Checkpoint Systems, Inc. Announces 2005 Second 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 second quarter ended June June: see month. 26, 2005. Revenue for the second quarter of 2005 increased 11.2% to $210.4 million, compared to revenue of $189.3 million in the second quarter of last year. Foreign exchange had a positive impact on revenue of $6.4 million, or 3.4%, in the second quarter 2005, as compared to the second quarter 2004. The GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). reported net income for the second quarter of 2005 was $9.5 million, or $0.25 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 a net loss of $6.4 million, or $0.17 per diluted share, in the second quarter of 2004. Excluding restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. in the second quarter of 2005 and 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. charges in the second quarter of 2004, the Company's net income for the second quarter 2005 was $0.36 per diluted share as compared to $0.22 per diluted share in the second quarter 2004. The Company recorded an after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. restructuring charge in the second quarter of 2005 of $4.4 million, or $0.11 per diluted share, related to its European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. cost reduction initiatives. Net income for the second quarter of 2004 includes a charge in the amount of $14.9 million, net of tax, related to the settlement agreement with ID Security Systems Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of Inc. (See attached table "Reconciliation of GAAP to Non-GAAP Measures"). "Checkpoint had an excellent quarter as our earnings before restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). reached an all time high," said George George, river, c.345 mi (560 km) long, rising in a lake on the Quebec-Labrador boundary, E Canada. It flows N through Indian Lake (125 sq mi/324 sq km) to Ungava Bay (an arm of Hudson Strait). Off, Chairman and Chief Executive Officer of Checkpoint. "Our security business grew over 17% versus the second quarter of last year. In the US, our 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. ) business continued its strong performance driven by the ongoing roll-out of our RF-EAS technology with CVS/Pharmacy. We continue to see increased activity in apparel source marking using integrated security tagging solutions in both the U.S. and Europe and expect this increased activity to lead to the installation of RF-EAS systems in more than 2,500 apparel stores this year. Our European operations also reported revenue growth in the quarter led by their CheckNet service bureau business which grew by 44% in the quarter on a constant currency basis. Large account rollout activity is a part of our business that can make year over year comparisons difficult. The large account rollout activities for 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. and 2,500 apparel stores will present difficult sales comparables in 2006, but they will increase associated recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. EAS label volumes by more than 10%. In the current year, we are facing difficult sales comparables in our CCTV CCTV abbr. closed-circuit television CCTV closed-circuit television and Australian Australian pertaining to or originating in Australia. Australian bat lyssavirus disease see Australian bat lyssavirus disease. Australian cattle dog a medium-sized, compact working dog used for control of cattle. businesses because they enjoyed large account rollout activity in 2004." Strategic Direction: Mr. Off continued, "As expected, we are taking actions to reduce our operating costs operating costs npl → gastos mpl operacionales in Europe by consolidating certain administrative functions primarily in Germany and France during the second half of 2005. We are planning additional initiatives to improve our sales productivity and overhead structure in Europe. We believe these actions will yield a positive, 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. impact on margins, although there will be costs associated with them in the short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. . As a result, we expect to record restructuring charges over the next 12-18 months as plans are developed. The restructuring charges that we recorded in the second quarter of $6.3 million and anticipate recording in the third quarter of between $7 million and $10 million will begin to benefit our results as we exit year 2005. We would expect these actions to generate approximately $8 million to $10 million in annual cost savings, with a substantial portion of these cost savings being realized in 2006. In addition, we have commenced the process of actively marketing the 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. businesses to prospective buyers. We remain committed to achieving our stated target of 15% operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: by year-end 2007." Financial highlights for the second quarter of 2005: --Gross profit was $88.5 million, or 42.1% of revenue, versus $83.5 million, or 44.1% of revenue in the second quarter of 2004. --Selling, general, and administrative expenses (SG&A) were $63.6 million, compared with $62.4 million in the second quarter of last year. As a percentage of revenue, SG&A expenses were 30.2% in the current year period, compared with 33.0% in the second quarter of 2004. --Research and development expenses were $4.9 million, or 2.3% of revenue, in the second quarter of 2005, compared to $7.6 million, or 4.0%, in the second quarter of the prior year. --Other operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. for the second quarter of 2005 include $6.3 million of pre-tax restructuring charges related to the rationalization rationalization, in psychology: see defense mechanism. of European SG&A costs ($4.4 million after-tax). Other operating expenses for the second quarter of 2004 include a pre-tax litigation settlement of $19.95 million ($14.9 million after-tax). --The GAAP reported 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 $13.8 million in the second quarter of 2005, compared to an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of $6.5 million in the second quarter of 2004. --Operating income, excluding the other operating expenses described above, was $20.1 million, or 9.5% of revenue, in the second quarter of 2005, compared to $13.5 million, or 7.1% of revenue, in the second quarter of 2004. (See attached table "Reconciliation of GAAP to Non-GAAP Measures"). --The GAAP reported net earnings for the second quarter of 2005 was $9.5 million, or $0.25 per diluted share, compared to a net loss of $6.4 million, or $0.17 per diluted share for the same period of 2004. --Excluding other operating expenses, net earnings for the second quarter of 2005 was $13.9 million, or $0.36 per diluted share, compared to $8.4 million, or $0.22 per dilute di·lute v. To reduce a solution or mixture in concentration, quality, strength, or purity, as by adding water. adj. Thinned or weakened by diluting. share during the same period a year ago. --Cash flow from operations was $12.4 million in the second quarter of 2005, compared to negative $1.4 million in the second quarter of 2004. --At June 26, 2005 cash and cash equivalents were $73.8 million, working capital was $198.0 million and total debt was $67.5 million. Capital expenditures in the quarter were $3.4 million. Craig Burns, Executive Vice President, Chief Financial Officer and Treasurer, added, "Gross margins during the second quarter continued to reflect the increase in costs associated with the large customer installation activity in our security segment. As these roll-outs conclude towards the end of 2005, we expect margins to improve. Our balance sheet remains strong, allowing for the financial flexibility needed to pursue our growth initiatives." Mr. Off concluded, "Overall, we are pleased by the momentum we experienced in the first half of the year, in spite of in opposition to all efforts of; in defiance or contempt of; notwithstanding. See also: Spite a soft European retail economy, and are optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op regarding the remainder of 2005. We continue to expect revenues within our core operations (i.e. excluding the barcode systems businesses) to increase 5% to 7%, and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of of between $1.15 and $1.25. However, foreign exchange rates play a significant role in our results and currency movements are hard to predict. Our earnings per share guidance includes the results of our barcode systems businesses, but excludes any costs associated with exiting those businesses and any other restructuring costs. We also continue to expect to generate $45 million to $55 million of free cash flow before restructuring for the 2005 full-year period." Financial highlights for the six months ended June 26, 2005: --Reported revenue of $392.5 million, compared to $369.9 million in the same period of 2004, an increase of 6.1%. Foreign exchange had a positive impact on revenue of approximately $11.8 million or 3.2% for the first six months of 2005, compared to 2004. --Gross profit for the first six months of 2005 was $163.7 million, or 41.7% of revenue, compared to $159.2 million or 43.0% of revenue for the first six months of 2004. --The reported operating income was $19.4 million for the first six months of 2005, compared to $2.9 million for the same period of 2004. Excluding other operating expenses, operating income was $25.7 million, or 6.6% of revenue, compared to $22.8 million, or 6.2% of revenue, in the first six months of 2004. (See attached table "Reconciliation of GAAP to Non-GAAP Measures"). --The GAAP reported net earnings for the first six months of 2005 was $13.3 million, or $0.35 per diluted share, compared to a net loss of $1.0 million, or $0.03 per diluted share, for the first six months of 2004. --Excluding other operating expenses, the net earnings for the first six months of year 2005 were $17.8 million, or $0.46 per diluted share, compared to $13.9 million, or $0.37 per diluted share. (See attached table "Reconciliation of GAAP to Non-GAAP Measures"). Checkpoint Systems will host a conference call today, August 2, 2005, at 10 a.m. Eastern Time, to discuss its second quarter 2005 results. The conference call will be simultaneously broadcast live over the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the . 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 manufacturer and marketer of integrated systems solutions for retail security, labeling, and 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. . Checkpoint is a leading provider of EAS and 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. 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 31 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 Six Months Ended
(13 Weeks) (26 Weeks)
June 26, June 27, June 26, June 27,
2005 2004 2005 2004
------- ------- ------- -------
Net revenues 210,381 189,270 392,548 369,916
Cost of revenues 121,846 105,780 228,867 210,749
------- ------- ------- -------
Gross profit 88,535 83,490 163,681 159,167
Selling, general, and
administrative expenses 63,597 62,405 128,238 123,058
Research and development expenses 4,863 7,593 9,731 13,287
Restructuring expenses 6,274 -- 6,274 --
Litigation settlement -- 19,950 -- 19,950
------- ------- ------- -------
Operating income (loss) 13,801 (6,458) 19,438 2,872
Interest income 483 332 1,069 785
Interest expense 908 1,473 1,881 3,653
Other (loss) gain, net (47) (169) 131 (113)
------- ------- ------- -------
Earnings (loss) before income taxes
and minority interest 13,329 (7,768) 18,757 (109)
Income taxes 3,802 (1,350) 5,376 871
Minority interest 26 24 49 33
------- ------- ------- -------
Net earnings (loss) $ 9,501 $(6,442) $13,332 $(1,013)
======= ======= ======= =======
Net earnings (loss) per share:
Basic $ 0.25 $ (0.17) $ 0.35 $ (0.03)
Diluted $ 0.25 $ (0.17) $ 0.35 $ (0.03)
Weighted average common stock
outstanding 38,024 37,576 37,966 36,271
Weighted average common stock and
dilutive stock outstanding 38,700 38,413 38,625 37,222
Checkpoint Systems, Inc.
Summary Consolidated Balance Sheet
(Thousands)
June 26, December 26,
2005 2004
---- ----
(unaudited)
(preliminary)
Cash and Cash Equivalents $ 73,797 $ 102,694
Working Capital $ 197,980 $ 166,912
Current Assets $ 380,698 $ 400,582
Total Debt $ 67,515 $ 72,767
Shareholders' Equity $ 369,090 $ 378,763
Total Assets $ 712,980 $ 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 Six Months Ended
(13 Weeks) (26 Weeks)
June 26, June 27, June 26, June 27,
2005 2004 2005 2004
--------- --------- --------- --------
Reconciliation of GAAP to
Non-GAAP Operating Margin:
Net revenues $ 210,381 $ 189,270 $ 392,548 $369,916
========= ========= ========= ========
GAAP operating income (loss) $ 13,801 $ (6,458)$ 19,438 $ 2,872
Non-GAAP adjustments:
Loss from settlement of lawsuit
with ID Security Systems
Canada Inc. -- 19,950 -- 19,950
Restructuring expense related
to European rationalization
initiatives 6,274 -- 6,274 --
Adjusted Non-GAAP operating
income before taxes and
minority interest $ 20,075 $ 13,492 $ 25,712 $ 22,822
========= ========= ========= ========
GAAP operating margin 6.6% N/M 5.0% 0.8%
Adjusted Non-GAAP operating
margin 9.5% 7.1% 6.6% 6.2%
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 26, June 27, June 26, June 27,
2005 2004 2005 2004
------- ------- ------- -------
Reconciliation of GAAP to Non-GAAP
Net Income:
Net earnings (loss), as reported $ 9,501 $(6,442) $13,332 $(1,013)
Non-GAAP adjustments:
Loss from settlement of lawsuit
with ID Security Systems
Canada Inc., net of tax -- 14,868 -- 14,868
Restructuring expense related to
European rationalization
initiatives, net of tax 4,445 -- 4,445 --
Adjusted net income $13,946 $ 8,426 $17,777 $13,855
======= ======= ======= =======
Reported diluted shares 38,700 37,576 38,625 36,271
Adjusted diluted shares 38,700 39,679 38,625 40,124
Reported earnings per share -
diluted $ 0.25 $ (0.17) $ 0.35 $ (0.03)
Adjusted earnings per share -
diluted $ 0.36 $ 0.22 $ 0.46 $ 0.37
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