Hollysys Automation Technologies Reports Unaudited Financial Results for the Fiscal Year 2010 Second Quarter Ended December 31, 2009

BEIJING, Feb. 11 /PRNewswire-Asia/ --

Q2 FY 2010 Highlights

-- Unprecedented backlog reported at $219.7 million as of December 31,

2009

-- Revenues of $46.2 million, as compared to $38.2 million quarter over

quarter, and $52.5 million year over year

-- Non-GAAP net income attributable to Hollysys of $8.1 million, as

compared to $6.6 million quarter over quarter, and $11.1 million year

over year

-- $13.7 million net cash generated from operations for the quarter ended

on December 31, 2009;

-- $138.9 million cash and cash equivalents as of December 31, 2009, and

DSO at 137 days

-- The first 300-350kph high-speed rail Zhengzhou-Xian line commissioned

by Hollysys' signaling systems successfully put in commercial operation

-- Delivered the first ever China-made DCS for ultra supercritical GW

level thermal power station in China

-- Hollysys buying out the minority interest in subsidiary Beijing

Hollysys

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 second quarter of fiscal year 2010 ended December 31, 2009 (see attached tables).

Dr. Changli Wang, Hollysys' Chief Executive Officer, stated, "We are pleased to report a strong fiscal 2010 second quarter with solid financial and operational results and significant strategic progress. The management is satisfied with our financial performance, from both operating and financial perspective, given the adverse impact of economic downturns and uncertainties we've experienced over the past 12 months. We accomplished the net income target set out at the beginning of the fiscal year, while steadfastly increasing investment in research and development activities to maintain Hollysys a leading player in its end-markets with advanced technologies and products."

"We are very excited that during the December quarter, we have successfully completed the testing, delivery, and installation of our high-speed railway signaling systems for the Zhengzhou-Xi'an high-speed railway line. After a successful trial run on January 28, 2010, the Zhengzhou-Xi'an line became officially operational on February 6, 2010, marking a maximum speed limit of 352 km/h. Having our state-of-the-art automation and control systems installed for one of the world's fastest running high-speed rail lines is a concrete testament of our advanced R&D, production, and project implementation capabilities in the high-speed railway sector. As China continues to stay on track in achieving its 13,000 km high-speed railway build-out target by 2012, the Zhengzhou-Xi'an high-speed railway line is one of the first railway lines launched in China with a designed traveling speed of 300kph or higher, together with the Wuhan-Guangzhou high-speed railway line.

"We are also very proud that during the December quarter, we commenced delivering our proprietary designed and manufactured large-scale industrial Distributed Control Systems (DCS) to China's largest 1000 MW (1GW) ultra-supercritical thermal power station, Guohua Taishan Power Plant. This signifies China's first-ever deployment of domestic made large-scale DCS in lieu of imported systems for the ultra-supercritical thermal power stations in China. As a follow-on contract subsequent to several successful DCS applications in the 600MW thermal power stations, this strategic reference project further validated Hollysys' dominant position in China's industrial automation and control field.

"Also in the December quarter, we have initiated the non-controlling interest buyout program in acquiring 24.11% of the non-controlling interest in Beijing Hollysys, one of the two operating subsidiaries of Hollysys Automation Technologies, Ltd., from the Rilin Group. The non-controlling interest buyout initiative is of important strategic significance to Hollysys, in that the non-controlling interest acquisition will bring Beijing Hollysys to a wholly-owned subsidiary of Hollysys, and will contribute the full earnings and revenue growth potential to the listing entity, particularly in the areas of high-speed railway, subway, and nuclear automation."

Dr. Wang continued, "On top of the minority buy-out, we also managed to form a strategic partnership with Rilin Group to supply our industry-leading automation and control solutions and products to some of the exciting business lines of the Rilin group, such as wind power and shipbuilding industries. Such strategic partnership will provide Hollysys a high entry platform to further scale its core proprietary automation and control technologies to some of the most attractive end markets in China today."

Q2 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

Dec 31, Dec 31, %

2009 2008 Change

Revenues $46,163 52,526 -12.1 %

Integrated Contract Revenue $43,970 50,225 -12.5 %

Products Sales $ 2,193 2,301 -4.7 %

Cost of Revenues $31,770 34,376 -7.6 %

Gross Profit $14,393 18,151 -20.7 %

Total Operating Expenses $ 5,365 3,976 34.9 %

Selling $ 3,573 2,651 34.8 %

General and Administrative $ 4,014 1,918 109.3 %

Research and Development $ 3,395 1,942 74.8 %

VAT refunds and government

subsidy $(5,618) (2,536) 121.6 %

Income from Operations $ 9,028 14,175 -36.3 %

Others $ 17 1,013 -98.4 %

Income Tax Expenses $ 102 1,434 -92.9 %

Non-GAAP Net income attributable to

non-controlling interest $ 864 2,608 -66.9 %

Non-GAAP Net Income attributable to

Hollysys Automation Technologies Ltd. $ 8,079 11,146 -27.5 %

Basic Non-GAAP EPS $ 0.16 0.25 -36.2 %

Diluted Non-GAAP EPS $ 0.16 0.25 -36.7 %

Stock-based Compensation Cost for $

Options 131 44 195.1 %

Stock-based Compensation Cost for $ -- 17,000 -100.0 %

Incentive Shares

Net income attributable to Hollysys $ 7,948 (5,899) -234.7 %

Automation Technologies Ltd.(GAAP)

Basic GAAP EPS $ 0.16 (0.13) -218.6 %

Diluted GAAP EPS $ 0.16 (0.13) -217.6 %

Basic Weighted Average Common Shares 49,942,614 43,964,353 13.6 %

Outstanding

Diluted Weighted Average Common

Shares 50,653,381 43,964,353 15.2 %

Outstanding

Six Months ended

Dec 31, Dec 31, %

2009 2008 Change

Revenues $84,357 89,831 -6.1 %

Integrated Contract Revenue $79,840 86,183 -7.4 %

Products Sales $ 4,516 3,647 23.8 %

Cost of Revenues $55,754 58,600 -4.9 %

Gross Profit $28,603 31,230 -8.4 %

Total Operating Expenses $11,229 8,601 30.6 %

Selling $ 6,299 5,416 16.3 %

General and Administrative $ 6,441 4,184 54.0 %

Research and Development $ 6,249 3,109 101.0 %

VAT refunds and government

subsidy $(7,760) (4,108) 88.9 %

Income from Operations $17,374 22,630 -23.2 %

Others $ 49 662 -92.6 %

Income Tax Expenses $ 922 2217 -58.4 %

Non-GAAP Net income attributable to

non-controlling interest $ 1,794 3,785 -52.6 %

Non-GAAP Net Income attributable to

Hollysys Automation Technologies Ltd. $14,707 17,290 -14.9 %

Basic Non-GAAP EPS $ 0.29 0.39 -25.1 %

Diluted Non-GAAP EPS $ 0.29 0.39 -25.7 %

Stock-based Compensation Cost for

Options $ 262 89 195.1 %

Stock-based Compensation Cost for $ -- 17,000 -100.0 %

Incentive Shares

Net income attributable to Hollysys $14,445 202 7067.4 %

Automation Technologies Ltd.(GAAP)

Basic GAAP EPS $ 0.29 0.00 6207.9 %

Diluted GAAP EPS $ 0.29 0.00 6160.5 %

Basic Weighted Average Common Shares

Outstanding 49,942,614 43,953,484 13.6 %

Diluted Weighted Average Common

Shares Outstanding 50,465,837 43,953,484 14.8 %

For the three months ended December 31, 2009, total revenues amounted to $46.2 million, compared to $38.2 million quarter over quarter, and $52.5 million year over year. Of the total revenues, revenue from integrated contracts amounted to $44.0 million, and that of each segment was as follows:

-- $29.6 million, or 67.2%, related to Industrial Automation & Control;

-- Rail and subway was $10.7 million, or 24.2%, of which $8.4 million, or

19.0%, was from Rail Signaling and Control projects, and $2.3 million,

or 5.2%, was from Subway System Integration projects; and

-- $3.7 million, or 8.6%, related to Nuclear Plant Control projects and

miscellaneous.

As a percentage of total revenues, overall gross margin was 31.2% for the three months ended December 31, 2009, as compared to 34.6% for the prior year period, mainly due to gross margin for products sold decreased from 74.2% to 35.7% year over year. The gross margin for integrated contracts was 31.0% for the three months ended December 31, 2009, compared to 32.7% for the same period of the prior year.

For the three months ended December 31, 2009, selling expenses were $3.6 million, compared to $2.7 million year over year. The increase in selling expenses was mainly due to the Company's increased marketing activities. As a percentage to total revenues, selling expenses were 7.7% and 7.1% for the three months ended December 31, 2009 and September 30, 2009, respectively.

General and administrative expenses, excluding non-cash share compensation expenses, were $4.1 million for the quarter ended December 31, 2009, or 8.8% of total revenues, compared to $1.9 million, or 3.7%, for the same period of the prior year. The increase was mainly due to an increase of $0.8 million in allowance for doubtful accounts, an increase of $0.5 million in staff salaries and bonus, and an increase of $0.4 million in professional fee.

Research and development expenses were $3.4 million for the three months ended December 31, 2009, a 74.8% increase as compared to $1.9 million for the same period of the prior year. As a percentage to total revenue, R&D expenses were 7.4% and 3.7% for three months ended December 31, 2009 and 2008, respectively. The increase was mainly due to increased R&D activities.

For the three months ended December 31, 2009, non-GAAP net income attributable to Hollysys excluding non-cash share compensation expense was $8.1 million, or $0.16 per diluted share based on approximately 50.6 million shares outstanding, as compared to $11.1 million, or $0.25 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 $7.9 million, or $0.16 per diluted share based on approximately 50.6 million shares outstanding, compared to net loss of $5.9 million, or $(0.13) per diluted share based on 44 million shares outstanding, for the same period of the prior year.

Backlog Highlights

Hollysys' backlog as of December 31, 2009 was $219.7 million, compared to $187.5 million at September 30, 2009. The detailed breakdown for the backlog by segment is as followings:

-- $107.6 million related to subway business, or 49.0% of the total

backlog;

-- $53.0 million related to industrial automation, or 24.1% of the total

backlog;

-- $53.9 million related to high-speed rail, or 24.5% of the total backlog;

-- $5.2 million related to Nuclear and other miscellaneous contracts, or

2.4% of the total backlog.

Cash Flow Highlights

Hollysys generated operating cash flow of $13.7 million for the three months ended December 31, 2009. Including investing and financing activities, the total net cash inflow for the three months ended December 31, 2009 was $8.3 million.

Balance Sheet Highlights

As of December 31, 2009, Hollysys' cash and cash equivalents were $138.9 million, compared to $130.6 million at September 30, 2009. Days Sales Outstanding ("DSO") for Q2 FY 2010 is 137 days, as compared to 157 days quarter over quarter. Inventory turnover is 58 days for quarter ended December 31, 2009, compared to 75 days quarter over quarters.

Outlook for FY 2010

Dr. Wang concluded, "Given our strong backlog level and sales pipeline, 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, February 11, 2010. 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 52373507.

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/110210.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.

Web: http://www.hollysys.com

Jennifer Zhang

Investor Relations

Phone: +86-10-5898-1386

Email: investors@hollysys.com

Or

Serena Wu

Investor Relations

Phone: +1-646-593-8125

Email: serena.wu@hollysys.com

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In US Dollars)

Three months ended Six months ended

December 31, December 31,

2009 2008 2009 2008

(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Revenues

Integrated

contract

revenue $43,969,826 $50,224,953 $79,840,377 $86,183,341

Products sales 2,193,281 2,301,260 4,516,338 3,647,422

Total revenues 46,163,107 52,526,213 84,356,715 89,830,763

Cost of

integrated

contracts 30,360,789 33,781,932 53,944,533 57,184,167

Cost of

products sold 1,409,204 593,712 1,808,782 1,416,208

Gross profit 14,393,114 18,150,569 28,603,400 31,230,388

Operating

expenses

Selling 3,573,479 2,650,876 6,299,120 5,416,241

General and

administrative 4,145,028 18,962,598 6,703,341 21,272,337

Research and

development 3,395,326 1,942,224 6,248,605 3,108,688

VAT refunds and

government (5,617,990) (2,535,529) (7,759,870) (4,107,917)

subsidy

Total operating

expenses 5,495,843 21,020,169 11,491,196 25,689,349

Income from

operations 8,897,271 (2,869,600) 17,112,204 5,541,039

Other income

(expense), net (104,264) 664,819 44,801 872,574

Share of net

gains of equity

investees 363,689 611,218 599,974 385,455

Interest

expense, net (242,729) (262,976) (595,532) (595,659)

Income before

income taxes 8,913,967 (1,856,539) 17,161,447 6,203,409

Income taxes

expenses 101,808 1,433,715 921,806 2,216,987

Net income 8,812,159 (3,290,254) 16,239,641 3,986,422

Less: Net

income attri-

butable to

non-controlling

interest 864,370 2,608,463 1,794,294 3,784,879

Net income

attributable

to Hollysys

Automation

Technologies

Ltd. $7,947,789 $(5,898,717) $14,445,347 $201,543

Weighted

average number

of common

shares 49,942,614 43,964,353 49,942,614 43,953,484

Weighted

average number

of diluted

common shares 50,653,381 43,964,353 50,465,837 43,953,484

Basic earnings

per share

attributable to

Hollysys

Automation

Technologies Ltd. 0.16 (0.13) 0.29 0.00

Diluted earnings

per share

attributable to

Hollysys

Automation

Technologies Ltd. 0.16 (0.13) 0.29 0.00

Other

comprehensive

income

Net income 8,812,159 (3,290,254) 16,239,641 3,986,422

Translation

adjustments (3,563) (777,455) 117,899 851,302

Comprehensive

income 8,808,596 (4,067,709) 16,357,540 4,837,724

Less:

Comprehensive

income

attributable

to non-

controlling

interest 864,967 2,517,936 1,813,243 3,880,183

Comprehensive

income

attributable

to Hollysys

Automation

Technologies

Ltd. $7,943,629 $(6,585,645) $14,544,297 $957,541

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

(In US Dollars)

December 31, September 30,

2009 2009

(Unaudited) (Unaudited)

ASSETS

Current Assets

Cash and cash equivalents $138,934,585 $130,598,078

Contract commitment deposit in banks 3,623,312 4,407,069

Accounts receivable, net of allowance

for doubtful accounts of

$7,470,817 and $6,742,484 62,471,834 63,571,474

Cost and estimated earnings in excess

of billings, net of allowance

for doubtful accounts of $910,459 and

$759,356 42,257,120 43,842,207

Other receivables, net of allowance

for doubtful accounts of

$154,829 and $183,175 4,173,793 4,255,909

Advances to suppliers 5,435,659 4,832,369

Amount due from related parties 9,918,280 9,919,384

Inventories, net of provision of

$1,187,717 and $972,778 19,704,487 19,286,897

Prepaid expenses 994,471 1,043,141

Deferred tax assets 1,282,775 820,007

Total current assets 288,796,316 282,576,535

Property, plant and equipment, net 48,640,944 48,262,000

Long term investments 13,751,983 13,352,627

Goodwill 284,936 --

Long term deferred expenses -- 76,515

Deferred tax assets 767,822 766,389

Total assets 352,242,001 345,034,066

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Short-term bank loans 1,464,493 1,464,343

Bonds payable 11,715,947 --

Accounts payable 34,789,135 37,161,317

Deferred revenue 26,507,895 25,961,044

Accrued payroll and related expense 5,195,086 4,159,199

Income tax payable 822,727 2,047,086

Warranty liabilities 2,000,454 1,865,333

Other tax payables 7,283,233 8,793,827

Accrued liabilities 7,482,159 2,565,291

Amounts due to related parties 2,901,648 2,263,833

Deferred tax liabilities 231,686 219,425

Construction cost payable 5,221,674 9,145,412

Total current liabilities 105,616,137 95,646,110

Long-term bank loans 36,612,334 36,608,581

Long-term bonds payable -- 11,714,746

Total liabilities 142,228,471 143,969,437

Commitments and contingencies -- --

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

(In US Dollars)

December 31, September 30,

2009 2009

(Unaudited) (Unaudited)

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 130,393,281 130,262,262

Appropriated earnings 15,135,442 15,135,442

Retained earnings 27,677,601 19,729,812

Accumulated comprehensive income -

translation adjustments 14,000,995 14,005,155

Total Hollysys Automation Technologies

Ltd. stockholder's equity 187,257,262 179,182,614

Non-controlling interest 22,756,268 21,882,015

Total equity 210,013,530 201,064,629

Total liabilities and equity $352,242,001 $345,034,066

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In US Dollars)

Three months Six months

ended ended

December 31, December 31,

2009 2009

(Unaudited) (Unaudited)

Cash flows from operating activities:

Net income $8,812,159 $16,239,641

Adjustments to reconcile net income

to net cash provided by (used in)

operating activities:

Depreciation and amortization 971,288 1,587,024

Allowance for doubtful accounts 889,674 1,411,469

Provision for inventories 214,939 73,577

Loss on disposal of property, plant

and equipment 197,072 198,658

Share of net gains from equity

investees (363,689) (599,974)

Amortization of expenses accrued for

bond payable 15,300 30,603

Stock-based compensation 131,019 262,038

Deferred tax assets (liabilities) (451,940) (1,069,568)

Changes in operating assets and

liabilities:

Accounts receivable 332,724 (7,192,151)

Cost and estimated earnings in

excess of billings 1,433,983 8,671,194

Inventories (632,428) (940,693)

Advance to suppliers (603,290) 2,432,197

Other receivables 110,462 (1,859)

Deposits and other assets 893,645 2,316,728

Amount due from related parties 263,492 (1,992,884)

Accounts payable (2,758,472) (3,829,489)

Deferred revenue 546,851 5,435,355

Accrued liabilities 5,795,085 5,956,543

Amount due to related parties 637,815 1,436,965

Tax payable (2,734,953) (2,443,943)

Net cash provided by operating

activities 13,700,736 27,981,431

Cash flows from investing activities:

Purchase of property, plant and

equipment (5,082,049) (7,817,666)

Proceeds from disposing property,

plant and equipment 2,411 4,034

Advance to related parties 645,238 645,238

Acquisition of long term investments (1,000,337) (1,000,337)

Dividends from equity investees 58,568 58,568

Acquisition of a subsidiary, net of

cash acquired 15,302 15,302

Acquisition of equity interest from

non controlling interest -- (438,275)

Net cash used in investing

activities (5,360,867) (8,533,136)

Cash flows from financing activities:

Repayments of short-term loans -- (4,392,579)

Repayments of long-term bank loans -- (5,124,676)

Net cash used in financing

activities -- (9,517,255)

Effect of foreign exchange rate

changes (3,362) 120,879

Net increase in cash and cash

equivalents $8,336,507 $10,051,919

Cash and cash equivalents, beginning

of period 130,598,078 128,882,666

Cash and cash equivalents, end of

period $138,934,585 $138,934,585

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 Six months ended

December 31, December 31,

2009 2008 2009 2008

(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Net income (loss)

attributable to

Hollysys Automation

Technologies Ltd. $7,947,789 $(5,898,717) $14,445,347 $201,543

Adjustments:

Stock-based

compensation cost

for options 131,019 44,394 262,038 88,788

Stock-based

compensation cost

for incentive shares -- 17,000,000 -- 17,000,000

Non-Gaap Net Income

attributable to

Hollysys Automation

Technologies Ltd. $8,078,808 $11,145,677 $14,707,385 $17,290,331