Checkpoint Systems, Inc. (NYSE: CKP) today reported
financial results for the fourth quarter and year ended December
28, 2008.
Net revenues for the fourth quarter of 2008 were $237.3 million
compared to net revenues of $262.7 million for the fourth quarter
of 2007, a decrease of 9.7%. Net loss from continuing operations
for the fourth quarter was $61.7 million, or $1.58 per diluted
share, compared to net earnings from continuing operations of $24.5
million, or $0.60 per diluted share, for the fourth quarter of
2007. Non-GAAP net earnings from continuing operations for the
fourth quarter of 2008, excluding a goodwill impairment expense,
litigation settlement expense, asset impairment expense, and
restructuring expense, were $4.9 million, or $0.12 per diluted
share. Non-GAAP net earnings from continuing operations were $21.2
million, or $0.52 per diluted share, for the fourth quarter of
2007. (See attached Reconciliation of GAAP to Non-GAAP Financial
Measures.)
Net revenues for the year 2008 were $917.1 million compared to
net revenues of $834.2 million for the year 2007, an increase of
9.9%. Net loss from continuing operations for the year 2008 was
$29.8 million, or $0.76 per diluted share, compared to net earnings
from continuing operations of $58.4 million, or $1.43 per diluted
share, for the year 2007. Non-GAAP net earnings from continuing
operations for the year 2008, excluding a goodwill impairment
expense, restructuring expense, litigation settlement expense,
asset impairment expense, a deferred compensation expense
adjustment, an after-tax gain from the sale of the Company�s
subsidiary in the Czech Republic, and valuation allowance
adjustments, were $35.5 million, or $0.89 per diluted share.
Non-GAAP net earnings were $56.5 million, or $1.39 per diluted
share, for the year 2007. (See attached Reconciliation of GAAP to
Non-GAAP Financial Measures.) Net loss for the year 2008 was $29.8
million, or $0.76 per diluted share, compared to net earnings of
$58.8 million, or $1.44 per diluted share, for the year 2007.
�2008 was a year of contrasts. It started on an upbeat note,
after the successes we enjoyed in 2007, but ended amidst the
troubling effects of an unprecedented global financial and economic
slowdown,� said Rob van der Merwe, Chairman, President and Chief
Executive Officer of Checkpoint Systems. �We could not escape the
global downturn. It impacted our top and bottom line results,
especially in our traditionally strong fourth quarter, when our
customers further reduced their spending and we experienced the
impact of significant foreign currency fluctuations.�
Mr. van der Merwe concluded, �However, we have not wavered in
our commitment to position the Company for the future. We unveiled
a new strategy for the Company, changing our focus as a supplier of
loss prevention products to becoming a global supplier of end to
end solutions in shrink management, merchandise tracking and
visibility, and apparel labeling. The strategy includes an
ambitious but attainable five-year plan. While 2009 is expected to
be a difficult and challenging year, we are operating our business
in a way that addresses the reality of the current marketplace
without sacrificing the capability to effectively execute our
strategy when economic conditions and the retail environment take a
positive turn.�
Selected analysis and discussion of results:
- Net revenues for the fourth
quarter of 2008 reflected an organic decline of 17.2%, primarily
due to softness in demand for EAS systems and labels in Europe and
for CheckView� store monitoring solutions in the United States.
Acquisition growth was 11.8%, primarily due to Alpha and its
seasonally strong quarter. Foreign currency effects resulted in a
4.3% decline in sales in the quarter driven principally by the
strengthening of the U.S. Dollar versus the Euro.
- Gross profit margin was 40.5%
compared to 40.8% for the fourth quarter of 2007. Lower EAS label
margins reflected lower capacity utilization, which more than
offset improved EAS systems margins resulting from favorable
product mix and sourcing.
- Non-GAAP operating income
excluding goodwill impairment expense, litigation settlement
expense, asset impairment expense, and restructuring expense, was
$16.5 million, or 6.9% of revenue. Non-GAAP operating income for
the fourth quarter of 2007 was $27.4 million, or 10.4% of revenue.
(See attached Reconciliation of GAAP to Non-GAAP Financial
Measures.)
- Estimated goodwill impairment
expense of $59.6 million was due to recent economic conditions
resulting in both a decline in the Company�s market capitalization
and a decline in the Company�s estimated forecasted cash
flows.
- Litigation settlement expense of
$5.7 million resulted from a judgment against the Company that
awarded legal fees to the defendants. Although the patent
infringement suit filed by Checkpoint Systems, Inc. in 2001 was
unsuccessful, there will be no impact to the Company�s current
business because the patent expired in March 2008.
- Asset impairment expense of $4.1
million was due to the write-down of an intangible asset for the
Asialco customer list that was acquired in 2007, the write-down of
a building in France, and the write-down of an indefinite-lived
trade name for our Asialco subsidiary.
- Restructuring expense was
primarily associated with the manufacturing and supply chain
restructuring program announced in August 2008 totaling $2.0
million. The Company continues to expect annualized cost savings of
approximately $6 million when the program is complete in 2010.
- Other (loss) gain, net included
$7.0 million in foreign currency losses compared to $0.8 million in
foreign currency gains for the fourth quarter of 2007. This was
primarily driven by a weakening UK pound versus the Euro.
- The effective tax rate was 1.7%
compared to negative 0.2% for the fourth quarter of 2007. The 2008
fourth quarter rate was impacted by the $59.6 million goodwill
impairment expense, which was primarily related to non-tax
deductible goodwill.
- Cash flow from operations was
$50.2 million compared to $38.2 million for the fourth quarter of
2007, primarily attributable to our increasing focus on working
capital in 2008 coupled with the impact of reduced revenue in the
latter part of the fourth quarter.
- At December 28, 2008, cash and
cash equivalents were $132.2 million, compared to $118.3 million at
December 30, 2007, and total debt was $145.3 million, compared to
$95.5 million at December 31, 2007. Capital expenditures were $2.9
million for the fourth quarter of 2008 and $15.2 million for the
full year.
Outlook for
2009
Based on an assessment of current market conditions and the
assumption that market conditions will not change significantly for
the remainder of the year, Checkpoint provided guidance for 2009.
This guidance does not include the impact of unusual charges, such
as additional restructuring charges, that the Company may incur
during the year, and assumes a continuation of current exchange
rates.
- Net revenues, at current
exchange rates, are expected to be in the range of $780 million to
$820 million.
- Non-GAAP diluted net earnings
per share from continuing operations for the full year 2009 are
expected to be $0.65 to $0.85.
- An annualized tax rate of
approximately 22%.
- Free cash flow (cash flow from
operations less capital expenditures) is expected to be in the
range of $40 million to $50 million.
Checkpoint Systems will host a conference call today, February
26, 2009, at 10:00 AM Eastern Time, to discuss its fourth quarter
and full year 2008 results. The conference call will be
simultaneously broadcast live over the Internet. Listeners may
access the webcast at the Checkpoint Systems Web site, through the
Conference Calls link or the Investors section of the Web site. A
replay will be available following the event.
Checkpoint Systems,
Inc.
Checkpoint Systems, Inc. is a leading manufacturer and provider
of end to end solutions in shrink management and merchandise
visibility, and apparel labeling 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 approximately 3,900 people worldwide.
For more information, visit Checkpoint Systems.
Caution Regarding Forward-Looking
Statements
This press release contains forward-looking statements within
the meaning of Section�21E of the Securities Exchange Act of 1934,
as amended, that involve risks and uncertainties and reflect the
Company�s judgment as of the date of this report. Forward-looking
statements often address our expected future business and financial
performance, and often contain words such as �expect,� �forecast,�
�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: changes in
our senior management and other matters relating to implementation
of our succession plan; our ability to integrate recent
acquisitions and to achieve related financial and operational
goals; an impairment in the carrying value of goodwill or other
assets; changes in international business and economic 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 failure to manage our growth effectively. 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
(13 Weeks Ended)
Twelve Months
(52 Weeks Ended)
December 28, �
December 30, �
December 28, �
December 30, � �
2008 � � �
2007 � � �
2008 � � �
2007 � � Net revenues $ 237,267 $ 262,663
$ 917,082 $ 834,156 Cost of revenues � 141,219 � � � 155,613 � � �
538,983 � � � 488,184 � Gross profit 96,048 107,050 378,099 345,972
� Selling, general, and administrative
expenses
73,240 79,015 296,935 260,854 Research and development 6,340 4,994
22,607 18,170 Restructuring expense 2,000 2,016 6,442 2,701 Asset
impairment 4,104 ? 4,510 ? Goodwill impairment expense 59,583 ?
59,583 ? Litigation settlement 5,700 ? 6,167 ? Other operating
income � ? � � � 2,571 � � � 968 � � � 2,571 � Operating (loss)
income (54,919 ) 23,596 (17,177 ) 66,818 � Interest income 685
1,363 2,660 5,443 Interest expense 1,760 1,379 5,768 2,347 Other
(loss) gain, net � (6,806 ) � � 989 � � � (8,924 ) � � 662 �
(Loss) earnings from operations
before income taxes and minority interest
(62,800 ) 24,569 (29,209 ) 70,576 � Income taxes (1,059 ) (55 ) 719
12,174 Minority interest � (6 ) � � 102 � � � (123 ) � � (7 ) �
(Loss) earnings from continuing operations (61,735 ) 24,522 (29,805
) 58,409 (Loss) earnings from discontinued
operations, net of tax
� ? � � � (155 ) � � ? � � � 359 � Net (loss) earnings $ (61,735 )
� $ 24,367 � � $ (29,805 ) � $ 58,768 �
Basic (Loss) Earnings
per Share: (Loss) earnings from continuing operations $ (1.58 )
$ 0.61 $ (0.76 ) $ 1.46 Earnings from discontinued
operations, net of tax
� ? � � � ? � � � ? � � � 0.01 � Basic (loss) earnings per share $
(1.58 ) � $ 0.61 � � $ (0.76 ) � $ 1. 47 �
Diluted (Loss)
Earnings per Share: (Loss) earnings from continuing operations
$ (1.58 ) $ 0.60 $ (0.76 ) $ 1.43 (Loss) earnings from discontinued
operations, net of tax
� ? � � � (0.01 ) � � ? � � � 0.01 � Diluted (loss) earnings per
share $ (1.58 ) � $ 0.59 � � $ (0.76) � � $ 1.44 �
Checkpoint Systems,
Inc.
Summary Consolidated Balance
Sheet
(Thousands)
� � � �
December 28,
December 30,
2008
2007
(unaudited) � Cash and Cash Equivalents $ 132,222 $ 118,271 Working
Capital $ 282,752 $ 297,056 Current Assets $ 494,310 $ 506,910
Total Debt $ 145,286 $ 95,512 Shareholders� Equity $ 504,314 $
588,328 Total Assets $ 985,716 $ 1,031,044
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.
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
(13 Weeks Ended)
Twelve Months
(52 Weeks Ended)
Reconciliation of GAAP to Non-GAAP
Operating (Loss)
Income:
�
December 28,2008
� �
December 30,2007
� �
December 28,2008
� �
December 30,2007
� � Net revenues � $ 237,267 � � � $ 262,663 � � $ 917,082 � � � $
834,156 � GAAP operating (loss) income (54,919
)
�
23,596 (17,177
)
�
66,818 � Non-GAAP adjustments: � Goodwill impairment 59,583 ?
59,583 ? � Restructuring expense 2,000 2,016 6,442 2,701 �
Litigation settlement 5,700 ? 6,167 ? � Asset impairment 4,104 ?
4,510 ? � Deferred compensation expense adjustment ? ? 1,381 ? �
Other operating income ? (2,571
)
�
(968
)
�
(2,571 ) � Management transition expense ? 4,388 ? 4,388 � � � � �
� � � � � � � � Adjusted Non-GAAP operating income � $ 16,468 � � �
$ 27,429 � � $ 59,938 � � � $ 71,336 � GAAP operating margin (23.1
) % 9.0 % (1.9 ) % 8.0 % Adjusted Non-GAAP operating margin 6.9 %
10.4 % 6.5 % 8.6 % �
Checkpoint Systems,
Inc.
Reconciliation of GAAP to
Non-GAAP Financial Measures continued
(Thousands except per share
amounts)
(unaudited)
� �
Quarter
(13 Weeks Ended)
Twelve Months
(52 Weeks Ended)
Reconciliation of GAAP to Non-GAAP
(Loss) Earnings from Continuing
Operations:
�
December 28,2008
� �
December 30,2007
� �
December 28,2008
� �
December 30,2007
� � (Loss) earnings from continuing operations, as reported � $
(61,735 ) � $ 24,522 � � $ (29,805 ) � $ 58,409 � Non-GAAP
adjustments: � Goodwill impairment, net of tax 58,469 ? 58,469 ? �
Restructuring expense, net of tax 1,588 1,426 4,616 1,956 �
Litigation settlement, net of tax 3,513 ? 3,805 ? � Asset
impairment, net of tax 3,043 ? 3,285 ? � Deferred compensation
expense adjustment, net of tax ? ? 849 ? � Management transition
expense, net of tax ? 2,863 ? 2,863 � Other operating income, net
of tax ? (2,523 ) (954 ) (2,523 ) � Valuation allowance adjustment
? ? (4,812 ) ? � Deferred income tax change ? (5,118 ) ? (4,252 ) �
� � � � � � � � � � � � Adjusted net earnings from continuing
operations � $ 4,878 � � $ 21,170 � � $ 35,453 � � $ 56,453 �
Reported diluted shares 39,021 40,996 39,408 40,724 � Adjusted
diluted shares 39,158 40,996 39,948 40,724 � Reported net (loss)
earnings per share � diluted $ (1.58 ) $ 0.60 $ (0.76 ) $ 1.43 �
Adjusted net earnings per share � diluted $ 0.12 $ 0.52 $ 0.89 $
1.39
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