China Security & Surveillance Technology Reports Fourth Quarter and Full Year 2007 Financial Results

SHENZHEN, China , March 10 /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...


For the fourth quarter 2007, the Company reported GAAP earnings per diluted share of $0.35 compared to $0.20 in the fourth quarter 2006. GAAP results for the fourth quarter of 2007 include: (1) approximately $4.4 million, or $0.09 per diluted share, of non-cash expense related to the redemption accretion on convertible notes; (2) approximately $1.7 million, or $0.04 per diluted share, of non-cash expense related to depreciation and amortization of long-lived assets due to our acquisition of subsidiaries, and (3) approximately $2.2 million, or $0.05 per diluted share, of non-cash expense related to employee stock compensation recognized pursuant to SFAS 123 (R). Additionally, in the fourth quarter of 2007, the Company realized a one-time pre-tax gain of $8.11 million, or $0.16 per diluted share (after tax effect), related to the disposal of property and land use right during the year. Excluding these non-cash expenses and the one-time gain, diluted earnings per share was $0.38, compared to $0.22 per diluted share in the fourth quarter 2006 (see "About Non-GAAP Financial Measures" toward the end of this release). Diluted share count increased 28% in the fourth quarter 2007 to 42.15 million from 33.17 million in the fourth quarter of 2006.

Fourth quarter revenue increased 106% to $84.2 million compared to $40.9 million in the fourth quarter 2006. Organic revenue during the fourth quarter was approximately $69.3 million, or 82.3% of total revenue (which included the fourth quarter 2007 revenue contribution from Cheng Feng). Non-organic revenue, or revenue of acquired companies totaled approximately $14.9 million or 17.7% of total revenue in the fourth quarter 2007. As a result, organic revenues grew during the fourth quarter by $28.4 million, or 69.3% from $40.9 for the same period last year.

In the fourth quarter gross profits increased $14 million, or 130%, to $24.7 million from $10.7 million for the same period last year. Gross margin for the fourth quarter was 29.3%, as compared to 26.2% for the same period last year. The increase in gross margin reflected the growing recognition of sales of some higher-margin Safe City projects.

Income from operations in the fourth quarter increased 63.9% to $13.6 million from $8.3 million for the same period in 2006. Operating margin decreased to 16.1% from 20.2% in the fourth quarter last year. Net income in the fourth quarter of 2007 increased 124% to $14.8 million, up from $6.6 million in the same quarter last year. Net income per share was $0.35 versus $0.20 in the fourth quarter 2006.

The Company's cash position at the end of the year was $89.1 million, up from $79.8 million at the end of the third quarter. Total debt at the end of 2007 was $137.2 million, up from $130.5 million at the end of the third quarter of 2007.

Mr. Guo Shen Tu , Chief Executive Officer of China Security, commented, "We are encouraged by the integration of our 2007 acquisitions and partnerships, which are contributing nicely to our revenue growth, while providing synergies to our overall business. In the fourth quarter we continued to see significant demand from government Safe-City contracts, and importantly, the size, duration, and potential margins of the contracts we are signing are continuing to increase. Over the next four quarters, we will continue to focus our energies on integrating our acquisitions and generating revenue from the manufacturing and systems integration businesses, while building our operating services and international products divisions to prepare them to contribute more substantially to overall revenue growth in 2009."

Financial Outlook

For the first quarter of 2008, the Company expects to achieve revenues between $68-$70 million. Excluding the non-cash charges related to the redemption amount payable on convertible notes, the accrual of performance based employee compensation, and the depreciation and amortization of long lived assets related to the Company's recent acquisitions. The Company expects to achieve an adjusted net income of $13-$14 million and adjusted diluted earnings per share of $0.31-$0.34 in the first quarter of 2008.

The Company estimates that non-cash interest expenses associated with the redemption accretion on convertible notes, the employee stock compensation and the depreciation and amortization of long lived assets related to the Company's recent acquisitions for the first quarter of 2008, will be approximately $4.4 million, $3.1 million and $1.9 million, respectively.

For the full year 2008, the Company expects to achieve revenues between $350-$370 million. The Company expects to achieve an adjusted net income of $65-$75 million and adjusted diluted earnings per share of $1.50-$1.75. The major contributors to results should continue to be system installation and manufacturing of security and safety products with marginal contribution coming from operating services and international products. The Company expects non-cash expense related to the redemption amount payable on convertible notes will be approximately $17.6 million in 2008. Going forward, we expect to continue to incur accrual non cash stock compensation for 2008. We also expect higher depreciation and amortization costs related to the intangible assets from an increasing number of acquisitions.