-- 2Q08 Revenue Increases 78% to $92.7 Million Compared to 2Q07 --
-- Operating Income Increases 47.7% to $14.3 million -- -- Adjusted
Diluted EPS Increases 50% to $0.39 -- -- Raises Full Year 2008
Revenue and Adjusted Earnings Estimates -- SHENZHEN, China, Aug. 4
/Xinhua-PRNewswire-FirstCall/ -- China Security & Surveillance
Technology, Inc. ("China Security" or the 'Company') (NYSE: CSR), a
leading provider of digital surveillance technology in China, today
reported its financial results for the second quarter ending June
30, 2008. Second Quarter 2008 For the second quarter 2008, the
Company reported GAAP earnings per diluted share of $0.17 compared
to $0.11 in the second quarter 2007. GAAP results for the second
quarter of 2008 include: (1) approximately $4.4 million, or $0.10
per diluted share, of non-cash expense related to the redemption
accretion on convertible notes in the event that such notes are
redeemed (as described below under the caption 'Explanation of
Redemption Accrual'); (2) approximately $2.3 million, or $0.05 per
diluted share, of non-cash expense related to the depreciation and
amortization and (3) approximately $3.1 million, or $0.07 per
diluted share, of non-cash expense related to the performance-based
employee compensation. Excluding these non-cash expenses, diluted
earnings per share was $0.39, compared to $0.26 per diluted share
in the second quarter 2007 (see 'About Non-GAAP Financial Measures"
toward the end of this release). Diluted share count increased 16%
in the second quarter 2008 to 44.9 million from 38.8 million in the
second quarter of 2007. Second quarter revenue increased 77.9% to
$92.7 million compared to $52.1 million in the second quarter 2007.
Organic revenue during the second quarter 2008 was approximately
$68.5 million, or 73.9% of total revenue. As a result, organic
revenues grew during the quarter by $24.2 million, or 54.6% from
the second quarter 2007. Non-organic revenue, or revenue of
acquired companies was approximately $24.2 million or 26.1% of
total revenue in the second quarter 2008. In the second quarter,
gross profits increased $15.6 million, or 104%, to $30.5 million
from $14.9 million for the same period last year. Gross margin for
the second quarter was 32.8%, compared to 28.6% in the same period
last year. Gross margin was also up sequentially from 30.5% in the
first quarter 2008. The increase in gross margin reflected the
growing recognition of sales of some higher-margin Safe City
projects. Income from operations in the second quarter increased
47.7% to $14.3 million from $9.7 million in the prior year's second
quarter. Operating margin decreased to 15.4% from 18.5% in the
second quarter last year, but increased sequentially from 15.3% in
the first quarter 2008. Net income in the second quarter of 2008
increased 81.3% year over year to $7.74 million from $4.27 million
in the prior year's second quarter. Net income per share was $0.17
versus $0.11 in the second quarter 2007. The Company's cash
position at the end of the quarter was $88.6 million, up from $77.1
million at the end of the first quarter 2008. Total debt at the end
of the first quarter was $137.8, down from $140.6 million at the
end of the first quarter 2008. Mr. Guo Shen Tu, Chief Executive
Officer of China Security, commented, 'We are excited by the
momentum we saw in the second quarter, with revenue and margin
growth that exceeded our internal plan. We continue to see strong
growth from manufacturing and systems installation and are seeing a
strong trajectory from our newly formed distribution segment as
well, which generated more than $10 million in revenue. Our
corporate and Safe City products and services continue to show
strong demand, and we are beginning to realize benefits from our
global outreach, in the form of our recently announced $10 million
investment from UAE investors, who we view as strategic partners in
our efforts to increase our visibility in the Middle East and
elsewhere around the world. We anticipate continued growth in our
existing markets within China, even after the Olympic Games, and
believe that our efforts to learn more about the global markets
will pay off in the future.' Financial Outlook For the third
quarter of 2008, the company expects to achieve revenues between
$110-$115 million. Excluding the non-cash charges related to the
redemption amount payable on convertible notes, the accrual of
performance based employee compensation and the amortization of
intangible assets related to the Company's recent acquisitions, the
Company expects to achieve an adjusted net income of $19-$21
million and adjusted diluted earnings per share of $0.43-$0.45 in
the third quarter of 2008. The Company estimates that in the third
quarter, non-cash interest expenses associated with the redemption
amount payable on convertible notes, the accrual of performance
based employee compensation and the amortization of intangible
assets related to the Company's recent acquisitions, will be
approximately $4.4 million, $4.0 million and $3.3 million in the
quarter respectively. For the full year 2008, the Company is
raising its revenue and earnings forecasts. It now expects to
achieve revenues between $400-410 million. The Company expects
adjusted net income of $73-$80 million and adjusted diluted
earnings per share of $1.60-$1.77. This compares to prior guidance
of $380- $400 million in revenue, $70-$76 million in adjusted net
income and adjusted diluted EPS of $1.59-$1.76, respectively. The
major contributors to results should continue to be manufacturing
and parts and systems integration with marginal contribution coming
from distribution. The Company expects non-cash expense related to
the redemption amount payable on convertible notes will be
approximately $17.6 million. Going forward, the Company expects to
incur accrual for non-cash employee compensation as well as higher
depreciation and amortization costs related to the intangible
assets from an increasing number of acquisitions. The Company's
2008 financial forecast includes contributions from completed and
pending acquisitions excluding the Coson, DIT and Skyrise Letters
of Intent (LOI's) announced on August 1, 2008. Mr. Tu concluded,
'We remain focused on our goal of becoming the premiere security
product and service provider in China, and are optimistic about our
ability to leverage that expertise in additional markets in a very
strategic manner over the next several years. Our management team,
our strategic plan, and our strong capital structure give us the
foundation to leverage the growing opportunities and demand for
security and surveillance products and services worldwide. We plan
to continue to focus our efforts on developing all segments of our
business.' Explanation of Redemption Accrual The Company raised $60
million and $50 million through two guaranteed senior unsecured
convertible note financings with Citadel in February 2007 and April
2007, respectively. These notes bear interest at a rate of 1% per
annum and are due in 2012. Under the indentures, if the notes are
not converted before their respectively maturities, the notes are
to be redeemed by the Company on the maturity date at a redemption
price equal to 100% of the principal amount of the notes then
outstanding plus an additional amount of 15% per annum, calculated
on a quarterly compounded basis, plus any accrued and unpaid
interest. As of June 30, 2008 the Company accrued a cumulative
$22.4 million as a redemption amount payable under the notes, $4.4
million of which was included in interest expense in the second
quarter of 2008. Unlike the annual interest rate of 1% that the
Company is actually paying out to the note holders under the note
on a semi-annual basis, the Company would only pay the accrued
redemption amount under the notes if the notes are not converted
into the Company's common stock before their respective maturities
and are redeemed in accordance with its terms. Nevertheless, the
Company believes that it must accrue the entire redemption amount
under U.S. generally accepted accounting principles. This accrual
will result in non-cash expense of approximately $17.6 million
annually. Conference Call The Company will hold a conference call
to discuss the financial results at 5:00 p.m. ET today. The Company
invites you to join the call by dialing 1- 913-312-0714. A live
webcast of the conference call will be available at
http://www.csst.com/ . A replay of the call will be available from
August 4, 2008 to August 11, 2008. Listeners may access the replay
by dialing 1-719- 457-0820, passcode: 3961480. About China Security
& Surveillance Technology, Inc. Based in Shenzhen, China, China
Security manufactures, distributes, installs and maintains security
and surveillance systems throughout China. China Security has
manufacturing facilities in China and a R&D facility which
maintains an exclusive collaboration agreement with Beijing
University. China Security has built a diversified customer base
through its extensive sales and service network throughout China.
To learn more about the Company visit http://www.csst.com/ . About
Non-GAAP Financial Measures This press release contains non-GAAP
financial measures for earnings that exclude the accrual for the
redemption amount payable under certain outstanding convertible
notes issued by the Company and certain other non-cash charges.
China Security believes that these non-GAAP financial measures are
useful to investors because they exclude non-cash charges that
China Security's management excludes when it internally evaluates
the performance of China Security's business and makes operating
decisions, including internal budgeting, and performance
measurement, because these measures provide a consistent method of
comparison to historical periods. Moreover, management believes
these non-GAAP measures reflect the essential operating activities
of China Security. Accordingly, management excludes the expense
arising from the accrual of redemption amounts payable under its
outstanding convertible notes and certain other non-cash charges
when making operational decisions. China Security believes that
providing the non-GAAP measures that management uses to its
investors is useful to investors for a number of reasons. The
non-GAAP measures provide a consistent basis for investors to
understand China Security's financial performance in comparison to
historical periods. In addition, it allows investors to evaluate
China Security's performance using the same methodology and
information as that used by China Security's management. Non-GAAP
measures are subject to inherent limitations because they do not
include all of the expenses included under GAAP and because they
involve the exercise of judgment of which charges are excluded from
the non- GAAP financial measure. However, China Security's
management compensates for these limitations by providing the
relevant disclosure of the items excluded. The following table
provides the non-GAAP financial measure and the related GAAP
measure and provides a reconciliation of the non-GAAP measure to
the equivalent GAAP measure. Reconciliation of GAAP to non-GAAP
Measures, Table 1 (Unaudited) Exclude non cash items (All amounts
in millions of dollars, except for per share figures) Three Months
Ended June 30, June 30, 2008 2007 GAAP Net Income $ 7.74 $ 4.27
Add: Depreciation and amortization 2.33 1.08 Non-cash employee
compensation 3.11 0.80 Redemption accretion on convertible notes
4.36 3.82 Adjusted Net Income (Excludes all non-cash items) $ 17.54
$ 9.97 GAAP Diluted EPS $ 0.17 $ 0.11 Add: Depreciation and
amortization 0.05 0.03 Non-cash employee compensation 0.07 0.02
Redemption accretion on convertible notes 0.10 0.10 Adjusted
Diluted EPS (Excludes all non-cash items) $ 0.39 $ 0.26 Diluted
weighted average number of shares outstanding 44.9 38.8
Reconciliation of GAAP to non-GAAP Measures, Table 2 (Unaudited)
Assuming conversion of Citadel notes (All amounts in millions of
dollars, except for per share figures) Three Months Ended June 30,
June 30, 2008 2007 GAAP Net Income $ 7.74 $ 4.27 Add: Redemption
accretion on convertible notes 4.36 3.82 Adjusted Net Income
(Assuming conversion of Citadel notes) $ 12.10 $ 8.09 Net Income
Diluted EPS (Assuming conversion) $ 0.15 $ 0.10 Add: Redemption
accretion on convertible notes 0.09 0.08 Adjusted Diluted EPS
(assuming conversion of Citadel notes) $ 0.24 $ 0.18 Diluted
weighted average number of shares outstanding (assuming conversion
of Citadel notes) 50.38 44.28 Safe Harbor Statement This press
release includes certain statements that are not descriptions of
historical facts, but are forward-looking statements. Such
statements include, among others, those concerning our expected
financial performance and strategic and operational plans, our
future operating results, our expectations regarding the market for
security and surveillance products, our expectations regarding the
continued growth of the security and surveillance market, as well
as all assumptions, expectations, predictions, intentions or
beliefs about future events. You are cautioned that any such
forward-looking statements are not guarantees of future performance
and that a number of risks and uncertainties could cause our actual
results to differ materially from those anticipated, expressed or
implied in the forward-looking statements. These risks and
uncertainties include, but not limited to, the factors mentioned in
the 'Risk Factors' section of our Annual Report on Form 10-K for
the year ended December 31, 2007, and other risks mentioned in our
other reports filed with the Securities Exchange Commission, or
SEC. Copies of filings made with the SEC are available through the
SEC's electronic data gathering analysis retrieval system (EDGAR)
at http://www.sec.gov/. The words 'believe,' 'expect,'
'anticipate,' 'project,' 'targets,' 'optimistic,' 'intend,' 'aim,'
'will' or similar expressions are intended to identify
forward-looking statements. All statements other than statements of
historical fact are statements that could be deemed forward-
looking statements. The Company assumes no obligation and does not
intend to update any forward-looking statements, except as required
by law. CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Expressed in
thousands of U.S. dollars (Except for share and per share amounts)
June 30, December 31, 2008 2007 (Unaudited) USD USD ASSETS CURRENT
ASSETS Cash and cash equivalents $ 88,595 $ 89,071 Accounts
receivable, net 95,950 63,206 Related party receivables 214 549
Inventories, net 40,616 40,606 Prepayments and deposits 4,979 3,225
Advances to suppliers 8,699 2,877 Other receivables 12,090 13,171
Tax refundable -- 92 Deferred tax assets - current portion 128 137
Total current assets 251,271 212,934 Deposits for acquisition of
subsidiaries, intangible assets and properties 36,395 46,443
Property, plant and equipment, net 34,436 24,066 Land use rights,
net 2,611 1,379 Intangible assets 54,229 39,800 Goodwill 82,349
52,369 Deferred financing cost 132 150 Deferred tax assets -
non-current portion 257 262 TOTAL ASSETS $ 461,680 $ 377,403 CHINA
SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS Expressed in thousands of
U.S. dollars (Except for share and per share amounts) June 30,
December 31, 2008 2007 (Unaudited) USD USD LIABILITIES AND
SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable - short term
$ 5,380 $ 12,814 Accounts payable 32,916 21,864 Accrued expenses
6,614 5,108 Advances from customers 8,013 8,352 Taxes payable 2,381
4,153 Payable for acquisition of business 6,604 -- Deferred income
1,065 915 Total current liabilities 62,973 53,206 LONG-TERM
LIABILITIES Notes payable - long term -- 698 Convertible notes
payable 132,427 123,701 Total liabilities 195,400 177,605 MINORITY
INTEREST IN CONSOLIDATED SUBSIDIARIES 34 61 SHAREHOLDERS' EQUITY
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, 0
shares issued and outstanding Common stock, $0.0001 par value;
290,000,000 shares authorized, 45,122,541 (June 30, 2008) and
42,506,150 (December 31, 2007) shares issued and outstanding 5 4
Additional paid-in capital 149,100 110,254 Retained earnings 89,034
76,802 Statutory reserves 804 804 Accumulated other comprehensive
income 27,303 11,873 Total shareholders' equity 266,246 199,737
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 461,680 $ 377,403
CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME Expressed in thousands of U.S. dollars (Except for share and
per share amounts) Three Months Ended Six Months Ended June 30,
June 30, 2008 2007 2008 2007 (Unaudited) (Unaudited) (Unaudited)
(Unaudited) USD USD USD USD Revenues $ 92,740 $ 52,125 $ 164,517 $
90,576 Cost of goods sold (including depreciation and amortization
for the three and six months ended June 30, 2008 and 2007 of $203,
$286, $0 and $0, respectively) 62,284 37,232 111,805 65,565 Gross
profit 30,456 14,893 52,712 25,011 Selling and marketing 2,991 855
5,133 1,458 General and administrative (including non-cash employee
compensation for the three and six months ended June 30, 2008 and
2007 of $3,108, $6,066, $801 and $1,066, respectively) 11,084 3,308
18,246 5,559 Depreciation and amortization 2,130 1,084 3,947 1,890
Income from operations 14,251 9,646 25,386 16,104 Rental income
Received from related party -- 129 -- 256 Interest income 51 143
106 225 Interest expense (4,786) (4,105) (9,649) (5,424) Other
income, net 367 226 687 718 Income before income taxes and minority
interest 9,883 6,039 16,530 11,879 Minority interest in income of
consolidated subsidiaries 6 (7) 31 2 Income taxes (2,153) (1,767)
(4,329) (3,083) Net income 7,736 4,265 12,232 8,798 Foreign
currency translation gain 6,926 1,767 15,430 2,562 Comprehensive
income $ 14,662 $ 6,032 $ 27,662 $ 11,360 Net income per share
basic $ 0.18 $ 0.12 $ 0.28 $ 0.26 Diluted $ 0.17 $ 0.11 $ 0.28 $
0.24 Weighted average number of shares outstanding Basic 43,600,020
35,770,742 43,169,108 34,429,780 Diluted 44,927,620 38,831,023
43,853,283 36,492,123 CHINA SECURITY & SURVEILLANCE TECHNOLOGY,
INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS Expressed in thousands of U.S. dollars (Except for share and
per share amounts) Six Months Ended June 30, 2008 2007 (Unaudited)
(Unaudited) USD USD CASH FLOWS FROM OPERATING ACTIVITIES: Net
income $ 12,232 $ 8,798 Adjustments to reconcile net income to net
cash provided by (used in) operating activities: Depreciation and
amortization 4,233 1,890 Provision for bad debts 125 --
Amortization of consultancy services 67 60 Amortization of deferred
financing cost 18 9 Non-cash employee compensation 6,066 1,066
Redemption accretion on convertible notes 8,726 4,975 Deferred
taxes 40 8 Minority interest (31) (2) Changes in operating assets
and liabilities: (Increase) decrease in: Accounts receivable
(25,839) (4,217) Related party receivables 371 (109) Inventories
11,692 (7,602) Prepayments & deposits (24) (2,549) Advances to
suppliers (4,826) (1,176) Other receivables (1,207) (658)
(Decrease) increase in: Accounts payable and accrued expenses 4,232
(838) Advances from customers (3,007) (4,310) Taxes payable (1,896)
856 Deferred income 91 16 Net cash provided by (used in) operating
activities 11,063 (3,783) CHINA SECURITY & SURVEILLANCE
TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS (CONTINUED) Expressed in thousands of U.S. dollars
(Except for share and per share amounts) Six Months Ended June 30,
2008 2007 (Unaudited) (Unaudited) USD USD CASH FLOWS FROM INVESTING
ACTIVITIES: Additions to property, plant and equipment (5,344)
(1,528) Additions to intangible assets (1,087) (15) Additions to
land use rights -- (565) Deposits paid for acquisition of
subsidiaries (3,878) (14,657) Deposits refunded for acquisition of
subsidiaries 11,898 -- Deposits paid for acquisition of properties
and intangible assets (4,424) (5,366) Proceeds from disposal of
land use rights and properties 3,379 -- Net cash outflow for
acquisition of subsidiaries (net of cash acquired in acquisitions)
(8,927) (30,275) Net cash used in investing activities (8,383)
(52,406) CASH FLOWS FROM FINANCING ACTIVITIES: Due to a director --
(74) Issuance of common stock, net of issuing expenses -- 2,318
Warrants exercised 277 -- New borrowings, net of issuing cost 4,274
116,291 Repayment of borrowings (13,855) (2,055) Net cash (used in)
provided by financing activities (9,304) 116,480 EFFECT OF EXCHANGE
RATE CHANGES ON CASH AND CASH EQUIVALENTS 6,148 513 NET (DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS (476) 60,804 Cash and cash
equivalents, beginning of period 89,071 30,980 CASH AND CASH
EQUIVALENTS, END OF PERIOD $ 88,595 $ 91,784 DATASOURCE: China
Security & Surveillance Technology, Inc. CONTACT: Kewa Luo at
212-588-0885 or ; or Investor Contact: ICR: Bill Zima & Ashley
Ammon MacFarlane at 203-682-8200, all for China Security &
Surveillance Technology, Inc. Web site: http://www.csst.com/
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