China Security & Surveillance Technology Reports Third Quarter 2009 Financial Results

-- 3Q09 Revenue Increases 34.0% YoY to $159.82 Million --

-- 3Q09 GAAP Net Income Increases 140.4% YoY to $22.00 Million --

-- 3Q09 GAAP Net Margin Rises 610 Basis Points YoY to 13.8% --

-- 3Q09 Cash Balance Increases Sequentially by $11.51 Million to $100.98 Million --

-- Provides FY2010 Revenue and EPS Forecast --

SHENZHEN, China, Oct. 28 /PRNewswire-Asia/ -- China Security & Surveillance Technology, Inc. ("CSST" or the "Company") (NYSE: CSR; Nasdaq Dubai: CSR), a leading provider of digital surveillance technology in the PRC, today reported its financial results for the third quarter ended September 30, 2009.

Third Quarter 2009

Third quarter 2009 revenue increased 34.0% to $159.82 million, from $119.29 million in third quarter of 2008, driven by robust growth of the installation segment and continued strong demand for CSST's products and services in both the government and corporate sectors. Organic revenue was approximately $152.77 million, or 95.6% of total revenue, while revenue from acquired companies was approximately $7.05 million, or 4.4% of total revenue. Organic revenue grew 43.8% from $106.21 million (or 89.0% of total revenue) in the same period of 2008.

In the third quarter, gross profits increased $3.33 million, or 10.4%, to $35.34 million, compared to $32.01 million for the same period last year. Third quarter gross margin of 22.1%, declined from 26.8% in the prior year's third quarter, but improved 20 basis points sequentially from the second quarter of 2009.

Income from operations in the third quarter increased $1.88 million, or 12.3% year over year to $17.21 million from $15.33 million in the same period of 2008. Operating margins decreased to 10.8%, versus 12.8% a year ago, but expanded 190 basis points sequentially from 8.9% in the second quarter of 2009, benefiting from lower overhead expenses.

GAAP net income of $22.00 million increased $12.85 million, or 140.4% from $9.15 million for the same period in 2008. As a percentage of revenues, GAAP net income increased to 13.8%, from 7.7% for the same period in 2008. Consequently, GAAP earnings per diluted share also increased 105.0% to $0.41 in third quarter 2009, as compared to $0.20 in third quarter of 2008. GAAP results included: (1) approximately $3.90 million, or $0.07 per diluted share, of non-cash expense related to the redemption accretion on convertible notes; (2) approximately $3.22 million, or $0.06 per diluted share, of non-cash expense related to depreciation and amortization of long-lived assets due to the acquisition of subsidiaries; (3) approximately $4.74 million, or $0.09 per diluted share, of non-cash expense related to employee stock compensation recognized pursuant to Accounting Standard Codification ("ASC") 718, and (4) a non-cash gain on modification of convertible notes of $9.32 million, or $0.17 per diluted share in the third quarter of 2009. (Please refer to the non-cash items reconciliation tables below).

The Company's cash position at the end of the third quarter was $100.98 million, up from $89.47 million at the end of second quarter 2009. Working capital was $217.20 million, versus $258.92 million at the end of second quarter 2009, and total debt decreased sequentially to $181.66, from $205.88 million at the end of second quarter 2009.

Mr. Guo Shen Tu, Chief Executive Officer of CSST, commented, "We are satisfied with our solid revenue growth and earnings in the third quarter, as we continued to see strong organic growth, driven by robust demand for our products and services across our three core business segments. We are especially pleased with our successful restructuring of our convertible notes during the quarter. In our view, the restructuring has clearly improved our capital structure, strengthened our financial position, and should lower our overall cost of capital. We believe our improved balance sheet will provide us with greater flexibility to help us support our ongoing growth in the surveillance and safety market."

Financial Outlook

For the full year 2009, the Company reaffirms its revenue projection of $600 to $630 million and projects GAAP diluted EPS of $0.95 to $0.98.

For the full year 2010, the Company forecasts revenue of $800-$820 million, and GAAP diluted EPS of $1.15 to $1.20.

Mr. Tu concluded, "Reflecting our forecast of considerable revenue growth for full year 2010, we continue to see strong demand for Safe City products and services. Through the combination of our leading brand, distribution, expertise, and total solution offerings, we are confident that we can continue to gain a greater share of our core surveillance and safety market. We are also beginning to see strong growth in our services business, highlighted by our recent E-city project wins which included not only surveillance and safety offerings but also other broader digital infrastructure offerings. With our improved capital structure and the continued strong demand for our products and services, we believe we are well positioned for sustained growth, as we strive to build greater long term value for our supportive shareholders."

Non-GAAP Financial Measures and Related Reconciliation

Our net income was materially impacted by certain non-cash expenses including depreciation and amortization of long-lived assets in the subsidiaries we acquired, non-cash employee compensation recognized pursuant to ASC 718, and redemption accretion on convertible notes. In third quarter 2009 we also recognized a one-time non-cash gain on modification of convertible notes. In the table below, we have presented a non-GAAP financial disclosure to provide a quantitative analysis of the non-cash items. We believe that these non-GAAP financial measures are useful to investors because they exclude non-cash expenses that CSST's management excludes when it internally evaluates the performance of CSST's business and makes operating decisions, including internal budgeting, and performance measurement, because these measures provide a consistent method of comparison to historical periods. Moreover, management believes that these non-GAAP measures reflect the essential operating activities of CSST. Accordingly, management excludes the expense arising from the accrual of redemption amounts payable under its outstanding convertible notes and certain other non-cash expenses when making operational decisions. CSST believes that providing the non-GAAP measures that management uses to its investors is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand CSST's financial performance in comparison to historical periods. In addition, it allows investors to evaluate CSST's performance using the same methodology and information as that used by CSST's management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure. However, CSST's management compensates for these limitations by providing the relevant disclosure of the items excluded.

The following table provides the non-GAAP financial measure and the related GAAP measure and provides a reconciliation of the non-GAAP measure to the equivalent GAAP measure. Because these items do not require the use of current assets, management does not include these items in its analysis of our financial results or how we allocate our resources.

Reconciliation of Non-cash Items (Unaudited)

All amounts, other than for share and per share amounts, in millions of U.S. dollars

                                                       3Q 2009        3Q 2008

    GAAP net income attributable to the Company         22.00           9.15
    Non-cash expenses:
    Depreciation and amortization                        3.22           2.51
    Non-cash employee compensation                       4.74           3.60
    Redemption accretion on convertible notes            3.90           5.36
    Non-cash income:
    Gain on modification of convertible notes           (9.32)           (--)
    Total non-cash items                                 2.54          11.47


                                                       3Q 2009        3Q 2008
    GAAP diluted EPS                                     0.41           0.20
    Non-cash expenses:
    Depreciation and amortization                        0.06           0.05
    Non-cash employee compensation                       0.09           0.08
    Redemption accretion on convertible notes            0.07           0.12
    Non-cash income:
    Gain on modification of convertible notes           (0.17)           (--)
    Total non-cash items                                 0.05           0.25
    The number of shares used in computing       53.49 million  46.15 million
     diluted EPS



                                                       3Q 2009        3Q 2008
    GAAP basic EPS                                       0.46           0.20
    Non-cash expenses:
    Depreciation and amortization                        0.07           0.05
    Non-cash employee compensation                       0.10           0.08
    Redemption accretion on convertible notes            0.08           0.12
    Non-cash income:
    Gain on modification of convertible notes           (0.19)           (--)
    Total non-cash items                                 0.06           0.25
    The number of shares used in computing       48.35 million  45.66 million
     basic EPS

Explanation of Restructuring Convertible Notes

On September 2, 2009 the Company consummated a restructuring of its $60 million 1.00% Guaranteed Senior Unsecured Convertible Notes due 2012 and its $50 million 1.00% Guaranteed Senior Unsecured Convertible Notes due 2012 (collectively, the "Old Notes") into two new tranches of notes: the Tranche A Zero Coupon Guaranteed Senior Unsecured Convertible Notes (the "Tranche A Notes") and the Tranche B Zero Coupon Guaranteed Senior Unsecured Notes (the "Tranche B Notes", and together with the Tranche A Notes, the "New Notes"). As an inducement to the restructuring of the Old Notes, the Company paid $5.0 million in cash and 2.9 million in restricted shares to Citadel, the beneficial owner of the Old Notes.

The Tranche A Notes have a principal amount of $50 million, zero coupon interest, and mature on September 2, 2012. The Company will repay the principal amount in six consecutive semi-annual installments, starting March 2, 2010, with 25%, 25% and 50% of the principal amount to be repaid in the first, second and third year, respectively. The conversion price will be $10.00 per share initially, subject to customary conversion price adjustments, anti- dilution protections and a one-time price reset on the date that is eighteen months following the Closing Date (the "Reset Date") based on the volume weighted average price of the Company's shares during the 45 trading days immediately preceding the Reset Date, provided that the conversion price shall be adjusted to no lower than $6.00 per share.

On October 22, 2009 the Company entered into a notes purchase agreement with Citadel to repurchase the $50 million Tranche A Notes for $47.5 million in cash.

The Tranche B Notes, which are not convertible, have a principal amount of $84 million, zero coupon interest, and mature on September 2, 2012. The Company will repay the principal amount in six consecutive semi-annual installments, starting March 2, 2010, with 46%, 46% and 8% of the principal amount to be repaid in the first, second and third year, respectively.

The Company is entitled to redeem the two tranches of New Notes at any time with no premium or penalty at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus default interest, if any.

Conference Call

The Company will hold a conference call to discuss the financial results at 8:00 a.m. ET on October 28, 2009. The Company invites you to join the call by dialing 1-201-689-8470. A live webcast of the conference call will be available at http://www.csst.com . There will also be accompanying presentation slides available for downloading from http://irpage.net/csct/index.html . A replay of the call will be available from October 28, 2009 to November 4, 2009. Listeners may access the replay by dialing 1-201-612-7415, passcode: 335988.

About China Security & Surveillance Technology, Inc.

Based in Shenzhen, China, CSST manufactures, distributes, installs and services surveillance and safety products and systems as well as develops surveillance and safety related software in China. Its customers are mainly comprised of commercial and government entities and non-profit organizations. CSST has built a diversified customer base through its extensive sales and service network that includes over 150 branch offices and distribution points throughout China. To learn more about the Company visit http://www.csst.com .

Safe Harbor Statement

This press release includes certain statements that are not descriptions of historical facts, but are forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, our future operating results, our expectations regarding the market for surveillance and safety products, our expectations regarding the continued growth of the surveillance and safety market, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause our actual results to differ materially from those anticipated, expressed or implied in the forward-looking statements. These risks and uncertainties include, but not limited to, the factors mentioned in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2008, and other risks mentioned in our other reports filed with the Securities Exchange Commission, or SEC. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov . The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will" or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

    For more information, please contact:

    Company Contact:
     Terence Yap
     Tel:   +86-755-8351-5634
     Email: terence.yap@csst.com

    Investor Contact:
     ICR:
     Michael Tieu
     Tel:   +86-10-6599-7960
     Email: michael.tieu@icrinc.com

     Bill Zima
     Tel:   +1-203-682-8200
     Email: bill.zima@icrinc.com

    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 SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008
                        Expressed in thousands of U.S. dollars
                      (Except for share and per share amounts)

                                                    September 30, December 31,
                                                         2009         2008
                                                     (Unaudited)
                            ASSETS
    CURRENT ASSETS
    Cash and cash equivalents                       $    100,983 $    47,779
    Accounts receivable, net                             227,161     148,205
    Inventories, net                                      95,510     117,042
    Prepayments and deposits                               6,577       7,280
    Advances to suppliers                                 29,187      17,120
    Other receivables                                     10,407      14,065
    Deferred tax assets - current portion                     --          32
    Total current assets                                 469,825     351,523

    Deposits for acquisition of subsidiaries,
     intangible assets and properties                      6,360       7,855
    Property, plant and equipment, net                    75,806      74,523
    Land use rights                                        7,750       7,675
    Intangible assets                                     56,127      56,913
    Contingently returnable acquisition
     consideration                                         1,176       1,176
    Goodwill                                              75,529      73,216
    Deferred financing cost                                1,966       1,082
    Deferred tax assets - non-current portion                233         253
    TOTAL ASSETS                                    $    694,772 $   574,216
    LIABILITIES AND EQUITY
    CURRENT LIABILITIES
    Notes payable - short term                      $     42,466 $    10,242
    Obligation under product financing arrangements
     - short term                                          5,063       2,469
    Convertible notes payable - short term                82,780          --
    Accounts and bills payable                            56,708      50,756
    Accrued expenses                                      13,508      10,263
    Advances from customers                               35,242      28,621
    Taxes payable                                          8,685       4,115
     Payable for acquisition of businesses,
      properties and land use rights                       6,843      11,915
    Deferred income                                        1,334       1,207
    Total current liabilities                            252,629     119,588

    LONG - TERM LIABILITIES
    Notes payable - long term                                 --       2,853
    Obligation under product financing arrangements
     - long term                                           7,882       4,214
    Convertible notes payable - long term                 43,470     143,342
    Total liabilities                                    303,981     269,997

    EQUITY
    Preferred stock, $0.0001 par value; 10,000,000
     shares authorized, 0 shares issued and outstanding
    Common stock, $0.0001 par value; 290,000,000
     shares authorized, 58,502,581 (September 30, 2009)
     and 49,142,592 (December 31, 2008) shares issued
     and outstanding                                           6           5
    Additional paid-in capital                           222,548     164,806
    Retained earnings                                    139,924     109,405
    Statutory reserves                                       804         804
    Accumulated other comprehensive income                27,524      29,167
    Total shareholders' equity of the Company            390,806     304,187
    Noncontrolling interest                                  (15)         32
    Total equity                                         390,791     304,219
    TOTAL LIABILITIES AND EQUITY                    $    694,772 $   574,216



           CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
        CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
            FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
                        Expressed in thousands of U.S. dollars
                      (Except for share and per share amounts)

                                   Three Months Ended     Nine Months Ended
                                      September 30,         September 30,
                                    2009       2008       2009        2008
                                (Unaudited) (Unaudited)(Unaudited) (Unaudited)
    Revenues                    $  159,820 $  119,289 $   398,151 $   283,806
    Cost of goods sold
     (including depreciation
     and amortization for the
     three and nine months ended
     September 30, 2009 and 2008
     of $259, $738, $230 and
     $516, respectively)           124,484     87,280     306,773     199,085

    Gross profit                    35,336     32,009      91,378      84,721
    Selling and marketing            3,102      3,376       8,850       8,509
    General and administrative
     (including non-cash employee
     compensation for the three
     and nine months ended
     September 30, 2009 and 2008
     Of $4,743, $13,319, $3,596
     and $9,662 respectively)       12,071     11,023      36,078      29,269
    Depreciation and
     amortization                    2,958      2,283       8,690       6,230

    Income from operations          17,205     15,327      37,760      40,713
    Interest income                     41         65         127         171
    Gain on modification of
     convertible notes               9,315         --       9,315          --
    Interest expense                (5,175)    (5,949)    (17,792)    (15,598)
    Other income, net                  441        480       1,670       1,167

    Income before income taxes      21,827      9,923      31,080      26,453
    Income taxes                       145       (775)       (608)     (5,104)

    Net income                      21,972      9,148      30,472      21,349
    Add: Net loss attributable
     to the noncontrolling
     interest                           33         --          47          31

    Net income attributable to
     the Company                    22,005      9,148      30,519      21,380
    Foreign currency translation
     (loss) gain                    (1,535)     4,402      (1,643)     19,832

    Comprehensive income
     attributable to
     the Company                    20,470     13,550      28,876      41,212
    Comprehensive loss
     attributable to the
     noncontrolling interest           (33)        --         (47)        (31)

    COMPREHENSIVE INCOME        $   20,437 $   13,550 $    28,829 $    41,181

    NET INCOME PER SHARE
     ATTRIBUTABLE
    TO THE COMPANY'S COMMON
    SHAREHOLDERS
           BASIC                $     0.46 $     0.20 $      0.65 $      0.49
           DILUTED              $     0.41 $     0.20 $      0.60 $      0.48
    WEIGHTED AVERAGE NUMBER OF
    SHARES OUTSTANDING
           BASIC                48,352,451 45,655,617  46,636,198  44,003,994
           DILUTED              53,487,010 46,151,827  50,972,401  44,615,552



          CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
                    Expressed in thousands of U.S. dollars
                   (Except for share and per share amounts)

                                                       Nine Months Ended
                                                          September 30,
                                                       2009          2008
                                                    (Unaudited)   (Unaudited)
    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income attributable to the Company        $     30,472  $     21,349
    Adjustments to reconcile net income to
     net cash provided by (used in) operating
     activities:
    Depreciation and amortization                        9,428         6,746
    Provision for doubtful accounts                      1,587           345
    Amortization of consultancy services                    11           101
    Amortization of deferred financing cost                333           102
    Non-cash employee compensation                      13,319         9,662
    Redemption accretion and imputed interest on
     convertible notes and other                        15,161        14,090
    Gain on modification of convertible notes           (9,315)           --
    Deferred taxes                                          52           104
    Changes in operating assets and liabilities:
    (Increase) decrease in:
    Accounts receivable                                (79,061)      (60,155)
    Related party receivables                               --           373)
    Inventories                                         22,278       (31,933)
    Prepayments and deposits                               948        (2,233)
    Advances to suppliers                              (12,023)      (18,779)
    Other receivables                                    3,960        (2,723)
    Increase (decrease) in:
    Accounts and bills payable, and accrued
     expenses                                            7,712        21,153
    Advances from customers                              6,587        12,543
    Taxes payable                                        4,376        (1,375)
    Deferred income                                        126            82
    Net cash provided by (used in) operating
     activities                                         15,951       (30,548)
    CASH FLOWS FROM INVESTING ACTIVITIES:
    Additions to property, plant and equipment          (3,520)      (13,877)
    Additions to intangible assets                      (1,932)       (1,651)
    Additions to land use rights                          (174)       (5,101)
    Deposits paid for acquisition of subsidiaries         (367)       (4,761)
    Deposits refunded for acquisition of
     subsidiaries                                           --        11,898
    Payments for business acquisitions                  (8,398)           --
    Net cash inflow (outflow) for acquisition of
     subsidiaries                                          273        (6,013)
    Proceeds from disposal of land use rights and
     properties                                             --         3,379
    Net cash used in investing activities              (14,118)      (16,126)
    CASH FLOWS FROM FINANCING ACTIVITIES:
    Warrants exercised                                      --           277
    Issuance of common stock, net of issuing
     expenses                                           23,910         9,700
    New borrowings, net of issuance costs               48,299        11,534
    Repayment of borrowings                            (18,939)      (13,987)
    New borrowings from obligation under product
     financing arrangements, net of issuance costs       8,362         6,705
    Repayment of obligation under product
     financing arrangements                             (3,321)         (566)
    Repayment of convertible notes payables             (5,000)           --
    Net cash provided by financing activities           53,311        13,663
    NET INCREASE (DECREASE) IN CASH AND CASH
     EQUIVALENTS                                        55,144       (33,011)
    Effect of exchange rate changes on cash and
     cash equivalents                                   (1,940)        9,866
    Cash and cash equivalents, beginning of period      47,779        89,071
    CASH AND CASH EQUIVALENTS, END OF PERIOD      $    100,983  $     65,926

SOURCE China Security & Surveillance Technology, Inc.