omniture

China Security & Surveillance Technology, Inc. Reports Second-Quarter 2011 Results

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, 2011


December 31, 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, 2011



December 31, 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,


Six Months Ended June 30,



2011


2010


2011


2010



(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Revenues

$

156,339

$

168,354

$

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)


114,331


124,994


181,898


216,205

Gross profit


42,008


43,360


73,495


72,339

Selling and marketing


3,116


3,131


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)


21,274


12,670


38,972


28,992

Depreciation and amortization


2,971


3,005


5,939


5,985

Income from operations


14,647


24,554


22,772


31,517

Interest income


222


53


363


131

Interest expense


(6,436)


(3,064)


(11,550)


(5,359)

Other income, net


715


394


1,311


640

Income before income taxes


9,148


21,937


12,896


26,929

Income taxes


(3,182)


(4,130)


(5,251)


(5,847)

Net income


5,966


17,807


7,645


21,082

Add: Net (income) attributable to the noncontrolling interest


--


(4)


--


(2)

Net income attributable to the Company


5,966


17,803


7,645


21,080

Foreign currency translation gain


9,837


3,198


16,668


3,322

Comprehensive income attributable to the Company


15,803


21,001


24,313


24,402

Comprehensive income attributable to the noncontrolling interest


--


4


--


2

COMPREHENSIVE INCOME

$

15,803

$

21,005

$

24,313

$

24,404










NET INCOME PER SHARE ATTRIBUTABLE TO THE COMPANY'S COMMON SHAREHOLDERS









BASIC

$

0.07

$

0.25

$

0.09

$

0.31

DILUTED

$

0.07

$

0.23

$

0.09

$

0.29

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING









BASIC


84,833,000


71,480,000


84,835,000


67,993,000

DILUTED


89,709,000


76,006,000


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.
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