Checkpoint Systems, Inc. Announces Fourth Quarter and Full Year 2006 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 fourth quarter and year ended December 31, 2006. Revenue for the fourth quarter of 2006 was $216.3 million, 12.4% higher compared to revenue of $192.5 million in the fourth quarter of the prior year. Foreign currency had a positive impact of 3.4% on revenues. Earnings from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the for the fourth quarter were $18.6 million, or $0.46 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 earnings from continuing operations of $6.5 million or $0.16 per diluted share in the fourth quarter of 2005. Included in earnings from continuing operations for the fourth quarter of 2006 is a charge of $0.08 per diluted share related to the Company's restructuring initiatives and a gain of $0.03 from the settlement of a capital lease from one of the Company's facilities. In the fourth quarter of 2005, earnings from continuing operations included a charge of $0.12 per diluted share associated with restructuring initiatives, asset impairments, and tax expense associated with the American Jobs Creation Act and a legal restructuring. In a separate press release today, the company announced that it concluded the restatement Restatement A revision in a company's earlier financial statements. Notes: The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. of prior period results for the first nine months of 2006 and fiscal year 2005 and 2004. The restatement of its financial statements for the 2005 and 2004 fiscal years, as well as quarterly financial data for the first three quarters of 2006 and all of 2005 will be formally complete when the Company files those statements on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the fiscal year ended December 31, 2006, with the Securities and Exchange Commission. The Company expects to file the 10-K today. All comparisons in this press release reflect restated financial results for those periods. "We are pleased with our strong financial performance for the fourth quarter," said George Off, Chairman and Chief Executive Officer of Checkpoint. "We reported the best quarterly results from continuing operations in our company's history. Compared with the same quarter last year, we saw good revenue improvement, and as a result of the progress we are making to improve our operations were able to report a 58% increase in adjusted Non-GAAP 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. ." Mr. Off continued, "Our revenue growth in the quarter was primarily due to a 36% increase in our Labeling Service segment business on a constant dollar basis. This included strong performance of our CheckNet([R]) service bureau business, as well as contributions from ADS Worldwide, which was acquired mid quarter. In addition, the results of our 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 in the US and Europe improved significantly over the prior year, with US operations exceeding our expectations. We also experienced a foreign exchange benefit during the quarter." "Adjusted Non-GAAP operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: expanded by 3.4% compared with the fourth quarter of last year as a result of our ongoing efforts to improve revenue performance and profitability." continued Mr. Off. "During the fourth quarter, we continued to see signs that the operational issues that we have been facing in Europe are improving. Operations in France have stabilized sta·bi·lize v. sta·bi·lized, sta·bi·liz·ing, sta·bi·liz·es v.tr. 1. To make stable or steadfast. 2. , and revenues and profits have improved over last year. During the quarter we announced our plans to focus our efforts on key markets and customers, which enabled us to reduce our management headcount. We have also focused our 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. strategy on core retail customers and our existing library business." Financial highlights for the fourteen weeks ended December 31, 2006 and the thirteen weeks ended December 25, 2005: * Revenue for the fourth quarter of 2006 was $216.3 million, compared to revenue of $192.5 million in the fourth quarter of last year, a 12.4% increase. Foreign exchange had a positive impact on revenue of $6.5 million, or 3.4%, in the fourth quarter 2006, as compared to the fourth quarter of 2005. * Gross profit was $94.1 million, or 43.5% of revenue in the fourth quarter of 2006, compared to $82.3 million, or 42.8% of revenue, in the fourth quarter of 2005. The gross profit increase is primarily attributable to an increase in volumes of our EAS business. * Selling, general, and administrative expenses (SG&A) were $63.4 million, compared with $61.0 million for the fourth quarter of 2005. Included in the fourth quarter 2006 SG&A is $1.1 million of share-based compensation expense. As a percentage of revenue, SG&A expenses decreased to 29.3% in the fourth quarter of 2006, versus 31.7% in the fourth quarter of 2005, due to cost reduction initiatives and higher sales levels in the current period. * Research and development expenses for the fourth quarter of 2006 were $5.0 million, or 2.3% of revenue, compared with $5.0 million, or 2.6% of revenue, in the fourth quarter of 2005. * Other operating income included $2.0 million from the settlement of a building sublease sublease n. the lease of all or a portion of premises by a tenant who has leased the premises from the owner. A sublease may be prohibited by the original lease, or require written permission from the owner. . * Other gain (loss) for the fourth quarter of 2006 include interest income of $1.4 million, a foreign exchange gain of $0.3 million, and $0.1 million of income from the rendering of transitional services to SATO. These gains were partially offset by interest expense of $0.7 million. * GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). operating income in the fourth quarter of 2006 was $23.2 million, compared to $12.2 million in the prior year period. Excluding restructuring expense and the gain on the capital lease settlement, operating income in the fourth quarter of 2006 was $25.7 million, or 11.9% of revenue. Excluding restructuring expense and an asset 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. , operating income in the fourth quarter of 2005 was $16.3 million, or 8.5% of revenue. (See attached table "Reconciliation of GAAP to Non-GAAP Measures"). * Income tax expense for the fourth quarter of 2006 was 23.6% of pretax income pretax income Reported income before the deduction of income taxes. Pretax income is sometimes considered a better measure of a firm's performance than aftertax income because taxes in one period may be influenced by activities in earlier periods. . * The GAAP reported earnings from continuing operations for the fourth quarter of 2006 was $18.6 million, or $0.46 per diluted share, compared to $6.5 million, or $0.16 per diluted share, for the fourth quarter of 2005. * The GAAP reported net earnings for the fourth quarter of 2006 was $18.0 million, or $0.45 per diluted share, compared to net earnings of $9.3 million, or $0.23 per diluted share, for the fourth quarter of 2005. * Excluding restructuring expense and the capital lease settlement, earnings from continuing operations for the fourth quarter of 2006 were $20.6 million, or $0.51 per diluted share. Excluding restructuring expense, the asset impairment, and tax adjustments related to tax restructuring, earnings from continuing operations for the fourth quarter of 2005 were $11.3 million, or $0.28 per diluted share a year ago. (See attached table "Reconciliation of GAAP to Non-GAAP Measures"). * 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 was $37.1 million in the fourth quarter of 2006 compared to $48.5 million in the fourth quarter of 2005. * At December 31, 2006 cash and cash equivalents were $143.4 million, working capital was $254.0 million and long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. was $10.7 million. Capital expenditures in the quarter were $3.2 million. Financial highlights for the twelve months ended December 31, 2006: * Reported revenue of $687.8 million, compared to $718.0 million in the same period of 2005. Foreign exchange had a positive impact on revenue of approximately $1.0 million or 0.1% for the full year 2006, compared to 2005. * Gross profit was $291.7 million, or 42.4% of revenue, compared to $311.5 million or 43.4% of revenue for the full year 2005. Gross profit in the full year 2006 included a $5.7 million increase in inventory reserves over the prior year. * The GAAP reported operating income for the full year 2006 was $38.1 million, compared to $40.8 million for the same period of 2005. Full year operating income includes $5.7 million of share-based compensation expense. Excluding restructuring expense, the Company's 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. settlement recorded in the second quarter of 2006 and the capital lease settlement, operating income was $45.3 million, or 6.6% of revenue in 2006. Excluding restructuring expense, the asset impairment, and tax adjustments related to tax restructuring and prior period accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. reversals, full year operating income in 2005 was $54.8 million, or 7.6% of revenue. (See attached table "Reconciliation of GAAP to Non-GAAP Measures"). * The GAAP reported earnings from continuing operations for the full year 2006 was $35.0 million, or $0.87 per diluted share, compared to $28.4 million, or $0.72 per diluted share for the full year 2005. * The GAAP reported net earnings for the full year 2006 was $35.9 million, or $0.89 per diluted share, compared to net earnings of $36.5 million, or $0.93 per diluted share, for the full year 2005. * Excluding restructuring expense, litigation settlement costs and the capital lease settlement, earnings from continuing operations for the full year 2006 were $40.2 million, or $1.00 per diluted share. Excluding restructuring expense, the asset impairment, and tax adjustments related to tax restructuring, earnings from continuing operations for the full year of 2005 were $40.3 million, or $1.03 per diluted share. (See attached table "Reconciliation of GAAP to Non-GAAP Measures"). * In January of 2006, the Company completed the sale of 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. (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 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 relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc net operating assets Operating Assets Another term for working capital. . Included in discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. for the full year 2006 is a gain on sale of the barcode systems business of $1.4 million or $0.03 earnings per share. Mr. Off concluded, "Looking forward we remain cautious about the softness in the retail market given the indicators we're currently seeing in the marketplace, and this is reflected in our expectations for sales performance for 2007. However, we made significant operational and management changes during 2006 and are positioned to leverage these changes and enhance our profitability as we move into 2007." Checkpoint Systems provided financial guidance for 2007 full year financial results: * Revenues, at current exchange rates, up 3% to 5% versus 2006 * 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 from continuing operations of between $1.20 and $1.30, excluding any 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. * An annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. tax rate of approximately 25% * Free cash flow (cash flow from operations less capital expenditures) of between $50 million and $60 million This guidance does not include the impact of unusual charges, such as 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 30, 2007, at 10:00 A.M. Eastern Time, to discuss its fourth quarter and year end 2006 results, as well as the restated prior period 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 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. [TABLE OMITTED] [TABLE OMITTED] 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. [TABLE OMITTED] [TABLE OMITTED] |
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