Hollysys Automation Technologies Reports Unaudited Financial Results for the Fiscal Year 2010 First Quarter Ended September 30, 2009

PRNewswire
Nov 11, 2009

  Q1 FY 2010 Financial Highlights

  -- Revenues of $38.2 million, as compared to $37.3 million year-over-year

  -- Non-GAAP net income attributable to Hollysys of $6.6 million, an
     increase of 8.2% year-over-year

  -- $14.3 million net cash generated from operations for the quarter ended
     on September 30, 2009

  -- $130.6 million cash and cash equivalents as of September 30, 2009

  -- $187.5 million backlog

BEIJING, Nov. 11 /PRNewswire-Asia-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 its fiscal first quarter of fiscal year 2010 ended September 30, 2009 (see attached tables).

Dr. Changli Wang, Hollysys' Chief Executive Officer, stated, "We are pleased to report the fiscal 2010 first quarter with solid operational performance. We have achieved a few milestones during this quarter, and I would like to review some of the key operational highlights here."

"During the September quarter, Hollysys achieved significant progress in the subway signaling sector by winning the $48 million bid on the Changping Line of Beijing Subway network, which signifies our breakthrough in fast growing subway signaling market. This contract will expedite our proprietary subway signaling product development based on our high-speed rail signaling technology and know-how, which will substantially improve our gross margin and further strengthen our leading position in the subway automation sector.

Another business highlight of the quarter is to have our proprietary designed and developed high-speed railway ATP product certified to the most stringent European safety standard SIL4. This is a strong testament to Hollysys R&D capabilities in developing its proprietary products in the leading end-markets. This certificate, being the first grant to a Chinese local company for the railway ATP product, is a head start for Hollysys to get more of its safety products in high-speed railway and subway segments certified to world-class standards. We will continue to enhance our market position both in the domestic and international arena by introducing more high-quality proprietary products," commented by Dr. Wang.

Dr. Wang continued, "Also in this quarter, we signed the contract with our nuclear joint venture, established with China Guangdong Nuclear Power Holding Co., Ltd., to provide our proprietary nuclear conventional island automation and control products to the Ningde Nuclear power station. This contract was the first batch of a series of product supply contracts granted to Hollysys. As China's infrastructure market build-out continues to roll, Hollysys is faring particularly well in the high-speed railway, subway, and nuclear sectors and we will continue to capture our fair share in these business segments for the rest of FY 2010."

Q1 Fiscal Year 2010 Unaudited Financial Results Summary

To facilitate a clear understanding of Hollysys operational result, a summary of unaudited non-GAAP financial results is included below.

  In USD thousands, except share numbers and EPS

                                        Three Months ended
                             September 30,      September 30,     %
                                  2009              2008        Change

  Revenues                $        38,194           37,305        2.4%
      Integrated Contract
       Revenue            $        35,871           35,958       -0.2%
      Products Sales      $         2,323            1,346       72.6%
  Cost of Revenues        $        23,983           24,225       -1.0%
  Gross Profit            $        14,210           13,080        8.6%
  Total Operating
   Expenses               $         5,864            4,624       26.8%
      Selling             $         2,726            2,765       -1.4%
      General and
       Administrative     $         2,427            2,265        7.1%
      Research and
       Development        $         2,853            1,166      144.6%
      VAT refunds
       and government
       subsidy            $        (2,142)          (1,572)      36.2%
  Income from
   Operations             $         8,346            8,455       -1.3%
  Others                  $            33             (352)    -109.3%
  Income Tax Expenses     $           820              783        4.7%
  Non-GAAP Net Income
   Attributable to
   Non-controlling
   Interest               $           930            1,176      -20.9%
  Non-GAAP Net Income
   Attributable to
   Hollysys Automation
   Technologies Ltd.      $         6,629            6,144        7.9%
  Basic Non-GAAP EPS      $          0.13             0.14       -5.1%
  Diluted Non-GAAP EPS    $          0.13             0.14       -5.7%

  Stock-based
   Compensation Cost
   for Options            $           131               44      195.1%
  Net Income
   Attributable to
   Hollysys Automation
   Technologies Ltd.
   (GAAP)                 $         6,498            6,100        6.5%
  Basic GAAP EPS          $          0.13             0.14       -6.3%
  Diluted GAAP EPS        $          0.13             0.14       -6.9%

  Basic Weighted
   Average Common
   Shares Outstanding          49,942,614       43,942,614       13.7%
  Diluted Weighted
   Average Common
   Shares Outstanding          50,260,423       43,942,614       14.4%


For the three months ended September 30, 2009, total revenues increased 2.4% to $38.2 million, from $37.3 million in the comparable prior fiscal year period. Of the total revenues, revenue from integrated contracts amounted to $35.9 million, and that of each segment was as follows:

  -- $24.2 million, or 67.5%, related to Industrial Automation & Control;
  -- Rail and subway was $8.8 million, or 24.6%, of which $5.5 million, or
     15.3%, was from Rail Signaling and Control projects, and $3.3 million,
     or 9.3%, was from Subway System Integration projects; and
  -- $1.9 million, or 5.4%, related to Nuclear Plant Control projects.

For the three months ended September 30, 2009, Hollysys' total cost of revenues was $24.0 million, compared to $24.2 million for the same period of the prior year. The cost of integrated contracts amounted to $23.6 million, or 65.7% of integrated contract revenue.

As a percentage of total revenues, overall gross margin was 37.2% for the three months ended September 30, 2009, as compared to 35.1% for the prior year period, mainly due to gross margin for products sold increased from 38.9% to 82.8% year over year and its percentage of revenue increased from 3.5% to 6.0%. The gross margin for integrated contracts was 34.3% for the three months ended September 30, 2009, compared to 34.9% for the same period of the prior year.

For the three months ended September 30, 2009, selling expenses were $2.7 million, compared to $2.8 million year over year. As a percentage to total revenues, selling expenses were 7.1% and 7.4% for the three months ended September 30, 2009 and 2008, respectively.

General and administrative expenses excluding non-cash option expense were $2.4 million for quarter ended September 30, 2009, or 6.4% as a percentage of total revenues, compared to $2.3 million, or 6.1%, for the same period of the prior year. Including the non-cash option expenses recorded on a GAAP basis, G&A expenses were $2.6 million and $2.3 million for three months ended September 30, 2009 and 2008, respectively.

Research and development expenses were $2.9 million for the three months ended September 30, 2009, compared to $1.2 million for the same period of the prior year. As a percentage to total revenue, R&D expenses were 7.5% and 3.1% for three months ended September 30, 2009 and 2008, respectively. The increase was mainly due to increased R&D activities.

For the three months ended September 30, 2009, non-GAAP net income attributable to Hollysys excluding non-cash option expense was $6.6 million, or $0.13 per diluted share based on approximately 50 million shares outstanding. This represents an increase of $0.5 million, or 7.9%, over the $6.1 million, or $0.14 per share based on approximately 44 million shares outstanding, reported in the prior year period. On a GAAP basis, net income attributable to Hollysys was $6.5 million, or $0.13 per diluted share based on approximately 50 million shares outstanding, compared to net income of $6.1 million, or $0.14 per diluted share based on 44 million shares outstanding, for the same period of the prior year.

Backlog Highlights

Hollysys' backlog as of September 30, 2009 was $187.5 million, compared to $188.9 million at June 30, 2009. The detailed breakdown for the backlog by segment is as followings:

  -- $64.3 million related to System Integration projects for Subway, or
     34.3% of the total backlog;
  -- $62.6 million related to Industrial Automation & Control, or 33.3% of
     the total backlog;
  -- $57.0 million related to Rail Signaling and Control projects, or 30.4%
     of the total backlog;
  -- $3.7 million related to Nuclear and other miscellaneous contracts, or
     2.0% of the total backlog.

  Cash Flow Highlights

Hollysys generated operating cash flow of $14.3 million for the three months ended September 30, 2009. Including investing and financing activities, the total net cash inflow for the three months ended September 30, 2009 was $1.7 million.

Balance Sheet Highlights

As of September 30, 2009, Hollysys' cash and cash equivalents were $130.6 million, compared to $128.9 million at June 30, 2009. Days Sales Outstanding ("DSO") for Q1 FY 2010 is 157 days, as compared to 159 days year over year. Inventory turnover is 75 days for quarter ended September 2009, significantly reduced from 91 of the same prior year period.

Outlook for FY 2010

Dr. Wang concluded, "Given the recent contract wins and sales pipeline, especially in high-speed rail segment, we are reiterating our revenue and non-GAAP net income guidance in the range of $185.9M to $192.2M and $30.3M and $31.4M respectively."

Conference Call

Management will discuss the current status of the Company's operations during a conference call at 9:00 AM ET/10:00 PM Beijing time on Thursday, November 12, 2009. Interested parties may participate in the call by dialing the following numbers approximately 10 minutes before the call is scheduled to begin and asking to be connected to the Hollysys Automation Technologies conference call. The conference call identification number is 38764131.

  1-866-519-4004 (USA)
  800-819-0121 (China Landline)
  400-620-8038 (China Mobile)
  + 65-67357955 (International)

In addition, a recording of the conference call will be accessible within 24 hours via Hollysys' website at:

  http://www.hollysys.com.sg/home/pubdown/121109.zip

  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 2,100 employees with 9 sales centers and 13 service centers in 21 cities in China and serves over 1700 customers in the industrial, railway, subway & nuclear industries. Its proprietary technologies are applied in product lines including Distributed Control System (DCS) and Programmable Logic Controller (PLC), high-speed railway Train Control Center (TCC) and Automatic Train Protection (ATP), subway supervisory and control platform (SCADA), and nuclear conventional island automation and control products. Hollysys is the largest SCADA systems supplier to China's subway automation market, and is the only certified domestic automation control systems provider to the nuclear industry in China. Hollysys is also one of only five automation control systems and products providers approved by China's Ministry of Railways in the 200km to 250km high- speed rail segment, and is one of only two automation control systems and products providers approved in the 300km to 350km high-speed rail segment.

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.

  For further information, please contact:

  Hollysys Automation Technologies, Ltd.
  http://www.hollysys.com/

   Jennifer Zhang
   Investor Relations
   Tel:   +86-10-5898-1386
   Email: investors@hollysys.com

   Serena Wu
   Investor Relations
   Tel:   +1-646-593-8125
   Email: serena.wu@hollysys.com




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

                                           Three months ended September 30,
                                                 2009             2008
                                             (Unaudited)      (Unaudited)
  Revenues
  Integrated contract revenue            $     35,870,551 $     35,958,388
  Products sales                                2,323,057        1,346,162
  Total revenues                               38,193,608       37,304,550

  Cost of integrated contracts                 23,583,744       23,402,235
  Cost of products sold                           399,578          822,496
  Gross profit                                 14,210,286       13,079,819

  Operating expenses
  Selling                                       2,725,641        2,765,365
  General and administrative                    2,558,313        2,309,739
  Research and development                      2,853,279        1,166,464
  VAT refunds and government subsidy           (2,141,880)      (1,572,388)
  Total operating expenses                      5,995,353        4,669,180

  Income from operations                        8,214,933        8,410,639

  Other income (expense), net                     149,065          207,755
  Share of net gains (losses) of equity
   investees                                      236,285         (225,763)
  Interest expense, net                          (352,803)        (332,683)
  Income before income taxes                    8,247,480        8,059,948

  Income taxes expenses                           819,998          783,272
  Net income                                    7,427,482        7,276,676

  Less: Net income attributable to
   non-controlling interest                       929,924        1,176,416
  Net income attributable to Hollysys
   Automation Technologies
  Ltd.                                   $      6,497,558 $      6,100,260

  Weighted average number of common
   shares                                      49,942,614       43,942,614

  Weighted average number of diluted
   common shares                               50,260,423       43,942,614

  Basic earnings per share attributable
   to Hollysys Automation Technologies Ltd.          0.13             0.14

  Diluted earnings per share attributable
   to Hollysys Automation Technologies Ltd.          0.13             0.14



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

                                            September 30,        June 30,
                                                2009               2009
                                             (Unaudited)        (Audited)
  ASSETS
   Current Assets
    Cash and cash equivalents               $130,598,078      $128,882,666
    Contract performance deposit
     in banks                                  4,407,069         5,504,375
    Accounts receivable, net of
     allowance for doubtful
     accounts of $6,742,484
     and  $6,276,670                          63,571,474        56,548,509
    Cost and estimated earnings in
     excess of billings, net of
     allowance for doubtful
     accounts of $759,356 and
     $744,113                                 43,842,207        51,094,660
    Other receivables, net of
     allowance for doubtful
     accounts of $183,175 and
     $178,532                                  4,255,909         4,148,842
    Advances to suppliers                      4,832,369         7,867,856
    Amount due from related parties            9,919,384         7,203,058
    Inventories, net of provision
     of $972,778 and $1,114,140               19,286,897        18,837,270
    Prepaid expenses                           1,043,141         1,368,918
    Deferred tax assets                          820,007           319,737
    Deposit for acquisition of equity
     interest from minority interest                  --         2,195,582
   Total current assets                      282,576,535       283,971,473

   Property, plant and equipment, net         48,262,000        47,102,749
   Long term investments                      13,352,627        13,570,578
   Long term deferred expenses                    76,515            91,779
   Deferred tax assets                           766,389           706,943

   Total assets                              345,034,066       345,443,522

  LIABILITIES AND STOCKHOLDERS'
   EQUITY
   Current liabilities
    Short-term bank loans                      1,464,343         5,854,887
    Current portion of long-term
     bank loans                                       --         5,123,026
    Accounts payable                          37,161,317        37,421,717
    Construction cost payable                  9,145,412        10,929,116
    Deferred revenue                          25,961,044        21,072,540
    Accrued payroll and related
     expense                                   4,159,199         4,162,851
    Income tax payable                         2,047,086         1,397,706
    Warranty liabilities                       1,865,333         1,631,407
    Other tax payables                         8,793,827         9,152,197
    Accrued liabilities                        2,565,291         2,634,107
    Amounts due to related parties             2,263,833         1,464,683
    Deferred tax liabilities                     219,425           277,337
   Total current liabilities                  95,646,110       101,121,574

    Long-term bank loans                      36,608,581        36,593,041
    Long-term bonds payable                   11,714,746        11,709,773

   Total liabilities                         143,969,437       149,424,388

   Commitments and contingencies                      --                --



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

                                                 September 30,   June 30,
                                                      2009         2009
                                                  (Unaudited)    (Audited)
   Stockholder's equity
    Common stock, par value $0.001 per
     share, 100,000,000 shares authorized,
     49,942,614 and 49,942,614 shares
     issued and outstanding                            49,943        49,943
    Additional paid-in capital                    130,262,262   131,220,209
    Appropriated earnings                          15,135,442    15,135,442
    Retained earnings                              19,729,812    13,232,254
    Accumulated comprehensive income -
    translation adjustments                        14,005,155    13,902,045
   Total Hollysys Automation Technologies
    Ltd. stockholder's equity                     179,182,614   173,539,893
    Non-controlling interest                       21,882,015    22,479,241
   Total equity                                   201,064,629   196,019,134

   Total liabilities and stockholders' equity    $345,034,066  $345,443,522



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

                                                     Three         Three
                                                    months        months
                                                     ended         ended
                                                   September     September
                                                   30, 2009      30, 2008
                                                  (Unaudited)   (Unaudited)
  Cash flows from operating activities:
    Net income                                  $  7,427,482  $  7,276,676
  Adjustments to reconcile net income to
   net cash provided by (used in)
   operating activities:
    Depreciation and amortization                    615,738       560,301
    Allowance (reversal) for doubtful accounts       521,795      (302,381)
    Reversal for inventories                        (141,362)           --
    Loss on disposal of property, plant and
     equipment                                         1,586         2,842
    Share of net gains (losses) from equity
     investees                                      (236,285)      225,763
    Gain on disposal of an equity investee                --      (400,755)
    Amortization of expenses accrued for bond
     payable                                          15,303        13,838
    Stock-based compensation                         131,019        44,394
    Deferred tax assets (liabilities)               (617,628)      126,743
  Changes in operating assets and liabilities:
    Accounts receivable                           (7,524,874)     (417,882)
    Cost and estimated earnings in excess of
     billings                                      7,237,210    (2,122,866)
    Inventories                                     (308,265)    1,401,173
    Advance to suppliers                           3,035,487    (2,245,911)
    Other receivables                               (112,321)     (198,607)
    Deposits and other assets                      1,423,083    (1,781,783)
    Amount due from related parties               (2,256,376)   (1,331,634)
    Accounts payable                              (1,071,017)    1,495,535
    Deferred revenue                               4,888,504     4,910,699
    Accrued liabilities                              161,458       (47,301)
    Amount due to related parties                    799,150            --
    Tax payable                                      291,010       504,199
    Net cash provided by operating activities     14,280,697     7,713,043

  Cash flows from investing activities:
    Purchase of property, plant and equipment     (2,735,617)   (2,406,927)
    Proceeds from disposing property, plant
     and equipment                                     1,623         1,255
    Advance to related parties                            --      (201,930)
    Acquisition of long term investments                  --      (234,449)
    Proceeds from disposal of an equity investee          --     2,048,502
    Acquisition of equity interest from minority
     interest                                       (438,275)           --
    Net cash used in investing activities         (3,172,269)     (793,549)

  Cash flows from financing activities:
    Proceeds from (Repayments of) short-term
     loans                                        (4,393,030)    4,395,926
    Repayments of long-term bank loans            (5,125,201)           --
    Net cash provided by (used in) financing
     activities                                   (9,518,231)    4,395,926

    Effect of foreign exchange rate changes          125,215     1,492,269
    Net increase in cash and cash equivalents   $  1,715,412  $ 12,807,689

    Cash and cash equivalents, beginning of
     period                                      128,882,666    64,250,558
    Cash and cash equivalents, end of period    $130,598,078  $ 77,058,247


  Reconcile GAAP Net Income (Loss) to Non-GAAP Net Income

The following table provides more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

                                             Three months ended September 30,
                                                 2009             2008
                                              (Unaudited)      (Unaudited)
  Net income attributable to Hollysys
   Automation Technologies Ltd.             $   6,497,558    $   6,100,260
  Adjustments:
   Stock-based compensation cost for
   options                                        131,019           44,394
  Non-GAAP net income attributable to
   Hollysys Automation Technologies Ltd.    $   6,628,577    $   6,144,654

SOURCE: Hollysys Automation Technologies Ltd.

CONTACT: Jennifer Zhang, +86-10-5898-1386, investors@hollysys.com; or
Serena Wu, +1-646-593-8125, serena.wu@hollysys.com, both Investor Relations,
Hollysys Automation Technologies, Ltd.

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