CHINA SECURITY & SURVEILLANCE TECH. INC. 
By SHENZHEN, China, July 25, 2011 /PRNewswire-Asia/ --
-- Second-quarter revenues decreased to $156.34 million, 7.1% down from the
same quarter of last year due to structural change in the customer mix
to include more higher margin and large-scale government installation
projects which required a longer completion time; consequently fewer
projects were completed during the quarter
-- Approximately 88% of second-quarter revenues came from government
customers, as compared with 55% in the second quarter of 2010,
reflecting the Company's strategic focus on large-scale government
installation projects
-- Second-quarter gross margin increased 110 basis points year-over-year to
26.9% from 25.8% last year; while gross margin for the six months ended
June 30, 2011 increased 370 basis points year-over-year to 28.8%,
reflecting an increasing gross margin in system installation business
and effective cost control measures
-- Second-quarter net income attributable to CSST decreased to $5.97
million, mainly due to the decrease in revenues, the increase in
expenses related to the proposed merger transaction and the Company's
advertising promotions to support its business expansion efforts and the
increase in interest expenses
-- Second-quarter GAAP diluted EPS was $0.07, declining year-over-year from
$0.23 for the second quarter of 2010, due to the fall in net income
attributable to CSST and the increase in year-over-year weighted average
diluted share count
-- A positive cash flow of $78.59 million over the first six months of
2011, as compared with $53.59 over the same period of 2010
Note: CSST's second-quarter 2011 earnings conference call can be accessed at 1866 549 1292 (US Toll Free) or +852 3005 2050 (Toll International), with PIN number: 341229# at 8:00 a.m. ET. on July 25, 2011. Second-quarter 2011 earnings slides can be accessed at http://csst.todayir.com/html/index.php before the call.
China Security & Surveillance Technology, Inc. ("CSST" or the "Company") (NYSE: CSR), a leading integrated surveillance and safety solutions provider in the P.R.C., today reported its second-quarter 2011 results with an encouraging gross margin expansion and a positive cash flow despite a decrease in revenues and net income. The improved gross margin was driven by increasing gross margin in system installation business and disciplined execution of cost control initiatives.
CSST's second-quarter 2011 revenues totaled $156.34 million, net income attributable to the Company was $5.97 million and GAAP-diluted EPS was $0.07. Second-quarter gross margin rose to 26.9%, while operating margin fell to 9.4%.
"We just completed a quarter where the results of important strategic decisions were reflected in a gross margin expansion and a positive cash flow," said Mr. Guoshen Tu, Chairman and Chief Executive Officer of CSST. "Although our revenues were impacted by the structural change in our customer mix, we continue to see growth opportunities in the surveillance and safety industry in China, with favorable government support, as well as great potential in the security services segment. Large-scale projects and our proven execution and service capabilities continue to strengthen our competitive position in China."
Second-Quarter 2011 Financial Results
CSST's 2011 second-quarter revenues totaled $156.34 million, down 7.1% as compared with $168.35 million in the second quarter of 2010. The decrease was mainly due to structural change in the customer mix to include more higher margin and large-scale government installation projects which required a longer completion time; consequently fewer projects were completed during the quarter. Approximately 88% of the revenues came from government customers as compared with approximately 55% in the same quarter of last year. According to CSST's accounting policy, the Company only recognizes revenues upon completion. The Company hence expects to see an upturn in the revenues over the rest of the year.
Gross profit totaled $42.01 million, down 3.1% from $43.36 million in the second quarter of 2010. Gross margin increased to 26.9%, up from 25.8% in the second quarter of 2010. The increase was mainly driven by higher gross margin from large-scale installation projects and effective cost-control initiatives.
Operating income fell 40.4% year-over-year to $14.65 million while operating margin fell to 9.4% from 14.6% in the second quarter of 2010. The decrease was mainly due to the increase in expenses related to the proposed merger transaction and the Company's advertising promotions to support its business expansion efforts and hiring of additional staff.
Net income attributable to CSST totaled $5.97 million, down from $17.81 million in the second quarter of 2010. Net margin decreased to 3.9%, versus 10.6% in the second quarter of 2010. The drop was mainly due to the decrease in revenues, the increase in professional expenses related to the proposed merger transaction and the Company's advertising promotions to support its business expansion efforts and the increase in interest expenses in the second quarter of 2011.
GAAP diluted EPS was $0.07 versus $0.23 in the second quarter of 2010. The drop was mainly due to the decrease in net income attributable to the Company, and the fact that the Company's weighted average diluted share count increased 18.0% to 89.71 million shares in the second quarter of 2011, from 76.01 million shares in the same period of 2010.
As at June 30, 2011, the Company had a cash balance of $144.21 million of cash and cash equivalents, up from $65.63 million as at December 31, 2010 due to the cash inflow from financing to support the Company's large-scale project installations and business expansion.
Financial Outlook
"Mainland surveillance and safety industry growth opportunities continue to be robust, and CSST is strongly positioned to lead in this new era," said Mr. Tu. "Looking ahead, we are confident that we are able to continue to build on our strengths and accelerate the growth of our Company in 2011."
About China Security & Surveillance Technology, Inc.
Based in Shenzhen, China, CSST designs, manufactures, sells, installs, services and monitors electronic surveillance and safety products and solutions, including related software, in China. Its customers are mainly comprised of government, commercial, industrial and education entities. 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 results for the reminder of 2011 and our ability to deliver such results, growth opportunities of surveillance and safety industry in China and our ability to capitalize on the anticipated growth in the surveillance and safety industry, expected growth in industry demand and our business, our future financial performance and strategic and operational plans, 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:
Amy Tang
China Security & Surveillance Technology, Inc.
Tel: +86-755-8351-0888 ext.6138
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
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010
Expressed in thousands of U.S. dollars
(Except for share and per share amounts)
ASSETS
------
June 30, December 31,
2011 2010
--------- -------------
Cash and cash equivalents $144,205 $65,626
Restricted cash 22,472 --
Accounts receivable, net 491,369 433,986
Inventories, net 43,101 59,368
Prepayments and deposits 168,589 56,241
Advances to suppliers and
subcontractors 154,760 88,360
Other receivables 48,568 47,116
------ ------
Total current assets 1,073,064 750,697
--------- -------
Deposits paid for business
acquisitions, properties and
intangible assets 132,753 146,243
Plant and equipment, net 77,321 75,294
Land use rights, net 8,042 7,896
Intangible assets, net 45,799 48,692
Goodwill 79,519 79,516
Deferred financing costs, net 2,143 2,684
TOTAL ASSETS $1,418,641 $1,111,022
========== ==========
CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010
Expressed in thousands of U.S. dollars
(Except for share and per share amounts)
LIABILITIES AND EQUITY
June 30, December 31,
2011 2010
CURRENT LIABILITIES
Notes payable - short term $191,014 $196,329
Obligations under product financing
arrangements - short term 5,512 6,687
Guaranteed senior unsecured notes payable -
short term 22,168 37,408
Accounts and bills payable 77,464 32,240
Accrued expenses 60,919 49,421
Advances from customers 18,722 15,216
Taxes payable 29,438 28,648
Payable for acquisition of businesses 3,763 3,763
Deferred income 2,806 3,201
----- -----
Total current liabilities 411,806 372,913
LONG TERM LIABILITIES
Notes payable - long term 299,945 60,570
Obligation under product financing
arrangements - long term 3,810 6,474
Guaranteed senior unsecured notes payable -
long term 3,324 6,580
Net deferred tax liabilities 676 282
--- ---
Total liabilities 719,561 446,819
------- -------
EQUITY
Preferred stock, $0.0001 par value;
10,000,000 shares authorized, no shares
issued and outstanding
Common stock, $0.0001 par value; 290,000,000
shares authorized 89,703,773 (June 30, 2011)
and 89,521,115 (December 31, 2010) shares
issued and outstanding 9 9
Additional paid-in capital 384,981 374,417
Retained earnings 251,016 243,371
Statutory surplus reserve fund 804 804
Accumulated other comprehensive income 62,287 45,619
------ ------
Total equity of the Company 699,097 664,220
Noncontrolling interest (17) (17)
--- ---
Total equity 699,080 664,203
TOTAL LIABILITIES AND EQUITY $1,418,641 $1,111,022
========== ==========
CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
Expressed in thousands of U.S. dollars
(Except for share and per share amounts)
Three Months Ended
June 30,
2011 2010
(Unaudited) (Unaudited)
Revenues $156,339 $168,354
Cost of goods sold (including
depreciation and
amortization for the three
and six months ended June
30, 2011 and 2010 of $254,
$513, $248 and $502,
respectively) 114,331 124,994
------- -------
Gross profit 42,008 43,360
Selling and marketing 3,116 3,131
General and administrative
(including non-cash
employee compensation for
the three and six months
ended June 30, 2011 and 2010
of $5,017, $10,564, $5,055
and $13,381, respectively) 21,274 12,670
Depreciation and amortization 2,971 3,005
----- -----
Income from operations 14,647 24,554
Interest income 222 53
Interest expense (6,436) (3,064)
Other income, net 715 394
--- ---
Income before income taxes 9,148 21,937
Income taxes (3,182) (4,130)
------ ------
Net income 5,966 17,807
Add: Net (income)
attributable to the
noncontrolling interest -- (4)
Net income attributable to
the Company 5,966 17,803
----- ------
Foreign currency translation
gain 9,837 3,198
----- -----
Comprehensive income
attributable to the Company 15,803 21,001
Comprehensive income
attributable to the
noncontrolling interest -- 4
--- ---
COMPREHENSIVE INCOME $15,803 $21,005
======= =======
NET INCOME PER SHARE
ATTRIBUTABLE TO THE
COMPANY'S COMMON
SHAREHOLDERS
BASIC $0.07 $0.25
DILUTED $0.07 $0.23
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
BASIC 84,833,000 71,480,000
DILUTED 89,709,000 76,006,000
Six Months Ended
June 30,
2011 2010
(Unaudited) (Unaudited)
Revenues $255,393 $288,544
Cost of goods sold (including
depreciation and
amortization for the three
and six months ended June
30, 2011 and 2010 of $254,
$513, $248 and $502,
respectively) 181,898 216,205
------- -------
Gross profit 73,495 72,339
Selling and marketing 5,812 5,845
General and administrative
(including non-cash
employee compensation for
the three and six months
ended June 30, 2011 and 2010
of $5,017, $10,564, $5,055
and $13,381, respectively) 38,972 28,992
Depreciation and amortization 5,939 5,985
----- -----
Income from operations 22,772 31,517
Interest income 363 131
Interest expense (11,550) (5,359)
Other income, net 1,311 640
----- ---
Income before income taxes 12,896 26,929
Income taxes (5,251) (5,847)
------ ------
Net income 7,645 21,082
Add: Net (income)
attributable to the
noncontrolling interest -- (2)
Net income attributable to
the Company 7,645 21,080
----- ------
Foreign currency translation
gain 16,668 3,322
------ -----
Comprehensive income
attributable to the Company 24,313 24,402
Comprehensive income
attributable to the
noncontrolling interest -- 2
--- ---
COMPREHENSIVE INCOME $24,313 $24,404
======= =======
NET INCOME PER SHARE
ATTRIBUTABLE TO THE
COMPANY'S COMMON
SHAREHOLDERS
BASIC $0.09 $0.31
DILUTED $0.09 $0.29
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
BASIC 84,835,000 67,993,000
DILUTED 89,709,000 72,209,000
CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
Expressed in thousands of U.S. dollars
(Except for share and per share amounts)
Six Months Ended
June 30,
2011 2010
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $7,645 $21,082
------ -------
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 6,452 6,487
----- -----
Provision for obsolete inventories (6) --
--- ---
Amortization of deferred financing
cost 1,707 563
----- ---
Non-cash compensation expense 10,564 13,381
------ ------
Debt discount amortization 824 1,681
--- -----
Deferred taxes 388 (361)
--- ----
Changes in operating assets and
liabilities:
Decrease (increase) in:
Accounts receivable (47,251) (65,925)
------- -------
Inventories 17,659 (9,866)
------ ------
Prepayments and deposits (111,035) (159)
-------- ----
Advances to suppliers and
subcontractors (64,336) (31,947)
------- -------
Other receivables (351) (4,070)
---- ------
Increase (decrease) in:
Accounts payable and accrued expenses 54,815 (392)
------ ----
Advances from customers 3,151 3,953
----- -----
Taxes payable 121 8,582
--- -----
Deferred income (470) 529
---- ---
Net cash used in operating activities (120,123) (56,462)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (3,160) (846)
------ ----
Additions to intangible assets, other
than through business acquisitions (520) (807)
---- ----
Deposits refunded (paid) for business
acquisitions, properties and
intangible assets, net 16,905 (30,229)
------ -------
Payments for business acquisitions -- (422)
--- ----
Net cash provided by (used in)
investing activities 13,225 (32,304)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash (22,472) --
------- ---
Issue of common stock, net of
financing expenses -- 64,573
--- ------
Proceeds from borrowings, net of
financing costs 356,720 141,533
------- -------
Repayment of borrowings (128,440) (49,899)
-------- -------
Repayment of guaranteed senior
unsecured notes payable (19,320) (19,320)
------- -------
Proceeds from borrowings from
obligations under product financing
arrangements, net of financing costs -- 6,293
--- -----
Repayment of obligation under product
financing arrangements (4,450) (2,671)
------ ------
Net cash provided by financing
activities 182,038 140,509
------- -------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 75,140 51,743
------ ------
Effect of exchange rate changes on
cash and cash equivalents 3,439 1,841
----- -----
Cash and cash equivalents, beginning
of period 65,626 154,483
------ -------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $144,205 $208,067
-------- --------
SOURCE China Security & Surveillance Technology, Inc.
