Hollysys Automation Technologies Reports Unaudited Financial Results for Fiscal Year 2014 Third Quarter Ended on March 31, 2014

BEIJING, May 14, 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 third quarter ended on March 31, 2014 (see attached tables).

Q3 Financial Highlights

  • Quarterly revenue of $95.8 million, representing an increase of 58.8%, compared to $60.4 million year over year, and a decrease of 37.5% compared to $153.4 million quarter over quarter.
  • Non-GAAP gross margin at 36.2%, representing a decrease of 7.6% compared to 43.8% year over year, and a 3.9% increase compared to 32.3% quarter over quarter.
  • Non-GAAP net income attributable to Hollysys of $15.1 million, representing a 29.1% increase compared to $11.7 million year over year, and a 41.7% decrease compared to $25.9 million quarter over quarter.
  • Non-GAAP Diluted EPS at $0.26 reported for the quarter, as compared to $0.21 year over year, and $0.45 quarter over quarter.
  • Backlog of $602.9 million as of March 31, 2014, representing a 61.2% increase compared to $374.0 million year over year, and 19.8% increase compared to $503.3 million quarter over quarter.
  • Quarterly DSO of 248 days, as compared to 250 days year over year, and 156 days quarter over quarter.
  • Inventory turnover days of 45 days for the current quarter compared to 78 days year over year, and 27 days quarter over quarter.
  • The total amount of cash and cash equivalents and time deposits with original maturities over three months were $150.5 million as of the current quarter end.

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

"During this quarter, we continuously insisted on executing our strategies to vertically penetrate in the high-end industrial automation market while improving our market share in mid to low end markets. We achieved several high-end projects wins in chemical, thermal and enlarge our market share in food beverage and new energy industries. We were also focusing on building strong after-sale department and set long term goals on improving after-sale services. Our solution in reducing waste material emission and environment protection proved to be successful. The past few months have been very exciting for Hollysys. A series of strict testing and on-site engineering application indicates that our new generation K series DCS products meet the requirements for large and complicated projects including power, chemical, etc. Our products will significantly improve our market competitive advantages and effectiveness of project as well as improve our client recognition. For the past few months, our HOLLiAS-N DCS product has been successfully operating in the Yangjiang Nuclear Power Plant, proving that our quality assurance system and products are completely qualified for the high standard of nuclear usage. With China accelerates its nuclear power plants construction in the future, we believe we will benefit more financially as well as in reputation in the long run. 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, during this quarter, we feel excited about the significant high-speed rail ATP contract wins for high-speed trains in 200-250km/h and 300-350km/h, total valued at RMB 687 million (approximately USD 110 million). Besides, our strong R&D capability, extraordinary project management and high-quality and reliable products had ensured our wins on a few recently operated high-speed rail lines, including Xiamen-Shenzhen line, Xi'an-Baoji line, Chongqing-Lichuan line and Wuhan-Xianning line. Those high-speed rail lines are all equipped with our high-speed rail signaling system. We will continue to deliver quality works and work closely with railway authorities in the future. With China's increased rail construction and equipment procurement budget for this year, and exciting prospect envisioned, Hollysys, as a well-recognized rail signaling system provider with strong R&D capability, solid execution and reliable products, will continue to penetrate China's vast railway construction market and achieve significant results.

"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 and products, 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, and creating value for our shareholders."

The Third Quarter Ended March 31 2014 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


Nine months ended



March 31,

2014

March 31,

2013

%
Change


March 31,

2014

March 31,

2013

%
Change










Revenues

$

95,842

60,351

58.8%

$

362,481

235,623

53.8%

    Integrated contract revenue

$

90,097

56,446

59.6%

$

343,940

220,480

56.0%

    Products sales

$

5,746

3,905

47.1%

$

18,541

15,143

22.4%

Cost of revenues

$

61,193

33,908

80.5%

$

236,821

150,904

56.9%

Gross profit

$

34,649

26,442

31.0%

$

125,660

84,719

48.3%

Total operating expenses

$

15,998

15,484

3.3%

$

54,402

44,270

22.9%

    Selling

$

5,972

5,345

11.7%

$

22,025

20,024

10.0%

    General and administrative

$

7,356

6,364

15.6%

$

24,454

16,340

49.7%

    Research and development

$

7,855

7,361

6.7%

$

28,043

23,370

20.0%

    VAT refunds and government subsidies

$

(5,186)

(3,586)

44.6%

$

(20,120)

(15,463)

30.1%

Income from operations

$

18,651

10,958

70.2%

$

71,258

40,449

76.2%

Other income, net

$

(529)

277

(291.0)%

$

806

774

4.2%

Foreign exchange gain (loss)

$

156

(225)

(169.3)%

$

1,074

2,215

(51.5)%

Share of net losses of equity investees

$

(298)

(807)

(63.1)%

$

(1,777)

(518)

242.9%

Dividend income from cost investees


-

-

-


-

830

(100.0)%

Interest income

$

821

684

20.0%

$

2,347

2,416

(2.9)%

Interest expenses

$

(206)

(324)

(36.5)%

$

(756)

(1,561)

(51.6)%

Income tax expenses (credit)

$

2,856

(1,245)

(329.4)%

$

10,280

3,356

206.3%

Non-GAAP net income  attributable to non-

   controlling interest

$

617

107

477.2%

$

1,257

200

529.5%

Non-GAAP net income attributable to Hollysys

   Automation Technologies Ltd.

$

15,122

11,701

29.2%

$

61,416

41,049

49.6%

Basic Non-GAAP EPS

$

0.26

0.21

23.8%

$

1.06

0.73

45.2%

Diluted  Non-GAAP EPS

$

0.26

0.21

23.8%

$

1.05

0.73

43.8%










Share based compensation expenses

$

489

517

(5.5)%

$

2,116

1,570

34.7%

Amortization of acquired intangibles

$

926

-

-

$

4,003

-

-

Acquisition-related  incentive share contingent

   consideration fair value adjustments

3,501

-

-


6,206

-

-

Acquisition-related cash contingent

   consideration fair value adjustments

$

196

-

-

$

733

-

-

Net income attributable to Hollysys 
   Automation Technologies Ltd. (GAAP)

$

10,011

11,184

(10.5)%

$

48,358

39,478

22.5%

Basic GAAP EPS

$

0.17

0.20

(15.0)%

$

0.84

0.70

20.0%

Diluted GAAP EPS

$

0.17

0.20

(15.0)%

$

0.83

0.70

18.6%










Basic weighted average common shares

     outstanding


58,259,337

56,068,084

3.9%


57,820,122

56,022,512

3.2%

Diluted weighted average common shares

    outstanding


58,862,467

56,468,567

4.2%


58,322,944

56,086,042

4.0%

Operational Results Analysis for the quarter ended March 31, 2014

For the quarter ended March 31, 2014, total revenue increased by 58.8% to $95.8 million from $60.4 million compared to the same period from the prior year. Of the total revenue, revenue from integrated contracts increased by 59.6% to $90.1million, as compared to $56.4 million for the same period of the prior year; revenue from products sales increased by 47.1% to $5.7 million, as compared to $3.9 million for the same period of the prior year. The Company's total revenue broken down by segment is shown as below:



Three months ended Mar 31,


Nine months ended Mar 31,



2014


2013


2014


2013



$

% to

Total

Revenue


$

% to

Total

Revenue


$

% to

Total

Revenue


$

% to

Total

Revenue

Industrial Automation


39.6

41.3%


38.5

63.9%


162.9

44.9%


152.6

64.8%

Rail Transportation


26.0

27.2%


17.5

28.9%


117.7

32.5%


53.8

22.9%

M&E Solution


23.7

24.6%


-

-


74.4

20.5%


13.0

5.4%

Miscellaneous


6.5

6.8%


4.3

7.2%


7.4

2.1%


16.2

6.9%

Total


95.8

100.0%


60.4

100.0%


362.5

100.0%


235.6

100.0%

As a percentage of total revenues, overall gross margin excluding non-cash amortization of acquired intangibles was 36.2% for the three months ended March 31, 2014, as compared to 43.8% 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 34.8% and 57.5% for the three months ended March 31, 2014, as compared to 42.5% and 62.1% 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 35.2% for the three months ended March 31, 2014, as compared to 43.8% 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 33.8% and 57.5% for the three months ended March 31, 2014, as compared to 42.6% and 62.1% for the same period of the prior year respectively.

For the quarter ended March 31, 2014, selling expenses were $6.0 million, as compared to $5.3 million for the same quarter of the prior year, representing an increase of $0.7 million or 11.7% year over year. As a percentage of total revenues, selling expenses were 6.2% and 8.9% for the three months ended March 31, 2014, and 2013, respectively.

General and administrative expenses, excluding non-cash share-based compensation expense, were $7.4 million for the quarter ended March 31, 2014, representing an increase of $1.0 million or 15.6%, compared to $6.4 million for the same period of the prior year. The increase was mainly due to an increase of $1.2 million contributed by the newly acquired company Bond. As a percentage of total revenues, G&A expenses were 7.7% and 10.5% for the quarter ended March 31st, 2014 and 2013, respectively. Including the non-cash share-based compensation expense, recorded on a GAAP basis, G&A expenses were $7.8 million and $6.9 million for the quarter ended March 31st, 2014 and 2013, respectively.

Research and development expenses were $7.9 million for the quarter ended March 31, 2014, as compared to $7.4 million for the same quarter of the prior year, representing a year over year increase of $0.5 million, or 6.7%. As a percentage of total revenues, R&D expenses were 8.2% and 12.2% for the quarter ended March 31, 2014 and 2013, respectively.

The VAT refunds and government subsidies amounted to $5.2 million for the quarter ended March 31, 2014, as compared to $3.6 million for the same period in the prior year.  

The income tax expenses and effective tax rate were $2.9 million and 21.2% for the quarter ended March 31, 2014. Excluding the impact of non-GAAP adjustments on the Income before income taxes, the effective tax rate was 15.4% for the current quarter. For the same quarter in the prior year, the income tax credit was 1.2 million due to a refund Beijing Hollysys received as a result of being certified as a key software enterprise for the calendar year 2011 & 2012.

For the quarter ended March 31, 2014, 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 $15.1 million or $0.26 per diluted share based on 58.9 million shares outstanding. This represents an increase of $3.4 million, or 29.1%, over the $11.7 million or $0.21 per share based on 56.5 million shares outstanding, reported in the prior year same period. On a GAAP basis, net income attributable to Hollysys was $10.0 million or $0.17 per diluted share representing a decrease of $1.2 million or 10.5%, over the $11.2 million or $0.20 per diluted share reported in the prior year period.  

Backlog Highlights

Hollysys' backlog as of March 31, 2014 was $602.9 million, representing an increase of 19.8% compared to $505.3 million as of December 31, 2013, and an increase of 61.2% compared to $374.0 million as of March 31, 2013. The detail segment breakdown is shown as below:






Quarter-over-Quarter Analysis


Year-over-Year Analysis



2014-3-31


2013-12-31


2013-3-31



$

% to

Total

Backlog


$

% to

Total

Backlog


%
Change


$

% to

Total

Backlog


%
Change

Industrial Automation


172.1

28.5%


149.4

29.7%


15.2%


146.3

39.1%


17.6%

Rail Transportation


278.3

46.2%


223.3

44.4%


24.6%


202.9

54.2%


37.1%

M&E Solution


152.4

25.3%


106.5

21.2%


43.2%


-

-


-

Miscellaneous


0.1

0.0%


24.1

4.8%


(99.6%)


24.8

6.6%


(99.6%)

Total


602.9

100.0%


503.3

100.0%


19.8%


374.0

100.0%


61.2%

Cash Flow Highlights

The net cash provided by operating activities was $3.1 million for the quarter ended March 31, 2014; including investing and financing activities, the total net cash outflows for this quarter was $10.9 million. During the quarter, there was $2.6 million net cash inflow from the proceeds of short-term bank loans and $1.6 million net cash inflow from the proceeds of long-term bank loans.  There was a net cash outflow of $12.0 million used in time deposits placed with bank and a net cash outflow of $2.7 million as the result of repayment of long-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $150.5 million, $150.1 million, and $131.1 million as of March 31 2014, December 31, 2013 and June 30 2013, respectively. Of the total $150.5 million as of December 31, 2013, cash and cash equivalents were $124.2 million, and time deposits with original maturities over three months were $26.3 million.

For the quarter ended March 31, 2014, Days Sales Outstanding ("DSO") was 248 days, as compared to 250 days year over year, and 156 days quarter over quarter. Inventory turnover days of 45 days for the current quarter compared to 78 days year over year, and 27 days quarter over quarter

Outlook for FY 2014

Hollysys management concluded, "In view of our strong backlog and future exciting growth momentum envisioned, we are reiterating our fiscal year 2014 revenue guidance of $500 million to $530 million and non-GAAP net income guidance of $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 new markets 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 May 15, 2014 / 9:00 p.m. U.S. Eastern Time on May 14, 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 2533152.

4001-200-539 (Mainland 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 plant 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
+86-10-58981386
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
March 31,


Nine months ended
March 31,



2014


2013


2014


2013



(Unaudited)


(Unaudited)


(Unaudited)


 (Unaudited)

Revenues









Integrated contract revenue

$

90,096,587

$

56,445,995

$

343,939,861


220,479,657

Products sales


5,745,651


3,904,716


18,540,902


15,143,279

Total revenues


95,842,238


60,350,711


362,480,763


235,622,936










Cost of integrated contracts


59,676,218


32,429,992


234,250,522


145,470,976

Cost of products sold


2,442,915


1,478,315


6,573,666


5,432,623

Gross profit


33,723,105


26,442,404


121,656,575


84,719,337










Operating expenses









Selling


5,972,423


5,344,703


22,025,155


20,023,845

General and administrative


7,844,673


6,881,032


26,569,703


17,910,059

Research and development


7,855,149


7,361,126


28,042,859


23,369,833

VAT refunds and government subsidies


(5,185,543)


(3,585,679)


(20,120,034)


(15,463,226)

Total operating expenses


16,486,702


16,001,182


56,517,683


45,840,511










Income from operations


17,236,403


10,441,222


65,138,892


38,878,826










Other (losses) income , net


(4,030,258)


276,841


(5,400,067)


773,559

Foreign exchange gain (loss)


156,089


(225,287)


1,074,381


2,214,674

Share of net losses of equity investees


(297,799)


(806,570)


(1,777,287)


(518,307)

Dividend income from cost investees


-


-


-


830,196

Interest income


820,661


683,783


2,346,967


2,416,221

Interest expenses


(401,230)


(323,999)


(1,488,847)


(1,561,305)

Income before income taxes


13,483,866


10,045,990


59,894,039


43,033,864










Income taxes (credit) expenses


2,856,030


(1,245,065)


10,279,913


3,356,087

Net income


10,627,836


11,291,055


49,614,126


39,677,777










Net income attributable to non-controlling interest


617,193


106,922


1,256,550


199,616

Net income attributable to Hollysys

   Automation Technologies Ltd.

   stockholders

$

10,010,643

$

11,184,133

$

48,357,576


39,478,161










Other comprehensive income, net of tax









Foreign currency translation adjustments, net of nil tax


(2,465,494)


872,847


459,156


760,090

Comprehensive income


8,162,342


12,163,902


50,073,282


40,437,867










Comprehensive income attributable to non-

   controlling interest


597,263


111,610


1,262,713


211,047

Comprehensive income attributable to

    Hollysys Automation Technologies

    Ltd. stockholders

$

7,565,079

$

12,052,292

$

48,810,569


40,226,820










Net income per ordinary share:









Basic


0.17


0.20


0.84


0.70

Diluted


0.17


0.20


0.83


0.70

Weighted average ordinary shares used 

   in income per share computation:









Basic


58,259,337


56,068,084


57,820,122


56,022,512

Diluted


58,862,467


56,468,567


58,332,944


56,086,042











 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

(In US Dollars)












March 31,


December 31,





2014


2013





(Unaudited)


(Unaudited)

ASSETS






Current Assets







Cash and cash equivalents

$

124,164,048

$

135,085,593



Time deposits with original maturities over three months


26,338,774


15,035,316



Restricted cash


8,098,290


7,618,795



Accounts receivable, net of allowance for doubtful accounts of

    $23,924,623 and $23,745,875 as of March 31, 2014 and

    December 31, 2013, respectively


264,639,439


263,443,090



Costs and estimated earnings in excess of billings, net of

   allowance for doubtful accounts of $2,908,179 and $2,900,924 

   as of March 31, 2014 and December 31, 2013, respectively


164,191,999


165,498,207



Other receivables, net of allowance for doubtful accounts of

   $299,807 and $280,499  as of March 31, 2014 and December

   31, 2013, respectively


11,431,211


9,800,695



Advances to suppliers


14,524,937


9,539,263



Amount due from related parties


22,090,314


22,150,884



Inventories, net


34,624,528


27,526,001



Prepaid expenses


827,315


902,317



Income tax recoverable


564,165


228,503



Deferred tax assets


5,844,864


6,375,846



Assets held for sale


2,797,980


2,777,865


Total current assets


680,137,864


665,982,375










Restricted cash


5,768,814


6,547,708



Prepaid expenses


329,979


417,532



Property, plant and equipment, net


82,553,765


83,926,203



Prepaid land leases


12,405,510


12,491,977



Acquired intangible assets, net


7,850,435


8,715,403



Investments in equity investees


16,108,375


16,590,675



Investments in cost investees


4,436,363


4,800,234



Goodwill


66,032,319


65,574,520



Deferred tax assets


1,787,607


744,481









Total assets


877,411,031


865,791,108








LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities







Short-term bank loans


7,769,234


6,656,597



Current portion of long-term loans


11,449,333


10,607,340



Accounts payable


134,224,272


143,246,660



Construction cost payable


6,143,893


6,521,670



Deferred revenue


128,283,461


107,970,201



Accrued payroll and related expense


7,524,957


13,561,845



Income tax payable


7,921,609


9,771,145



Warranty liabilities


2,181,098


2,181,282



Other tax payables


21,989,008


25,908,451



Accrued liabilities


18,393,174


18,433,648



Amounts due to related parties


3,017,591


2,880,393



Deferred tax liabilities


284,969


236,054



Current portion of acquisition-related payment


43,097,879


26,284,773


Total current liabilities


392,280,478


374,260,059










Long-term bank loans


12,378,561


14,498,587



Deferred tax liabilities


2,632,878


2,826,399



Long-term warranty liabilities


2,454,820


2,076,652



Long-term acquisition-related payment


-


13,116,010


Total liabilities


409,746,737


406,777,707









Commitments and contingencies













Equity







Ordinary shares


57,555


57,555



Additional paid-in capital


172,895,267


172,406,716



Statutory reserves


23,288,812


23,293,011



Retained earnings


231,088,580


221,073,738



Accumulated other comprehensive income


37,324,660


39,770,224


Total Hollysys Automation Technologies Ltd. stockholder's

      equity


464,654,874


456,601,244










Non-controlling interest


3,009,420


2,412,157


Total equity


467,664,294


459,013,401









Total liabilities and equity

$

877,411,031

$

865,791,108

 


HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In US Dollars)










Three months ended
March 31, 2014


Nine months ended

March 31, 2014




(Unaudited)


(Unaudited)

Cash flows from operating activities:






Net income

$

10,627,836

$

49,614,126

Adjustments to reconcile net income to net cash provided by operating            activities:






Depreciation of property, plant and equipment


1,704,511


5,183,136


Amortization of prepaid land leases


70,429


172,282


Amortization of intangible assets


925,855


4,002,967


Allowance for doubtful accounts


699,769


5,029,832


Gain on disposal of property, plant and equipment


29,174


(1,577)


Impairment loss on investment in a cost investee


325,452


325,452


Share of net loss from equity investees


297,799


1,777,287


Share based compensation expenses


488,551


2,116,017


Deferred income tax expenses


(693,271)


(5,647,648)


Acquisition-related contingent consideration fair value adjustments


3,697,097


6,938,968

Changes in operating assets and liabilities:                                                     






Accounts receivable


(2,988,845)


(91,781,735)


Costs and estimated earnings in excess of billings


392,325


(20,365,649)


Inventories 


(7,365,777)


(373,475)


Advances to suppliers


(5,053,941)


(5,894,687)


Other receivables 


(1,705,224)


339,720


Deposits and other assets


439,549


(3,333,335)


Due from related parties


(67,596)


4,273,202


Accounts payable


(8,469,552)


22,705,824


Deferred revenue


20,833,793


60,927,763


Accruals and other payable


(5,314,854)


(2,318,145)


Due to related parties


154,219


927,725


Income tax payable


(2,176,385)


2,746,248


Other tax payables


(3,735,936)


(154,839)


Net cash provided by operating activities


3,114,978


37,209,459







Cash flows from investing activities:






Time deposits placed with banks


(12,020,996)


(16,880,280)


Purchases of property, plant and equipment


(1,517,765)


(6,670,891)


Proceeds from disposal of property, plant and equipment


6,623


16,932


Maturity of time deposits


680,622


11,487,992


Acquisition of a subsidiary, net of cash acquired


-


(5,510,000)


Investment of an equity investee


-


(3,905,424)


Investment of a cost investee


-


(1,030,720)


Dividends from equity investees


-


2,408,344


Net cash used in investing activities


(12,851,516)


(20,084,047)







Cash flows from financing activities:






Proceeds from short-term bank loans


2,552,071


6,398,613


Repayments of short-term bank loans


(1,489,149)


(6,988,483)


Proceeds from long-term bank loans


1,561,011


3,577,120


Repayments of long-term bank loans


(2,695,355)


(7,654,451)


Net cash used in financing activities


(71,422)


(4,667,201)








Effect of foreign exchange rate changes


(1,113,585)


(522,742)


Net (decrease) increase in cash and cash equivalents

$

(10,921,545)

$

11,935,469








Cash and cash equivalents, beginning of period

$

135,085,593

$

112,228,579


Cash and cash equivalents, end of period


124,164,048


124,164,048

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


Nine months ended




March 31,


March 31,




2014


2013


2014


2013




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Cost of integrated contracts

$

59,676,218


32,429,992


234,250,522


145,470,976

Less: amortization of acquired intangibles


925,856


-


4,002,967


-

Non-GAAP cost of integrated contracts

$

58,750,362


32,429,992


230,247,555


145,470,976











General and administrative expenses

$

7,844,673

$

6,881,032


26,569,703

$

17,910,059

Less: Share based compensation costs


488,551


516,858


2,116,017


1,570,403

Non-GAAP general and administrative expenses

$

7,356,122

$

6,364,174


24,453,686

$

16,339,656











Other income (expense), net

$

(4,030,258)


276,841


(5,400,067)


773,559

Add: acquisition-related incentive share contingent

   consideration fair value adjustments


3,501,487


-


6,206,320


-

Non-GAAP Other income , net

$

(528,771)


276,841


806,253


773,559











Interest expenses

$

(401,230)


(323,999)


(1,488,847)


(1,561,305)

Add: acquisition-related cash consideration adjustments


195,609


-


732,647


-

Non-GAAP Interest expenses

$

(205,621)

$

(323,999)


(756,200)

$

(1,561,305)

Net income attributable to Hollysys Automation

   Technologies Ltd. stockholders

$

10,010,643

$

11,184,133


48,357,576

$

39,478,161

Add:










Share based compensation expenses


488,551


516,858


2,116,017


1,570,403


Amortization of acquired intangible assets


925,856


-


4,002,967


-


Acquisition-related consideration adjustments


3,697,096


-


6,938,968


-

Non-GAAP net income attributable to Hollysys

   Automation Technologies Ltd. stockholders

$

15,122,146

$

11,700,991


61,415,528

$

41,048,564












Weighted average number of basic ordinary shares


58,259,337


56,068,084


57,604,683


56,068,084


Weighted average number of diluted ordinary

   shares


58,862,467


56,468,567


58,073,331


56,468,567

Non-GAAP basic earnings per share

$

0.26

$

0.21


1.07

$

0.73

Non-GAAP diluted earnings per share

$

0.26

$

0.21


1.06

$

0.73

SOURCE Hollysys Automation Technologies, Ltd.



RELATED LINKS
http://www.hollysys.com
http://ir.hollysys.com

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