2014

China Information Technology, Inc. Announces First Quarter 2012 Results

SHENZHEN, China, May 4, 2012 /PRNewswire-Asia-FirstCall/ -- China Information Technology, Inc. (Nasdaq: CNIT), a leading provider of information technologies and display technologies based in China, today announced its financial results for the first quarter ended March 31, 2012.

First Quarter 2012 Financial Highlights

  • Revenues decreased 39.6% YoY to $16.3 million
  • Gross profit decreased 57.7% YoY to $5.8 million
  • Operating loss of $3.2 million
  • Net loss of $2.9 million
  • Fully diluted net loss per share of $0.11
  • Net cash used in operating activities was $0.7 million, vs. an operating net cash inflow of $1.9 million a year ago

Mr. Jiang Huai Lin, chairman and chief executive officer of the Company, commented, "As expected the first quarter was a weak season for the Company. Revenues and net income declined 39.6% and 134.8% year-over-year to $16.3 million and a net loss of $2.9 million, respectively. In addition to seasonality, the challenging market conditions remained a main contributor to the weakness of this quarter as the Chinese government's implementation of tightening policies continued to have a dramatic impact on our government IT projects. In addition, in the Company's efforts to improve its earnings quality and transition to a more healthy and sustainable product mix also led to relatively weak results: we have executed more stringent customer acceptance initiatives in the IT segment, while investing much time and capital in incubating our DT product offerings and customer base with the aim to ease our reliance on government clients and capture new market opportunities.

"As a result of the business restructuring of our DT segment for the purpose of enhancing our competitiveness and innovation, during the quarter we continued to write down our inventory in traditional DT products, and to focus on the high-end interactive touch-screen products, which are embedded with our proprietary innovative software that can serve a widening customer base from education, media, transportation, government and commercial uses. With a great deal of energy and resources invested thus far in developing new DT products featuring advanced, multi-functional interactive display technologies, combined with our efforts in actively educating the markets, we have received several premium industry awards which have contributed to our strong industry reputation and greater potential business opportunities in the future. Our transition strategy in the DT segment which started last year appears to have been in the right direction as we saw traditional mature display technologies face challenges in recent quarters while the potential of multi-functional and touch screen technologies become clearer. We have created a portfolio of new-generation DT product lines, including our CNIT IT-Pad, CNIT DS-Pad and CNIT Tea-Pad, which will target the different segments of the market for advanced DT products. We believe the market for interactive display technology in China is great, and we are on-track to become a front-runner in this new market.

"Our traditional core IT Segment decreased by 46.0% and accounted for 63.0% of total revenues in the first quarter as in the current government tightening environment we received fewer large-scale public security projects for our DPST business, which used to be the main contributor of our IT line and total revenues. However, we are pleased to see our GIS business continues to secure important contract opportunities under projects related to China's 'Smart Grid' and 'Map World' national initiatives; while in our digital hospital segment, we successfully entered Hunan and Guangxi Provinces by building a productive sales network and winning a significant number of contracts with new hospital and health authority customers in these areas. We expect our GIS and HIS businesses to continue to grow in 2012 and become the main growth drivers for the Company's IT segment over the long-run.

"Although we expect the tough environment will continue to have an impact on the Company throughout the year, we believe the slowdown of our business is temporary. When the difficult market conditions ease and our business restructure strategy is fully implemented, we expect to regain growth momentum. Our core competency, industry reputation and customer relationship in our core IT and DT segments remain strong, and we are highly confident in our abilities to sustain long-term growth and create shareholder value."

First Quarter 2012 Results

Revenues

For 1Q 2012, revenues were $16.3 million, compared to $26.9 million in 1Q 2011, a decrease of $10.7 million, or 39.6%. The decrease was primarily due to the difficult fiscal environment faced by many local Chinese governments as a result of the Chinese government's implementation of macroeconomic tightening policies, which led to a slowdown in projects for the government customers, which traditionally have been the Company's core customer base; and, secondarily due to the continued challenging industry dynamics for traditional flat-screen TV products.

Product sales decreased by $2.0 million, or 24.6%, to $6.0 million in 1Q 2012, as compared to $8.0 million in 1Q 2011. Product sales constituted 37.1% of total revenues in 1Q 2012, as compared with 29.7% in 1Q 2011. The decrease in product sales primarily reflected: 1) the Company's efforts to transition its DT segment from the increasingly competitive and low-margin flat-screen TV market into the multi-functional and interactive display technology markets, which caused total product unit sales to fall, and 2) lower pricing of traditional flat-screen TVs in the midst of increasing industry competition for LCD TV products.

Software sales decreased by $7.5 million, or 54.2%, to $6.4 million in 1Q 2012, from $13.9 million in 1Q 2011. Software sales constituted 39.1% of total revenues, which decreased from 51.5% in 1Q 2011. The decrease was mainly due to the Chinese government's implementation of macroeconomic tightening policies and the curtailment of the massive government economic stimulus package, which led to a slowdown in software projects for government customers. In addition, the Company instituted more stringent customer acceptance policies, which limited new projects to those with solid credit credentials and long-term business prospects in light of the unfavorable government fiscal environment.

Sales of system integration services decreased by $1.3 million, or 27.3%, to $3.6 million in 1Q 2012, from $4.9 million in 1Q 2011. As a percentage of revenues, system integration sales increased from 18.3% in 1Q 2011 to 22.0% in 1Q 2012. The decrease was mainly the result of the relatively weak economic environment in the first quarter of 2012 and a lack of new large system integration solutions engagements in connection with large projects such as the Shenzhen Summer Universiade, which was held in August 2011.

Other revenues increased by $0.2 million, or 131.0%, from $0.1 million in 1Q 2011 to $0.3 million in 1Q 2012. The increase was mainly due to increase in maintenance services during the current period.

Cost of revenues and gross profit

Cost of revenues decreased by $2.8 million, or 21.0%, to $10.5 million in 1Q 2012, as compared with $13.3 million in 1Q 2011. As a percentage of revenues, cost of revenues increased to 64.5% in 1Q 2012, from 49.3% in 1Q 2011. As a result, gross margin was 35.5% in 1Q 2012, a decrease of 1,516 basis points from 50.7% in 1Q 2011.

The decrease in gross profit margin resulted from several factors, including revenues shifting from the IT segment to the DT segment, lower software revenues, lower system integration gross margins, and lower prices of LCD TV products while the cost of manufacturing rose in 1Q 2012.

Administrative expenses

Administrative expenses increased by $3.1 million, or 125.6%, to $5.6 million in 1Q 2012, from $2.5 million in 1Q 2011. Notable changes that resulted in increased administrative expenses consisted of an increase of inventory write-downs of $1.8 million and an increase of provision of accounts receivables of $1.4 million.

Research and development expenses

Research and development expenses increased by $0.7 million, or 102.0%, to $1.5 million in 1Q 2012, from $0.7 million in 1Q 2011. As a percentage of revenues, research and development expenses accounted for approximately 9.1% of total revenues in 1Q 2012, compared with 2.7% in 1Q 2011. Such increase was primarily due to the Company's efforts to improve the profitability of existing products as well as development of new products.

Selling expenses

Selling expenses increased by $0.4 million, or 23.9%, to $1.9 million in 1Q 2012, from $1.5 million in 1Q 2011. This increase was due to the Company's increasingly nationwide market expansion, which requires increased travel and telecommunication expenses as well as increased total compensation to sales and marketing staff.

Income from Operations

Income from operations was a loss of $3.2 million, a decrease of $12.1 million, or 136%, from $8.9 million in 1Q 2011.

Net income attributable to the Company

As a result of the cumulative effect of the foregoing factors, net loss was $2.9 million in 1Q 2012, as compared to net income of $8.2 million in 1Q 2011.

Cash and Cash Equivalents

As of March 31, 2012, the Company had $7.6 million in cash and cash equivalents, and $11.0 million in restricted cash.  For 1Q 2012, net cash used in operating activities was $0.7 million, as compared to an operating net cash inflow of $1.9 million in 1Q 2011.

Financial Outlook

For fiscal year 2012, the Company reiterates its guidance with projected revenues in the range of $110 million to $120 million and net income in the range of $3 million to $5 million.

Conference Call

China Information Technology will host a conference call and live webcast at to discuss these results on Friday, May 4, 2012, at 8:00am Eastern Daylight Time (EDT) (8:00pm in Beijing and Hong Kong).

The dial-in details for the live conference call are as follows:

U.S. Toll Free Number:

+1 866 519 4004

International Dial-in Number:

+65 6723 9381

China Toll Free Number:

800 819 0121

China Toll Free Mobile Number:

400 620 8038

Hong Kong Toll Free Number:

800 930 346

Conference ID:

77981539

A live and archived webcast of the call will be available on the Investor Relations section of China Information Technology's website at http://www.chinacnit.com.

A telephone replay of the call will be available beginning two hours after the conclusion of the conference call through 11:59 pm Eastern Daylight Time, May 11, 2012.

The dial-in details for the replay are as follows:

U.S. Toll Free Number:

+1 866 214 5335

International Dial-in Number:

+61 2 8235 5000

Conference ID:

77981539

About China Information Technology, Inc.

China Information Technology, Inc., through its subsidiaries and other consolidated entities, specializes in geographic information systems (GIS), digital public security technology (DPST), and hospital information systems (HIS), as well as high-end digital display products and solutions in China. Headquartered in Shenzhen, China, the Company's integrated solutions include specialized software, hardware, systems integration, and related services to help its customers improve efficiency in information management. To learn more about the Company, please visit its corporate website at http://www.chinacnit.com.

Safe Harbor Statement

This press release may contain certain "forward-looking statements" relating to the business of China Information Technology, Inc., and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements" including statements regarding: the financial outlook of the Company; the ability of the Company to secure future opportunities in the market by leveraging its R&D capabilities and reputation; the ability of the Company to develop new products and new markets successfully; the general ability of the Company to achieve its commercial objectives, including the Company's plan to sustain growth while creating shareholder value; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements, often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. 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 periodic 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:

China Information Technology, Inc.
Iris Yan
Tel: +86 755 8370 4767
Email: IR@chinacnit.com
http://www.chinacnit.com

 

CHINA INFORMATION TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2012 AND DECEMBER 31, 2011

Expressed in U.S. dollars (Except for share amounts)











March 31



December 31




2012



2011




(Unaudited)




ASSETS














CURRENT ASSETS







Cash and cash equivalents


$

7,600,800


$

14,019,634

Restricted cash



11,043,299



12,538,049

Accounts receivable:







Billed, net of allowance for doubtful accounts of $10,296,000

and $9,373,000, respectively



22,791,406



31,117,415

Unbilled



82,247,636



72,225,044

Bills receivable



334,541



247,338

Advances to suppliers



6,593,778



5,020,747

Amounts due from related parties



239,569



22,823

Inventories, net of provision of $5,387,000 and

$5,224,000, respectively



25,042,389



22,317,260

Other receivables and prepaid expenses



8,341,022



9,603,954

Deferred tax assets



2,740,487



2,548,834

TOTAL CURRENT ASSETS


$

166,974,927



169,661,098








Deposit for purchase of land use rights



27,739,710



27,564,586

Long-term investments



2,416,819



2,401,561

Property, plant and equipment, net



89,068,915



91,161,093

Land use rights, net



1,957,709



1,956,616

Intangible assets, net



14,497,630



14,380,459

Goodwill



54,346,040



53,983,687

Deferred tax assets



669,208



683,042

TOTAL ASSETS


$

357,670,958


$

361,792,142








LIABILITIES AND EQUITY














CURRENT LIABILITIES







Short-term bank loans


$

35,001,363


$

40,983,457

Accounts payable



20,690,465



19,013,509

Bills payable



24,806,687



27,399,393

Advances from customers



5,207,919



6,403,966

Amounts due to related parties



621,835



593,617

Accrued payroll and benefits



2,574,306



3,060,384

Other payables and accrued expenses



12,728,599



6,784,353

Income tax payable



3,559,753



3,525,949

TOTAL CURRENT LIABILITIES


$

105,190,927



107,764,628








Long-term bank loans



100,722



109,524

Amounts due to related parties, long-term portion



12,704



12,624

Deferred tax liabilities



1,336,669



1,365,680

TOTAL LIABILITIES


$

106,641,022



109,252,456








COMMITMENTS AND CONTINGENCIES 








EQUITY







Common stock, par $0.01; authorized capital 100,000,000 shares;

Shares  issued and outstanding 2012: 27,007,608 shares,

2011: 27,230,835 shares



286,326



286,326

Treasury stock, 2012: 584,231 shares, 2011: 360,627 shares at cost



(1,011,091)



(695,514)

Additional paid-in capital



101,261,307



101,261,307

Reserve



14,488,533



14,488,533

Retained earnings



92,618,690



95,600,619

Accumulated other comprehensive income



21,446,108



19,925,259

Total equity of the Company



229,089,873



230,866,530

Non-controlling interest



21,940,063



21,673,156

TOTAL EQUITY


$

251,029,936



252,539,686








TOTAL LIABILITIES AND EQUITY


$

357,670,958


$

361,792,142

 

CHINA INFORMATION TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

Expressed in U.S. dollars (Except for share amounts)

(Unaudited)





2012



2011







Revenue – Products



$

6,037,489


$

8,006,993

Revenue – Software




6,366,430



13,891,525

Revenue - System integration




3,576,377



4,920,500

Revenue – Others




299,693



129,730

TOTAL REVENUES




16,279,989



26,948,748









Cost - Products sold




4,719,407



5,810,023

Cost - Software sold




2,897,949



4,249,606

Cost - System integration




2,641,726



3,143,157

Cost – Others




239,225



91,122

TOTAL COST




10,498,307



13,293,908









GROSS PROFIT




5,781,682



13,654,840









Administrative expenses




(5,648,632)



(2,504,307)

Research and development expenses




(1,481,027)



(733,330)

Selling expenses




(1,860,628)



(1,502,150)

(LOSS)INCOME FROM OPERATIONS




(3,208,605)



8,915,053









Subsidy income




393,780



30,440

Other income, net




467,653



833,780

Interest income




76,676



95,006

Interest expense




(828,186)



(699,706)

(LOSS)INCOME BEFORE INCOME TAXES




(3,098,682)



9,174,573









Income tax benefit(expense)




27,001



(1,080,518)

NET INCOME




(3,071,681)



8,094,055









Less: Net loss attributable to the non-controlling interest




211,883



128,278









NET (LOSS)INCOME ATTRIBUTABLE TO THE COMPANY



$

(2,859,798)


$

8,222,333









Weighted average number of shares








Basic




27,048,521



26,265,405

Diluted




27,048,521



26,265,405









Earnings(loss)per share - Basic and Diluted








Basic - Net (loss)income attributable to the Company's common stockholders



$

(0.11)


$

0.31

Diluted - Net (loss)income attributable to the Company's common stockholders



$

(0.11)


$

0.31

 

CHINA INFORMATION TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

Expressed in U.S. dollars (Except for share amounts)

(Unaudited)



2012



2011





Net(loss)income

$

(3,071,681)


$

8,094,055

Other comprehensive income:






Foreign currency translation gain


1,594,075



1,572,519

Comprehensive (loss)income


(1,477,606)



9,666,574

Comprehensive loss attributable to the non-controlling interest


138,657



77,818

Comprehensive (loss)income attributable to the Company

$

(1,338,949)


$

9,744,392

 

CHINA INFORMATION TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

Expressed in U.S. dollars

(Unaudited)




2012


2011

OPERATING ACTIVITIES





Net (loss) income

$

(3,071,681)


8,094,055

Adjustments to reconcile net income to net cash provided





by operating activities:



Provision (recovery) for losses on accounts receivable and


781,955


(866,161)

other current assets



Depreciation


2,989,548


2,471,967

Amortization of intangible assets and land use rights


458,487


456,221

(Gain) loss on disposal of property, plant and equipment, net


(7,289)


11,074

Provision for obsolete inventories


1,057,033


266,658

Change in fair value of contingent consideration


-


(1,178,375)

Change in deferred income tax


(195,466)


(113,687)

Impairment of long-term investments


-


548,845

Imputed interests in relation to shareholder's loan


-


62,500

Changes in operating assets and liabilities, net of effects





of business acquisitions



Decrease in restricted cash


346,883


1,133,647

(Increase) decrease in accounts receivable


(1,908,668)


139,635

(Increase) in advances to suppliers


(1,440,889)


(3,801,954)

Decrease (increase) in other receivables and prepaid expenses


1,224,617


(1,444,804)

Increase in inventories


(3,687,425)


(8,377,510)

(Decrease) increase in accounts payable and bills payable


(1,213,669)


4,853,698

(Decrease) increase in advances from customers


(1,239,856)


107,117

(Decrease) increase in amounts due to/from related parties


(210,224)


1,426,360

Increase (decrease) in accrued expenses and other liabilities


5,416,757


(1,751,438)

(Increase) decrease in income tax payable


11,979


(137,684)

Net cash (used in) provided by operating activities


(687,908)


1,900,164






INVESTING ACTIVITIES





Proceeds from sales of property and equipment


8,662


-

Purchases of property, plant and equipment


(313,820)


(334,364)

Capitalized and purchased software development costs


(472,993)


(441,182)

Dividends received


79,368


-

Deposit for land-use-rights


-


(2,237,340)

Net cash used in investing activities


(698,783)


(3,012,886)






FINANCING ACTIVITIES





Borrowings under short-term loans


15,994,996


27,350,005

Capital injection to Zhongtian by minority shareholders


283,433


-

Repayment of short-term loans


(22,237,204)


(27,411,314)

Repayment of long-term loans


(8,894)


(570,750)

Purchase of treasury stock


(315,577)


-

Decrease(increase) in restricted cash in relation to


1,231,501


(827,683)

bank borrowings



Net cash used in financing activities


(5,051,745)


(1,459,742)






Effect of exchange rate changes on cash and cash equivalents


19,602


86,446






NET DECREASE IN CASH AND CASH EQUIVALENTS


(6,418,834)


(2,486,018)

CASH AND CASH EQUIVALENTS, BEGINNING


14,019,634


18,166,857

CASH AND CASH EQUIVALENTS, ENDING

$

7,600,800


15,680,839

Supplemental disclosure of cash flow information:





Cash paid during the period





Income taxes

$

209,740


1,342,979

Interest paid

$

807,734


658,460

SOURCE China Information Technology, Inc.



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