27.02.2008 12:30:00
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Checkpoint Systems, Inc. Announces Record Fourth Quarter and Full Year 2007 Results
Checkpoint Systems, Inc. (NYSE: CKP) today reported financial
results for the fourth quarter and year ended December 30, 2007.
Revenue for the fourth quarter of 2007 was $262.7 million, an increase
of 21.4%, compared to revenue of $216.3 million in the fourth quarter of
2006. Foreign currency had a positive impact on revenue of 7.5%. Revenue
from the Alpha, SIDEP and Asialco businesses, which were acquired during
the fourth quarter of 2007, accounted for approximately 7.2% of the
overall sales growth in the quarter. Earnings from continuing operations
for the fourth quarter were $24.5 million, or $0.60 per diluted share,
compared to earnings from continuing operations of $18.6 million, or
$0.46 per diluted share, in the fourth quarter of 2006.
"Checkpoint concluded its best performing year
in the Company’s history, reporting record
financial results for the fourth quarter,”
said Rob van der Merwe, President and Chief Executive Officer of
Checkpoint. "Revenues for the quarter
increased across all geographies, supported by recent acquisitions and
organic growth within our base business, and were higher than our
internal expectations. Supported by the increased revenue and ongoing
focus on controlling our operating expenses, earnings from continuing
operations also reached record levels, showing growth compared with the
fourth quarter of the prior year. I commend George Off, the management
team and our employees for doing an excellent job throughout the year.”
Included in earnings from continuing operations for the fourth quarter
of 2007 are after-tax charges of $2.9 million, or $0.07 per diluted
share, related to previously announced management changes, and $1.4
million, or $0.03 per diluted share, related to previously announced
restructuring activities. These charges, included in earnings from
continuing operations for the fourth quarter of 2007, were offset by an
after-tax gain of $2.5 million, or $0.06 per diluted share, related to
the sale of the Company’s subsidiary in
Austria as well as a net tax gain of $5.1 million, or $0.12 per diluted
share, due to changes in the valuation of certain deferred tax accounts.
In the fourth quarter of 2006, earnings from continuing operations
included an after-tax charge of $3.1 million, or $0.08 per diluted
share, related to the Company’s restructuring
initiatives and an after-tax gain of $1.1 million, or $0.03 per diluted
share, from the settlement of a capital lease from one of the Company’s
facilities.
Mr. van der Merwe continued, "On a constant
Dollar basis, increased revenue in the quarter was primarily driven by
our acquisitions of the Alpha S3 product portfolio, SIDEP and Asialco, a
29% increase in sales in our U.S. CCTV systems integration business and
a 13% increase in our global CheckNet®
service bureau business. The performance of our CheckNet business was
driven by 17% revenue growth in Europe, primarily due to contributions
from ADS Worldwide, which was acquired in mid-November 2006. Sales of
EAS hardware also increased, with revenues improving 9% in Europe. In
our global EAS Labels business, sales in the Asia-Pacific region
increased 22% for the quarter, partially offsetting a decline in revenue
in the U.S. and Europe.”
During the 2007 fourth quarter, the Company announced three
acquisitions: Alpha S3, a comprehensive line of security solutions
designed to protect high-theft merchandise in an open-display retail
environment, SIDEP, a provider of Radio Frequency (RF) Electronic
Article Surveillance (EAS) products and Shanghai Asialco Electronics
Co., Ltd. (Asialco), a China-based manufacturer of RF-EAS labels.
"The integration of our recent acquisitions
is progressing as planned and we are pleased with their initial
contributions to our financial performance,”
continued Mr. van der Merwe. "Alpha S3 in
particular is off to a fast start as it concluded a seasonally strong
and profitable quarter. We look forward to continued contributions from
our acquired businesses as we build on our position to become the
leading provider of shrink management solutions to retailers, worldwide.”
Financial highlights for the fourteen weeks ended December 31, 2006 and
the thirteen weeks ended December 30, 2007:
Revenue for the fourth quarter of 2007 was $262.7 million, compared to
revenue of $216.3 million in the fourth quarter of the prior year.
Foreign exchange had a positive impact on revenue of $16.1 million, or
7.5%, in the fourth quarter 2007, as compared to the fourth quarter
2006.
Gross profit was $107.1 million, or 40.8% of revenue, compared to
$94.1 million, or 43.5% of revenue, in the fourth quarter of 2006.
Gross margins were affected by purchase accounting related to the
acquisitions of the Alpha S3 product portfolio, SIDEP, and strong
growth in our lower margin businesses that also drove additional
operational and distribution costs to meet the increasing volume
demands. The Company also continued to experience pricing pressure in
its labeling services segment.
Selling, general, and administrative expenses (SG&A) for the current
year period were $79.0 million, compared with $63.4 million a year
ago. As a percentage of revenue, SG&A was 30.1% in the fourth quarter
of 2007, versus 29.3% in the fourth quarter of 2006. SG&A for the
fourth quarter of 2007 includes a charge of $4.4 million related to
previously announced management changes. Without this charge, SG&A was
28.4% of revenue in the fourth quarter of 2007.
Research and development expenses for the fourth quarter of 2007
totaled $5.0 million, or 1.9% of revenue, compared with $5.0 million,
or 2.3% of revenue, in the fourth quarter of 2006.
Operating income for the fourth quarter of 2007 included a gain of
$2.6 million related to the sale of the Company’s
subsidiary in Austria. Operating income for the fourth quarter of 2006
included a gain of $2.0 million from the settlement of a building
sublease.
GAAP operating income in the fourth quarter of 2007 was $23.6 million,
compared to $23.2 million in the prior year period. Excluding charges
related to the management change, restructuring expense, and the gain
on the sale of the Austrian subsidiary, operating income in the fourth
quarter of 2007 was $27.4 million, or 10.4% of revenue. 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. (See attached table "Reconciliation
of GAAP to Non-GAAP Measures”.)
Non-operating income (expense) for the fourth quarter of 2007 includes
interest income of $1.4 million, a foreign exchange gain of $0.8
million, and $0.2 million of income from the rendering of transitional
services to SATO, resulting from their acquisition of the barcode
systems business in January 2006. These gains were partially offset by
interest expense of $1.4 million. For the fourth quarter of 2006,
non-operating income (expense) includes 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.
Income tax expense for the fourth quarter 2007 includes a $4.8 million
deferred tax benefit associated with foreign statutory tax rate
changes, a $0.9 million tax benefit related to the sale of its
Austrian subsidiary, a $2.4 million deferred tax benefit related to
the release of a valuation allowance for state net operating loss
carry forwards and a $2.1 million net deferred tax charge primarily
associated with the Company’s United
Kingdom operations. The deferred tax benefit of $4.8 million included
$2.1 million related to prior periods.
Earnings from continuing operations for the fourth quarter of 2007
were $24.5 million, or $0.60 per diluted share, compared to $18.6
million, or $0.46 per diluted share, for the fourth quarter of 2006.
Non-GAAP earnings from continuing operations excluding the management
transition expense, restructuring expense, the gain on sale of the
Austrian subsidiary and deferred income tax adjustments for the fourth
quarter of 2007 were $21.2 million, or $0.52 per diluted share.
Non-GAAP earnings from continuing operations excluding restructuring
expense costs and the capital lease settlement for the fourth quarter
of 2006 were $20.6 million, or $0.51 per diluted share. (See
accompanying "Reconciliation of GAAP to
Non-GAAP Measures”.)
Net earnings for the fourth quarter of 2007 were $24.4 million, or
$0.59 per diluted share, compared to net earnings of $18.0 million, or
$0.45 per diluted share, for the fourth quarter of 2006.
Cash flow from operations was $38.2 million in the fourth quarter of
2007 compared to $37.1 million in the fourth quarter of 2006.
At December 30, 2007, cash and cash equivalents were $118.3 million,
working capital was $282.1 million and long-term debt was $95.5
million. Capital expenditures in the quarter were $3.9 million.
Financial highlights for the full year ended December 30, 2007:
Reported revenue of $834.2 million, compared to $687.8 million in the
same period of 2006, an increase of 21.3%. Foreign exchange had a
positive impact on revenue of approximately $39.4 million, or 5.7%,
for the full year of 2007 as compared to 2006. Revenue from the recent
acquisitions of the Alpha S3 product portfolio, SIDEP and Asialco and
the full year effect of the ADS Worldwide acquisition had a positive
impact of approximately 5.4% on revenue for the full year 2007 as
compared to 2006.
Gross profit for the full year of 2007 was $346.0 million, or 41.5% of
revenue, compared to $291.7 million, or 42.4% of revenue, for the full
year of 2006.
Operating income was $66.8 million for the full year of 2007, compared
to $38.1 million for the same period of 2006. Excluding charges
related to the management change, restructuring expense, and the gain
on the sale of the Austrian subsidiary, operating income for the full
year of 2007 was $71.3 million, or 8.6% of revenue. Excluding
restructuring expense, the company’s
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. (See accompanying "Reconciliation
of GAAP to Non-GAAP Measures”.)
Income tax expense for the 2007 includes a $1.0 million deferred tax
benefit associated with foreign statutory tax rate changes, a $0.9
million tax benefit related to the sale of its Austrian subsidiary, a
$5.4 million deferred tax benefit related to the release of a
valuation allowance for state net operating loss carry forwards and a
$2.1 million net deferred tax charge primarily associated with the
Company’s United Kingdom operations. The
deferred tax benefit of $5.4 million included $2.1 million related to
prior periods.
Earnings from continuing operations for the full year of 2007 were
$58.4 million, or $1.43 per diluted share, compared to $35.0 million,
or $0.87 per diluted share, for the full year of 2006.
Excluding charges related to the management change, restructuring
expense, the gain on the sale of the Austrian subsidiary and deferred
income tax adjustments, the full year earnings from continuing
operations for 2007 were $56.5 million, or $1.39 per diluted share.
Non-GAAP earnings from continuing operations excluding restructuring
costs and litigation settlement costs and the capital lease settlement
for the full year of 2006 were $40.2 million, or $1.00 per diluted
share. (See accompanying "Reconciliation of
GAAP to Non-GAAP Measures”.)
Net earnings for the full year of 2007 were $58.8 million, or $1.44
per diluted share, compared to net earnings of $35.9 million, or $0.89
per diluted share, for the full year of 2006.
Cash flow from operations was $67.0 million for the full year of 2007
compared to $22.4 million of cash flow used in operations for the full
year 2006.
Mr. van der Merwe concluded, "Checkpoint has
a very strong market leadership position in its core businesses. Going
forward, we will be focused on the opportunities we have to grow our
business through innovation and the introduction of meaningful new
products that address our customers’
developing needs. We will continue our efforts to expand our margins and
leverage the opportunities we see to reduce operating costs. Looking
forward, Checkpoint is well positioned for challenging economic
conditions given its broad international presence and diversified
customer base, and we expect 2008 to be another good year for the
Company. Actions have been taken by management to anticipate a potential
slowdown in order activity and new store openings as a result of the
current economic uncertainty, particularly in the U.S. We continue to
expect double-digit growth in revenue in 2008, driven primarily by our
recent acquisitions. Our cost reduction efforts are expected to mitigate
inflationary pressures and also contribute to expanded margins.”
Based on an assessment of current market conditions, Checkpoint Systems
confirmed guidance for its 2008 full year financial results below. This
guidance includes the expected contributions of previously announced
acquisitions:
Revenues, at current exchange rates, will increase in the low double
digits
Non-GAAP diluted earnings per share from continuing operations of
between $1.65 and $1.75, excluding any restructuring charges
An annualized tax rate of approximately 24%, which is 2% less than the
Company’s previous estimated annualized tax
rate guidance.
Free cash flow (cash flow from operations less capital expenditures)
of between $60 million and $70 million, excluding the impact of future
restructuring charges.
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, February 27, 2008,
at 10:00 AM Eastern Time, to discuss its 2007 fourth quarter and full
year 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.
Checkpoint Systems, Inc. is the leading supplier of retail shrink
management solutions. Checkpoint's global team helps retailers - and
their suppliers - reduce theft, increase inventory visibility and
provide consumers with greater merchandise availability through the
company's rapidly evolving RF technology, expanding shrink management
offerings and Check-Net labeling solutions. Checkpoint has more than one
million RF devices installed in stores today and has secured more than
100 billion products. Scaling cost efficiently, Checkpoint's solutions
provide increased revenues and profits to a fast-growing community of
successful retailers and a superior experience for their consumers.
Listed on the NYSE (NYSE:CKP), Checkpoint operates in every major
geographic market and employs 3,900 people worldwide. For more
information, visit www.checkpointsystems.com.
Caution Regarding Forward-Looking
Statements This press release includes information that constitutes
forward-looking statements. Forward-looking statements often
address our expected future business and financial performance, and
often contain words such as "expect,” "anticipate,” "intend,” "plan,” believe,” "seek,” or "will.” By their nature, forward-looking statements address matters that are
subject to risks and uncertainties. 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: our ability to integrate
the acquisition of the Alpha S3 business and to achieve our financial
and operational goals for Alpha S3; changes in international business
conditions; foreign currency exchange rate and interest rate
fluctuations; lower than anticipated demand by retailers and other
customers for our products; slower commitments of retail customers to
chain-wide installations and/or source tagging adoption or expansion;
possible increases in per unit product manufacturing costs due to less
than full utilization of manufacturing capacity as a result of slowing
economic conditions or other factors; our ability to provide and market
innovative and cost-effective products; the development of new
competitive technologies; our ability to maintain our intellectual
property; competitive pricing pressures causing profit erosion; the
availability and pricing of component parts and raw materials; possible
increases in the payment time for receivables as a result of economic
conditions or other market factors; changes in regulations or standards
applicable to our products; the ability to implement cost reduction in
field service, sales, and general and administrative expense, and our
manufacturing and supply chain operations without significantly
impacting revenue and profits; our ability to maintain effective
internal control over financial reporting; and additional matters
disclosed in our Securities and Exchange Commission filings. We
do not undertake to update our forward-looking statements, except as
required by applicable securities laws. Checkpoint Systems, Inc. Consolidated Statements of Operations (Thousands except per share amounts) (unaudited)
Quarter
Twelve Months
Dec. 30, Dec. 31, Dec. 30, Dec. 31,
2007
2006
2007
2006 (13 weeks) (14 weeks) (52 weeks) (53 weeks)
Net revenues
$262,663
$216,297
$834,156
$687,775
Cost of revenues
155,613
122,206
488,184
396,084
Gross profit
107,050
94,091
345,972
291,691
Selling, general, and administrative expenses
79,015
63,363
260,854
226,958
Research and development
4,994
4,992
18,170
19,417
Restructuring expense
2,016
4,539
2,701
7,007
Litigation settlement
– – –
2,251
Other operating income
2,571
2,025
2,571
2,025
Operating income
23,596
23,222
66,818
38,083
Interest income
1,363
1,368
5,443
4,906
Interest expense
1,379
737
2,347
2,155
Other gain/(loss), net
989
425
662
1,141
Earnings from continuing operations
before income taxes and minority interest
24,569
24,278
70,576
41,975
Income taxes
(55)
5,721
12,174
6,987
Minority interest
102
(46)
(7)
(31)
Earnings from continuing operations
24,522
18,603
58,409
35,019
(Loss) earnings from discontinued operations, net of tax
(155)
(603)
359
903
Net earnings
$24,367
$18,000
$58,768
$35,922
Basic Earning per Share:
Earnings from continuing operations
$0.61
$0.47
$1.46
$0.89
Earnings from discontinued operations, net of tax
–
(0.01)
$0.01
$0.02
Basic earnings per share
$0.61
$0.46
$1.47
$0.91
Diluted Earnings per Share:
Earnings from continuing operations
$0.60
$0.46
$1.43
$0.87
Earnings from discontinued operations, net of tax
(0.01)
(0.01)
$0.01
$0.02
Diluted earnings per share
$0.59
$0.45
$1.44
$0.89
Checkpoint Systems, Inc.Summary Consolidated Balance Sheet(Thousands)
December 30,
December 31, 2007 2006
(unaudited)
Cash and Cash Equivalents
$
118,271
$
143,394
Working Capital
$
282,095
$
254,024
Current Assets
$
506,910
$
447,597
Total Debt
$
95,512
$
16,534
Shareholders' Equity
$
588,328
$
473,581
Total Assets
$
1,031,044
$
781,191
Reconciliation of Non-GAAP Financial Measures
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.
Set forth below is a reconciliation of the Non-GAAP financial measures
used in this release to the most directly comparable measures based on
GAAP.
Checkpoint Systems, Inc. Reconciliation of GAAP to Non-GAAP Financial Measures (Thousands) (unaudited)
Quarter Ended
Twelve Months Ended
December 30, December 31, December 30, December 31, 2007 2006 2007 2006 (13 weeks) (14 weeks) (52 weeks) (53 weeks)
Reconciliation of GAAP to Non-GAAP Operating Income:
Net revenues
$262,663
$216,297
$834,156
$687,775
GAAP operating income
$23,596
$23,222
$66,818
$38,083
Non-GAAP adjustments:
Management transition expense
4,388
–
4,388
–
Restructuring expense
2,016
4,539
2,701
7,007
Other operating income
(2,571)
(2,025)
(2,571)
(2,025)
Loss from settlement of lawsuit with ID Security
Systems Canada Inc.
– – –
2,251
Adjusted Non-GAAP operating income
$27,429
$25,736
$71,336
$45,316
GAAP operating margin
9.0%
10.7%
8.0%
5.5%
Adjusted Non-GAAP operating margin
10.4%
11.9%
8.6%
6.6%
Checkpoint Systems, Inc. Reconciliation of GAAP to Non-GAAP Financial Measures continued (Thousands except per share amounts) (unaudited)
Quarter Ended Twelve Months Ended
December 30,
December 31, December 30,
December 31, 2007 2006 2007 2006 (13 weeks) (14 weeks) (52 weeks) (53 weeks)
Reconciliation of GAAP to Non-GAAP Earnings from Continuing Operations:
Earnings from continuing operations, as reported
$24,522
$18,603
$58,409
$35,019
Non-GAAP adjustments:
Management transition expense, net of tax
2,863
–
2,863
–
Restructuring expense, net of tax
1,426
3,071
1,956
4,787
Other operating income
(2,523)
(1,113)
(2,523)
(1,113)
Loss from settlement of lawsuit with ID
Security Systems Canada Inc., net of tax
– – –
1,463
Deferred income tax change
(5,118)
–
(4,252)
–
Adjusted earnings from continuing operations
$21,170
$20,561
$56,453
$40,156
Reported diluted shares
40,996
40,062
40,724
40,233
Adjusted diluted shares
40,996
40,062
40,724
40,233
Reported earnings per share from continuing operations –
diluted
$0.60
$0.46
$1.43
$0.87
Adjusted earnings per share from continuing operations - diluted
$0.52
$0.51
$1.39
$1.00
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