AsiaInfo Holdings Inc. (ASIA) filed Quarterly Report for the period ended 2009-09-30.
AsiaInfo HoldingsInc. is a leading provider of Internet infrastructuretotal solutions and software in Chinaone of the world's fastest growing Internet markets. The company offers telecommunications service providers in China total network solutions for their Internet infrastructure requirements and develops proprietary software for Internet serviceprovidersInternet content providers and telecommunications service providers. (PRESS RELEASE) Asiainfo Holdings Inc. has a market cap of $1.07 billion; its shares were traded at around $23.43 with a P/E ratio of 33.47 and P/S ratio of 6.1.
Highlight of Business Operations:
Except for certain hardware procurement and resale transactions, we conduct substantially all of our business through our Chinese subsidiaries and variable interest entities, or VIEs. Prior to the enactment of China’s new Chinese Enterprise Income Tax Law, or the EIT Law, which became effective on January 1, 2008, foreign-invested enterprises, or FIEs, were generally subject to a 30% state enterprise income tax plus a 3% local income tax. However, most of our operating subsidiaries in China, as FIEs, were entitled to tax holidays or certain preferential tax treatments, which thus reduced their effective rate of income tax to 15% or lower in some cases. Since the EIT Law became effective, all resident enterprises are subject to a flat 25% income tax rate, unless they are otherwise eligible for certain preferential tax treatments under the new rules.
Pursuant to the implementation rules to the EIT Law issued in December 2007, and several subsequent transition rules, certain of our subsidiaries in China can continue to enjoy preferential tax rates as long as they are qualified as High and New Technology Enterprises, or HNTEs. Some of our subsidiaries and VIEs in China became subject to a normal 25% income tax rate, while certain of our subsidiaries and VIEs in China remain eligible for the lower rates under the transition rules. The HNTE status allows qualifying entities to be eligible for a 15% tax rate for three years. At the conclusion of the three-year period, the qualifying enterprise has the option to renew its HNTE status for an additional three years through a simplified application process if such enterprise’s business operations continue to qualify for HNTE status. After the first six years, the enterprise would have to go through a new application process in order to renew its HNTE status. As of December 31, 2008, we had received certification of HNTE status for AsiaInfo Technologies, AsiaInfo Technologies (Chengdu), or AICD, and Lenovo Security, which allows for a reduced 15% tax rate starting January 1, 2008. AsiaInfo Technologies was approved as a key software enterprise, and it is eligible for the preferential tax rate of 10% for 2008 and 15% for 2009 and 2010. Lenovo Security was originally granted a “3+3 holiday”, and was subject to an applicable tax rate of 0% from 2005 to 2007 and 7.5% from 2008 to 2009, if it maintained its HNTE status. If Lenovo Security continues to maintain its HNTE status in 2010, then it will remain subject to an applicable tax rate of 7.5% in 2010.
Sales of hardware procured in China are subject to a 17% value-added tax. Most of our sales of hardware procured outside of China are made through our U.S. parent company, AsiaInfo Holdings, Inc., and thus are not subject to the value-added tax. We effectively pass value-added tax on hardware sales through to our customers and do not include them in revenues reported in our financial statements. Companies that develop their own software and register the software with the relevant authorities in China are generally entitled to a value-added tax refund. If the net amount of the value-added tax payable exceeds 3% of software sales and software-related services, the excess portion of the value-added tax is refundable immediately. This policy is effective until 2010. The benefit of the rebate of value-added tax is included in our software revenue. Historically, the value-added tax refund is not taxable for income tax purpose as long as the refund is used for research and development activities. However, according to a new tax circular issued by the PRC State Administration of Taxation in January 2009, although the value-added tax refund would remain untaxable, when the refund is used for purchase of or expenses associated with fixed assets, the expenses and depreciation associated with such fixed assets are not deductible for income tax purposes. It is unclear how this new rule will be implemented and in the absence of any specific guidance, we are treating the value-added tax refund as a taxable item for income tax purposes going forward.
Our PRC subsidiaries and VIEs are subject to business tax at the rate of 3% and 5%, respectively, on certain types of service revenues, which are presented in our income statement net of business tax incurred. Business taxes deducted from revenues during the nine-month periods ended September 30, 2009 and 2008 were $4.7 million and $3.1 million, respectively.
As of September 30, 2009, approximately 59.3%, or $116.1 million of our cash, cash equivalents and restricted cash were RMB-denominated and approximately 40.7%, or $79.7 million, were U.S. dollar-denominated. Pursuant to the rate of exchange quoted by People’s Bank of China as of September 30, 2009, the exchange rate between the U.S. dollar and the RMB was US$1.00 = RMB6.829, compared to the rate of US$1.00=RMB6.7899 as of September 30, 2008.
Income taxes. Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net operating loss carry forwards and credits, by applying statutory tax rates applicable to future years. According to the new EIT Law, the transitional rules and relevant regulations, the eligible tax rate for AsiaInfo Technologies is 10% for 2008 and 15% for 2009 and 2010; the eligible tax rate for AICD is 15% for 2008 to 2010; and the eligible rate for Lenovo Security is 7.5% for 2008 to 2010. Unless otherwise specified, our other Chinese subsidiaries and VIEs are subject to the statutory tax rate of 25%.
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