China Security & Surveillance Technology Reports First Quarter 2008 Financial Results

SHENZHEN, China , May 5 /Xinhua-PRNewswire/ -- 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...


Financial Outlook

For the second quarter of 2008, the Company expects to achieve revenues between $85-87 million. Excluding the non-cash charges related to the redemption accretion on convertible notes, employee stock compensation and depreciation and amortization related to the company's recent acquisitions, the Company expects to achieve an adjusted net income of $15.9-16.5 million and adjusted diluted earnings per share of $0.36-$0.38 in the second quarter of 2008.

The Company estimates that in the second quarter, non-cash interest expenses associated with the redemption accretion on convertible notes, the employee stock compensation, and the depreciation and amortization, will be approximately $4.4 million, $5.5 million and $2.5 million, respectively.

For the full year 2008, the Company is raising its previous guidance and now expects to achieve revenues between $380-400 million. The Company expects adjusted net income of $70-76 million and adjusted diluted earnings per share of $1.59-1.76. The major contributors to results should continue to be system integration and manufacturing of security products. 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 non-cash employee compensation as well as higher depreciation and amortization costs related to the intangible assets from an increasing number of acquisitions.

Mr. Tu concluded, ''We continue to be optimistic about the future growth of our business in China . We believe that we have put in place the strongest possible operating structure and management team -- supported by the strongest possible balance sheet -- to leverage the expanding opportunities for revenue growth associated with increased demand for security and surveillance products and services. This was recently evidenced by our notable contract win for a second phase Safe City project with the government of Qingzhou City in Shandong Province , following our implementation of phase one last year as well as by our awarded Safe City bid in Jining City, which was our largest project win to date. Our internal infrastructure, our reputation for premier service, and our recent and pending acquisitions and sound partnerships provide us with the optimal model to achieve our goal of becoming the market leader in security and surveillance manufacturing and equipment. We plan to continue to focus our efforts on developing all segments of our business. We continue to see demand for our products, our services and our security expertise growing, and it is our goal to be the logical choice for customers requiring security products and services.''

Explanation of Redemption Accretion on convertible notes

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 March 31, 2008 the Company accrued a cumulative $18.1 million as a redemption amount payable under the notes, $4.4 million of which was included in interest expense in the first 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.