Checkpoint Systems, Inc. Announces 2004 Third Quarter Results.THOROFARE, N.J. -- Checkpoint (programming) checkpoint - Saving the current state of a program and its data, including intermediate results, to disk or other non-volatile storage, so that if interrupted the program could be restarted at the point at which the last checkpoint occurred. Systems, Inc. (NYSE NYSE See: New York Stock Exchange : CKP CKP Checkpoint CKP Crankshaft Position CKP Chandraseniya Kayastha Prabhu (caste of Maharastra, India) CKP Chris Key Players (band) CKP Concept Knowledge Processing ) today reported financial results for the third quarter ended September 26, 2004. The Company's third quarter 2004 net earnings were $10.1 million, or $0.26 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to net earnings of $9.9 million, or $0.27 per diluted share, in the third quarter 2003. Revenue for the third quarter 2004 was $192.3 million versus $177.2 million for the third quarter 2003, an increase of 8.5%. Foreign exchange had a positive impact on revenue of approximately $8.7 million or 4.9% in the third quarter 2004, as compared to the third quarter 2003. "Checkpoint continued to generate top-line growth in the third quarter of 2004," commented George Off, Chairman and Chief Executive Officer of Checkpoint. "On a constant currency basis, revenue increased approximately 3.6% over the prior year period, as a result of the ongoing strength in our security business. In line with the trends we experienced in the first half of 2004, our closed circuit television (CCTV CCTV abbr. closed-circuit television CCTV closed-circuit television ) and electronic article surveillance See EAS. (EAS (Electronic Article Surveillance) A security system for preventing theft in retail stores that uses disposable label tags or reusable hard tags attached to the merchandise. ) businesses continued to perform well in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. and Japan, while our EAS and barcode systems A barcode system is a network of hardware and software, consisting primarily of mobile computers, printers, handheld scanners, infrastructure, and supporting software. Barcode systems are used to automate data collection where hand recoding is neither timely or cost effective. (BCS (1) (The British Computer Society, Swindon, Wiltshire, England, www.bcs.org) The chartered body for information technology professionals in the U.K., founded in 1957. ) businesses in Europe were impacted by the continued difficult market conditions in this region. During the quarter, we continued our investments in research and development, RFID (Radio Frequency IDentification) A data collection technology that uses electronic tags for storing data. The tag, also known as an "electronic label," "transponder" or "code plate," is made up of an RFID chip attached to an antenna. initiatives, management development and personnel changes, and new manufacturing techniques. We believe these investments will strengthen the company in the long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. ." Gross profit for the third quarter 2004 was $78.6 million, or 40.9% of revenue, compared to $73.2 million, or 41.3% of revenue, for the third quarter 2003. Research and development expenses, which are included in gross profit, were 3.0% of revenue in the third quarter 2004, compared to 2.3% of revenue in the third quarter 2003. Selling, general, and administrative expenses (SG&A) were $61.8 million, or 32.1% of revenue, for the third quarter 2004, compared to $56.1 million, or 31.7% of revenues, in the same period last year. Foreign exchange contributed $2.8 million to the increase in SG&A expenses when compared to prior year. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. was $16.8 million in the third quarter 2004, or 8.7% of revenue, compared to operating income of $17.1 million, or 9.6% of revenue, in the third quarter 2003. Cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses for the third quarter 2004 was negative $9.9 million versus $4.8 million in the third quarter 2003. Included in the cash flow from operations in the third quarter 2004 was the payment of $19.95 million in connection with the settlement of the ID Security Systems Canada Inc. (ID Systems) litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. . As of September 26, 2004, cash and cash equivalents were $67.3 million, working capital was $124.1 million and total debt was $90.0 million. Capital expenditures in the third quarter were $3.1 million. In addition, as previously announced during the third quarter, the Company will redeem redeem v. to buy back, as when an owner who had mortgaged his/her real property pays off the debt. The term also refers to paying the amount due and all charges after a foreclosure (due to failure to make payments when due) has begun. the remaining aggregate principal amount of the outstanding 5 1/4% convertible subordinated debentures subordinated debenture An unsecured bond with a claim to assets that is subordinate to all existing and future debt. Thus, in the event that the issuer encounters financial difficulties and must be liquidated, all other claims must be satisfied before due November 2005. The redemption, in the amount of $23.257 million, will take place on December 14, 2004. The Company will use cash flow from operations in addition to borrowings under its revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility to fund the pending redemption. Craig Burns, Executive Vice President, Chief Financial Officer and Treasurer, commented, "We are pleased to have the ID Systems case behind us and can now focus on executing our strategy with the financial flexibility needed to pursue our growth initiatives. We are encouraged that gross margins have remained consistent throughout the year despite the higher level of technology spending. As a result of investments in working capital to support large account activity, we now expect cash flow from operations for the full year, excluding the payment to ID Systems, to be in the range of $40 million to $50 million." Mr. Off concluded, "We continue to focus on positioning Checkpoint for long-term growth and profitability. The nationwide roll out of our RF EAS RF EAS Radio Frequency Electronic Article Surveillance technology with CVS (1) (Concurrent Versions System) A version control system for Unix that was initially developed as a series of shell scripts in the mid-1980s. CVS maintains the changes between one source code version and another and stores all the changes in one file. is in full swing and we are pleased with the progress we are making. We now expect revenue for the full year 2004 to be between $765 million and $775 million. We expect earnings to be between $0.54 and $0.59 per diluted share for the full year. This reflects constant dollar revenue growth of 1% to 3% and earnings growth, before the impact of the ID Systems litigation, of 13% to 20%. During the fourth quarter, we will conduct our annual assessment of goodwill, and our guidance for the full fiscal year excludes any impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charge that may be incurred." For the nine months ended September 26, 2004, the Company reported revenue of $562.3 million, compared to $509.4 million in the same period of 2003, an increase of 10.4%. Foreign exchange had a positive impact on revenue of approximately $31.8 million or 6.2% for the first nine months of 2004, compared to 2003. Operating income was $19.7 million for the first nine months of 2004, compared to $44.3 million for the same period of 2003. Included in operating income for 2004 is $19.95 million related to the settlement of the ID Systems litigation. Net income was $9.1 million, or $0.24 per diluted share, for the first nine months of fiscal 2004, compared to a net income of $24.7 million, or $0.69 per diluted share, for the first nine months of 2003. Included in the current year net income is $14.87 million, after-tax, or $0.39 per diluted share related to the settlement of the ID Systems litigation. For the first nine months of fiscal 2004, the company spent $18.2 million or 3.2% of revenue on research and development, compared to $9.4 million or 1.9% of revenue for the first nine months of the prior year. Checkpoint Systems will host a conference call today, October 26, 2004, at 10 a.m. Eastern Time, to discuss its third quarter 2004 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 To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. 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 company that manufactures and markets labeling systems designed to improve efficiency, reduce costs, and provide value-added label solutions for customers across many markets and industries. Checkpoint is a leading provider of EAS and RFID systems, source tagging, barcode labeling systems, hand-held labeling systems and retail merchandising merchandising Element of marketing concerned especially with the sale of goods and services to customers. One aspect of merchandising is advertising, which aims to capture the interest of the segment of the population most likely to buy the product. systems. Applications include automatic identification, retail security and pricing and promotional labels. Operating directly in 30 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 Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement This press release may include information that could constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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.
Checkpoint Systems, Inc.
Consolidated Statements of Operations
(Thousands except per share amounts)
(unaudited)
Quarter Ended Nine Months Ended
(13 Weeks) (39 Weeks)
Sept. 26, Sept. 28, Sept. 26, Sept. 28,
2004 2003(1) 2004 2003(1)
--------- --------- --------- ---------
Net revenues $192,344 $177,229 $562,260 $509,366
Cost of revenues 113,728 104,039 335,387 297,416
--------- --------- --------- ---------
Gross profit 78,616 73,190 226,873 211,950
Selling, general, and
administrative expenses 61,817 56,118 187,252 167,638
Other operating expense - - 19,950 -
--------- --------- --------- ---------
Operating income 16,799 17,072 19,671 44,312
Interest income 395 307 1,180 1,031
Interest expense 1,914 2,632 5,567 8,603
Other (loss)/gain, net (50) 271 (163) 810
--------- --------- --------- ---------
Earnings before income taxes
and minority interest 15,230 15,018 15,121 37,550
Income taxes 5,061 5,126 5,932 12,817
Minority interest 52 40 85 74
--------- --------- --------- ---------
Net earnings $10,117 $9,852 $9,104 $24,659
========= ========= ========= =========
Net earnings per share:
Basic $0.27 $0.30 $0.25 $0.75
Diluted $0.26 $0.27 $0.24 $0.69
Weighted average common stock
outstanding 37,622 32,847 36,722 32,777
Weighted average common stock
and dilutive stock outstanding 39,606 40,178 37,595(2) 39,770
(1) Restated. See Note 23 of Form 10-K/A filed with the Securities
and Exchange Commission on May 21, 2004.
(2) The assumed conversion of 2,357 common shares from the
subordinated debentures is not included as it is anti-dilutive.
Checkpoint Systems, Inc.
Summary Consolidated Balance Sheet
(Thousands)
September 26, December 28,
2004 2003(1)
(unaudited)
(preliminary)
Cash and Cash Equivalents $ 67,337 $ 110,376
Working Capital $ 124,133 $ 76,890
Current Assets $ 355,806 $ 374,102
Total Debt $ 90,031 $ 145,791
Shareholders' Equity $ 382,054 $ 323,290
Total Assets $ 740,067 $ 773,322
(1) Restated. See Note 23 of Form 10-K/A filed with the Securities
and Exchange Commission on May 21, 2004.
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