CHECKPOINT SYSTEMS, INC. ANNOUNCES
FOURTH QUARTER AND FULL YEAR 2015 RESULTS
THOROFARE, N.J., March 3, 2016 - Checkpoint Systems, Inc. (NYSE: CKP) today reported financial results for the fourth quarter and fiscal year ended December 27, 2015. As a result of the announcement that Checkpoint Systems has entered into a definitive agreement to be acquired by CCL Industries Inc., the Company has canceled its earnings conference call previously scheduled for 5:00 p.m. Eastern Time this afternoon.
Selected Discussion and Analysis of Fourth Quarter 2015 Results
| • | Net revenues decreased 9.8% to $165.1 million compared with $183.1 million for the fourth quarter of 2014. Foreign currency effects resulted in a 7.3% decrease to net revenues. |
| • | Merchandise Availability Solutions (MAS) revenues decreased 11.7% to $111.6 million versus the fourth quarter of 2014, principally driven by foreign currency translation effects of 7.3%. Reductions in EAS Consumables and Alpha® sales reflected a challenging quarter for our brick-and-mortar retail customers coupled with the sunset of our Family Dollar roll-out in 2014. This decline was partially offset by strong RFID solution sales and a modest increase in EAS Systems reflecting our recent customer wins in Asia. |
| • | Apparel Labeling Solutions (ALS) revenues decreased 1.3% to $42.5 million, due to foreign currency translation effects of 5.4% offset by organic revenue growth of 4.1%. Continued growth in sales of RFID labels more than offset the modest decline in the core labeling business. |
| • | Retail Merchandising Solutions (RMS) revenues decreased 19.2% to $11.0 million, reflecting the impact of the weakening Euro. RMS revenue decreased 7.0% on a constant currency basis, reflecting softness in our indirect markets worldwide. |
| • | Gross profit margin was 41.0% compared with 43.3% for the fourth quarter of 2014. |
| • | MAS gross profit margin was 45.2% compared with 47.2% in the fourth quarter of 2014. The decrease was principally due to manufacturing variances driven by lower production volumes and continuing foreign currency transaction impacts on our intercompany supply chain unit. |
| • | ALS gross profit margin was 30.7% compared with 33.8% in the fourth quarter of 2014. The decrease was principally due to lower core labeling business volumes and increased pricing pressures in parts of Asia, partially offset by manufacturing efficiencies from higher RFID label volumes. |
| • | RMS gross profit margin was 37.7% compared with 37.1% in the fourth quarter of 2014. The increase was primarily due to our cost reduction efforts and higher production volumes driving favorable overhead absorption. |
| • | SG&A expenses were $53.5 million compared with $56.4 million in the fourth quarter of 2014. The decrease is primarily due to lower employee-related expenses in 2015. The benefits of our cost reduction initiatives were offset by incremental spending increases related to our strategic initiatives in the quarter. |
| • | Operating loss was $8.5 million compared with operating income of $12.8 million in the fourth quarter of 2014. The 2015 figure includes $5.8 million of non-cash intangible asset impairment charges, $3.7 million non-cash litigation charges and $8.4 million of restructuring charges primarily related to our Profit Enhancement Plan. |
| • | Non-GAAP operating income was $9.4 million, compared with $19.3 million in the fourth quarter of 2014. (See accompanying Reconciliation of GAAP to Non-GAAP Financial Measures). |
| • | Adjusted EBITDA was $16.7 million, compared with $27.1 million in the fourth quarter of 2014. (See accompanying Reconciliation of GAAP to Non-GAAP Financial Measures). |
| • | Cash flow provided by operating activities was $29.8 million compared with $23.6 million in the fourth quarter of 2014. Capital expenditures were $4.0 million in the fourth quarter of 2015 compared with $5.1 million in the fourth quarter of 2014. |
| • | During the fourth quarter, Checkpoint repurchased 450,000 shares, returning an additional $3.2 million of capital to shareholders. |
Checkpoint Systems, Inc.
Checkpoint Systems is a global leader in merchandise availability solutions for the retail industry, encompassing loss prevention and merchandise visibility. Checkpoint provides end-to-end solutions enabling retailers to achieve accurate real-time inventory, accelerate the replenishment cycle, prevent out-of-stocks and reduce theft, thus improving merchandise availability and the shopper’s experience. Checkpoint's solutions are built upon 45 years of radio frequency technology expertise, innovative high-theft and loss-prevention solutions, market-leading RFID hardware, software, and comprehensive labeling capabilities, to brand, secure and track merchandise from source to shelf. Checkpoint's customers benefit from increased sales and profits by implementing merchandise availability solutions, to ensure the right merchandise is available at the right place and time when consumers are ready to buy.
For more information, visit www.checkpointsystems.com.
Caution Regarding Forward-Looking Statements
This press release includes information that constitutes forward-looking statements. Forward-looking statements often address our expected future business and financial performance, and often contain words such as “expect,”“anticipate,”“intend,”“plan,”“believe,”“seek,” or “will.” By their nature, forward-looking statements address matters that are subject to risks and uncertainties. Any such forward-looking statements may involve risk and uncertainties that could cause actual results to differ materially from any future results encompassed within the forward-looking statements. Factors that could cause or contribute to such differences include: the impact upon operations of accounting policies review and improvement; the impact upon operations of legal and compliance matters or internal controls review, improvement and remediation, including the detection of wrongdoing, improper activities, or circumvention of internal controls; our ability to successfully implement our strategic plan; our ability to manage growth effectively including our ability to integrate acquisitions and to achieve our financial and operational goals for our acquisitions; changes in economic or international business conditions; foreign currency exchange rate and interest rate fluctuations; lower than anticipated demand by retailers and other customers for our products; slower commitments of retail customers to chain-wide installations and/or source tagging adoption or expansion; possible increases in per unit product manufacturing costs due to less than full utilization of manufacturing capacity as a result of slowing economic conditions or other factors; our ability to provide and market innovative and cost-effective products; the development of new competitive technologies; our ability to maintain our intellectual property; competitive pricing pressures causing profit erosion; the availability and pricing of component parts and raw materials; possible increases in the payment time for receivables as a result of economic conditions or other market factors; our ability to comply with covenants and other requirements of our debt agreements; changes in regulations or standards applicable to our products; our ability to successfully implement global cost reductions in operating expenses including, field service, sales, and general and administrative expense, and our manufacturing and supply chain operations without significantly impacting revenue and profits; our ability to maintain effective internal control over financial reporting; risks generally associated with information systems upgrades and our company-wide implementation of an enterprise resource planning (ERP) system; the risk that we may be unable to obtain shareholder approval as required for the merger with CCL Industries Inc. (the “Merger”); the risk that conditions to the closing of the Merger may not be satisfied and required regulatory approvals may not be obtained; the possibility that Merger may involve unexpected costs, liabilities or delays; the possibility that our business may suffer as a result of uncertainty surrounding the Merger; the outcome of any legal proceedings related to the Merger; the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; the ability to recognize benefits of the Merger; risks that the Merger disrupts current plans and operations and the potential difficulties in employee retention as a result of the Merger; and other risks to consummation of the Merger, including the risk that the Merger will not be consummated within the expected time period or at all. If the Merger is consummated, our shareholders will cease to have any equity interest in the Company and will have no right to participate in its earnings and future growth and additional matters disclosed in our Securities and Exchange Commission filings. We do not undertake to update our forward-looking statements, except as required by applicable securities laws.
Checkpoint Systems, Inc.
Consolidated Balance Sheets
(amounts in thousands)
(unaudited)
| | December 27, 2015 | | December 28, 2014 |
| ASSETS | | | |
| CURRENT ASSETS: | | | |
| Cash and cash equivalents | $ | 124,289 | | | $ | 135,537 | |
| Accounts receivable, net of allowance of $6,059 and $8,526 | 113,698 | | | 131,720 | |
| Inventories | 82,126 | | | 91,860 | |
| Other current assets | 20,819 | | | 25,928 | |
| Deferred income taxes | — | | | 5,557 | |
| Total Current Assets | 340,932 | | | 390,602 | |
| REVENUE EQUIPMENT ON OPERATING LEASE, net | 1,522 | | | 1,057 | |
| PROPERTY, PLANT, AND EQUIPMENT, net | 75,864 | | | 76,332 | |
| GOODWILL | 164,110 | | | 173,569 | |
| OTHER INTANGIBLES, net | 47,777 | | | 64,940 | |
| DEFERRED INCOME TAXES | 23,336 | | | 25,284 | |
| OTHER ASSETS | 4,329 | | | 6,882 | |
| TOTAL ASSETS | $ | 657,870 | | | $ | 738,666 | |
| LIABILITIES AND EQUITY | | | |
| CURRENT LIABILITIES: | | | |
| Short-term borrowings and current portion of long-term debt | $ | 279 | | | $ | 236 | |
| Current portion of financing liability | 20,891 | | | — | |
| Accounts payable | 50,647 | | | 48,928 | |
| Accrued compensation and related taxes | 22,321 | | | 27,511 | |
| Other accrued expenses | 46,458 | | | 44,204 | |
| Income taxes | 1,824 | | | 1,278 | |
| Unearned revenues | 6,262 | | | 7,663 | |
| Restructuring reserve | 8,664 | | | 6,255 | |
| Accrued pensions — current | 3,994 | | | 4,472 | |
| Other current liabilities | 13,982 | | | 17,504 | |
| Total Current Liabilities | 175,322 | | | 158,051 | |
| LONG-TERM DEBT, LESS CURRENT MATURITIES | 70,362 | | | 65,161 | |
| FINANCING LIABILITY | 10,844 | | | 33,094 | |
| ACCRUED PENSIONS | 86,554 | | | 108,920 | |
| OTHER LONG-TERM LIABILITIES | 24,641 | | | 30,140 | |
| DEFERRED INCOME TAXES | 15,355 | | | 15,369 | |
| COMMITMENTS AND CONTINGENCIES | | | |
| STOCKHOLDERS’ EQUITY: | | | |
| Preferred stock, no par value, 500,000 shares authorized, none issued | — | | | — | |
| Common stock, par value $.10 per share, 100,000,000 shares authorized, issued 46,303,849 and 45,840,171 shares, outstanding 41,379,002 and 41,804,259 shares | 4,630 | | | 4,584 | |
| Additional capital | 427,089 | | | 441,882 | |
| Accumulated deficit | (38,546 | ) | | (12,331 | ) |
| Common stock in treasury, at cost, 4,924,847 and 4,035,912 shares | (78,154 | ) | | (71,520 | ) |
| Accumulated other comprehensive income, net of tax | (40,227 | ) | | (34,684 | ) |
| TOTAL STOCKHOLDERS’ EQUITY | 274,792 | | | 327,931 | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 657,870 | | | $ | 738,666 | |
Checkpoint Systems, Inc.
Consolidated Statements of Operations
(amounts in thousands, except per share data)
(unaudited)
| | Quarter Ended | | Twelve Months Ended |
| | December 27, 2015 | | December 28, 2014 | | December 27, 2015 | | December 28, 2014 |
| Net revenues | $ | 165,135 | | | $ | 183,114 | | | $ | 587,157 | | | $ | 662,040 | |
| Cost of revenues | 97,481 | | | 103,788 | | | 342,743 | | | 376,956 | |
| Gross profit | 67,654 | | | 79,326 | | | 244,414 | | | 285,084 | |
| Selling, general, and administrative expenses | 53,508 | | | 56,371 | | | 205,628 | | | 221,566 | |
| Research and development | 4,742 | | | 3,640 | | | 19,487 | | | 15,303 | |
| Restructuring expense | 8,429 | | | 3,962 | | | 10,012 | | | 6,654 | |
| Asset impairment | 5,793 | | | 864 | | | 5,793 | | | 864 | |
| Litigation matters | 3,682 | | | 1,600 | | | 19,246 | | | 1,600 | |
| Acquisition costs | 7 | | | 73 | | | 142 | | | 364 | |
| Other operating income | — | | | — | | | (493 | ) | | — | |
| Operating (loss) income | (8,507 | ) | | 12,816 | | | (15,401 | ) | | 38,733 | |
| Interest income | 168 | | | 305 | | | 806 | | | 1,180 | |
| Interest expense | 1,058 | | | 1,120 | | | 3,957 | | | 4,637 | |
| Other gain (loss), net | (387 | ) | | (584 | ) | | (23 | ) | | (1,102 | ) |
| (Loss) earnings before income taxes | (9,784 | ) | | 11,417 | | | (18,575 | ) | | 34,174 | |
| Income tax expense | 389 | | | 6,114 | | | 7,640 | | | 23,221 | |
| Net (loss) earnings | (10,173 | ) | | 5,303 | | | (26,215 | ) | | 10,953 | |
| | | | | | | | |
| (Loss) earnings per common share: | | | | | | | |
| Basic (loss) earnings per share | $ | (0.24 | ) | | $ | 0.13 | | | $ | (0.61 | ) | | $ | 0.26 | |
| Diluted (loss) earnings per share | $ | (0.24 | ) | | $ | 0.12 | | | $ | (0.61 | ) | | $ | 0.26 | |
| | | | | | | | |
| Dividend declared per share | $ | — | | | $ | — | | | $ | 0.50 | | | $ | — | |
Reconciliation of Non-GAAP Financial Measures in Accordance with SEC Regulation G
Checkpoint Systems, Inc. reports financial results in accordance with U.S. GAAP and herein provides some Non-GAAP measures. These Non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures. These Non-GAAP measures are intended to supplement presentation of our financial results that are prepared in accordance with GAAP. We use the Non-GAAP measures presented to evaluate and manage our operations internally. We are also providing this information to assist investors in performing additional financial analysis that is consistent with financial models developed by research analysts who follow us.
We use Adjusted EBITDA in assessing our performance in addition to net earnings determined in accordance with GAAP. We believe this non-GAAP measure serves as an appropriate measure to be used in evaluating the performance of our business and helps our investors better compare our operating performance with the operating performance of our competitors. We define Adjusted EBITDA as operating income (loss) from continuing operations plus non-GAAP adjustments, plus other gain (loss), net excluding foreign exchange gain (loss), plus depreciation and amortization expense, plus stock compensation expense. We reference this non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and external comparisons to competitors’ historical operating performance. Adjusted EBITDA should not be considered in isolation from, and is not intended to represent an alternative measure of, operating results or of cash flows from operating activities, as determined in accordance with GAAP. Our definition of Adjusted EBITDA may not be comparable to similarly titled measurements reported by other companies.
Set forth below is a reconciliation of the Non-GAAP financial measures used in this release to the most directly comparable measures based on GAAP.
Checkpoint Systems, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(amounts in thousands, except percentages)
(unaudited)
| | Quarter Ended | | Twelve Months Ended |
| Reconciliation of GAAP to Non-GAAP operating (loss) income : | December 27, 2015 | | December 28, 2014 | | December 27, 2015 | | December 28, 2014 |
| Net revenues | $ | 165,135 | | | $ | 183,114 | | | $ | 587,157 | | | $ | 662,040 | |
| | | | | | | | |
| GAAP operating (loss) income | (8,507 | ) | | 12,816 | | | (15,401 | ) | | 38,733 | |
| | | | | | | | |
| Non-GAAP Adjustments: | | | | | | | |
| | | | | | | | |
| Management transition expense | — | | | — | | | 827 | | | — | |
| Restructuring expenses | 8,429 | | | 3,962 | | | 10,012 | | | 6,654 | |
| Asset impairment | 5,793 | | | 864 | | | 5,793 | | | 864 | |
| Litigation matters | 3,682 | | | 1,600 | | | 19,246 | | | 1,600 | |
| Acquisition costs | 7 | | | 73 | | | 142 | | | 364 | |
| Adjusted Non-GAAP Operating Income | $ | 9,404 | | | $ | 19,315 | | | $ | 20,619 | | | $ | 48,215 | |
| Other (gain) loss, net (a) | — | | | (110 | ) | | — | | | (127 | ) |
| Depreciation and amortization expense | 5,908 | | | 6,438 | | | 25,096 | | | 25,150 | |
| Stock comp expense | 1,364 | | | 1,432 | | | 5,480 | | | 5,781 | |
| Adjusted EBITDA | $ | 16,676 | | | $ | 27,075 | | | $ | 51,195 | | | $ | 79,019 | |
| GAAP operating margin | (5.2 | )% | 7.0 | % | | (2.6 | )% | 5.9 | % |
| Adjusted Non-GAAP operating margin | 5.7 | % | 10.5 | % | | 3.5 | % | 7.3 | % |
| | (a) Represents other gain (loss), net per the Consolidated Statement of Operations less foreign exchange gain (loss). |
Checkpoint Systems, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures continued
(amounts in thousands, except per share data)
(unaudited)
| | Quarter Ended | | Twelve Months Ended |
| Reconciliation of GAAP to Non-GAAP net earnings (loss): | December 27, 2015 | | December 28, 2014 | | December 27, 2015 | | December 28, 2014 |
| (Loss) earnings, as reported | $ | (10,173 | ) | | $ | 5,303 | | | $ | (26,215 | ) | | $ | 10,953 | |
| | | | | | | | |
| Non-GAAP Adjustments: | | | | | | | |
| | | | | | | | |
| Management transition expense, net of tax | — | | | — | | | 827 | | | — | |
| Restructuring expense, net of tax | 7,679 | | | 3,286 | | | 9,018 | | | 5,922 | |
| Asset impairment, net of tax | 3,629 | | | 550 | | | 3,629 | | | 550 | |
| Litigation matters, net of tax | 3,682 | | | 1,600 | | | 19,246 | | | 1,600 | |
| Acquisition costs, net of tax | 7 | | | 73 | | | 142 | | | 364 | |
| Interest on financing liability, net of tax | 419 | | | 487 | | | 1,484 | | | 1,667 | |
| Valuation allowance adjustment | 448 | | | (334 | ) | | (519 | ) | | 11,294 | |
| Adjusted net earnings | $ | 5,691 | | | $ | 10,965 | | | $ | 7,612 | | | $ | 32,350 | |
| | | | | | | | |
| Reported diluted shares | 42,389 | | | 42,543 | | | 42,739 | | | 42,374 | |
| Adjusted diluted shares | 42,486 | | | 42,543 | | | 42,908 | | | 42,374 | |
| | | | | | | | |
| Reported net (loss) earnings, per share - diluted | $ | (0.24 | ) | | $ | 0.12 | | | $ | (0.61 | ) | | $ | 0.26 | |
| Adjusted net earnings, per share - diluted | $ | 0.13 | | | $ | 0.26 | | | $ | 0.17 | | | $ | 0.76 | |
