China Security (NYSE:CSR)

First Quarter 2011 Results:

• First-quarter revenues decreased to $99.05 million due to seasonality impact of the Chinese New Year holiday and the fact that the Company secured more large-scale installation projects which required longer installation time to complete. Government customers accounted for 87.0% of total revenues in the first quarter of 2011
• First-quarter gross profit grew 8.6% to $31.48 million despite a decrease in revenues Gross margin and operating margin up 770 basis points and 250 basis points year over year to 31.8% and 8.3%, respectively. The margin improvement reflected the increasing gross margin in system installation business and effective cost control measures
•  First-quarter net income attributable to CSST decreased to $1.68 million and GAAP diluted EPS was $0.02. The drop was mainly attributable to the decrease in revenues, and an increase in income taxes and interest expenses
•  Cash increased $213.11 million to $278.74 million. This was mainly due to the improved operating cash flow condition and the proceeds from additional bank loans during the quarter

"We just completed a quarter with encouraging margins expansion and a positive cash flow," said Mr. Guoshen Tu, Chairman and Chief Executive Officer of CSST. "Despite the seasonality impacts on our revenues, we continue to look into growth opportunities in safety and surveillance industry in China, with a particular focus on large-scale government projects and security service business. These continue to be our growth platforms as we maintain our market leadership in China."

"Our long-term future remains bright. We made the decision to concentrate CSST's strategic focus on the opportunities we saw flowing from large-scale government projects and security service business. Under the newly issued 12th five-year plan on security industry and the central government's spending plan in 2011, which landed a large increase of the government Safe City and E-city projects spending, we saw tremendous opportunities in the horizon," said Mr. Tu. "Looking ahead, we are confident that we are ready to capitalize on our solid fundamentals, market leadership and disciplined cost control strategy to accelerate the growth of our Company in 2011." 

Fourth Quarter Highlights:

• For the quarter ended December 31, 2010, CSST's revenues totaled $214.01 million, compared with $182.71 million in the year-earlier quarter.
• Gross profit totaled $61.15 million, up 18.8% from $51.48 million in the year-earlier period. Gross margin increased to 28.6% from 28.2% for the same period in 2009, as a result of expanded profitability of the large-scale government contracts.
• Net income attributable to CSST totaled $29.04 million, up 11.4% from $26.07 million in the year-earlier quarter. Net margin was 13.6%.
• GAAP diluted EPS was $0.33 in the fourth quarter of 2010, as compared with $0.38 in the fourth quarter of 2009.

For the full year 2011, CSST reaffirms its

• revenue projection of $870 to $890 million, 
• net income of $104 to $106 million,
• and GAAP diluted EPS of $1.13 to $1.15.

"We aim to take our business to the next level in 2011," Mr. Tu said. "We're seeing continuing growth in industry demand in China. We have built and scaled solid growth platforms for the future. Our installation business is positioned for growth from future wins of large-scale government contracts and we also expect growth in our service business. CSST has led the surveillance and safety industry in China and we are well positioned to drive the industry's next waves of innovation and growth."

China Security & Surveillance Technology, Inc., today announced that it has established a special committee to consider the letter received by its board of directors from its Chairman and Chief Executive Officer, Mr. Guoshen Tu on January 28, 2011, and to evaluate any proposal that Mr. Tu may make as stated in the letter. In that letter, Mr. Tu stated that he is considering the feasibility of developing a proposal to acquire all of the outstanding shares of common stock of CSST not currently owned by Mr. Tu in a going private transaction. There can be no assurance that any proposal for a transaction will be made, that any agreement will be approved or executed or that any transaction will be consummated.

China Security & Surveillance Technology, Inc., today announced that its Board of Directors has received a preliminary, non-binding letter from its Chairman and Chief Executive Officer, Mr. Guoshen Tu ("Mr. Tu"), which stated that Mr. Tu is considering the feasibility of developing a proposal to acquire all of the outstanding shares of common stock of CSST not currently owned by Mr. Tu in a going private transaction. Mr. Tu stated in the letter that "the amount of the purchase price has not been determined, but my firm expectation is that it will not exceed $6.50 per share." Mr. Tu currently beneficially owns approximately 20.9% of CSST’s common stock.

CSST’s Board of Directors intends to form a special committee of independent directors (the "Special Committee") to consider Mr. Tu’s interest and any proposal made by him, and the Special Committee will be authorized to retain independent legal and financial advisors to assist it. There can be no assurance that any proposal for a transaction will be made, that any agreement will be approved or executed or that any transaction will be consummated.

Third-quarter highlights:

• Third-quarter revenues increased 14.0% year over year to $182.15 million.
• Third-quarter gross margin and operating margin up by 860 basis points and 850 basis points year over year, respectively.
• Third-quarter net income attributable to the Company increased 24.0% year over year to $27.27 million.
• Diluted EPS, including all non-cash expenses, was $0.31.
• Backlog increased 93.6% sequentially to $412.56 million.

"We delivered another strong quarter, with improved revenue trends, continued double-digit earnings growth and significant margin expansion. These results add to our confidence in the future," said Mr. Guoshen Tu, Chairman and Chief Executive Officer of CSST.

"We continue to see positive signs of growth in large-scale government contracts, which speaks to our unparalleled one-stop solutions and our leadership in this area. Our service business also continues to garner favorable response from the customers. I am excited by the opportunities ahead."

Financial Outlook

"Surveillance and safety solutions have become ever more important to corporate and government bodies in China. This has generated unprecedented opportunities for CSST to reap the returns on our investments in recent years," said Mr. Tu. "CSST's established presence and network in China creates the underpinnings for surveillance and safety solutions that allow customers to protect their own assets. We've extended our established strengths in this space with a keen focus on the large-scale government projects and security service segment. We continue to deliver on our commitment to provide customers with the capabilities and solutions they need."

As a result of the strong momentum in higher margin large-scale government contracts in China, the Company anticipates that these projects will take a longer time to complete, hence impacting the revenue trends in the fiscal year of 2010. The Company revises its revenue projection to the range of $730 million to $750 million, representing a year-over-year growth of 26% to 29%.  Diluted earnings per share is projected to be in the range of $1.02 to $1.04, based on an average share count on fully-diluted basis of approximately 90 million.

In consideration of its strong backlog and improved margins mostly driven by installation projects in the government sector, the Company projects that 2011 revenue will be in the range of $870 million to $890 million, and net income will be in the range of $104 million to $106 million. EPS will be approximately $1.13 to $1.15.

"Despite the continuing challenges of relatively longer time to realize the revenues from large-scale government contracts, we believe that our leap into this high-margin business fits perfectly well with the Company's overall direction," said Mr. Tu. "We have already established sound financial facilities with local banks and expect to have sufficient working capital to fund our growth. Our job is to continue to execute and to deliver financial results for shareholders in the long run. This is the area where we will continue to focus on going forward."

GeoTeam® Note: Guidance is below analyst estimates.

"Underneath the terrific industry demand for surveillance and safety products and services in China, we're optimistic about CSST's prospect to continue to lead the industry in China," said Mr. Tu. "We believe our market leadership extends across the industry's broadest portfolio of products and services in China. Our scale and reach in China will provide meaningful and sustainable competitive advantages for us to capitalize on in the years ahead. Together with our sharp focus on high-growth initiatives, we have a tremendous set of assets and an impressive record in terms of executing and delivering on targets. I am very confident in our ability to deliver strong results in 2010."

For the full year 2010, the Company reaffirms its revenue projection of $830 to $850 million. The Company also reaffirms diluted EPS projection of $1.12 to $1.16, based on an average share count on fully diluted basis of approximately 90 million.

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."

FULL YEAR 2009/2010 Guidance

Year Ends Dec.	Full Year 2010	Full Year 2009	Full Year 2008 Reported
GAAP Revenue	$800.0 to $820.0 million	$600.0 to $630.0 million	$427.4 million
GAAP	$1.15 to $1.20	$0.95 to $0.98	$0.72

Mr. Guo Shen Tu, Chief Executive Officer of China Security, commented, 'We are pleased that our revenue in the second quarter of 2009 exceeded expectations, as we experienced strong demand for our comprehensive portfolio of products and services. We remain focused on expanding our market leadership in China through greater integration of our corporate strengths and assets, and we are delighted with our rapid organic growth, which once again demonstrated that our market share continue to expand. Though our corporate customers continue to insist more discounted pricing for small projects, we continue to see a growing pipeline of large projects from our core corporate and government customers. Based on our strong second quarter top line performance and accelerating bidding activities, we anticipate we can meet or exceed our revenue forecast for 2009, and despite lower gross margins, we remain comfortable with our profit forecast for the year.'

Mr. Tu concluded, 'For the remainder of 2009, we remain steadfast on expanding our market leadership and achieving greater internal efficiencies. We will continue to capture new business opportunities driven by robust demand for our integrated security solutions in China and abroad, and at the same time proactively manage our cost structure. We will also continue to expand our scope along our natural evolutionary path, as our recent strategic acquisitions further augment our recurring revenue base. Supported by our unparalleled leadership position in China and our integrated strengths built over the years, we believe CSST can achieve sustained growth and build greater long-term value for our supportive shareholders.'

China Security has reaffirmed its previously issued 2009 financial guidance. 

Source: PR Newswire (July 28, 2009)

'For the remainder of 2009, we intend to sustain our current momentum and aim to achieve greater synergies across our portfolio of technologies, products, and subsidiaries by focusing on greater cross-selling and cross-development throughout our organization. Even in the context of a slower global economy, we continue to see a growing pipeline of large projects from our core corporate and government customers. Our optimism is supported by our unparalleled product and services offering, our unmatched nationwide distribution, and our leading brand. We believe that our integrated strengths will allow us to expand our market share and help us to capture new markets.'

FULL YEAR 2009 Guidance

	Full Year 2009	Full Year 2008	Period Change
GAAP Revenue	$600 to $630 million	$427 million	40.52% to 47.54%
a Non-GAAP Adjusted Net Income	$108 to $113 million	$76 million	42.11% to 48.68%
Non-GAAP EPS Per Company Calculations b	$2.16-$2.26	$1.67	29.34% to 35.33%
GeoTeam Non-GAAP EPS b	$1.92 to $2.02	$1.46	31.51% to 38.36%
Fully Diluted Shares	50,000,000	45,284,070	10.41%

^b Please note that the GeoTeam® non-GAAP calculation differs from the company's. The company adds back depreciation and amortization along with other non-cash items and one time gains to net income to derive a non-GAAP net income figure. The GeoTeam® generally prefers not to add back depreciation and amortization to derive a non-GAAP net income figure. The company's reported non-GAAP EPS figure were

Guidance Report:

Mr. Guo Shen Tu, Chief Executive Officer of China Security, commented, ''In the fourth quarter, we continued to see significant demand from government Safe-City contracts, and we continue to have excellent success in winning ever larger contracts, due to our strong brand and comprehensive product and services offerings. While our pricing and profitability remain firm in the government sector, we nevertheless experienced price erosions in our corporate segment, due to higher emphasis on cost controls by many of our corporate customers. As such, while we continue to project healthy demand and revenue growth over the next 12 months, we are focused on further integrating our operations and generating greater synergies across our portfolio of technologies, products, and subsidiaries. We are also focused on increasing our manufacturing and administrative efficiencies through targeted cost savings initiatives.''

Full Year Fiscal 2009 Guidance Ending December

	2009 Guidance	2008 Reported	Period Change
GAAP Revenue	$600 to $630 million	$427 million	40.52% to 47.54%
*Non-GAAP Adjusted Net Income	$108 to $113 million	$76 million	42.11% to 48.68%
*Non-GAAP EPS	$2.16-$2.26	$1.67	29.34% to 35.33%

*EPS Figures exclude non-operating gains and losses. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information.For a more complete explanation of the company's definition of non-GAAP please refer to their Fourth Quarter financial press release.

Source: PR Newswire (March 5, 2009)