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 Second Quarter 2006 Results
Thorofare, New Jersey, July 27, 2006 - Checkpoint Systems, Inc. (NYSE: CKP)
today reported financial results for the second quarter ended June 25, 2006.
For the second quarter 2006, the Company reported earnings from continuing
operations of $5.2 million, or $0.13 per diluted share, compared to earnings
from continuing operations of $7.5 million or $0.20 per diluted share in the
second quarter of 2005. Included in earnings from continuing operations for the
second quarter of 2006 is a charge of $0.01 per diluted share related to the
Company's restructuring initiatives in Europe and a charge of $0.04 per diluted
share related to settlement of the follow-on class action complaints that arose
in connection with the ID Security Systems Canada Inc. litigation, as previously
announced. In the second quarter of 2005, earnings from continuing operations
included a charge of $0.11 per diluted share related to the Company's
restructuring initiatives.
"Clearly we are disappointed in our results for the second quarter of 2006, as
overall revenue in the quarter declined 10.5% on a constant dollar basis, which
was below our expectations," said George Off, Chairman and Chief Executive
Officer of Checkpoint. "In the first half of the year we have been implementing
a number of strategic initiatives to streamline our business, including the
transition of the barcode systems business to SATO, restructuring activities in
Europe, new EAS label manufacturing processes, and the transfer of
electronics assembly operations to lower-cost facilities. The benefits of these
initiatives have not yet been fully realized.
"The revenue decline in the second quarter of 2006 is primarily due to a
shortfall in our security business, which declined 16.9% in the quarter. This
was a result of weaker than expected performance in Europe and the U.S., and
expected difficult year-over-year comparables within our U.S. EAS business.
While we continue to see opportunities to convert large chain retailers to
radio frequency EAS, large account commitments did not materialize at the
anticipated pace. We continue to see the negative impact on revenues from the
restructuring of sales operations in Europe, particularly in France. We also
saw a 12.2% decrease in revenue from our retail merchandising segment,
primarily in Europe.
"A bright spot was our CheckNet(R) service bureau business, where the success of
our integrated security tagging solutions continues to drive solid results.
CheckNet(R) service bureau revenue increased 25.6% or $4.6 million on a constant
dollar basis during the second quarter."
Mr. Off continued "We are going to step up efforts to improve our top line
performance in the second half of the year, while also continuing to take
actions to right size our cost structure. We will be intensifying our focus on
eliminating costs that do not translate into improved revenue and gross margin.
At the end of the second quarter of 2006, global headcount was down
approximately 16% from the end of the first quarter of 2005. Since that time,
headcount has been reduced by 564 employees, including 374 that were transferred
to SATO with the sale of the BCS business. We expect to record further
restructuring charges throughout the year."
Financial highlights for the second quarter of 2006:
o Revenue for the second quarter of 2006 was $165.0 million,
compared to revenue of $185.6 million in the second quarter of
last year. Foreign exchange had a negative impact on revenue of
$1.1 million, or 0.6%, in the second quarter 2006, as compared to
the second quarter 2005.
o Gross profit was $70.1 million, or 42.5% of revenue, compared to
$82.0 million, or 44.2% of revenue, in the second quarter of 2005.
o Selling, general, and administrative expenses (SG&A) for the
current year period were $56.4 million, compared with $60.1
million a year ago. As a percentage of revenue, SG&A expenses
increased to 34.2% in the second quarter of 2006, versus 32.4% in
the second quarter of 2005, due to lower sales levels in the
current period.
o Research and development expenses for the 2006 second quarter
totaled $4.7 million, or 2.9% of revenue, compared with $4.7
million, or 2.5% of revenue, in the second quarter of 2005.
o Other operating gain (loss) for the second quarter of 2006 include
a foreign exchange loss of $0.3 million, a $0.2 million loss on
the sale of our operations in Hungary, offset by $0.5 million of
income from the rendering of transitional services to SATO.
o The GAAP reported operating income was $6.1 million in the second
quarter of 2006, compared to $10.9 million in the year ago period.
Excluding restructuring expense and litigation settlement costs,
operating income in the second quarter of 2006 was $9.0 million,
or 5.4% of revenue, compared to $17.2 million, or 9.3% of revenue,
in the second quarter of 2005. (See attached table "Reconciliation
of GAAP to Non-GAAP Measures").
o The tax rate on continuing operations was 21.9%.
o The GAAP reported earnings from continuing operations for the
second quarter of 2006 was $5.2 million, or $0.13 per diluted
share, compared to $7.5 million, or $0.20 per diluted share, for
the second quarter of 2005.
o The GAAP reported net earnings for the second quarter of 2006 was
$5.2 million, or $0.13 per diluted share, compared to net earnings
of $9.5 million, or $0.25 per diluted share, for the second
quarter of 2005.
o Excluding restructuring expense and litigation settlement costs,
earnings from continuing operations for the second quarter of 2006
were $7.1 million, or $0.18 per diluted share, compared to $12.0
million, or $0.31 per diluted share a year ago. (See attached
table "Reconciliation of GAAP to Non-GAAP Measures").
o At June 25, 2006 cash and cash equivalents were $116.4 million,
working capital was $230.2 million and long-term debt was
$26.8 million. Capital expenditures in the quarter were $3.2 million.
Craig Burns, Executive Vice President, Chief Financial Officer and Treasurer,
added, "While gross margins increased by 2.3% over the first quarter of 2006,
they were negatively impacted when compared to the second quarter of 2005 due
to lower sales volumes in our higher margin segments, higher raw material costs
and the effects of manufacturing variances. Although our financial results have
been affected by the restructuring actions we have taken, our healthy balance
sheet provides us with the capacity to invest in the future growth of the
Company."
Financial highlights for the six months ended June 25, 2006:
o Reported revenue of $307.2 million, compared to $342.0 million
in the same period of 2005. Foreign exchange had a negative
impact on revenue of approximately $8.4 million or 2.4% for
the first six months of 2006, compared to 2005.
o Gross profit for the first six months of 2006 was $127.3
million, or 41.4% of revenue, compared to $150.1 million or
43.9% of revenue for the first six months of 2005.
o The GAAP reported operating income was $6.2 million for the
first six months of 2006, compared to $13.5 million for the
same period of 2005. Excluding the litigation settlement and
restructuring charges, operating income was $9.4 million, or
3.0% of revenue, compared to $19.8 million, or 5.8% of
revenue, in the first six months of 2005. (See attached table
"Reconciliation of GAAP to Non-GAAP Measures").
o The GAAP reported earnings from continuing operations for the
first six months of 2006 was $6.2 million, or $0.15 per
diluted share, compared to $9.3 million, or $0.24 per diluted
share for the first six months of 2005.
o The GAAP reported net earnings for the first six months of
2006 was $7.7 million, or $0.19 per diluted share, compared to
net earnings of $13.3 million, or $0.35 per diluted share, for
the first six months of 2005.
o Excluding restructuring expense and litigation settlement
costs, earnings from continuing operations for the first six
months of year 2006 were $8.2 million, or $0.20 per diluted
share, compared to $13.8 million, or $0.36 per diluted share
in the year ago period. (See attached table "Reconciliation of
GAAP to Non-GAAP Measures").
o In January of 2006, the Company completed the sale of the
barcode systems (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. Included in discontinued operations for the
first six months of 2006, is a gain on sale of the barcode
systems business of $1.5 million or $0.04 earnings per share.
Mr. Off concluded "While the first half of 2006 was a challenge, we remain
committed to our long-term strategy and believe it will position us well for
the future. Over the remainder of the year our primary focus will be on taking
steps to enhance the effectiveness of our sales efforts, while further reducing
our operating costs. We expect to see our financial performance improve as we
enter the seasonally stronger second half of the year. However, due to our
lower-than-expected results for the year to date, we are revising our guidance
for 2006."
Based on current market conditions, Checkpoint Systems now expects financial
results for the 2006 full year to be as follows:
o Revenues, at current exchange rates, down 7% to 9% versus
2005, with third quarter revenues expected to be down
approximately 10% versus the same period in 2005
o Operating margins in the range of 7% to 8%
o Diluted earnings per share of between $0.95 and $1.05, excluding
restructuring expense and litigation settlement costs
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 21%
o Free cash flow (cash flow from operations less capital expenditures) of
between $30 million and $40 million
This guidance does not include the impact of unusual charges, such as
restructuring charges and litigation settlement costs, that the Company may
incur during the year, and assumes a continuation of current exchange rates.
Checkpoint Systems will host a conference call today, July 27, 2006, at
10:00 A.M. Eastern Time, to discuss its second quarter 2006 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, and retail merchandising systems. Applications
include automatic identification, retail security and pricing, and promotional
labels. Operating directly in 32 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 Six Months
(13 weeks) Ended (26 weeks) Ended
---------------------------------------------------------------------
June 25, June 26, June 25, June 26,
2006 2005 2006 2005
- -------------------------------------------------------------------------------------------------------------------
Net revenues $165,000 $185,635 $307,220 $342,023
Cost of revenues 94,927 103,621 179,890 191,884
- -------------------------------------------------------------------------------------------------------------------
Gross profit 70,073 82,014 127,330 150,139
Selling, general, and administrative
expenses 56,351 60,086 109,222 120,872
Research and development 4,744 4,723 8,753 9,502
Restructuring expense 609 6,274 856 6,274
Litigation settlement 2,251 - 2,251 -
- -------------------------------------------------------------------------------------------------------------------
Operating income 6,118 10,931 6,248 13,491
Interest income 1,149 483 2,274 1,069
Interest expense 552 908 955 1,881
Other gain/(loss), net 44 (47) 416 131
- -------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations
before income taxes and minority interest 6,759 10,459 7,983 12,810
Income taxes 1,481 2,895 1,771 3,434
Minority interest 33 26 55 49
- -------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 5,245 7,538 6,157 9,327
Earnings (loss) from discontinued
operations, net of tax (55) 1,963 1,518 4,005
- -------------------------------------------------------------------------------------------------------------------
Net earnings $5,190 $9,501 $7,675 $13,332
- -------------------------------------------------------------------------------------------------------------------
Basic Earning per Share:
Earnings from continuing operations $0.13 $0.20 $0.16 $0.24
Earnings from discontinued
operations, net of tax - $0.05 $0.04 $0.11
- -------------------------------------------------------------------------------------------------------------------
Basic earnings per share $0.13 $0.25 $0.20 $0.35
- -------------------------------------------------------------------------------------------------------------------
Diluted Earnings per Share:
Earnings from continuing operations $0.13 $0.20 $0.15 $0.24
Earnings from discontinued
operations, net of tax - $0.05 $0.04 $0.11
- -------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $0.13 $0.25 $0.19 $0.35
- -------------------------------------------------------------------------------------------------------------------
Checkpoint Systems, Inc.
Summary Consolidated Balance Sheet
(Thousands)
June 25, December 25,
2006 2005
-------- ------------
(unaudited)
Cash and Cash Equivalents $116,405 $113,223
Working Capital $230,241 $209,526
Current Assets $400,988 $415,967
Total Debt $ 31,209 $ 37,130
Shareholders' Equity $431,022 $398,322
Total Assets $729,660 $736,368
# # #
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 Six Months Ended
(13 Weeks) (26 Weeks)
June 25, June 26, June 25, June 26,
2006 2005 2006 2005
------------- ------------- ------------- -------------
Reconciliation of GAAP to Non-GAAP Operating Margin:
Net revenues $165,000 $185,635 $307,220 $342,023
============= ============= ============== =============
GAAP operating income $6,118 $10,931 $6,248 $13,491
Non-GAAP adjustments:
Restructuring expense 609 6,274 856 6,274
Loss from settlement of lawsuit with ID Security
Systems Canada Inc. 2,251 -- 2,251 --
------------- ------------- ------------- -------------
Adjusted Non-GAAP operating income before
taxes and minority interest $8,978 $17,205 $9,355 $19,765
============= ============= ============== =============
GAAP operating margin 3.7% 5.9% 2.0% 3.9%
Adjusted Non-GAAP operating margin 5.4% 9.3% 3.0% 5.8%
Checkpoint Systems, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures continued
(Thousands except per share amounts)
(unaudited)
Quarter Ended Six Months Ended
(13 Weeks) (26 Weeks)
June 25, June 26, June 25, June 26,
2006 2005 2006 2005
------------ ------------ ------------ ------------
Reconciliation of GAAP to Non-GAAP Net
Income:
Earnings from continuing operations, as reported $5,245 $7,538 $6,157 $9,327
Non-GAAP adjustments:
Restructuring expense, net of tax 405 4,445 548 4,445
Loss from settlement of lawsuit with ID
Security Systems Canada Inc., net of tax 1,463 -- 1,463 --
------------ ------------ ------------ ------------
Adjusted earnings from continuing operations $7,113 $11,983 $8,168 $13,772
============ ============ ============ ============
Reported diluted shares 40,539 38,700 40,478 38,625
Adjusted diluted shares 40,539 38,700 40,478 38,625
Reported earnings per share from continuing operations - $0.13 $0.20 $0.15 $0.24
diluted
Adjusted earnings per share from continuing operations - $0.18 $0.31 $0.20 $0.36
diluted
###