Checkpoint Systems, Inc. reported financial results for the fourth quarter and full-year ended December 30, 2012. These results report the U.S. and Canadian CheckView business as discontinued operations, reflecting the Company's decision to sell the business.
Fourth Quarter GAAP Results - Continuing Operations:
Net revenues from continuing operations in the fourth quarter of 2012 decreased 11.1%, 9.5% on a constant currency basis, to $200.2 million from $225.1 million in the fourth quarter of 2011. Gross profit margins were 39.3% compared with 41.1% in the 2011 fourth quarter. SG&A expenses of $61.4 million decreased by $9.7 million, or 13.6% compared with the same period last year, driven by $7.1 million of incremental savings from the global restructuring programs, as well as continued tight expense control.
The operating loss of $19.7 million decreased $28.0 million from the same period last year, even though the 2012 loss included a non-cash $38.3 million goodwill impairment in Retail Merchandising Solutions as well as restructuring, litigation settlement and acquisition expenses. These were partially offset by an insurance settlement received against fraudulent activities in Checkpoint's Canadian operations discovered in 2011, a gain on the sale of our non-strategic Suzhou, China subsidiary, and tax valuation allowance adjustments.
Net loss from continuing operations was $0.76 per diluted share compared with a loss of $0.35 per diluted share in the same period last year. In addition to the items noted above, the loss from continuing operations was impacted in both 2012 and 2011 by a valuation allowance on U.S. deferred tax assets recorded in 2011 that creates higher than normal volatility in income tax expense, depending on the mix of pre-tax income and losses in the countries in which Checkpoint operates.
Fourth Quarter Adjusted non-GAAP Operating Income and Earnings per Share - Continuing Operations:
Adjusted non-GAAP operating income from continuing operations was $14.0 million in the fourth quarter of 2012, compared with $18.2 million in the same period last year. Adjusted non-GAAP net income from continuing operations was $0.09 per share compared with a net loss from continuing operations of $0.12 per share in the fourth quarter of 2011.
These results exclude the impact of goodwill impairment in Retail Merchandising Solutions, as well as restructuring, litigation settlement and acquisition expenses. Also excluded are the impacts of an insurance settlement received against fraudulent activities in our Canadian operations discovered in 2011, a gain on the sale of our non-strategic Suzhou, China subsidiary, and tax valuation allowance adjustments.
Checkpoint Systems' President and Chief Executive Officer, George Babich, said, “All three lines of business delivered better than expected revenues in the fourth quarter 2012. The previously announced realignment of the Global Sales organization increased our focus and execution and clearly contributed to a solid finish for the year, providing momentum entering 2013.
Higher than expected revenue coupled with solid gross profit margins and reduced operating expenses drove operating income margins to the high end of our expectations and previous guidance. In addition, our commitment to better manage working capital resulted in free cash flow of $39 million that significantly exceeded expectations for the fourth quarter and full year.”
Mr. Babich continued, “Undoubtedly, the restructuring and cost savings programs initiated under our profit improvement plan, Project LEAN, were instrumental in improving fourth quarter results. Progress was made in each line of business as we stabilized the new organizational structure, continued to cut costs, improve execution and increase productivity.
"Previously announced new sales compensation plans that were put in place to drive sales of our electronic article surveillance consumable and Alpha products have begun to take effect. Our plans to capture global opportunities in the radio frequency identification (RFID) market continue to make progress as our Merchandise Visibilty Solutions business adds more tests throughout the world. And importantly, significant progress was made in Apparel Labeling Solutions, which underwent massive changes in 2012 to support our redefined strategy.”
Global Restructuring
The Company continues to expect that restructuring and cost savings initiatives that are part of the Expanded Global Restructuring Plan, which includes Global Restructuring Plan, including Project LEAN,and the SG&A Restructuring Plan will generate annual savings of approximately $102 million by the end of 2013.
Incremental 2012 cost savings realized through the fourth quarter were $28.6 million, with $19.9 million of savings attributable to SG&A cost reduction actions. This is in addition to $17 million of total savings realized in 2011, of which $15 million was attributable to SG&A.
GAAP restructuring expenses in the fourth quarter were $1.3 million, of which $0.4 million is attributable to non-cash asset impairments. To date, the Expanded Global Restructuring Plan, has recorded $66.0 million in expenses, including $44.8 million in severance and other employee-related charges, $6.8 million in other non-employee related restructuring costs as well as $14.3 million in non-cash asset impairments associated with facilities rationalization and closures.
To-date, cumulative headcount reductions from the Expanded Global Restructuring Plan total 1,850 of the approximately 2,400 employees expected to be affected by the plan.
