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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