China Security & Surveillance Technology, Inc. Reports Fourth-Quarter and Full-Year 2009 Results

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China Security & Surveillance Technology, Inc. Reports Fourth-Quarter and Full-Year 2009 Results

Highlighted by Encouraging Earnings Growth, Full-Year Solid and Positive Cash Flow, and Robust Growth in Revenues from Government Sector

SHENZHEN, China, March 2 --   -- Fourth-quarter revenues increased 27.3% to $182.71 million

  -- Fourth-quarter gross margin increased 610 basis points sequentially

  -- Fourth-quarter net income attributable to CSST increased 132.3% to
     $26.06 million and EPS increased 65.2% to $0.38

  -- Full-year revenue increased 35.9% to $580.87 million

  -- Full-year net income attributable to CSST increased 73.6% to $56.58
     million and EPS increased 40.3% to $1.01

  -- $52.60 million full-year net cash from operating activities versus
     $39.10 million net cash used in operating activities in 2008 -- the
     best-ever annual totals for CSST

  -- Fourth-quarter and full-year EPS reflected the growing demand for
     CSST's products and services, success of convertible notes
     restructuring and effective cost control measures

  -- Robust growth in revenues from government sector in the full year 2009,
     driven by government's accelerated efforts to promote safe city and e-
     city projects

Note: CSST's fourth-quarter and full-year 2009 earnings conference call will be broadcast live via the Internet at 8 a.m. ET on Tuesday, March 2, 2010, at http://irpage.net/csct/index.html .

China Security & Surveillance Technology, Inc. ("CSST" or the "Company") (NYSE: CSR; Nasdaq Dubai: CSR), a leading provider of digital surveillance technology in the P.R.C., today reported fourth-quarter and full-year 2009 results highlighted by encouraging earnings growth, full-year solid and positive cash flow, and robust growth in revenues from government sector in China. Full-year 2009 EPS grew 40.3%, driven by the growing demand for CSST's products and services, success of convertible notes restructuring, as well as solid execution of cost control initiatives.

Full-year 2009 revenues totaled $580.87 million; and net cash from operating activities totaled $52.60 million, versus $39.10 million net cash used in operating activities in 2008.

"Despite the economic environment, we had a solid 2009 and led the industry in many areas," said Mr. Guoshen Tu, Chairman and Chief Executive Officer of CSST. "Our system installation business in the government sector, particularly safe city and e-city projects, continues to ramp, improving our government revenue profile. We landed several major e-city projects in China, and we continued to see robust growth in the corporate sector."

"During the past year, we took major steps to improve CSST's financial position for 2010 and beyond. The success of our convertible notes restructuring has improved our capital structure and strengthened our balance sheet. We also delivered our cost initiatives which yielded positive results for our earnings," said Mr. Tu.

Fourth-Quarter Financial Results

To simplify its presentation, and in recognition of the completed restructuring of convertible notes, starting third quarter 2009, CSST no longer presents Non-GAAP results and instead presents reported results accompanied by details on key factors impacting results.

For the quarter ended December 31, 2009, CSST's revenues totaled $182.71 million, compared with $143.55 million in the year-earlier quarter and up 14.3% from the third quarter of 2009. This marked CSST's third consecutive quarter with double-digital revenue growth.

Gross profit totaled $51.48 million, up 43.8% from $35.81 million in the year-earlier period. Gross margin increased to 28.2% from 24.9% for the same period in 2008. Sequentially, gross margin increased 610 basis points as a result of expanded profitability of the installation segment. Correspondingly, income from operations increased to $28.20 million, up 68.4% from the year-earlier quarter. Operating margin increased to 15.4%, compared with 11.7% in the year-earlier quarter and 10.8% in the third quarter of 2009.

Net income attributable to CSST totaled $26.06 million, up 132.3% compared with $11.22 million in the year-earlier quarter, and diluted earnings per share totaled $0.38, compared with $0.23 in the year-earlier quarter.

Full-Year Financial Results

For the full year 2009, CSST's revenues totaled $580.87 million, up 35.9% versus $427.35 million in 2008. The growth reflected the strong demand for CSST's products and services, CSST's established brand awareness and extensive distribution network. Government customers accounted for 52% of total revenues, while corporate customers accounted for 48%. Organic revenues for 2009 totaled $543.89 million, or 93.6% of total revenues, compared to $361.5 million or 84.6% in 2008. Non-organic revenues totaled $36.98 million or 6.4% of total revenues.

Gross profit totaled $142.87 million, up 18.5% from $120.54 million in 2008. Gross margin was 24.6%, down 360 basis points from 28.2% last year. The slight drop was due to the decrease of selling prices and relatively lower margin for smaller-scale projects. It was also a result of CSST's efforts to maintain market share and expand customer base in China.

Operating income increased 14.8% to $65.96 million while operating margin decreased to 11.3%, as a result of lower gross margin.

Net income attributable to CSST totaled $56.58 million, up 73.6% from $32.60 million in 2008; and diluted earnings per share totaled $1.01 versus $0.72 in 2008.

CSST recognized a total of non-cash items at $36.36 million, down from $42.97 million in 2008. There were three components for the non-cash expenses, which were $12.74 million, or $0.23 per diluted share related to depreciation and amortization; $18.09 million, or $0.32 per diluted share related to non-cash employee compensation; and $14.85 million, or $0.26 per diluted share from redemption accretion on convertible notes prior to the restructuring. CSST also recorded a one-time non-cash gain on modification of convertible notes of $9.32 million, or $0.17 per diluted share. Weighted average diluted share count increased to 56.17 million compared with 45.28 million in 2008.

CSST's full-year net cash from operating activities totaled $52.60 million, versus $39.10 million net cash used in operating activities for 2008. As of December 31, 2009, CSST's cash balance was $154.48 million, compared with $100.98 million at the end of the third quarter.

Financial Outlook

For the full year 2010, CSST reaffirms its revenue projection of $800 to $820 million and diluted earnings per share of $1.15 to $1.20.

"Looking ahead, mainland demand for our products and services continues to be strong, and we are well positioned at the center of this growth," said Mr. Tu. "The announced acquisitions in 2009 will continue to provide us with a growth platform to expand our industry-leading capabilities in security and surveillance offerings. Our market leadership in China continues to set us apart as we roll out more products and services this year and expand security service capabilities in the years ahead."

"We will further accelerate our efforts to secure sizeable government contracts and capitalize on the growing opportunities in safe city and e-city projects. We will continue cost-improvement initiatives to maintain a healthy margin for our business. Our fundamental outlook for the business is positive," concluded Mr. Tu.

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 branch offices and distribution points throughout China. To learn more about the Company visit http://www.csst.com/ .

Safe Harbor Statement

This press release may include 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, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. Forward-looking statements can be identified by the use of forward-looking terminology such as 'will,' 'believes,' 'expects' or similar expressions. Such information is based upon expectations of our management that were reasonable when made but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond our control and based upon premises with respect to future business decisions, which are subject to change. We do not undertake to update the forward-looking statements contained in this press release. For a description of the risks and uncertainties that may cause actual results to differ from the forward-looking statements contained in this press release, see our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission ('SEC'), and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system at http://www.sec.gov/ .

  For more information, please contact:

  Company Contact:
   Terence Yap, Chief Financial Officer and Vice Chairman
   China Security & Surveillance Technology, Inc.
   Tel:   +86-755-8351-5634
   Email: ir@csst.com

  Investor and Media Contact:
   Patrick Yu, Fleishman-Hillard Hong Kong
   Tel:   +852-2530-2577
   Email: patrick.yu@fleishman.com

       CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
            FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008
                   Expressed in thousands of U.S. dollars
                  (Except for share and per share amounts)

                                                     Three Months Ended
                                                         December 31,
                                                      2009           2008
                                                  (Unaudited)    (Unaudited)
  Revenues                                         $182,719       $143,548
  Cost of goods sold                                131,232        107,728
  Gross profit                                       51,487         35,820
  Selling and marketing                               3,646          3,547
  General and administrative                         16,599         13,026
  Depreciation and amortization                       3,041          2,499
  Income from operations                             28,201         16,748
  Interest income                                        88             47
  Interest expense                                   (1,939)        (6,167)
  Other income, net                                     830          1,069
  Income before income taxes                         27,180         11,697
  Income taxes                                       (1,125)          (476)
  Net income                                         26,055         11,221
  Add: Net loss attributable to the
   noncontrolling interest                                3              2
  Net income attributable to the
   Company                                           26,058         11,223

  NET INCOME PER SHARE ATTRIBUTABLE TO
   THE COMPANY'S COMMON SHAREHOLDERS
  BASIC                                               $0.41          $0.24
  DILUTED                                             $0.38          $0.23

  WEIGHTED AVERAGE NUMBER OF SHARES
   OUTSTANDING
  BASIC                                          62,942,000     47,514,000
  DILUTED                                        68,939,000     48,157,000

       CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
                    Expressed in thousands of U.S. dollars
                   (Except for share and per share amounts)

                                                     2009            2008
                                                 (Unaudited)
  Revenues                                        $580,870        $427,354
  Cost of goods sold (including
   depreciation and amortization
   for the years ended December 31,
   2009 and 2008 of $1,009 and $762,
   respectively)                                   438,005         306,813
  Gross profit                                     142,865         120,541
  Selling and marketing                             12,496          12,056
  General and administrative (including
   non-cash employee compensation for
   the years ended December 31, 2009
   and 2008 of $18,087 and $13,837,
   respectively)                                    52,677          42,295
  Depreciation and amortization                     11,731           8,729
  Income from operations                            65,961          57,461
  Interest income                                      215             218
  Gain on modification of convertible
   notes                                             9,315              --
  Interest expense                                 (19,731)        (21,765)
  Other income, net                                  2,500           2,236
  Income before income taxes                        58,260          38,150
  Income taxes                                      (1,733)         (5,580)
  Net income                                        56,527          32,570
  Add: Net loss (income) attributable to
   the noncontrolling interest                          50              33
  Net income attributable to the Company            56,577          32,603
  Foreign currency translation (loss)
   gain                                             (1,602)         17,294
  Comprehensive income attributable to
   the Company                                      54,975          49,897
  Comprehensive (loss) income                          (50)            (33)
   attributable to the noncontrolling
   interest
  COMPREHENSIVE INCOME                             $54,925         $49,864

  NET INCOME PER SHARE ATTRIBUTABLE TO THE
   COMPANY'S COMMON SHAREHOLDERS
  BASIC                                              $1.10           $0.73
  DILUTED                                            $1.01           $0.72

  WEIGHTED AVERAGE NUMBER OF SHARES
   OUTSTANDING
  BASIC                                         51,317,000      44,721,000
  DILUTED                                       56,171,000      45,284,000

       CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                       AS OF DECEMBER 31, 2009 AND 2008
                    Expressed in thousands of U.S. dollars
                   (Except for share and per share amounts)

                                                   2009              2008
                                               (Unaudited)
                                   ASSETS
  Cash and cash equivalents                     $154,483           $47,779
  Accounts receivable, net                       251,604           148,205
  Inventories, net                                70,141           117,042
  Prepayment and deposits                          4,706             7,280
  Advances to suppliers                           39,399            17,120
  Other receivables                               26,692            14,065
  Deferred tax assets - current portion               13                32
  Total current assets                           547,038           351,523

  Deposits paid for acquisition of
   subsidiaries, properties and
  intangible assets                                7,199             7,855
  Plant and equipment, net                        75,447            74,523
  Land use rights, net                             7,733             7,675
  Intangible assets                               54,677            56,913
  Contingently returnable acquisition
   consideration                                      --             1,176
  Goodwill                                        79,511            73,216
  Deferred financing cost                          1,953             1,082
  Deferred tax assets - non-current
   portion                                            --               253
             TOTAL ASSETS                       $773,558          $574,216

                        LIABILITIES AND EQUITY
  CURRENT LIABILITIES
  Notes payable - short term                     $57,116           $10,242
  Obligation under product financing
   arrangements - short term                       5,184             2,469
  Guaranteed senior unsecured notes
   payable - short term                           35,701                --
  Accounts and bills payable                      68,817            50,756
  Accrued expenses                                26,762            10,263
  Advances from customers                         27,503            28,621
  Taxes payable                                   14,835             4,115
  Payable for acquisition of
   businesses, properties and land use
   rights                                          5,105            11,915
  Deferred income                                  1,868             1,207
  Total current liabilities                      242,891           119,588

  LONG TERM LIABILITIES
  Notes payable - long term                           --             2,853
  Obligation under product financing
   arrangements - long term                        6,541             4,214
  Guaranteed senior unsecured notes
   payable - long term                            43,988                --
  Net deferred tax liabilities                       773                --
  Convertible notes payable - long term               --           143,342
  Total liabilities                              294,193           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,
   67,866,730 (2009) and
   49,142,592 (2008) shares
   issued and outstanding                              7                 5
  Additional paid-in capital                     285,025           164,806
  Retained earnings                              165,982           109,405
  Statutory surplus reserve fund                     804               804
  Accumulated other comprehensive
   income                                         27,565            29,167
  Total equity of the Company                    479,383           304,187
  Noncontrolling interest                            (18)               32
  Total equity                                   479,365           304,219
      TOTAL LIABILITIES AND
       EQUITY                                   $773,558          $574,216

       CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
                    Expressed in thousands of U.S. dollars
                   (Except for share and per share amounts)

                                                         2009        2008
                                                     (Unaudited)
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                           $56,527     $32,570
  Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
  Depreciation and amortization                         12,740       9,491
  Provision for doubtful accounts                        2,432         401
  Provision for obsolete inventories                       348          14
  Amortization of consultancy services                      11         135
  Non-cash compensation expense                         18,087      13,837
  Amortization of deferred financing cost                  646         206
  Redemption accretion on convertible notes             14,851      19,641
  Gain on modification of convertible notes             (9,315)         --
  Amortization of debt discount                          1,249          --
  Deferred taxes                                         1,045         142

  Changes in operating assets and liabilities:
  (Increase) decrease in:
  Accounts receivable                                 (104,332)    (73,827)
  Related party receivables                                 --         587
  Other receivables                                    (12,324)     (2,060)
  Inventories                                           47,313     (63,306)
  Prepayment and deposits                                2,793      (2,381)
  Advances to suppliers                                (22,233)    (12,850)
  Increase (decrease) in:
  Accounts and bills payable and accrued expenses       32,736      21,312
  Advances from customers                               (1,156)     17,077
  Taxes payable                                         10,525        (318)
  Deferred income                                          660         229
  Net cash provided by (used in) operating
   activities                                           52,603     (39,100)

  CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to plant and equipment                      (4,143)     (6,129)
  Additions to intangible assets, other than through
   business acquisitions                                (2,585)     (2,320)
  Additions to land use rights, other than through
   business acquisitions                                  (174)     (5,101)
  Deposits paid for acquisition of subsidiaries         (3,259)     (3,790)
  Deposits refunded for acquisition of subsidiaries      1,904       1,943
  Deposits paid for acquisition of properties and
   intangible assets                                        --        (357)
  Net cash outflow on acquisition of net assets of
   businesses acquired (net of cash acquired)              273     (10,997)
  Payments of payable for acquisition of businesses,
   properties and land use rights                      (11,077)         --
  Payments of adjustment to cost of acquisitions
   related to resolved contingencies                      (425)         --
  Proceeds from disposal of land use rights and
   properties                                               --       3,379
  Net cash used in investing activities                (19,486)    (23,372)

  CASH FLOWS FROM FINANCING ACTIVITIES:
  New borrowings, net of issuance costs                 65,874      17,401
  Repayment of borrowings                              (21,865)    (19,386)
  New borrowings from obligation under product
   financing arrangements                                8,362       6,687
  Repayment of obligation under product financing
   arrangements                                         (4,511)     (1,143)
  Repayment of convertible notes payables              (52,500)         --
  Warrants exercised                                        --         277
  Issue of common stock, net of issuing expenses        80,179       9,700
  Net cash provided by financing activities             75,539      13,536

  NET INCREASE (DECREASE) IN CASH AND CASH
   EQUIVALENTS                                         108,656     (48,936)
  Effect of exchange rate changes on cash               (1,952)      7,644

  Cash and cash equivalents, beginning of year          47,779      89,071
  CASH AND CASH EQUIVALENTS, END OF YEAR              $154,483     $47,779

Source: China Security & Surveillance Technology, Inc.
   

CONTACT:  Company Contact: Terence Yap, Chief Financial Officer and Vice
Chairman, China Security & Surveillance Technology, Inc., +86-755-8351-5634,
or ir@csst.com; Investor and Media Contact: Patrick Yu, Fleishman-Hillard Hong
Kong, +852-2530-2577, or patrick.yu@fleishman.com

Web Site:  http://www.csst.com/

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