Checkpoint Systems Inc., which makes labeling systems, announced that it will restate its financials for fiscal years 2002 and 2003 because it is revising its income tax expense.
The restatements result from errors in computing the company’s income-tax expense relating to credits on income from its Puerto Rico operations, as well as certain foreign-income inclusions for U.S. tax purposes, added the company.
The adjustments will result in an increase in income tax expense and a reduction in net earnings of $3.6 million in fiscal 2002 and $700,000 in fiscal 2003.
Checkpoint explained that in 1996, Congress revised the Section 936 credit for U.S. manufacturers doing business in Puerto Rico. The tax credits expire for fiscal years beginning after December 31, 2005, but the Internal Revenue Code limits their use during a phase-out period that began in 2002. The company added that it made an error in computing the limitation during the phase-out period.
The company further explained that it discovered the error before filing its quarterly results for the first three-month period of 2004 and concluded that the correction of the error required a restatement of prior periods.