-- 3Q09 Revenue Increases 34.0% YoY to $159.82 Million -- SHENZHEN,
China, Oct. 28 /PRNewswire-Asia/ -- China Security &
Surveillance Technology, Inc. ("CSST" or the "Company") (NYSE: CSR;
Nasdaq Dubai: CSR), a leading provider of digital surveillance
technology in the PRC, today reported its financial results for the
third quarter ended September 30, 2009. Third Quarter 2009 Third
quarter 2009 revenue increased 34.0% to $159.82 million, from
$119.29 million in third quarter of 2008, driven by robust growth
of the installation segment and continued strong demand for CSST's
products and services in both the government and corporate sectors.
Organic revenue was approximately $152.77 million, or 95.6% of
total revenue, while revenue from acquired companies was
approximately $7.05 million, or 4.4% of total revenue. Organic
revenue grew 43.8% from $106.21 million (or 89.0% of total revenue)
in the same period of 2008. In the third quarter, gross profits
increased $3.33 million, or 10.4%, to $35.34 million, compared to
$32.01 million for the same period last year. Third quarter gross
margin of 22.1%, declined from 26.8% in the prior year's third
quarter, but improved 20 basis points sequentially from the second
quarter of 2009. Income from operations in the third quarter
increased $1.88 million, or 12.3% year over year to $17.21 million
from $15.33 million in the same period of 2008. Operating margins
decreased to 10.8%, versus 12.8% a year ago, but expanded 190 basis
points sequentially from 8.9% in the second quarter of 2009,
benefiting from lower overhead expenses. GAAP net income of $22.00
million increased $12.85 million, or 140.4% from $9.15 million for
the same period in 2008. As a percentage of revenues, GAAP net
income increased to 13.8%, from 7.7% for the same period in 2008.
Consequently, GAAP earnings per diluted share also increased 105.0%
to $0.41 in third quarter 2009, as compared to $0.20 in third
quarter of 2008. GAAP results included: (1) approximately $3.90
million, or $0.07 per diluted share, of non-cash expense related to
the redemption accretion on convertible notes; (2) approximately
$3.22 million, or $0.06 per diluted share, of non-cash expense
related to depreciation and amortization of long-lived assets due
to the acquisition of subsidiaries; (3) approximately $4.74
million, or $0.09 per diluted share, of non-cash expense related to
employee stock compensation recognized pursuant to Accounting
Standard Codification ("ASC") 718, and (4) a non-cash gain on
modification of convertible notes of $9.32 million, or $0.17 per
diluted share in the third quarter of 2009. (Please refer to the
non-cash items reconciliation tables below). The Company's cash
position at the end of the third quarter was $100.98 million, up
from $89.47 million at the end of second quarter 2009. Working
capital was $217.20 million, versus $258.92 million at the end of
second quarter 2009, and total debt decreased sequentially to
$181.66, from $205.88 million at the end of second quarter 2009.
Mr. Guo Shen Tu, Chief Executive Officer of CSST, commented, "We
are satisfied with our solid revenue growth and earnings in the
third quarter, as we continued to see strong organic growth, driven
by robust demand for our products and services across our three
core business segments. We are especially pleased with our
successful restructuring of our convertible notes during the
quarter. In our view, the restructuring has clearly improved our
capital structure, strengthened our financial position, and should
lower our overall cost of capital. We believe our improved balance
sheet will provide us with greater flexibility to help us support
our ongoing growth in the surveillance and safety market."
Financial Outlook For the full year 2009, the Company reaffirms its
revenue projection of $600 to $630 million and projects GAAP
diluted EPS of $0.95 to $0.98. For the full year 2010, the Company
forecasts revenue of $800-$820 million, and GAAP diluted EPS of
$1.15 to $1.20. Mr. Tu concluded, "Reflecting our forecast of
considerable revenue growth for full year 2010, we continue to see
strong demand for Safe City products and services. Through the
combination of our leading brand, distribution, expertise, and
total solution offerings, we are confident that we can continue to
gain a greater share of our core surveillance and safety market. We
are also beginning to see strong growth in our services business,
highlighted by our recent E-city project wins which included not
only surveillance and safety offerings but also other broader
digital infrastructure offerings. With our improved capital
structure and the continued strong demand for our products and
services, we believe we are well positioned for sustained growth,
as we strive to build greater long term value for our supportive
shareholders." Non-GAAP Financial Measures and Related
Reconciliation Our net income was materially impacted by certain
non-cash expenses including depreciation and amortization of
long-lived assets in the subsidiaries we acquired, non-cash
employee compensation recognized pursuant to ASC 718, and
redemption accretion on convertible notes. In third quarter 2009 we
also recognized a one-time non-cash gain on modification of
convertible notes. In the table below, we have presented a non-GAAP
financial disclosure to provide a quantitative analysis of the
non-cash items. We believe that these non-GAAP financial measures
are useful to investors because they exclude non-cash expenses that
CSST's management excludes when it internally evaluates the
performance of CSST'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 that these
non-GAAP measures reflect the essential operating activities of
CSST. Accordingly, management excludes the expense arising from the
accrual of redemption amounts payable under its outstanding
convertible notes and certain other non-cash expenses when making
operational decisions. CSST 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 CSST's financial
performance in comparison to historical periods. In addition, it
allows investors to evaluate CSST's performance using the same
methodology and information as that used by CSST'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, CSST'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. Because these items do not require the use of current
assets, management does not include these items in its analysis of
our financial results or how we allocate our resources.
Reconciliation of Non-cash Items (Unaudited) All amounts, other
than for share and per share amounts, in millions of U.S. dollars
3Q 2009 3Q 2008 GAAP net income attributable to the Company 22.00
9.15 Non-cash expenses: Depreciation and amortization 3.22 2.51
Non-cash employee compensation 4.74 3.60 Redemption accretion on
convertible notes 3.90 5.36 Non-cash income: Gain on modification
of convertible notes (9.32) (--) Total non-cash items 2.54 11.47 3Q
2009 3Q 2008 GAAP diluted EPS 0.41 0.20 Non-cash expenses:
Depreciation and amortization 0.06 0.05 Non-cash employee
compensation 0.09 0.08 Redemption accretion on convertible notes
0.07 0.12 Non-cash income: Gain on modification of convertible
notes (0.17) (--) Total non-cash items 0.05 0.25 The number of
shares used in computing 53.49 million 46.15 million diluted EPS 3Q
2009 3Q 2008 GAAP basic EPS 0.46 0.20 Non-cash expenses:
Depreciation and amortization 0.07 0.05 Non-cash employee
compensation 0.10 0.08 Redemption accretion on convertible notes
0.08 0.12 Non-cash income: Gain on modification of convertible
notes (0.19) (--) Total non-cash items 0.06 0.25 The number of
shares used in computing 48.35 million 45.66 million basic EPS
Explanation of Restructuring Convertible Notes On September 2, 2009
the Company consummated a restructuring of its $60 million 1.00%
Guaranteed Senior Unsecured Convertible Notes due 2012 and its $50
million 1.00% Guaranteed Senior Unsecured Convertible Notes due
2012 (collectively, the "Old Notes") into two new tranches of
notes: the Tranche A Zero Coupon Guaranteed Senior Unsecured
Convertible Notes (the "Tranche A Notes") and the Tranche B Zero
Coupon Guaranteed Senior Unsecured Notes (the "Tranche B Notes",
and together with the Tranche A Notes, the "New Notes"). As an
inducement to the restructuring of the Old Notes, the Company paid
$5.0 million in cash and 2.9 million in restricted shares to
Citadel, the beneficial owner of the Old Notes. The Tranche A Notes
have a principal amount of $50 million, zero coupon interest, and
mature on September 2, 2012. The Company will repay the principal
amount in six consecutive semi-annual installments, starting March
2, 2010, with 25%, 25% and 50% of the principal amount to be repaid
in the first, second and third year, respectively. The conversion
price will be $10.00 per share initially, subject to customary
conversion price adjustments, anti- dilution protections and a
one-time price reset on the date that is eighteen months following
the Closing Date (the "Reset Date") based on the volume weighted
average price of the Company's shares during the 45 trading days
immediately preceding the Reset Date, provided that the conversion
price shall be adjusted to no lower than $6.00 per share. On
October 22, 2009 the Company entered into a notes purchase
agreement with Citadel to repurchase the $50 million Tranche A
Notes for $47.5 million in cash. The Tranche B Notes, which are not
convertible, have a principal amount of $84 million, zero coupon
interest, and mature on September 2, 2012. The Company will repay
the principal amount in six consecutive semi-annual installments,
starting March 2, 2010, with 46%, 46% and 8% of the principal
amount to be repaid in the first, second and third year,
respectively. The Company is entitled to redeem the two tranches of
New Notes at any time with no premium or penalty at a redemption
price equal to 100% of the principal amount of the notes to be
redeemed, plus default interest, if any. Conference Call The
Company will hold a conference call to discuss the financial
results at 8:00 a.m. ET on October 28, 2009. The Company invites
you to join the call by dialing 1-201-689-8470. A live webcast of
the conference call will be available at http://www.csst.com/ .
There will also be accompanying presentation slides available for
downloading from http://irpage.net/csct/index.html . A replay of
the call will be available from October 28, 2009 to November 4,
2009. Listeners may access the replay by dialing 1-201-612-7415,
passcode: 335988. About China Security & Surveillance
Technology, Inc. Based in Shenzhen, China, CSST manufactures,
distributes, installs and services surveillance and safety products
and systems as well as develops surveillance and safety related
software in China. Its customers are mainly comprised of commercial
and government entities and non-profit organizations. CSST has
built a diversified customer base through its extensive sales and
service network that includes over 150 branch offices and
distribution points throughout China. To learn more about the
Company visit http://www.csst.com/ . 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
surveillance and safety products, our expectations regarding the
continued growth of the surveillance and safety 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, 2008, 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. For more information, please contact: Company Contact: Terence
Yap Tel: +86-755-8351-5634 Email: Investor Contact: ICR: Michael
Tieu Tel: +86-10-6599-7960 Email: Bill Zima Tel: +1-203-682-8200
Email: Media Contact: Patrick Yu Fleishman-Hillard Hong Kong Tel:
+852-2530-2577 Email: CHINA SECURITY & SURVEILLANCE TECHNOLOGY,
INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 Expressed in
thousands of U.S. dollars (Except for share and per share amounts)
September 30, December 31, 2009 2008 (Unaudited) ASSETS CURRENT
ASSETS Cash and cash equivalents $ 100,983 $ 47,779 Accounts
receivable, net 227,161 148,205 Inventories, net 95,510 117,042
Prepayments and deposits 6,577 7,280 Advances to suppliers 29,187
17,120 Other receivables 10,407 14,065 Deferred tax assets -
current portion -- 32 Total current assets 469,825 351,523 Deposits
for acquisition of subsidiaries, intangible assets and properties
6,360 7,855 Property, plant and equipment, net 75,806 74,523 Land
use rights 7,750 7,675 Intangible assets 56,127 56,913 Contingently
returnable acquisition consideration 1,176 1,176 Goodwill 75,529
73,216 Deferred financing cost 1,966 1,082 Deferred tax assets -
non-current portion 233 253 TOTAL ASSETS $ 694,772 $ 574,216
LIABILITIES AND EQUITY CURRENT LIABILITIES Notes payable - short
term $ 42,466 $ 10,242 Obligation under product financing
arrangements - short term 5,063 2,469 Convertible notes payable -
short term 82,780 -- Accounts and bills payable 56,708 50,756
Accrued expenses 13,508 10,263 Advances from customers 35,242
28,621 Taxes payable 8,685 4,115 Payable for acquisition of
businesses, properties and land use rights 6,843 11,915 Deferred
income 1,334 1,207 Total current liabilities 252,629 119,588 LONG -
TERM LIABILITIES Notes payable - long term -- 2,853 Obligation
under product financing arrangements - long term 7,882 4,214
Convertible notes payable - long term 43,470 143,342 Total
liabilities 303,981 269,997 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, 58,502,581 (September 30, 2009) and 49,142,592
(December 31, 2008) shares issued and outstanding 6 5 Additional
paid-in capital 222,548 164,806 Retained earnings 139,924 109,405
Statutory reserves 804 804 Accumulated other comprehensive income
27,524 29,167 Total shareholders' equity of the Company 390,806
304,187 Noncontrolling interest (15) 32 Total equity 390,791
304,219 TOTAL LIABILITIES AND EQUITY $ 694,772 $ 574,216 CHINA
SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND
2008 Expressed in thousands of U.S. dollars (Except for share and
per share amounts) Three Months Ended Nine Months Ended September
30, September 30, 2009 2008 2009 2008 (Unaudited)
(Unaudited)(Unaudited) (Unaudited) Revenues $ 159,820 $ 119,289 $
398,151 $ 283,806 Cost of goods sold (including depreciation and
amortization for the three and nine months ended September 30, 2009
and 2008 of $259, $738, $230 and $516, respectively) 124,484 87,280
306,773 199,085 Gross profit 35,336 32,009 91,378 84,721 Selling
and marketing 3,102 3,376 8,850 8,509 General and administrative
(including non-cash employee compensation for the three and nine
months ended September 30, 2009 and 2008 Of $4,743, $13,319, $3,596
and $9,662 respectively) 12,071 11,023 36,078 29,269 Depreciation
and amortization 2,958 2,283 8,690 6,230 Income from operations
17,205 15,327 37,760 40,713 Interest income 41 65 127 171 Gain on
modification of convertible notes 9,315 -- 9,315 -- Interest
expense (5,175) (5,949) (17,792) (15,598) Other income, net 441 480
1,670 1,167 Income before income taxes 21,827 9,923 31,080 26,453
Income taxes 145 (775) (608) (5,104) Net income 21,972 9,148 30,472
21,349 Add: Net loss attributable to the noncontrolling interest 33
-- 47 31 Net income attributable to the Company 22,005 9,148 30,519
21,380 Foreign currency translation (loss) gain (1,535) 4,402
(1,643) 19,832 Comprehensive income attributable to the Company
20,470 13,550 28,876 41,212 Comprehensive loss attributable to the
noncontrolling interest (33) -- (47) (31) COMPREHENSIVE INCOME $
20,437 $ 13,550 $ 28,829 $ 41,181 NET INCOME PER SHARE ATTRIBUTABLE
TO THE COMPANY'S COMMON SHAREHOLDERS BASIC $ 0.46 $ 0.20 $ 0.65 $
0.49 DILUTED $ 0.41 $ 0.20 $ 0.60 $ 0.48 WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING BASIC 48,352,451 45,655,617 46,636,198
44,003,994 DILUTED 53,487,010 46,151,827 50,972,401 44,615,552
CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2009 AND 2008 Expressed in thousands of U.S.
dollars (Except for share and per share amounts) Nine Months Ended
September 30, 2009 2008 (Unaudited) (Unaudited) CASH FLOWS FROM
OPERATING ACTIVITIES: Net income attributable to the Company $
30,472 $ 21,349 Adjustments to reconcile net income to net cash
provided by (used in) operating activities: Depreciation and
amortization 9,428 6,746 Provision for doubtful accounts 1,587 345
Amortization of consultancy services 11 101 Amortization of
deferred financing cost 333 102 Non-cash employee compensation
13,319 9,662 Redemption accretion and imputed interest on
convertible notes and other 15,161 14,090 Gain on modification of
convertible notes (9,315) -- Deferred taxes 52 104 Changes in
operating assets and liabilities: (Increase) decrease in: Accounts
receivable (79,061) (60,155) Related party receivables -- 373)
Inventories 22,278 (31,933) Prepayments and deposits 948 (2,233)
Advances to suppliers (12,023) (18,779) Other receivables 3,960
(2,723) Increase (decrease) in: Accounts and bills payable, and
accrued expenses 7,712 21,153 Advances from customers 6,587 12,543
Taxes payable 4,376 (1,375) Deferred income 126 82 Net cash
provided by (used in) operating activities 15,951 (30,548) CASH
FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and
equipment (3,520) (13,877) Additions to intangible assets (1,932)
(1,651) Additions to land use rights (174) (5,101) Deposits paid
for acquisition of subsidiaries (367) (4,761) Deposits refunded for
acquisition of subsidiaries -- 11,898 Payments for business
acquisitions (8,398) -- Net cash inflow (outflow) for acquisition
of subsidiaries 273 (6,013) Proceeds from disposal of land use
rights and properties -- 3,379 Net cash used in investing
activities (14,118) (16,126) CASH FLOWS FROM FINANCING ACTIVITIES:
Warrants exercised -- 277 Issuance of common stock, net of issuing
expenses 23,910 9,700 New borrowings, net of issuance costs 48,299
11,534 Repayment of borrowings (18,939) (13,987) New borrowings
from obligation under product financing arrangements, net of
issuance costs 8,362 6,705 Repayment of obligation under product
financing arrangements (3,321) (566) Repayment of convertible notes
payables (5,000) -- Net cash provided by financing activities
53,311 13,663 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
55,144 (33,011) Effect of exchange rate changes on cash and cash
equivalents (1,940) 9,866 Cash and cash equivalents, beginning of
period 47,779 89,071 CASH AND CASH EQUIVALENTS, END OF PERIOD $
100,983 $ 65,926 DATASOURCE: China Security & Surveillance
Technology, Inc. CONTACT: Terence Yap, +86-755-8351-5634, ; or
Investor, Michael Tieu, +86-10-6599-7960, , or Bill Zima,
+1-203-682-8200, , both of ICR; or Media, Patrick Yu,
Fleishman-Hillard Hong Kong, +852-2530-2577, Web site:
http://www.csst.com/ http://irpage.net/csct/index.html
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