updated 11/8/2010 7:45:48 AM ET 2010-11-08T12:45:48

HONG KONG, Nov. 8, 2010 (GLOBE NEWSWIRE) -- Highway Holdings Limited (Nasdaq:HIHO) today reported strong results for its second fiscal quarter ended September 30, 2010, reflecting an improved business environment among its major customers and new business gains.

Net income for the 2011 fiscal second quarter increased to $410,000 or $0.11 per diluted share, from $139,000, or $0.04 per diluted share, a year earlier. Net sales for same period climbed 50 percent to $7.8 million from $5.2 million a year earlier.

Net income for the first half of fiscal 2011 was $ 454,000, or $0.12 per diluted share, compared with net income of $3,000, or $0.00 per diluted share, a year earlier. Net sales for the six-month period jumped 45.3 percent to $14.3 million from $9.8 million a year ago.

"Results for the quarter and first half of fiscal 2011 reflect a greatly improved business environment, with increased order flow from existing and new customers," said Roland Kohl, president and chief executive officer.

Despite a significant increase in both net sales and net income, Kohl stated that net income could have been higher. He noted that operating income for the quarter was $167,000, or approximately two percent of net sales, due to a 60 percent increase in labor costs, most of which had not yet been passed through to customers under terms of existing contracts. Under terms of many of the company's OEM contracts, prices are adjusted quarterly to reflect increases in raw material and employment costs. Kohl added that the company's strong sales gains for the quarter were not sufficient to offset these sharp labor and personnel cost increases. "We anticipate operating income will improve in future quarters as these higher labor costs are passed through as price increases to our customers," Kohl said. He said that prior initiatives designed to reduce dependency on certain labor processes through assembly automation and robotic manufacturing technology helped to partially offset the higher labor costs in the quarter.

Kohl noted further that investments in automation systems and the initial start-up costs associated with manufacturing of a recently announced order for protective mobile phone cases also impacted cost of sales, as well as selling and general administrative expenses in the second quarter.

"Once manufacturing of the protective mobile cases ramps up and reaches projected levels, we will be better able to absorb certain costs and realize better efficiency. This, combined with projected higher sales, should contribute to enhanced profitability in the second half," Kohl said.

Selling, general and administrative expenses increased to $1.43 million during the second quarter from $1.22 million in same quarter a year ago. The increase in selling, general and administrative expenses was the result of the increased costs associated with adding managers and technicians necessary to service the increased business -- in addition to the impact of higher wages paid to existing personnel. Kohl noted that the company has now substantially completed its consolidation of its factories in Ping Hu and He Yuan into its main facility in Shenzhen, and that the company is presently in negotiations to sell the company's factory in Wuxi. These actions will contribute to further cost reductions in the future.

The company realized a currency exchange gain of $235,000 during the quarter, which partially offset the $257,000 currency loss incurred in the first quarter of this fiscal year – reflecting the weakening and strengthening value of the Euro compared with the U.S. dollar. For the six-month period, the company realized a currency exchange loss of $22,000 compared with a currency exchange gain of $348,000 a year earlier. Since the company does not engage in currency exchange rate hedging, the company will in the future continue to realize currency exchange gains and losses as a result of the fluctuation of currency exchange rates.

Kohl highlighted the company's strong balance sheet, with cash and cash equivalents and restricted cash further increasing by approximately $800,000 to $7.8 million, or approximately $2.07 cash per share.

Current liabilities at September 30, 2010 totaled $6.8 million and current assets were $17.2 million. Total shareholders' equity at September 30, 2010 was $11.9 million, or $ 3.15 per diluted share, compared with $11.7 million, or $3.11 per diluted share, at March 31, 2010.

About Highway Holdings

Highway Holdings produces a wide variety of high-quality products for blue chip original equipment manufacturers -- from simple parts and components to sub-assemblies. It also manufactures finished products, such as LED lights, radio chimes and other electronic products. Highway Holdings is headquartered in Hong Kong, with manufacturing facilities in Shenzhen in the People's Republic of China.

Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental, political and technological factors affecting the company's revenues, operations, markets, products and prices, and other factors discussed in the company's various filings with the Securities and Exchange Commission, including without limitation, the company's annual reports on Form 20-F.

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