			171,497,192			113,040,984

General and administrative expenses	$	10,100,717		$	4,670,168			18,725,030		$	11,029,027
Less: Share based compensation costs		1,191,902			526,773			1,627,466			1,053,545
Non-GAAP general and administrative expenses	$	8,908,815		$	4,143,395			17,097,564		$	9,975,482

Other (expenses) income, net	$	(2,817,923	)		901,645			(451,517	)		2,938,308
Add: acquisition-related incentive share contingent consideration fair value adjustments		3,986,737			-			2,704,833			-
Non-GAAP Other income, net	$	1,168,814			901,645			2,253,316			2,938,308

Interest expenses	$	(629,496	)		(521,475	)		(1,087,617	)		(1,237,306	)
Add: acquisition-related cash consideration adjustments		380,376			-			537,038			-
Non-GAAP Interest expenses	$	(249,120	)	$	(521,475	)		(550,579	)	$	(1,237,306	)
Net income attributable to Hollysys Automation Technologies Ltd. stockholders	$	18,317,996		$	13,070,540			38,346,933		$	28,294,028
Add:
Share based compensation expenses		1,191,902			526,773			1,627,466			1,053,545
Amortization of acquired intangible assets		2,056,569			-			3,077,112			-
Acquisition-related consideration adjustments		4,367,114			-			3,241,871			-
Non-GAAP net income attributable to Hollysys Automation Technologies Ltd. stockholders	$	25,933,581		$	13,597,313			46,293,382		$	29,347,573

Weighted average number of basic ordinary shares		57,607,508			56,001,526			57,604,683			56,000,221
Weighted average number of diluted ordinary shares		58,155,762			56,070,948			58,073,331			56,066,950
Non-GAAP basic earnings per share	$	0.45		$	0.24			0.80		$	0.52
Non-GAAP diluted earnings per share	$	0.45		$	0.24			0.80		$	0.52