COMPANY CONTACT:
Checkpoint Systems, Inc.
Craig Burns
Executive Vice President,
Chief Financial Officer and Treasurer
(856) 848-1800
INVESTOR RELATIONS CONTACTS:
Christine Mohrmann, Jim Olecki
Financial Dynamics
(212) 850-5600
FOR IMMEDIATE RELEASE
Checkpoint Systems, Inc. announces Fourth Quarter and Full year 2005 Results
Thorofare, New Jersey, March 2, 2006 - Checkpoint Systems, Inc. (NYSE: CKP)
today reported financial results for the fourth quarter and year ended
December 25, 2005.
For the fourth quarter 2005, the Company reported net earnings of $12.4
million, or $0.31 per diluted share, compared to a net loss of $29.3 million or
$0.74 per diluted share in the fourth quarter of year 2004. Included in the net
earnings for the fourth quarter 2005 are $2.9 million net of tax, or $0.07 per
diluted share, of restructuring charges, impairment charges, and tax
adjustments. Included in net earnings for the fourth quarter 2004 was
$41.1 million net of tax, or $1.04 per diluted share, related to the impairment
of goodwill, intangibles, and fixed assets in the Company's Labeling Services
segment, a tax adjustment related to a litigation settlement, and a
restructuring charge adjustment.
Operating income, exclusive of restructuring and impairment charges, was $17.5
million, or 9.0% of revenue, in the fourth quarter of 2005 compared to $13.9
million, or 7.3% of revenue, in the fourth quarter of 2004. (See attached table
"Reconciliation of GAAP to Non-GAAP Measures").
In January of 2006, the Company announced that it had completed the sale of the
BCS businesses to SATO for total consideration of $37 million in cash, plus the
assumption by SATO of $5 million in liabilities. The final purchase price is
subject to certain post-close adjustments relating to net operating assets. As
of the third quarter of 2005, the results of these businesses are being
reported in "discontinued operations," as required by the accounting standards,
and the financial results for years 2005 and 2004 have been reclassified to
reflect this change, and discussions of results in this release reflect the
reclassification to discontinued operations.
Revenue from continuing operations for the fourth quarter of 2005
increased 2.3% to $193.4 million, compared to revenue of $189.0 million in the
fourth quarter of last year. Foreign currency had a negative impact on revenue
of $6.3 million, or 3.3%, in the fourth quarter 2005, as compared to the fourth
quarter 2004.
Earnings from continuing operations were $9.6 million, or $0.24 per diluted
share, in the fourth quarter 2005, compared with earnings from continuing
operations of $13.8 million, or $0.35 per diluted share, in the fourth quarter
2004. As previously discussed, included in earnings from continuing operations
in the fourth quarter 2005 are $2.9 million net of tax, or $0.07 per diluted
share of restructuring charges, impairment charges, and tax adjustments.
Included in earnings from continuing operations in the fourth quarter of 2004
is an after-tax net benefit of $2.7 million, or $0.07 per diluted share,
related to asset impairment charges, restructuring reversals, and a tax
adjustment related to a litigation settlement.
"Checkpoint had another strong quarter, capping off a solid year for our
Company," said George Off, Chairman and Chief Executive Officer of Checkpoint.
"We saw continued growth within our Security segment, with revenues increasing
4.7% on a constant dollar basis, driven by strong performance within our
European Electronic Article Surveillance (EAS) business. We are very pleased
with the growth in this segment during the quarter, as it was achieved over
increasingly difficult comparisons to the year ago period due to large
chain-wide customer roll-outs that began in the fourth quarter of 2004. Our
Labeling Services segment also showed outstanding growth during the quarter,
with revenues increasing 23.3% on a constant dollar basis during the period due
to the ongoing strength of our CheckNet(R) service bureau business. This was
somewhat offset by a slight decline in revenues within our Retail Merchandising
segment."
Strategic Direction:
Mr. Off continued, "During the fourth quarter, we continued to make progress on
our strategic initiatives that will position us well for the future. We further
reduced our expense structure, and incurred additional charges in the quarter
related to these actions. The majority of these changes have focused on our
European operations, where headcount was reduced by approximately 14%. We
believe the restructuring actions we've taken to date will result in annual
cost savings of between $17 million to $19 million, and continue to expect to
realize much of these savings in 2006. We remain committed to our restructuring
program. We expect to incur additional charges in relation to this program, and
realize additional cost savings as we progress through 2006 and towards our
stated goal of 15% operating margins by year-end 2007. Additionally, in January
of 2006 we completed the sale of our barcode systems business which will allow
us to focus on enhancing our leadership position in our core markets."
Financial highlights for the fourth quarter of 2005:
o Gross profit was $83.3 million, or 43.0% of revenue, compared to
$87.8 million, or 46.5% of revenue, in the fourth quarter of 2004.
Gross profit margins in our security segment were primarily
impacted by unfavorable manufacturing variances, and lower margin
business activity in our CCTV business.
o Selling, general, and administrative expenses (SG&A) for the
current year period were $61.0 million, compared with $64.9
million a year ago. As a percentage of revenue, SG&A expenses
declined to 31.5% in the fourth quarter of 2005, versus 34.3% in
the fourth quarter of 2004.
o Research and development expenses for the 2005 fourth quarter
totaled $4.8 million, or 2.5% of revenue, compared with
$9.1 million, or 4.8% of revenue, in the fourth quarter of 2004.
o Other operating expenses for the fourth quarter of 2005 include
$3.2 million of restructuring charges related to the
rationalization of the Company's European operations and $1.0
impairment charges for the write-down of a manufacturing facility.
Other operating expenses for the fourth quarter of 2004 included
an asset impairment of $2.0 million and a restructuring charge
reversal of $3.0 million.
o The GAAP reported operating income was $13.3 million in the fourth
quarter of 2005, compared to $14.9 million in the year ago period.
The tax rate on continuing operations was 32.2%. Included in the
current quarter is $2.0 million of additional tax costs associated
with the repatriation of earnings under the American Jobs Creation
Act and a change in tax rates on deferred taxes created by a tax
restructuring partially offset by a $1.8 million adjustment of
prior period accruals for tax liabilities.
o Cash flow from operations was $49.1 million in the fourth quarter
of 2005, compared to $54.4 million in the fourth quarter of 2004.
o At December 25, 2005 cash and cash equivalents were $113.2
million, working capital was $210.4 million and long-term debt was
$37.1 million. Capital expenditures in the quarter were $3.1
million.
<Page>
Financial highlights for the 2005 full year:
o Revenue increased 7.4% to $721.0 million, versus $671.6 million in
the 2004 full-year period. Foreign currency had a positive impact
on revenue of approximately $4.8 million, or 0.7% for the full
year 2005, compared to 2004.
o Gross profit was $313.4 million, or 43.5% of revenue, versus
$309.9 million, or 46.1% of revenue for 2004.
o SG&A for the period totaled $237.7 million, compared with $236.4
million in 2004. As a percentage of revenue, SG&A for 2005
declined to 33.0% from 35.2% in the year-ago period.
o The GAAP reported operating income for 2005 was $43.0 million,
compared to operating income of $26.1 million for the same period
of 2004. Excluding restructuring and impairment charges of $14.0
million, operating income for year 2005 was $57.0 million or 7.9%
of revenue. Excluding $18.9 million associated with a litigation
settlement, asset impairments, and restructuring expense
adjustments, operating income for year 2004 was $45.0 million or
6.7% of revenue. (See attached table "Reconciliation of GAAP to
Non-GAAP Measures").
o The tax rate on continuing operations was 26.1%. Included in the
current year is $2.0 million of additional tax costs associated
with the repatriation of earnings under the American Jobs Creation
Act and a change in tax rates on deferred taxes created by a tax
restructuring partially offset by a $1.6 million adjustment of
prior period accruals for tax liabilities.
o Earnings from continuing operations were $31.8 million, or $0.81
per diluted share, for the 2005 full-year period. Included in
earnings from continuing operations for the full-year 2005 are
$10.4 million, or $0.26 per diluted share of after-tax
restructuring, impairment charges and tax adjustments. Earnings
from continuing operations for the full year 2004 were $17.3
million, or $0.46 per diluted share. Included in earnings from
continuing operations for the full-year 2004 are $12.2 million, or
$.32 per diluted share of after-tax litigation payments,
impairment charges, and restructuring charge reversals.
o Net earnings for the full year 2005 were $39.9 million, or $1.02
per diluted share. Included in the full year 2005 net earnings are
$11.0 million or $0.28 per diluted share of restructuring charges,
impairment charges and income tax adjustments. This compares to a
net loss for the full year 2004 of $20.2 million, or $0.54 per
diluted share, which includes a loss from discontinued operations
of $37.4 million, or $1.00 per diluted share. Included in the full
year 2004 net earnings are $56.0 million, or $1.49 per diluted
share, of asset and goodwill impairment charges, litigation
settlements, and restructuring charge reversals as previously
discussed. (See attached table "Reconciliation of GAAP to Non-GAAP
Measures").
<Page>
Craig Burns, Executive Vice President, Chief Financial Officer and Treasurer,
added, "2005 was a solid year financially for Checkpoint Systems. While gross
margins were affected throughout the year by higher costs related to the large
chain customer EAS installation activity that occurred throughout 2005 and the
unfavorable manufacturing variances generated in the fourth quarter, we were
able to adapt in other areas of our business, significantly reducing SG&A as a
percentage of revenue relative to 2004 levels. As we move into 2006, we will
take the necessary actions to realize a more normalized gross margin structure
relative to our EAS business.The year also saw us further improve our financial
position, as we generated $46.2 million in cash flow from operations and paid
down a total of $31.3 million in long-term debt."
Mr. Off concluded, "Overall, we are very pleased with our performance in 2005.
We grew revenues, increased share in our key markets, reduced our cost
structure, and have followed through on a number of initiatives that position
us for profitable growth over the long-term. We face many challenges as we
right size our operations, and seek to improve our business processes and sales
productivity. Between the fourth quarter of 2005 through the second quarter of
this year, over 600 employees will have left the company, including those who
transferred to SATO in connection with the sale of the BCS business. The
numerous changes that we are making may temporarily impact sales and profits
but we expect to realize enhanced profitability based upon the benefits of our
restructuring program over the long-term. While the completion of large chain
installations within our EAS business during 2005 will make 2006 revenue growth
challenging, we expect to improve upon our strong results achieved in 2005 and
deliver solid bottom line growth and strong cash flow.
Financial Outlook for 2006:
Based on current market conditions, Checkpoint Systems issued the following
initial guidance for 2006:
o Revenues, at current exchange rates, down slightly (0% to 3%) versus
2005 levels
o Operating margins in the range of 10.5% to 11%
o Diluted earnings per share of between $1.40 and $1.50. The company
expects that the first quarter will represent less than 10% of the
full year net earnings.
o Expensing of stock options and share based compensation will impact
earnings by $0.11 to $0.12 per diluted share, which is included in the
earnings per share guidance above
o An annualized tax rate of approximately 25%
o Free cash flow (cash flow from operations less capital expenditures)
of between $60 million and $70 million
This guidance is based upon continuing operations, does not include the impact
of any restructuring charges that the Company may incur during the year, and
assumes a continuation of current exchange rates.
Checkpoint Systems will host a conference call today, March 2, 2006, at 5 PM.
Eastern Time, to discuss its fourth quarter and full year 2005 results. The
conference call will be simultaneously broadcast live over the Internet.
Listeners may access the live webcast at the Company's homepage,
www.checkpointsystems.com, by clicking on the "Conference Calls" link or
entering the "Investors" section of this site. Please allow 15 minutes prior to
the call to visit the site and download and install any necessary audio
software. The webcast will be archived at the Company's homepage beginning
approximately 90 minutes after the call ends until the next quarterly
conference call.
Checkpoint Systems, Inc. is a multinational manufacturer and marketer of
integrated systems solutions for retail security, labeling, and merchandising.
Checkpoint is a leading provider of EAS and RFID systems, source tagging,
hand-held labeling systems, retail merchandising systems, and barcode labeling
systems. Applications include automatic identification, retail security and
pricing, and promotional labels. Operating directly in 33 countries, Checkpoint
has a global network of subsidiaries and provides professional customer service
and technical support around the world. Checkpoint Systems, Inc.'s website is
located at www.checkpointsystems.com.
Safe Harbor Statement
This press release may include information that could constitute forward-
looking statements made pursuant to the safe harbor provision of the Private
Securities Litigation Reform Act of 1995. 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
those matters disclosed in the Company's Security and Exchange Commission
filings.
(Tables Follow)
Checkpoint Systems, Inc.
Consolidated Statements of Operations
(Thousands except per share amounts)
(unaudited)
Quarter Twelve Months
(13 weeks) Ended (52 weeks) Ended
---------------------------------------------------------------------
---------------------------------------------------------------------
December 25, December 26, December 25, December 26,
2005 2004 2005 2004
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Net revenues $193,440 $189,040 $721,018 $671,558
Cost of revenues 110,168 101,215 407,581 361,640
- -----------------------------------------------------------------------------------------------------------------
Gross profit 83,272 87,825 313,437 309,918
Selling, general, and administrative
expenses 60,971 64,877 237,654 236,436
Research and development 4,838 9,072 18,790 28,525
Restructuring Expense 3,212 (3,016) 12,570 (3,016)
Asset Impairment 982 1,968 1,396 1,968
Litigation settlement -- -- -- 19,950
- -----------------------------------------------------------------------------------------------------------------
Operating income 13,269 14,924 43,027 26,055
Interest income 687 387 2,338 1,567
Interest expense 246 1,413 2,844 6,980
Other gain (loss), net 467 382 665 219
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 14,177 14,280 43,186 20,861
before income taxes and minority
interest
Income taxes 4,565 493 11,259 3,515
Minority interest 15 5 103 90
- -----------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 9,597 13,782 31,824 17,256
Earnings from discontinued
operations, net of tax 2,783 (43,078) 8,108 (37,448)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Net Earnings $12,380 $(29,296) $39,932 $(20,192)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Basic Earnings per Share:
Earnings from continuing operations $ .25 $ .36 $ .83 $ .47
Earnings from discontinued
operations, net of tax .07 (1.14) .21 (1.02)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Basic earnings per share $ .32 $ (.78) $1.04 $ (.55)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Diluted Earnings per Share:
Earnings from continuing operations $ .24 $ .35 $ .81 $ .46
Earnings from discontinued
operations, net of tax .07 (1.09) .21 (1.00)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ .31 $ (.74) $1.02 $(0.54)
- -----------------------------------------------------------------------------------------------------------------
Checkpoint Systems, Inc.
Summary Consolidated Balance Sheet
(Thousands)
December 25, December 26,
2005 2004
---- ----
(unaudited)
Cash and Cash Equivalents $113,223 $102,694
Working Capital $210,363 $166,912
Current Assets $415,962 $400,582
Total Debt 37,130 $ 72,767
Shareholders' Equity $398,848 $378,763
Total Assets $736,053 $766,948
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 the Company's presentation of its financial
results that are prepared in accordance with GAAP. The Company uses the
non-GAAP measures presented to evaluate and manage the Company's operations
internally. The Company is also providing this information to assist investors
in performing additional financial analysis that is consistent with financial
models developed by research analysts who follow the Company.
The reconciliation set forth below is provided in accordance with Regulation G
and reconciles the non-GAAP financial measures with the most directly
comparable GAAP financial measures.
Checkpoint Systems, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(Thousands)
(unaudited)
Quarter Ended Twelve Months Ended
(13 Weeks) (52 Weeks)
Dec. 25, Dec. 26, Dec. 25, Dec. 26,
2005 2004 2005 2004
------------- ------------- -------------- --------------
Reconciliation of GAAP to Non-GAAP Operating Margin:
Net revenues $193,440 $189,040 $721,018 $671,558
============= ============= ============== ==============
============= ============= ============== ==============
GAAP operating income $13,269 $ 14,924 $43,027 $26,055
Non-GAAP adjustments:
Restructuring expense and asset
impairment charges 4,194 (1,048) 13,966 (1,048)
Loss from settlement of lawsuit with ID Security
Systems Canada Inc. -- -- -- 19,950
------------- ------------- -------------- --------------
Adjusted Non-GAAP operating income before
taxes and minority interest $ 17,463 $ 13,876 $ 56,993 $ 44,957
============= ============= ============== ==============
============= ============= ============== ==============
GAAP operating margin 6.9% 7.9% 6.0% 3.9%
Adjusted Non-GAAP operating margin 9.0% 7.3% 7.9% 6.7%
Checkpoint Systems, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures continued
(Thousands except per share amounts)
(unaudited)
Quarter Ended Twelve Months Ended
(13 Weeks) (52 Weeks)
Dec. 25, Dec. 26, Dec. 25, Dec. 26,
2005 2004 2005 2004
------------- ------------- -------------- -------------
Reconciliation of GAAP to Non-GAAP Net
Income:
Net income (loss), as reported $12,380 $ (29,296) $39,932 $(20,192)
Non-GAAP adjustments:
Restructuring (reversal) expense and asset
impairment charges, net of tax 2,733 (751) 9,871 (751)
(Gain) loss from settlement of lawsuit with ID
Security Systems Canada Inc., net of tax -- (1,900) -- 12,968
Income tax adjustments:
American Jobs Creation Act and
tax restructuring 2,040 -- 2,040 --
Reversal of prior period income tax accrual (1,839) -- (1,561) --
Impairment charges related to Discontinued
Operations, net of tax -- 43,777 664 43,777
------------- -------------- -------------- --------------
Adjusted net income $ 15,314 $ 11,830 $ 50,946 $ 35,802
============= ============== ============== ==============
============= ============== ============== ==============
Reported diluted shares 39,830 39,438 39,075 37,604
Adjusted diluted shares 39,830 39,438 39,075 39,791
Reported earnings per share - diluted $ 0.31 $ (0.74) $ 1.02 $(0.54)
Adjusted earnings per share - diluted $ 0.38 $ 0.30 $ 1.30 $ 0.93