China Security & Surveillance Technology Reports Fourth Quarter and Full Year 2008 Financial Results

SHENZHEN, China, March 5 /PRNewswire-Asia/ -- -- 4Q08 Revenue Increases 70.5% to $143.5 Million -- 4Q08 Adjusted Net Income Increases 47.1% to $23.7 Million -- 4Q08 Adjusted EPS Increases 28.9% to $0.49 -- Full Year 2008 Revenue...


Full Year 2008

Revenue increased 77.9% to $427.4 million, from $240 million in 2007. The strong revenue growth was driven by continued demand for surveillance and safety products in China , and increased government deployment of surveillance and safety systems in public places. During 2008, government customers account for 49.0% of total revenue, while corporate customers account for 51.0%. Organic revenue for 2008 was approximately $361.5 million, or 84.6% or total revenue. Non-organic revenue, or revenue of acquired companies, was approximately $65.9 million or 15.4% of total revenue. As a result, organic revenues grew during the year by $170.8 million, or 89.6%, from $190.7 million in 2007.

Full year 2008 gross profits increased 73.3% to $120.5 million, from $69.5 million for 2007. Gross margin for the year was 28.2%, a slight decrease from 28.9% for 2007. Income from operations in 2008 increased 34.7% to $57.5 million, from $42.7 million in the prior year; however, operating margin decreased to 13.4% from 17.8%, primarily due to higher selling, general and administrative (SG&A) expenses and non-cash expenses.

Accordingly, GAAP net income in 2008 decreased 7.7% to $32.6 million, from $35.3 million in 2007; and, GAAP earnings per diluted share decreased to $0.72 from $0.91 in 2007. GAAP results for the full year of 2008 include: (1) approximately $19.6 million, or $0.43 per diluted share, of non-cash expense related to the redemption accretion on convertible notes (as described below under the caption ''Explanation of Redemption Accretion''); (2) approximately $9.5 million, or $0.21 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 $13.8 million, or $0.31 per diluted share, of non-cash expense related to employee stock compensation recognized pursuant to SFAS 123 (R).

Excluding these non-cash expenses, adjusted net income increased 62.1% to $75.6 million, versus $46.6 million in 2007. Adjusted earnings per diluted share grew 39.2% to $1.67, from $1.20 per diluted share in 2007 (see the ''Reconciliation of GAAP to non-GAAP Measures" toward the end of this release).

Financial Outlook

For the full year 2009, the Company reaffirms its revenue projection of $600 to $630 million. The Company also reaffirms adjusted net income of $108-$113 million and adjusted diluted earnings per share of $2.16-$2.26. The company estimates that non-cash interest expense on redemption accrual, employee stock compensation expense, and depreciation and amortization will be approximately $22.7 million, $18.5 million, and $12 million, respectively.

Mr. Tu concluded, ''We remain confident about the business and the growth of the security industry. Our strategy has always been to be the market leader, and we have executed on our strategy successfully. We have built our industry's leading brand, distribution, product and services breadth, and manufacturing capabilities, and we have begun to realize the benefits of our self-reinforcing foundation, as we continue to see higher revenues, and a greater number of larger Safe City contracts.

In the coming year, we aim to expand our market leadership in China through greater integration of our corporate strengths and assets. We believe that our strategic consolidation efforts during the previous two years provide us with the strongest and most complete capabilities in offering turnkey security solutions demanded by our large corporate and government customers. We also aim to expand our international business through strategic partnerships and targeted market developments. Even taking into account the current global economic situation, we believe this is a great time to leverage our expertise and increase our brand awareness on a more global scale. As such, we continue to evaluate additional strategic partnerships with leading vendors of security technology and services that seek to leverage our leading brand, distribution, and manufacturing capabilities in the Chinese market.''