SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 26, 1993 Commission File No. 1-11257
CHECKPOINT SYSTEMS, INC.
(Exact name of Registrant as specified in its Articles of Incorporation)
Pennsylvania 22-1895850
(State of Incorporation) (I.R.S. Employer Identification No.)
550 Grove Road, P.O. Box 188, Thorofare, New Jersey 08086
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(Address of principal executive offices) (Zip Code)
609-848-1800
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, Par Value $.10 Per Share
Common Share Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or on any amendment to this Form 10-K. X
---
As of March 11, 1994, the aggregate market value of the Common Stock held
by non-affiliates of the Registrant was approximately $128,000,000.
As of March 11, 1994, there were 10,184,448 shares of the Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - The Company's definitive proxy statement for its Annual Meeting
of Shareholders, presently scheduled to be held on April 29, 1994.
<PAGE>
PART I
Item 1. BUSINESS
The Company is engaged in the development, production and sale of
Electronic SignaturesR systems. Electronic Signatures systems are
uniquely-identifiable targets which can be assigned to an object or
person, and the electronic equipment that recognizes them. The recognized
information can then be used immediately or stored for later review,
analysis, record-keeping or other functions.
Electronic Signatures systems are provided to the Company's customers as
Electronic Article MerchandisingR, ("EAMR") systems, or Electronic Access
Control ("EAC") systems. EAM systems alert users to the unauthorized
removal of protected items such as retail merchandise and library books.
EAM systems are also used for more than loss prevention. The Company's
customers use these systems to bring products back into the open where
consumers have access to the products, and are therefore more likely to
purchase them. EAM systems make it possible for retailers and libraries to
improve customer or patron service, without additional labor, through open
merchandising. Open merchandising increases productivity and sales for
retailers, while reducing losses caused by theft at the same time. EAC
systems restrict access to buildings or areas, such as data processing
centers and research and development laboratories, by unauthorized
personnel. In addition, EAC systems can provide an automatic record of
personnel who have entered specific areas and their time of entry and
exit.
The Company's EAM and EAC technologies have produced current products, and
the development and convergence of these two technologies are expected to
lead to future Electronic Signatures products. The Company intends to
protect its leadership position in the Electronic Signatures marketplace
by pursuing more sophisticated signal recognition, wider detection ranges,
and integration into the customer's operation.
In 1992, the Company entered into the point-of-sale ("POS") monitoring
business. The primary emphasis of POS monitoring is the controlling of
internal theft at the retailer's point-of-sale. The Company's POS
monitoring systems record and store on video tape every transaction at
each check-out, visually as well as the individual transaction data. The
Company's customers can generate user defined reports and match
questionable transactions to events recorded on the video tape.
In 1969, the Company was incorporated in Pennsylvania as a wholly-owned
subsidiary of Logistics Industries Corporation ("Logistics"). In 1977,
Logistics, pursuant to the terms of its merger into Lydall, Inc.
("Lydall"), distributed the Company's Common Stock to Logistics'
shareholders as a dividend. The Company is publicly held and trades on
the New York Stock Exchange (NYSE:CKP). In February, 1986, the Company
acquired Sielox Systems, Inc. ("Sielox"), which developed, produced and
marketed EAC systems for use in commercial and institutional applications.
In August, 1990, Sielox's operations were combined with the Company's.
-------------------------
Electronic SignaturesR is a registered trademark of the Company.
Electronic Article MerchandisingR and EAMR are registered trademarks of
the Company.
<PAGE>
The Company acquired its Canadian Distributor in November of 1992 and
Argentinean Distributor in March of 1993. In addition, the Company set up
direct operations in Mexico during March of 1993 and Australia during June
of 1993. All these subsidiaries market EAM systems for use in retail and
library applications.
In July of 1993, the Company purchased all the outstanding capital stock
of ID Systems International B.V. and ID Systems Europe B.V., related Dutch
Companies ("ID Systems Group") engaged in the manufacture, distribution
and sale of EAM systems. The acquisition gave the Company direct access
to six Western European countries which are The Netherlands, United
Kingdom, Sweden, Germany, France and Belgium.
The Company has its principal executive offices at 550 Grove Road, P.O.
Box 188, Thorofare, NJ 08086, (609-848-1800). Unless the context requires
otherwise, the "Company" means Checkpoint Systems, Inc. and its
subsidiaries on a consolidated basis.
Electronic Article Merchandising
--------------------------------
EAM systems act as a deterrent to, and control the increasing problem of,
theft in such establishments as retail stores and libraries. Over the
past two decades, retail establishments have recognized that the most
effective theft-prevention method is to monitor articles. Other means of
theft prevention, (special mirrors, security guards, closed-circuit
television systems and surveillance cameras) monitor people, not the
articles to be protected, and this limitation among others is addressed by
EAM systems.
The retail industry today continues to face an overcrowded marketplace and
rising costs of occupancy, labor and operations. In addition, the
industry has been plagued with retail sameness and slowed consumer
spending. These trends have caused aggressive price discounting,
resulting in declining retail profits. With these issues facing retailers
today, coupled with the growing incidences of theft, EAM clearly provides
a solution to the retailer's dilemma of controlling costs and improving
margins.
EAM systems are generally comprised of three components: detectable and
deactivatable security circuits (embedded in tags or labels), referred to
as "targets", which are attached to or placed in the articles to be
protected; electronic detection equipment, referred to as "sensors", which
recognize the targets when they enter a detection area, usually located in
the exit path; and deactivation equipment that disarms the target when
patrons follow proper check-out procedures.
The most versatile EAM systems use radio frequency ("RF") technology. The
detection equipment consists of a transmitter and receiver, which together
establish an RF field. An active target can interrupt this field and
trigger an alarm. With RF technology, deactivation can occur without
physically locating or touching the target to be disarmed.
Currently, EAM systems are sold to two principal markets: retail
establishments and libraries. The Company has three significant
competitors in these markets -- Sensormatic Electronics Corporation
("Sensormatic") and Knogo Corporation("Knogo") -- principally in the
retail market, and Minnesota Mining and Manufacturing Company ("3M"),
principally in the library market.
<PAGE>
Electronic Access Control
-------------------------
EAC systems restrict access to areas requiring protection from intrusion
by unauthorized personnel by granting access only to selected individuals
at specified times. Recent developments in Electronic Signatures
processing and other technologies have enhanced the sophistication of EAC
systems at a low cost.
EAC systems use an "electronic key", such as a push-button keypad or a
plastic card with a magnetic strip or magnetic code that is read by an
"electronic lock". The most advanced EAC systems utilize plastic cards
containing an encoded digital integrated circuit as electronic keys.
These can be coded with a personal identification number ("PIN"). Once
the cardholder presents the card containing a PIN, a computer, which is
also part of the EAC system, determines security clearance/access levels.
This data, along with time of entrance and exit, can be recorded for later
analysis.
Various commercial and industrial markets have applications for EAC.
Systems are sold to manufacturers, banks, hospitals, prisons, airports and
governmental installations, which need to protect personnel or assets.
The Company's major EAC competitors are Cardkey Systems, Inc. ("Cardkey"),
Software House, Inc. ("Software House") and Westinghouse Security, Inc.
("Westinghouse").
Products
--------
EAM Systems
-----------
The Company's principal products are the components of its EAM system,
which it markets to both retail establishments and libraries. The EAM
system for the retail market is designed to provide protection for a wide
variety of consumer items in all types of retail environments, including
apparel stores, shoe stores, drug stores, mass merchandise establishments,
music, video, supermarkets and home entertainment markets. The EAM system
for the library market is designed to prevent the unauthorized removal of
books and other library media.
EAM system components include ten styles of sensors (each including
transmitter, receiver and alarm), and the customer's choice of patented
disposable paper targets, reusable flexible targets and reusable hard
plastic targets. The EAM system's transmitter emits an RF signal and the
receiver measures the change in that signal caused by the active targets,
causing the system to alarm. For 1993, 1992 and 1991, the percentage of
the Company's net revenues from sensors was 30%, 34% and 31%, respectively
and from targets was 42%, 40% and 45%, respectively.
<PAGE>
In 1986, the Company introduced CounterpointR, a noncontact deactivation
unit which eliminated the need to search for and remove or manually detune
disposable targets. Since 1989, the Company has expanded its deactivation
products with electronic modules that can be installed into numerous
point-of-sale ("POS") bar code scanners including those manufactured by
Spectra-Physics Retail Systems, Symbol Technologies, Inc., Metrologic,
Inc., National Cash Register, Inc., ICL Systems,Inc., IBM (International
Business Machines) and Fujitsu Ltd. These modules allow the reading of
barcode information, while deactivating targets in a single step. These
deactivation units allow POS personnel to focus on the customer and
minimize errors at check-out. The percentage of net revenues from
deactivation units for 1993, 1992 and 1991 was 11%, 11%, and 7%,
respectively. During 1993, the Company developed an improved deactivation
unit, Counterpoint IVTM which provides increased deactivation height and
improves the rate of product deactivation.
The Company's EAM products are designed and built to comply with
applicable Federal Communications Commissions ("FCC") regulations
governing radio frequencies, signal strengths and other factors. The
Company's present EAM products requiring FCC certification comply with
applicable regulations. In addition, the Company's present EAM products
meet other regulatory specifications for the countries in which they are
sold.
Sensors
-------
The Company's sensor product lines are used principally in retail
establishments and libraries. In retail establishments, EAM system
sensors are usually positioned at the exits from the areas in which
protected articles are displayed.
In libraries, sensors are positioned at the exit paths, and gates or
turnstiles control traffic. Targets are placed inside books and other
materials to be protected. A target passing through the sensor triggers
an alarm, which locks the gate or turnstile. The target can easily be
deactivated or passed around the sensor by library personnel.
Introduced in 1988, the AlphaR sensor product line represented an
important step in the evolution of Electronic Signatures processing. It
was the Company's first microprocessor-based sensor capable of recognizing
unique radio frequency signals. Now incorporated in the QS2000R sensor
this microprocessor-based technology brings the Company closer to a
complete approach to merchandising, by integrating the retailers' three
major control problems -- pricing, information and shoplifting.
Introduced in 1990, the QS2000 is the latest evolution in the Company's
proven QuicksilverTM sensor product line. With the addition of
microprocessor-based radio frequency signal processing, the QS2000 has
been engineered to provide excellent target detection with enhanced
target-discrimination capabilities. The QS2000 analyzes RF signals in its
detection zone and can discriminate between unique target signals and
environmental interference. This development greatly reduces false and
"phantom" alarms while increasing target detection. The QS2000 is also
available in a weatherized version for outdoor use.
-------------------------
CounterpointR is a registered trademark of the Company.
Counterpoint IVTM is a trademark of the Company.
QuicksilverTM is a trademark of the Company.
AlphaR, QS2000R, and SignatureR are registered trademarks of the Company.
<PAGE>
Introduced in 1993, the CondorTM sensor, is the most technically advanced
RF system on the market today. The most significant feature of this
system is the combination of a receiver and transmitter in a single
pedestal. Utilizing a microprocessor and two digital signal processors,
the Condor has an aisle width of 12 feet using two pedestals. One sensor
is capable of three feet of detection on either side of the sensor.
Additional features include the ability to mount full-sized merchandising
panels, a customer counter, an alarm counter and variable alarm tone.
Also introduced in 1993, the QS1500TM and QS1600TM are value priced, hard
tag systems designed primarily for the apparel marketplace. The QS1500
and QS1600 product lines provide a high detection rate. The QS1500 has
three feet of detection on either side of a single pedestal, or it can
protect up to six feet between two pedestals. For wider detection, the
QS1600 with two pedestals can detect targets at distances of up to twelve
feet, ideal for mall openings. This system is an inexpensive answer to
wide aisle detection.
As a result of the Company's acquisition of the ID Systems Group in 1993,
the QX2000TM system is currently available for international
installations. The QX2000 is a similar system to the microprocessor based
QS2000 system with the added flexibility of modular electronics design.
The modular design provides an improved service capability in addition to
permitting the system to operate at three different RF frequencies.
The Company also offers chrome-finished Quicksilver sensors, solid-oak
SignatureR sensors, featuring an earlier generation of components, the
QS3000, a wide aisle system that can span up to six feet, and the
Hypermarket, which is a narrow aisle system designed specifically for
hypermarkets. All of the Company's sensors can be used with the various
targets available.
Targets
-------
Customers can choose from a wide variety of targets, depending on their
merchandise mix. All targets contain an electronic circuit that unless
deactivated (disposable targets) or removed (reusable targets), triggers
an alarm when passed through the sensors.
Disposable security targets are affixed to merchandise by pressure
sensitive adhesive or other means. These range in size from 1.125" x 1.5"
to 2.0" x 3.0", enabling retailers to protect smaller, frequently-pilfered
items. Disposable targets must be deactivated at the point-of-sale,
either manually or electronically, or passed around the sensors. Many
disposable targets can be imprinted with standard price-marking equipment.
When used with electronic deactivation equipment, they represent the
CheklinkR concept, developed to combine pricing, merchandising, data
collection and protection in a single step. Targets can be applied at the
vendor level, in the distribution center or in-store. Under the Company's
ImpulseR program (see Marketing Strategy) tags can be embedded in products
or packaging at the point-of-manufacture or packaging.
------------------------
CondorTM is a trademark of the Company.
QS1500TM, QS1600TM and QS3000TM are trademarks of the Company.
QX2000TM is a trademark of the Company.
CheklinkR is a registered trademark of the Company.
ImpulseR is a registered trademark of the Company.
<PAGE>
In 1992, the Company was licensed to sell and provide targets for the
Model 4021 label applicator (PathfinderR) printer manufactured by Monarch
Marking Systems. This product is a sophisticated electronic portable bar
code label printer and applicator ideal for use in high volume mass
merchandise, drugstore and supermarket applications. In addition,
Pathfinder has a self-contained keyboard which allows for easy entry of
various types of label data including: bar code, price and size. The
Pathfinder also has built-in scanning capability that can scan existing
package bar codes, then print identical Checkpoint labels for application
without obscuring important product information.
The Company has entered into a business agreement with PMI Food Equipment
Group, Hobart Corporation ("Hobart"), a manufacturer and distributor of
weigh scales, label printers and meat wrappers used in supermarket meat
rooms. The Company's Hobart tag, 1315 Series, is compatible with the
Hobart weigh scales Model 5000 T/TE and Model 18VP. This labor saving tag
is integrated with the Hobart Weigh Scale/Printer to display the weight
and price of the item.
In addition, the Company maintains an agreement with A&H Manufacturing
("A&H"), the dominant U.S. supplier of costume jewelry cards, which grants
A&H the right to embed a Checkpoint circuit in cards during manufacturing.
To assure growth in the video and mature library markets, the Company
increased its product offerings and entered the electromagnetic target
market. The electromagnetic targets are offered in an On Only (permanent)
and an On/Off (activatable) strip. Magnetic label deactivators and
activators have also been added to the Company's product offerings to aid
libraries with auto circulation of materials.
Reusable security targets fall into two categories. Flexible targets are
plastic-laminated tags used in a variety of markets that are removed at
the point-of-sale. Hard targets consist of a target and a locking
mechanism within a plastic case. They are used primarily in the apparel
market and present a visible psychological deterrent. Both flexible and
hard targets use a nickel-plated steel pin which is pushed through the
protected item into a magnetic fastener. These targets can also be
attached with a lanyard using the magnetic fastener. An easy-to-use
detacher unit removes reusable targets from protected articles without
damage.
Also obtained with the acquisition of the ID Systems Group in 1993 was the
UFO hard target. The UFO hard target design combined with a superior
locking device differentiates the UFO as the most difficult hard target to
defeat. During 1993, the Company began manufacturing the Teardrop hard
target, which is made to function only with the QS1500 and QS1600 systems,
primarily used in the apparel market.
During 1993, the Company introduced a line of fluid tags marketed under
the name ChekInkTM which provides a cost-effective second line of defense
against shoplifters. Unauthorized removal of these targets will cause
sealed vials of dye to break open, rendering the garment unusable. ChekInk
serves as a practical alternative to chaining down valuable merchandise.
Ideal for use in department stores, mass merchandisers, and sporting goods
stores, ChekInk can be removed quickly and easily at check-out in the same
manner as the reusable targets.
----------------------
ChekInkTM is a trademark of the Company.
PathfinderR is a registered trademark of Monarch Marking Systems.
<PAGE>
Deactivation Units
------------------
Five convenient deactivation configurations -- horizontal counter-mounted
slot scanners, a vertical mounted scanner, hand-held scanners, a weigh
scale scanner and a deactivation pad -- are available for a variety of POS
environments. These units transmit an audible tone that alerts the user
that a target has been detected. The tone stops when the target has been
deactivated.
With the exception of the Counterpoint deactivation pad, all of the above
scanners read barcode information while deactivating hidden Cheklink
targets in a single step. Ideal for high-volume environments, these
scanners mount easily at POS, and can deactivate multiple targets on a
single item.
The Counterpoint deactivation pad is placed at the check-out counter, and
targets are deactivated automatically by simply passing protected items
across the low profile pad which audibly signals that targets have been
deactivated. There is no need to see the targets in order to deactivate
them. Two sizes of the pads are available, both of which have a very low
profile on the countertop of 3/4" or less.
Developed in 1993 and introduced in 1994, the CounterpointR IV provides
increased deactivation height and improves the rate of product
deactivation.
EAC
---
The EAC ThresholdR product line consists of six systems, ranging from
small, relatively simple systems, to large, sophisticated systems which
provide a maximum degree of control, monitoring and reporting.
The ThresholdR product line features a Distributed Network ArchitectureTM
which means no single point of failure can affect the entire system.
These systems are capable of controlling up to 250 doors for access
control and up to 100,000 cardholders. The incorporation of alarm
monitoring and point control (i.e. turning lights on or off) are also
integral features of all six Threshold systems.
The incorporation of Threshold Remote Software Package allows the
connection of controllers from anywhere in the country via telephone
lines. This functionality opens major markets for communication,
utilities and large scale customers with remote facilities to manage.
All EAC systems can also monitor other occurrences, such as a change in
the status of environmental systems, motors, safety devices or any
controller with a digital output. While monitoring these controllers, any
output can, by a pre-programmed decision, cause an alarm to sound or
another event to occur.
The Company has several proprietary proximity card/tag and reader systems
for all environments. The MirageR family of readers provides the fastest
card verification in the industry and the release of the Mirage SG allows
these readers to be directly mounted on metal without degradation in
performance. The Mirage SG provides the same read performance in a
smaller more aesthetically pleasing package.
---------------------------
ThresholdR and MirageR are registered trademarks of the Company.
Distributed Network ArchitectureTM is a trademark of the Company.
<PAGE>
EAC (continued)
--------------
The proximity cards are comprised of a custom-integrated circuit implanted
in a plastic card or key tag which is powered by RF energy transmitted
from a reader unit ("Mirage") located at the entrance to a controlled
door. Access is gained after Mirage verifies a code transmitted by the
card. The proximity card cannot be copied or duplicated due to the use of
a programmed integrated circuit. In addition, Mirage can be protected
from environmental damage or vandalism by installing it inside a wall or
behind a glass window. Mirage is usable throughout the Threshold product
line.
The Company's EAC proximity cards and reader systems have been certified
by the FCC to comply with applicable regulations.
POS Monitoring Systems
----------------------
In December 1991, the Company licensed the worldwide rights to a POS
monitoring system that is marketed under the name ViewpointTM. Viewpoint
records and stores on videotape every transaction at each check-out, both
the visual and the individual transaction data. Viewpoint connects
directly to the point-of-sale network using a PC compatible computer and
fixed closed circuit television ("CCTV") cameras usually mounted inside
domes affixed to a retailer's ceiling. Because all transaction data is
stored in the computer's relational data base, user-generated reports can
match questionable transactions to events recorded on the tape. The
system also features a remote dial-in capability that allows users to
monitor multiple store locations from one site, significantly lowering
personnel cost. Viewpoint can be linked to Checkpoint Electronic Article
Merchandising ("EAM") systems in order to record incidents that have
caused the EAM system to register an alarm.
Principal Markets and Distribution
----------------------------------
EAM
---
The Company sells its EAM systems principally throughout North America and
Europe, and to a lesser extent, in other areas, and also rents its
products. During 1993, EAM revenues from outside North America
(principally Europe and Scandinavia) represented approximately 26% of the
Company's net revenues.
In the United States, the Company markets its EAM products through its own
sales personnel, independent representatives and independent dealers.
Independent dealers accounted for less than 1% of the Company's net
revenues in the United States during 1993. The Company, at December 26,
1993, employed 71 salespeople who sell the Company's products to the
domestic retail market and who are compensated by salary plus commissions.
The Company's independent representatives sell the Company's products to
the domestic library market on a commission basis. At the end of 1993,
the Company had 38 such independent representatives. Three members of the
Company's sales management staff are assigned to manage and assist these
independent representatives. Of total EAM domestic revenues during 1993,
88% was generated by the Company's own sales personnel.
-------------------------
ViewpointTM is a trademark of the Company.
<PAGE>
Principal Markets and Distribution (continued)
---------------------------------------------
EAM
---
Internationally, the Company markets its EAM products through various
foreign subsidiaries and independent distributors. The Company's foreign
subsidiaries, as of December 26, 1993, employed a total of 93 salespeople
who sell the Company's products to the retail and library markets. The
Company's foreign sales operations are currently located in Western
Europe, Canada, Mexico, Argentina and Australia ("see Marketing
Strategy").
Independent distributors accounted for 37% of the Company's foreign
revenues during 1993. Foreign distributors sell the Company's products to
both the retail and library markets. The Company's distribution
agreements generally appoint an independent distributor for a specified
term as an exclusive distributor for a specified territory. The
agreements require the distributor to purchase a specified dollar amount
of the Company's products over the term of the agreement. The Company
sells its products to independent distributors at prices significantly
below those charged to end-users because the distributors make volume
purchases and assume marketing, customer training, maintenance and
financing responsibilities.
Marketing Strategy
------------------
The Company's strategy is to sell to retail market segments that have a
well-defined need for EAM such as the mass merchandise, supermarket,
apparel, drug, music, video and home entertainment markets. Retailers in
these market segments have increasingly expressed an interest in expanding
the usage of open merchandising in order to realize maximum sales and
profits.
Electronic Article Merchandising or EAM is a strategy that enables
aggressive open-merchandising techniques at the store level without risk
of increased inventory losses. The foundation of this strategy is built
on the Company's low cost RF disposable, integrated target that can be
bulk activated and then deactivated without finding or touching the
target. Today, the Company's systems are starting to be viewed more as a
open merchandising system rather than a article surveillance system.
The Company's source tagging program, ImpulseSM, supports self-service and
impulse buying. Impulse reduces tagging labor and excess packaging,
because targets are placed into the products at the source through their
vendors. With this strategy, any EAM-related operational burden on store
managers and employees to tag products is eliminated since the Company's
circuit can be embedded in the product or packaging at the point-of-
manufacture or distribution. The Impulse program protects high-margin,
high-volume, high-shrinkage products such as fragrances, batteries and
camera film. Preventing these items from being put in protective
locations such as behind the counter or in locked cases has become a
critical issue for manufacturers.
-------------------------
ImpulseR is a registered trademark of the Company.
<PAGE>
According to one fragrance manufacturer's study, self-service fragrance
sales are 60 percent greater than sales of products kept under lock and
key. A study, conducted for the Company by Management Horizons, a division
of Price Waterhouse, reported that if the consumer has to wait in line or
search for a salesperson to buy batteries or camera film, they are likely
to forego the purchase. Other Impulse strategies are: intensify vertical
market focus into key product segments where RF is the only logical
choice, such as liquors; expand Impulse activities into international
markets; increase staffing for Impulse efforts supporting manufacturers
and suppliers to speed implementation; and, expand RF target products to
accommodate more packaging schemes.
In order to expand its distribution channels, the Company embarked on an
acquisition strategy that began in 1992 with the acquisition of its
Canadian distributor, Checkpoint Canada, Inc. In addition, the Company
purchased its Argentina distributor, Checkpoint Systems, S. A. in March of
1993 and set-up operations in Mexico, Checkpoint de Mexico, S. A. de C.V.
during March of 1993 and set-up operations in Australia, Checkpoint
Systems Australia, PTY LTD during June of 1993. During the second quarter
of 1993 the Company and Sensormatic Electronics Corporation
("Sensormatic") terminated their exclusive distribution agreement for
Western Europe. To replace the distribution of the Company's products into
Western Europe, the Company purchased the entire share capital of the ID
Systems Group in July of 1993. The ID Systems Group was engaged in the
manufacture, distribution and sale of EAM systems. This acquisition gave
the Company direct access to six Western European countries which are The
Netherlands, United Kingdom, Sweden, Germany, France and Belgium.
EAC
---
The Company's EAC sales personnel, together with manufacturers'
representatives, market its EAC products to approximately 210 independent
dealers. The Company employs four salespeople who are compensated by
salary plus commissions. The Company's three manufacturers'
representatives are compensated solely by commissions. Under the
independent dealer program, the dealer takes title to the Company's
products and sells them to the end-user customer. The dealer installs the
systems and provides ongoing service to the end-user customer.
POS Monitoring Systems
-----------------------
The Company markets the POS monitoring products throughout the world
through its own EAM sales personnel which currently numbers 164. Sales of
the POS monitoring products are sold to the Company's existing EAM retail
customers along with those retailers that currently do not have the
Company's EAM products.
Backlog
-------
The Company's backlog of orders was approximately $6,673,000 at December
26, 1993, as compared with approximately $6,352,000 at December 27, 1992.
The Company anticipates that substantially all of the backlog at the end
of 1993 will be delivered during 1994. In the opinion of management, the
amount of backlog is not indicative of intermediate or long-term trends in
the Company's business. In addition, management believes that its
business is not seasonal.
<PAGE>
License and Supply Agreements; Patent Protection
------------------------------------------------
EAM/EAC/POS Monitoring Systems
------------------------------
The Company considers its proprietary technology important. Substantially
all of the Company's revenues were derived from products or technologies
which are patented or licensed.
EAM
---
The Company is the exclusive worldwide licensee of Arthur D. Little, Inc.
("ADL") for certain patents and improvements thereon related to EAM
products and manufacturing processes. The Company pays a royalty to ADL
ranging from 5% to 2% of net revenues generated by the sale and lease of
the licensed products, with the actual amount of the royalty depending
upon revenue volume.
Royalties amounted to 1.8%, 1.8% and 1.9% of EAM net revenues for 1993,
1992 and 1991, respectively. The term of the license is coterminous with
the patents, the first of which expired in 1991 and the last of which will
expire in 2007. In addition, the Company has other less significant
licenses covering certain sensors, magnetic labels and fluid tags. These
licenses arrangements have various expiration dates and royalty terms.
EAC
---
The Company is the worldwide licensee of certain patents and technical
knowledge related to proximity card and card reader products. It pays a
royalty equal to 2% of the net revenues from the licensed products. Such
royalties are payable through January 29, 2000, or until all of the
subject patents have been adjudicated invalid.
Royalty expense for 1993, 1992 and 1991 was approximately .5%, .6% and .6%
of the Company's EAC net revenues, respectively.
POS Monitoring Systems
----------------------
The Company has a worldwide license to distribute a point-of-sale front-
end monitoring system being marketed under the name Viewpoint. Marketing
of this product began during 1992. The Company pays a one time site
license fee for each site installed.
Manufacturing, Raw Materials and Inventory
------------------------------------------
EAM
---
The Company purchases raw materials from outside suppliers and assembles
electronic components for the majority of its sensor product lines at its
facilities in Puerto Rico. For its target production, the Company
purchases raw materials and components from outside sources and completes
the manufacturing process at its facilities in Puerto Rico (disposable
targets) and the Dominican Republic (reusable targets). Certain
components of sensors are manufactured at the Company's facilities in the
Dominican Republic and shipped to Puerto Rico for final assembly.
Although the Company generally uses single suppliers for its purchased raw
materials and components, other suppliers of these items are available.
The Company's general practice is to maintain a level of inventory
sufficient to meet anticipated demand for its products.
<PAGE>
EAC
---
The Company purchases raw materials from outside suppliers and assembles
the electronic components for controllers, proximity cards and proximity
readers at its facilities in the Dominican Republic and Puerto Rico. For
non-proximity EAC components, the Company subcontracts manufacturing
activities. All EAC final system assembly and testing is performed at the
Company's facilities in Thorofare, New Jersey.
POS Monitoring Systems
----------------------
The Company does not manufacture any of the components for the Viewpoint
product line other than small interface circuit boards. The Company
purchases all the hardware components of the Viewpoint products from major
distributors. Limited inventory levels are maintained since the Company
places orders with these distributors as customer orders are received.
The software component of the system is added at the customer's site.
Competition
-----------
EAM
---
To the Company's knowledge, the principal competition in the U.S. is
comprised of Sensormatic and Knogo in the supply of EAM systems for retail
establishments and 3M in the supply of such systems for libraries. The
Company's competitors in the EAM industry are well-established businesses
with comparable and in some cases greater financial resources. In the
apparel market, where hard reusable targets are emphasized, Sensormatic
and Knogo have enjoyed better penetration than the Company in this
traditional EAM market for which the competition designed and developed
their products. The Company's principal competition in Western Europe is
comprised of Sensormatic, Knogo, 3M, Actron, and Esselte Meto.
The Company's product line offers more diversity than its competition in
protecting different kinds of merchandise with soft disposable targets and
hard and flexible reusable targets, all of which operate with the same RF
system. As a result, the Company believes it appeals to a wider segment
of the market than does its competition and competes in marketing its
products primarily on the basis of their versatility, reliability,
affordability, accuracy and integration into operations. This combination
provides many system solutions which allow for protection of various kinds
of merchandise from theft.
EAC
---
The Company's EAC products compete with other manufacturers of EAC systems
as well as with conventional security systems, such as manual locking
mechanisms and security guard services.
Major competitors are Cardkey, Software House and Westinghouse. All three
competitors are subsidiaries of much larger companies that have
substantially greater resources than the Company. The Company believes
that its products offer more versatility than those of its competitors.
POS Monitoring Systems
------------------------
The Company's POS Monitoring products compete primarily with similar
products offered by Sensormatic and Knogo. The Company believes that its
products represent a technological advancement over those of its
competitors, particularly with respect to recording and retrieval of
transaction information.
<PAGE>
Research and Development
------------------------
The Company expended approximately $5,392,000, $4,498,000 and $3,313,000
in research and development activities during 1993, 1992 and 1991,
respectively. The emphasis of these activities is the improvement and
development of the Electronic Signatures technology to better integrate
into customers' operations.
Employees
---------
At December 26, 1993, the Company had 1,366 employees.
Financial Information About Domestic and Foreign Operations
-----------------------------------------------------------
The following table sets forth certain information concerning the
Company's domestic and foreign operations for each of the last three
fiscal years.
Geographic Area 1993 1992 1991
=============== ==== ==== ====
(Thousands)
Net revenues from From United States $71,834 $72,166 $52,943
unaffiliated and Puerto Rico
customers
Net revenues from Western Europe, $21,200 - -
foreign subsidiaries Canada, Mexico,
Argentina, and
Australia
Export net revenues Primarily Europe $12,163 $22,732 $15,427
and Scandinavia
Domestic earnings From United States, $ 1,720 $ 4,891 $ 635
before income taxes Puerto Rico, and
Dominican Republic
Foreign earnings Western Europe, $ 351 $ - $ -
before income taxes Canada, Mexico,
Argentina and
Australia
Domestic identifiable In United States, $78,982 $74,333 $57,675
assets Puerto Rico, and
Dominican Republic
Foreign identifiable Western Europe, $26,017 $ - $ -
assets Canada, Mexico,
Argentina, and
Australia
Item 2. PROPERTIES
The Company's headquarters and distribution center are in leased
facilities located in Thorofare, New Jersey. The current leases expire in
December of 1994. Of the total 67,000 square feet, approximately 48,000
square feet are used for office space and approximately 19,000 square feet
are used for storage facilities. The rental for the remaining year is
$435,000.
<PAGE>
Item 2. PROPERTIES (continued)
To replace the current facility, the Company has entered into a twelve
year lease for the construction of a 104,000 square foot facility in close
proximity to the current headquarters and distribution center. Of the
104,000 square feet approximately 64,000 square feet will be used for
administrative and research and development activities. The remaining
40,000 square feet will be used for storage and distribution. The annual
rent during each of the first five years starting in 1995 is $692,000.
The Company's principal manufacturing facility for the production of most
of its products is located in Ponce, Puerto Rico. This two-story
facility, which was completed in 1990, is owned by the Company and
contains approximately 95,000 square feet. In addition, the Company
leases a manufacturing and development facility in Puerto Rico near the
manufacturing facility containing approximately 9,000 square feet. The
lease expires in 1997 with an annual rent of $26,000 in 1994 and $31,000
thereafter.
The Company also leases two manufacturing facilities in the Dominican
Republic. One facility, located in La Vega, contains approximately 16,000
square feet. Certain components of the Company's sensors, hard targets
and proximity cards are assembled at this site. The lease for this
property expires in March 1998 with an annual rent of $6,000. The other
facility, located in Los Alcarrizos, contains approximately 24,000 square
feet. This facility performs the bending, chroming and wiring of antenna
loops used in the Company's Quicksilver sensor products. This facility
also performs certain injection molding production used in the assembly of
the Company's reusable security targets. The lease for the Los Alcarrizos
property expires in September 2000 with an annual rent of $17,500. The
lease payments for both locations have been prepaid for their entire 10
year terms.
The Company's foreign subsidiaries maintain various sales and distribution
locations in Australia, Argentina, Belgium, Canada, France, Germany,
Mexico, The Netherlands, Sweden, and United Kingdom.
Item 3. LEGAL PROCEEDINGS
On February 16, 1994, Checkpoint Systems, Inc, ("Checkpoint") and
Fargklamman Svenska AB ("Fargklamman") and Colortag Inc. ("Colortag")
entered into an agreement (the "Agreement") pursuant to which, inter alia,
(i) Fargklamman and Colortag voluntarily dismissed with prejudice the
lawsuit initiated by Fargklamman and Colortag against Checkpoint on
September 10, 1993 in the United States District Court for the Southern
District of New York (Civil Action No. 93 Civ. 6368 (TPG)) seeking
injunctive relief and damages for alleged trade dress infringement, unfair
competition and misappropriation of trade secrets in connection with
Checkpoint's sales of its ink tag (ChekInkTM), (ii) Checkpoint,
Fargklamman and Colortag exchanged mutual releases, and (iii) Checkpoint
and Fargklamman entered into a license agreement whereby Checkpoint
licensed from Fargklamman, on a non-exclusive, world-wide basis, rights to
U.S. Patent No. 5,275,122 in exchange for a royalty payment based on
future sales of licensed products by Checkpoint and certain payments to be
made over a three year period to Fargklamman.
<PAGE>
Item 3. LEGAL PROCEEDINGS (continued)
On March 10, 1993, the United States International Trade Commission
("Commission") instituted an investigation of a complaint filed by the
Company under Section 337 of the Tariff Act of 1930. The complaint, as
amended, alleged that six respondents imported, sold for importation, or
sold in the United States after importation certain anti-theft
deactivatable resonant tags and components thereof that infringed certain
U.S. Letters Patents of which the Company is exclusive licensee. The
Commission's notice of investigation named six respondents, each of whom
was alleged to have committed one or more unfair acts in the importation
or sale of components or finished tags that infringe the asserted patent
claims. Those respondents are: Actron AG; Tokai Denshi Co. Ltd.; ADT,
Limited; All Tag Security AG; Toyo Aluminum Ltd.; and Custom Security
Industries, Inc.
On March 10, 1994 the United States International Trade Commission issued
a Notice of Commission Determination Not to Review An Initial
Determination Finding No Violation of Section 337 of the Tariff Act of
1930. The ultimate resolution is undetermined at this time due to the
various courses of action available to management, including the right of
appeal which the Company currently intends to exercise. Although the
Company's management ultimately expects a favorable outcome, should
resolution of this matter result in less than a successful defense of the
patents in question the deferred patent costs will be written off as a
charge to earnings at the time of such resolution.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1993 to a vote of
security holders.
Item A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
executive officers of the Company, including their ages, position and
tenure as of the date hereof:
OFFICER
NAME AGE SINCE POSITIONS WITH THE COMPANY
Albert E. Wolf 64 1969 Chairman of the Board of
Directors, Chief Executive Officer,
and Director
Kevin P. Dowd 45 1988 President and Chief Operating Officer
Luis A. Aguilera 45 1982 Senior Vice President - Manufacturing
Steven G. Selfridge 38 1988 Senior Vice President - Operations,
Chief Financial Officer and Treasurer
Mitchell T. Codkind 34 1992 Corporate Controller and Chief
Accounting Officer
Muns A. Farestad 45 1990 Vice President - Research and
Development
William J. Reilly, Jr. 45 1989 Senior Vice President - Americas' and
Pacific Rim
Michael E. Smith 37 1990 Senior Vice President - Marketing and
Western European Operations
Neil D. Austin 47 1989 Vice President - General Counsel and
Secretary
Arthur Cavaliere 47 1991 Vice President - Customer Service
Mr. Wolf has been Chairman of the Board of Directors since April 1986,
Chief Executive Officer of the Company since April 1972, and a director
since July 1969. Mr. Wolf was President from July 1977 to April 1986.
Effective July 1991, Mr. Wolf resumed the position of President along with
his other duties until August 1993. Mr. Wolf is a director of Lydall,
Inc.
<PAGE>
Item A. EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Mr. Dowd has been President and Chief Operating Officer of the Company
since August 1993. He was Executive Vice President of the Company from
May 1992 to August 1993. Mr. Dowd was Executive Vice President -
Marketing, Sales and Service from April 1989 to May 1992 and Vice
President of Sales from August 1988 to April 1989. Prior to joining the
Company, Mr. Dowd was Director - Industrial Products Group, Mars
Electronics from January 1987 to July 1988.
Mr. Aguilera has been Senior Vice President - Manufacturing since August
1993. He was Vice President - Manufacturing of the Company from April
1982 to August 1993, and Vice President and General Manager of the
Company's Puerto Rico subsidiary since February 1979.
Mr. Selfridge has been Senior Vice President - Operations and Chief
Financial Officer and Treasurer since August 1993. He was Chief Financial
Officer and Vice President - Finance and Treasurer of the Company from
December 1990 to August 1993; and Vice President - Finance and Treasurer
of the Company since September 1989. Mr. Selfridge was Corporate
Controller, Chief Accounting Officer and Secretary from April 1988 to
September 1989 and Controller of Domestic Operations from July 1986 to
April 1988. Mr. Selfridge is a Certified Public Accountant.
Mr. Codkind has been Corporate Controller and Chief Accounting Officer
since January 1992. Mr. Codkind was Controller of Domestic Operations
from January 1990 to January 1992 and Accounting Manager of Domestic
Operations from June 1986 to January of 1990. Mr. Codkind is a Certified
Public Accountant.
Mr. Farestad has been Vice President - Research and Development since
October 1990. From July 1987 to January 1989 Mr. Farestad was Director of
Manufacturing Engineering and from January 1989 to October 1990 he was
Director of Process Engineering and Shared Resources.
Mr. Reilly has been Senior Vice President - Americas' and Pacific Rim
since August 1993. He was Vice President - Sales of the Company from
April 1989 to August 1993. Mr. Reilly was Eastern Regional Sales Manager
from March 1989 to April 1989. Prior to joining the Company, Mr. Reilly
was U.S. Sales Manager for Multitone Electronics PLC, London, U.K. from
1982 to 1989.
Mr. Smith has been Senior Vice President - Marketing and Western European
Operations since August 1993. He was Vice President - Marketing from
August 1990 to August 1993. Mr. Smith was Director of Marketing from
April 1989 to August 1990 and Program Manager - National/Major Accounts
from December 1988 to April 1989. Prior to joining the Company, Mr. Smith
was Marketing Manager with Mars Electronics International from June 1987
to November 1988.
Mr. Austin has been Vice President - General Counsel and Secretary since
September 1990. Mr. Austin was General Counsel and Secretary from
September 1989 to September 1990 and General Counsel from June 1989 to
September 1989. Prior to joining the Company, Mr. Austin was a managing
consultant with Mercer, Meidinger, Hansen Inc. from 1987 to 1989.
Mr. Cavaliere has been Vice President - Customer Service since September
1991. Mr. Cavaliere was Director of Field Service from May 1988 to
September 1991 and National Field Service Manager from June 1986 to May
1988.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Common Stock of the Company is traded on the New York Stock Exchange
("NYSE") under the symbol CKP. Prior to October 29, 1993, the Company's
Common Stock was traded in the over-the-counter market on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
National Market System, under the symbol CHEK. The following table sets
forth for the indicated periods the closing price range of the Common
Stock as furnished by the NYSE and NASDAQ for the respective periods.
High Low
---- ---
Closing Price
-------------
1992:
First Quarter ............................ 13 7 3/4
Second Quarter ........................... 11 7 1/8
Third Quarter ............................ 10 7/8 8 5/8
Fourth Quarter ........................... 18 1/8 9 1/8
1993:
First Quarter ............................ 20 1/8 8 3/4
Second Quarter ........................... 12 7/8 8 3/4
Third Quarter ............................ 11 3/4 8 1/8
Fourth Quarter ........................... 14 8 1/2
As of March 11, 1994, there were approximately 1,771 record holders of the
Company's Common Stock.
The Company has never paid a cash dividend on the Common Stock. The
declaration and payment of dividends in the future, and their amounts,
will be determined by the Board of Directors in light of conditions then
existing, including the Company's earnings, its financial condition and
requirements (including working capital needs) and other factors.
<PAGE>
Item 6. SELECTED ANNUAL FINANCIAL DATA
1993 1992 1991 1990 1989
======== ======== ======== ======== ========
(Thousands, except per share data)
FOR YEARS ENDED:
Net revenues $ 93,034 $ 72,166 $ 52,943 $ 56,742 $ 50,750
Earnings before
income taxes $ 2,071 $ 4,891 $ 635 $ 6,707 $ 6,897
Income taxes
(benefit) $ 456 $ 463 $ 127 $ (225) $ 1,294
Net earnings $ 1,615 $ 4,428 $ 508 $ 6,932 $ 5,603
Earnings per
common share $ .16 $ .45 $ .05 $ .72 $ .61
AT YEAR-END:
Working capital $ 27,984 $ 25,792 $ 14,245 $ 17,915 $ 18,742
Long-term debt $ 24,302 $ 9,322 783 $ - $ 1,200
Shareholders'
equity $ 53,779 $ 51,061 $ 42,087 $ 41,321 $ 32,610
Total assets $104,999 $ 74,333 $ 57,675 $ 53,129 $ 44,371
SELECTED QUARTERLY FINANCIAL DATA
QUARTERS (unaudited)
--------------------------------------------
First Second Third Fourth Year
----- ------ ----- ------ ----
(Thousands, except per share data)
1993
----
Net revenues $20,016 $18,026 $26,604 $28,388 $93,034
Gross profit $ 8,700 $ 6,880 $11,385 $11,648 $38,613
Net earnings $ 507 $ 884 $ 112 $ 112 $ 1,615
Earnings per
common share $ .05 $ .09 $ .01 $ .01 $ .16
1992
----
Net revenues $14,222 $16,567 $19,159 $22,218 $72,166
Gross profit $ 6,427 $ 7,570 $ 9,057 $10,462 $33,516
Net earnings $ 150 $ 943 $ 1,272 $ 2,063 $ 4,428
Earnings per
common share $ .02 $ .10 $ .13 $ .20 $ .45
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 7.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash and cash equivalents decreased $2,320,000 during the year to a zero
balance. The Company's primary sources of cash were funds provided from
funding arrangements, ($14,774,000). The primary uses of cash were the
acquisition of property, plant and equipment ($4,600,000), net cash used
by operating activities ($6,317,000), acquisitions ($3,184,000) and other
investing activities of ($3,660,000). For a detailed analysis of the
Company's sources and uses of cash from operating, investing and financing
activities, refer to the Consolidated Statements of Cash Flows in the
financial section of this report. Below is a discussion that further
enhances the Statements of Cash Flows.
Depreciation and amortization increased $2,483,000 during the year
compared to last year ($6,476,000 versus $3,993,000), as a result of
investments principally in manufacturing equipment and management
information systems. Increases in amortization resulted from software
development costs and the purchase of various intangibles, including
patents, licenses, trademarks and customers lists. In addition, goodwill
generated from recent acquisitions have also increased amortization
expense.
Accounts receivable increased $2,716,000 as a result of record revenues
posted in the fourth quarter.
Property, plant and equipment expenditures decreased $1,543,000 during
1993 ($4,600,000 versus $6,143,000). The principal expenditures for the
current year have been made in the areas of production, management
information systems and lab equipment for research and development
activities.
Inventories increased $6,816,000 from the start of the year as a result of
an expanded product offering and the Company's anticipated needs for the
first half of 1994.
Accounts payable increased $2,062,000 as a result of the increased
inventory purchases required to meet the increased demand for the
Company's products.
The Company made acquisitions, net of cash acquired, of $3,184,000
relating to the capital stock purchases of the Company's Argentinean
distributor and the ID Systems Group, a European manufacturer and
distributor of EAM products.
The $3,660,000 in other investing activities is mainly comprised of:
capitalized legal expenses related to the defense of certain patents in
which the Company holds exclusive rights; the purchase of a customers list
from the Company's former Mexican distributor; the capitalization of
software development costs; the purchase of patents and license related to
two of the Company's new products, magnetics and QS1500/1600; and,
deposits related to the Company's lease agreement for a new corporate
facility.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
For the year, the Company borrowed a total amount of $15,000,000 under a
long-term revolving credit facility. Subsequent to year end $8,000,000
outstanding under this credit facility was converted to a six year term
loan at a fixed interest rate of 6.5%. Management is currently working
towards finalizing a $12,000,000 private placement debt funding. Once
completed, this will be used to pay down existing debt under the Company's
long-term revolving credit facility.
As of December 26, 1993, the current ratio was 2.0 to 1. The quick ratio
was .9 to 1. The equity-debt ratio was 1.0 to 1. Management is currently
contemplating other financing in order to fund its aggressive acquisition
and selling strategies.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
---------------------
For the Year Ended December 26, 1993
------------------------------------
Net revenues increased 29% or $20,868,000 when compared to the prior year
($93,034,000 versus $72,166,000). As a percent of net revenues, domestic
and foreign net revenues were 64% and 36%, respectively compared to 69%
and 31% for 1992.
Domestic Electronic Article Merchandising ("EAM") net revenues increased
$9,363,000 or 20% while foreign EAM net revenues increased $10,754,000 or
48% when compared to 1992. The domestic expansion is due principally to
large revenue and unit increases in the Company's hardware products
(sensors and deactivation) and disposable targets. These substantial
gains are the result of expansion of business to large domestic retailers,
particularly in the mass merchandise, drug stores, supermarkets, apparel
and music segments, a broader product offering, and a record number of new
customers in 1993.
Foreign revenues increased by 48% as a result of the Company's recent
acquisitions in Western Europe, Canada and Argentina along with setting up
operations in Mexico. Revenues from the Company's subsidiaries in Canada,
Mexico and Argentina represented $9.6 million of the $10.8 million
increase. During the second quarter of 1993, the Company and Sensormatic
Electronics Corporation ("Sensormatic") terminated their exclusive
distribution agreement in Europe. During the third quarter of 1993, the
Company purchased all of the outstanding capital stock of ID Systems
International B.V. and ID Systems Europe B.V. ("ID Systems Group") related
Dutch companies engaged in the manufacture, distribution, and sale of
security products and services. Revenues from Western Europe in 1993,
which combines first half sales through its former distributor and second
half sales by the Company's European subsidiary, remained flat as compared
to 1992 in which sales were made solely through the Company's former
distributor. Management expects revenues from Western Europe in 1994 to
increase over 1993 levels as result of the acquisition of the ID Systems
Group.
The Company is in the process of closing down the acquired manufacturing
facilities in Europe and relocating this production to the Company's
facilities in Puerto Rico and the Dominican Republic. Once this
relocation is fully completed, sometime during the first half of 1994, the
Company anticipates a reduction in the cost of manufacturing of those
products previously produced overseas. (Refer to Note 14 of the
Consolidated Financial Statements.)
As a result of having various foreign operations, the Company is exposed
to foreign exchange fluctuations. Management is evaluating various
strategies in order to minimize the effect of fluctuating foreign
currencies on the Company's financial statements associated with having
international subsidiaries. The Company has purchased certain foreign
currency forward contracts on intercompany commitments in order to hedge
anticipated rate fluctuations in Europe.
Electronic Access Control ("EAC") net revenues increased $751,000 or 17%
over 1992. The EAC business unit first became profitable in 1991, and has
remained profitable, as a result of increased revenues and integrating its
operations into the New Jersey, Puerto Rico and Dominican Republic
facilities in 1990.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Net earnings were $1,615,000 or $.16 per share versus net earnings of
$4,428,000 or $.45 per share for 1992. Earnings decreased due to the
reduction in gross profit margins and increased selling, general, and
administrative expenses resulting primarily from the recently acquired
subsidiaries.
The gross profit margin declined 4.9% (41.5% versus 46.4%) as a result of
the significant expansion business with new and existing major domestic
customers that enjoy competitive pricing and the success of several new
products introduced during the year which currently carry lower margins.
Although the Company obtained overall higher selling prices during the
year, the gains were offset by increased service costs, a result of
selling directly to nine countries in which the Company previously
maintained distributors. Service costs in 1993 increased 4.3% as a
percent of sales as compared to 1992. In addition, due to the termination
of the Company's European distribution agreement in the second quarter,
the Company reduced production volumes which resulted in slightly higher
unit costs in the Company's manufacturing facility in Puerto Rico.
Selling, general and administrative expenses increased $10,896,000
($39,238,000 versus $28,342,000) when compared to last year. The higher
expenses are due to increases in variable selling and marketing expenses
resulting from greater domestic sales, in addition to increases in general
and administrative expenses resulting from the operating expenses of the
companies acquired in 1993. As a percent of net revenues, this represents
an increase of 2.9% (42.2% versus 39.3%) compared to 1992.
The Company's manufacturing operations in Puerto Rico are exempt from U.S.
Federal income taxes under Section 936 of the Internal Revenue Code.
Approximately 50% of the Company's earnings were attributed to Puerto Rico
operations. The Company also enjoys local tax exemptions on Puerto Rico
based earnings and benefits from the utilization of a Delaware Investment
Holding company. (Refer to note 9 of the Notes to Consolidated Financial
Statements.) The Company's 1993 effective tax rate was 22%. Due to the
Company's foreign subsidiaries operating in countries with different
statutory income tax rates, the Company anticipates a 25% tax rate for
1994.
In 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." The adoption of this
standard did not have a material effect on the Company's financial
statements.
The Company intends to continue its expansion of both product lines and
distribution channels. The increased product offerings are due to
internally developed products and the acquisition of products or rights to
distribute those products. The Company has expanded its channels of
distribution by acquisition of international distributors, acquisition of
competitors, and by start-up operations. The Company intends to continue
worldwide expansion based on these strategies.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Subsequent to year end and as discussed in Item 3. Legal Proceedings, on
March 10, 1993, the United States International Trade Commission
instituted an investigation of a complaint filed by the Company under
Section 337 of the Tariff Act of 1930. On March 10, 1994 the United
States International Trade Commission issued a Notice of Commission
Determination Not to Review An Initial Determination Finding No Violation
of Section 337 of the Tariff Act of 1930. The Company has capitalized
$2,027,000 in patent defense costs, included in "Intangibles" (see
Consolidated Balance Sheet) as of December 26, 1993. The ultimate
resolution is undetermined at this time due to the various courses of
action available to management including the right of appeal which the
Company currently intends to exercise. Although the Company's management
ultimately expects a favorable outcome, should resolution of this matter
result in less than a successful defense of the patents in question the
deferred patent costs noted above will be written off as a charge to
earnings at the time of such resolution.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
---------------------
For the Year Ended December 27, 1992
------------------------------------
Net revenues increased 36% or $19,223,000 when compared to the prior year
($72,166,000 versus $52,943,000). As a percent of net revenues, domestic
and export net revenues were 69% and 31%, respectively compared to 71% and
29% for the similar period last year.
Domestic Electronic Article Merchandising ("EAM") net revenues increased
$11,282,000 or 33% and export EAM net revenues increased $7,282,000 or 48%
when compared to 1991. The increase in domestic net revenues was
primarily due to aggressive sales and marketing programs initiated by the
Company during the year. The primary reason for the increase in export
sales was the increase in sensor and deactivation products sold to
Sensormatic Electronics Corporation ("Sensormatic"), the Company's
distributor for Western Europe. In addition, many of the Company's other
distributors throughout the world had significant sales increases over the
prior year.
During 1992, the loss prevention group of the Company's former
distributor, Automated Security (Holdings) PLC, ("ASH") was acquired by
the Company's largest competitor, Sensormatic. An exclusive distributor
agreement was reached with Sensormatic to provide distribution into 15
European countries.
Electronic Access Control ("EAC") net revenues increased $659,000 or 18%
over 1991's performance. As a result of having integrated this business
unit into the Company's New Jersey, Puerto Rico and Dominican Republic
facilities in mid 1990, this operation has become profitable in 1991 for
the first time since the Company acquired it in 1986, and was again
profitable in 1992.
Net earnings were $4,428,000 or $.45 per share versus net earnings of
$508,000 or $.05 per share for 1991. Earnings increased primarily due to
a significant increase in revenues while maintaining comparable gross
profit margins to 1991.
The gross profit margin remained at 46% compared to 1991. Increases in
volumes and manufacturing improvements were offset by price reductions to
the Company's largest international distributor (Sensormatic) and
aggressive sales programs within the domestic market.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Selling, general and administrative expenses increased $4,696,000
($28,342,000 versus $23,646,000) when compared to last year. This
increase was caused primarily by an increase in variable sales and
marketing expenses ($3,137,000) in addition to recognition of a new Board
of Directors Bonus Award Plan ($318,000), based on the value of the
Company's stock as of the end of the fiscal year.
The Company's manufacturing operations in Puerto Rico are exempt from U.S
Federal income taxes under Section 936 of the Internal Revenue Code.
Approximately 50% of the Company's earnings were attributed to Puerto Rico
operations. Additionally, the Company enjoys local tax exemptions on
Puerto Rico based earnings and also benefits from the utilization of a
Delaware Investment Holding company (See note 9 of the Notes to
Consolidated Financial Statements). The Company's effective tax rate of
1992 would have been 18% but was reduced by a $417,000 tax benefit
resulting from a further refinement of a tax estimate regarding prepaid
local Puerto Rico taxes.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Accountants......................................28
Consolidated Balance Sheets as of December 26, 1993 and
December 27, 1992...................................................29
Consolidated Earnings Statements for each of the years
in the three-year period ended December 26, 1993....................30
Consolidated Statements of Shareholders' Equity for each of the
years in the three-year period ended December 26, 1993..............30
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 26, 1993....................31
Notes to Consolidated Financial Statements...........................32-42
Financial Schedules
Schedule V - Property, Plant and Equipment.......................46
Schedule VI - Accumulated Depreciation and Amortization of
Property, Plant and Equipment.......................47
Schedule VIII - Valuation and Qualifying Accounts...................48
Schedule IX - Short-term Borrowings...............................48
Schedule X - Supplementary Income Statement Information..........49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Checkpoint Systems, Inc.
We have audited the consolidated balance sheets of Checkpoint Systems,
Inc. and subsidiaries as of December 26, 1993 and December 27, 1992, and
the related consolidated earnings statements, statements of shareholders'
equity and cash flows for each of the years in the three year period ended
December 26, 1993. We have also audited the financial statement schedules
for the years ended December 26, 1993 and December 27, 1992 listed in Item
14(a)2 of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present
fairly, in all material respects, the consolidated financial position of
Checkpoint Systems, Inc. and subsidiaries as of December 26, 1993 and
December 27, 1992, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December
26, 1993 in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken
as a whole, present fairly, in all material respects, the information
required to be included therein.
As discussed in Footnote 1, in 1993, the Company changed its method of
accounting for income taxes.
COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 22, 1994
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 26, December 27,
1993 1992
------------ ------------
ASSETS (Thousands)
------
CURRENT ASSETS
Cash and cash equivalents $ - $ 2,320
Accounts receivable, net of allowances
of $2,237,000 and $357,000 24,239 18,562
Inventories 25,450 16,757
Other current assets 5,213 2,103
------- -------
Total current assets 54,902 39,742
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization 30,862 26,982
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED 8,919 3,430
INTANGIBLES 5,098 2,257
DEFERRED TAXES, net of valuation allowance 479 -
OTHER ASSETS 4,739 1,922
------- -------
TOTAL ASSETS $104,999 $74,333
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $9,716 $ 4,784
Accrued compensation and related taxes 1,907 1,771
Income taxes 792 1,177
Unearned revenues 2,645 2,652
Other current liabilities 7,761 2,274
Short-term borrowings and current portion
of long-term debt 4,097 1,292
------- -------
Total current liabilities 26,918 13,950
LONG-TERM DEBT, LESS CURRENT MATURITIES 24,302 9,322
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value, authorized
500,000 shares, none issued
Common stock, par value $.10 per share,
authorized 100,000,000 shares, issued
10,979,198 and 10,802,548 1,097 1,080
Additional capital 18,346 16,754
Retained earnings 40,506 38,891
Common stock in treasury, at cost,
799,000 shares (5,664) (5,664)
Foreign currency adjustments (506) -
------- -------
TOTAL SHAREHOLDERS' EQUITY 53,779 51,061
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $104,999 $74,333
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED EARNINGS STATEMENTS
1993 1992 1991
------- ------- -------
(Thousands, except per share data)
Net Revenues $93,034 $72,166 $52,943
Cost of Revenues 54,421 38,650 28,479
------- ------- -------
Gross Profit 38,613 33,516 24,464
Selling, General and Administrative
Expenses 39,238 28,342 23,646
------- ------- -------
Operating Income (loss) (625) 5,174 818
Contract Settlement Income 3,500 - -
Interest Income 476 140 171
Interest Expense 953 423 354
Other Expense 327 - -
------- ------- -------
Earnings Before Income Taxes 2,071 4,891 635
Income Taxes 456 463 127
------- ------- -------
Net Earnings $ 1,615 $ 4,428 $ 508
======= ======= =======
Net Earnings Per Share $ .16 $ .45 $ .05
======= ======= =======
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Foreign
Common Additional Retained Treasury Currency
Stock Capital Earnings Stock Adjust. Total
------- ------- ------- ------- ------- ------
(Thousands)
Balance,
December 30, 1990 $ 1,022 $12,008 $33,955 $(5,664) $ - $41,321
Net Earnings 508 508
Exercise of Stock
Options 4 254 258
------- ------- ------- ------- ------- -------
Balance,
December 29, 1991 1,026 12,262 34,463 (5,664) - 42,087
Net Earnings 4,428 4,428
Exercise of Stock
Options 54 4,492 4,546
------- ------- ------- ------- ------- -------
Balance,
December 27, 1992 1,080 16,754 38,891 (5,664) - 51,061
Net Earnings 1,615 1,615
Exercise of Stock
Options 17 1,592 1,609
Foreign Currency
Adjustments (506) (506)
------- ------- ------- ------- ------- -------
Balance,
December 26, 1993 $ 1,097 $18,346 $40,506 $(5,664) $ (506) $53,779
======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
1993 1992 1991
---- ---- ----
(Thousands)
Cash inflow (outflow) from operating
activities:
Net earnings $ 1,615 $ 4,428 $ 508
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Net book value of rented equipment
sold less than cost of rented
equipment (2,708) (736) (482)
Long-term customer contracts 421 (1,111) -
Depreciation and amortization 6,476 3,993 3,058
Deferred Taxes (479) - -
Provision for losses on accounts
receivable 520 88 236
(Increase) decrease in current assets:
Accounts receivable (2,716) (1,445) (1,194)
Inventories (6,816) (5,981) (359)
Other current assets (2,024) (833) 462
Increase (decrease) in current
liabilities:
Accounts payable 2,062 1,284 (1,163)
Accrued compensation and related
taxes (269) 727 (1,018)
Income taxes (385) 819 56
Unearned revenues (7) 220 268
Other current liabilities (2,007) 79 (168)
------- ------- -------
Net cash provided (used) by
operating activities (6,317) 1,532 204
Cash inflow (outflow) from investing ------- ------- -------
activities:
Acquisition of property, plant and
equipment (4,600) (6,143) (6,121)
Proceeds of investment securities - 825 650
Acquisitions, net of cash acquired (3,184) (1,030) -
Other investing activities (3,660) (1,147) (765)
------- ------- -------
Net cash used by investing
activities (11,444) (7,495) (6,236)
Cash inflow (outflow) from financing ------- ------- -------
activities:
Proceeds from stock options 1,609 4,546 258
Proceeds of debt 14,774 3,830 6,000
Payment of debt (942) (609) (1,200)
------- ------- -------
Net cash provided by financing
activities 15,441 7,767 5,058
Net increase (decrease) in cash and ------- ------- -------
cash equivalents (2,320) 1,804 (974)
Cash and cash equivalents:
Beginning of year 2,320 516 1,490
------- ------- -------
End of Year $ - $ 2,320 $ 516
------- ------- -------
See accompanying notes to consolidated financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Checkpoint
Systems, Inc. and its wholly-owned subsidiaries ("Company"). All material
intercompany transactions are eliminated in consolidation.
Fiscal Year
----------
The Company's fiscal year is the 52 or 53 week period ending the last
Sunday of December. References to 1993, 1992 and 1991 are for: the 52
weeks ended December 26, 1993, the 52 weeks ended December 27, 1992, and
the 52 weeks ended December 29, 1991.
Revenue Recognition
-------------------
Revenue from the sale of equipment is recognized upon shipment of
equipment or the acceptance of a customer order to purchase equipment
currently rented. Equipment leased to customers under sales-type leases
is accounted for as the equivalent of a sale. The present value of such
lease revenues is recorded as net revenues, and the related cost of the
equipment is charged to cost of revenues. The deferred finance charges
applicable to these leases are recognized over the terms of the leases
using the effective interest method. Rental revenue from equipment under
operating leases is recognized over the term of the lease. Service
revenue is recognized over the contractual period or as services are
performed. Sales to third party leasing companies are recognized as the
equivalent of a sale. These sales were all made on a non-recourse basis.
Cash Equivalents
----------------
Cash equivalents include certificates of deposit and money market
instruments with a maturity of three months or less.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out method)
or market. Cost includes material, labor and applicable overhead.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are carried at cost. Depreciation and
amortization generally are provided on a straight-line basis over the
estimated useful lives of the assets; for certain manufacturing equipment,
the units-of-production method is used. Maintenance, repairs and minor
renewals are expensed as incurred. Additions, improvements and major
renewals are capitalized. The cost and accumulated depreciation
applicable to assets retired are removed from the accounts and the gain or
loss on disposition is included in income.
<PAGE>
CHECKPOINT SYSTEMS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Excess of Purchase Price Over Fair Value of Net Assets Acquired
---------------------------------------------------------------
The excess of purchase price over the fair value of net assets acquired is
amortized on a straight-line basis over their economic useful lives which
is considered to be 20 years. Accumulated amortization approximated
$1,852,000 and $1,431,000 at December 26, 1993 and December 27, 1992,
respectively.
Research and Development Costs
------------------------------
Research and development costs are expensed as incurred, and approximated
$5,392,000, $4,498,000, and $3,313,000 in 1993, 1992 and 1991,
respectively.
Per Share Data
--------------
Per share data is based on the weighted average number of common and
common equivalent shares (stock options) outstanding during the year. The
number of shares used in the per share computations were 10,386,000
(1993), 9,951,000 (1992), 9,591,000 (1991).
Intangibles
-----------
Intangibles consist of patents, rights, customer lists and software
development costs. The costs relating to the acquisition of patents,
rights and customer lists are amortized on a straight-line basis over
their economic useful lives, which is considered to be ten years.
Accumulated amortization approximated $473,000 and $207,000 at December
26, 1993 and December 27, 1992.
The costs of internally developed software are expensed until the
technological feasibility of the software has been established.
Thereafter, all software development costs are capitalized and
subsequently reported at the lower of unamortized cost or net realizable
value. The costs of capitalized software are amortized over the products'
estimated useful lives or five years, whichever is shorter. During 1993
and 1992, $575,000 and $638,000 of software development costs were
capitalized. Accumulated amortization of these costs approximated
$444,000 and $8,000 at December 26, 1993 and December 27, 1992.
Taxes on Income
---------------
In 1993, Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" was adopted. Under this method, deferred
tax liabilities and assets are determined based on the difference between
financial statement and tax basis of assets and liabilities using enacted
statutory tax rates in effect at the balance sheet date. The adoption of
this new standard did not have a material effect on the Company's
financial statements. For 1992 and 1991, taxes on income are determined
under Accounting Principles Board Opinion 11 (APB 11) whereby the income
tax provision is calculated under the deferred method. Generally, the
deferred method recognizes income taxes on financial statement income and
the tax effect of differences with taxable income are deferred at tax
rates in effect during the period.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting for Foreign Currency Translation and Transactions
------------------------------------------------------------
The Company's balance sheet accounts of foreign subsidiaries are
translated into U.S. dollars at the rate of exchange in effect at the
balance sheet dates. Revenues, costs and expenses of the Company's
foreign subsidiaries are translated into U.S. dollars at the average rate
of exchange in effect during each reporting period. The resulting
translation adjustment is recorded as a separate component of
stockholders' equity. In addition, gains or losses on long-term
intercompany transactions are excluded from the results of operations and
accumulated in the aforementioned separate component of consolidated
stockholders' equity. All other foreign transaction gains and losses are
included in the results of operations.
The Company has purchased certain foreign currency forward contracts in
order to hedge anticipated rate fluctuations in Europe. Transaction gains
or losses resulting from these contracts are recognized over the contract
period.
Aggregate foreign currency transaction losses in 1993 were $327,000 and
are included in "Other Expenses" in the Consolidated Earnings Statement.
2. INVENTORIES
Inventories consist of the following:
1993 1992
---- ----
(Thousands)
Raw materials $ 8,256 $ 6,340
Work-in-process 705 684
Finished goods 16,489 9,733
------ ------
Totals $25,450 $16,757
====== ======
3. PROPERTY, PLANT AND EQUIPMENT
The major classes are:
1993 1992
---- ----
(Thousands)
Land $ 892 $ 892
Building 9,733 9,644
Equipment rented to customers 3,736 1,380
Machinery and equipment 31,434 26,541
Leasehold improvements 1,949 1,764
Leased equipment under capital
leases 15 15
------- -------
$47,759 $40,236
Accumulated depreciation
and amortization (16,897) (13,254)
------- -------
$30,862 $26,982
======= =======
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT
The current portion of long-term debt at December 26, 1993 includes the
following: the current portion of a $7,000,000 seven year term note,
$1,050,000; the current portion of payments related to the acquisition of
rights in a point-of-sale monitoring system, $261,000; the current portion
of a subsidiary's three year term note, $422,000; and, various short-term
loans obtained by the Company's subsidiaries totaling $2,364,000.
5. LONG-TERM DEBT
The Company has a Revolving Credit Agreement with its principal lending
bank which currently provides a line of credit of up to $18,000,000
through May 1, 1995 with the option to convert $8,000,000 of the
outstanding borrowings to a six year term loan. At December 26, 1993
borrowings of $17,830,000 under this credit agreement were outstanding
with an average interest rate of 4.11%. Subsequent to year end, the
Company exercised its option to convert $8,000,000 of the outstanding
borrowings to a six year term loan at a fixed rate of 6.5%. Three equal
payments of $470,600 are due per year beginning July 1, 1994 with interest
due monthly. The payment stream of this six year term loan is included in
the aggregate maturities on long-term debt listed below. Also, subsequent
to year end the Company received an increase in its line of credit to
$19,000,000 through the earlier of March 31, 1994 or the completion of a
$12,000,000 private placement debt funding currently being negotiated.
Upon occurrence of one of these events, the Company's credit facility will
be reduced to $13,000,000 through May 1, 1995.
In December 1992, the Company entered into a $7,000,000 seven year loan
agreement at a fixed rate of 4.9% with its principal lending bank. Three
equal installments of $350,000 are due during each year for a total of
$1,050,000 per year with interest due monthly. At December 26, 1993,
$6,300,000 was outstanding. The loan agreement contains certain
restrictive covenants which, among other things, requires maintenance of
specified minimum financial ratios.
Long-term debt also relates to the acquisition of rights in a
point-of-sale monitoring system being marketed under the name Viewpoint.
Remaining payments under this note are due each December 24 as follows:
$261,000 (1994), and $280,500 (1995). Interest has been imputed using a
6.5% annual rate. The amount due on December 24, 1994 is classified as a
current portion of long-term debt.
In October 1993, the Company's Canadian subsidiary entered into a three
year term note to finance certain sales-type leases. Payments are due
monthly with a fixed interest rate of 8.00%. At December 26, 1993,
$1,289,000 was outstanding, of which $422,000 was classified as current.
In addition, one of the Company's European subsidiaries had $75,000 in
debt outstanding.
The aggregate maturities on all long-term debt are:
(Thousands)
1994 $ 2,674
1995 12,994
1996 2,884
1997 2,485
1998 2,462
Thereafter 2,536
Less Current Maturities (1,733)
-------
Total $24,302
=======
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. STOCK OPTIONS
Under a stock option plan for all employees adopted by the shareholders of
the Company in 1987 ("1987 Plan"), the Company granted either incentive
stock options ("ISOs") or non-incentive stock options to purchase up to
2,000,000 shares of Common Stock (amended in 1990 from a previous level of
1,000,000).
The Company amended, restated and renamed the 1987 plan in 1992 ("1992
Plan") allowing the Company to grant either ISOs or non-incentive stock
options to purchase up to 3,000,000 shares of Common Stock (amended in
1992 from a previous level of 2,000,000 shares). Under the 1992 Plan,
only employees are eligible to receive ISOs and both employees and non-
employee directors of the Company are eligible to receive non-incentive
stock options. Non incentive stock options issued under the 1992 Plan
through December 26, 1993 total 844,250 shares. At December 26, 1993,
December 27, 1992 and December 29, 1991 a total of 364,500, 845,500 and
91,000 shares, respectively, were available for grant.
All ISO's under the 1992 Plan expire not more than 10 years (plus six
months in the case of non-incentive options) from the date of grant and
require a purchase price of not less than 100% of the fair market value of
the stock at the date of grant.
The 1992 Plan is administered by the Company's Compensation and Stock
Option Committee of the Board of Directors. Of the options outstanding at
December 26, 1993, options for 48,364 shares were not part of any plans
and did not qualify as ISOs. Options that were fully vested and
exercisable totaled 1,566,464 as of December 26, 1993.
The following schedule summarizes stock option activity and status:
1993 1992 1991
---- ---- ----
Outstanding at beginning of year 1,281,114 1,639,500 1,648,850
Granted 489,000 299,000 155,000
Exercised (168,650) (548,334) (34,500)
Cancelled (8,000) (109,052) (129,850)
--------- --------- --------
Outstanding at end of year 1,593,464 1,281,114 1,639,500
========= ========= ========
Price range of options outstanding $4.88 to $4.88 to $4.88 to
at end of year $16.50 $13.50 $13.50
Price range of options exercised $4.88 to $4.88 to $4.88 to
during the year $13.50 $13.50 $9.63
7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments in 1993, 1992 and 1991, respectively, included payments for
interest of $860,000 $423,000 and $354,000 and income taxes of $638,000,
$123,000 and $262,000.
In March 1993, the Company purchased all of the capital stock of its
Argentinean distributor for $2,000,000. Direct costs associated with this
acquisition totalled $103,000. In conjunction with the acquisition,
liabilities were assumed as follows:
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SUPPLEMENTAL CASH FLOW INFORMATION (continued)
Fair value of assets acquired ...................$3,690,000
Cash paid and direct costs
incurred for the capital stock.................$2,103,000
----------
Liabilities assumed..............................$1,587,000
==========
In July 1993, the Company purchased all of the capital stock of ID Systems
International B.V. and ID Systems Europe B.V. Direct costs associated
with this acquisition totalled $400,000. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired ...................$14,575,000
Cash paid and direct costs incurred
for the capital stock including advances ........$ 1,690,000
-----------
Liabilities assumed..............................$12,885,000
===========
8. SHAREHOLDERS' EQUITY
In December 1988, the Company's Board of Directors approved a
Shareholders' Rights Plan (the "Plan"), and declared a dividend
distribution of one common share purchase right ("Right") for each
outstanding share of the Company's Common Stock to shareholders of
record on December 29, 1988. The Rights are designed to ensure all
Company shareholders fair and equal treatment in the event of a proposed
takeover of the Company, and to guard against partial tender offers and
other abusive tactics to gain control of the Company without paying all
shareholders a fair price.
The Rights are exercisable only as a result of certain actions (defined by
the Plan) of an Acquiring Person or Adverse Person, as defined.
Initially, upon payment of the exercise price (currently $40), each Right
will be exercisable for one share of Common Stock. Upon the occurrence of
certain events as specified in the Plan, each Right will entitle its
holder (other than an Acquiring Person or an Adverse Person) to purchase a
number of the Company's or Acquiring Person's common shares having a
market value of twice the Right's exercise price. The Rights expire on
December 28, 1998. Generally, within ten days after a person becomes an
Acquiring Person or is determined to be an Adverse Person, the Company
can redeem the Rights.
9. INCOME TAXES
The Company's net earnings generated by the operations of its Puerto Rican
subsidiary are exempt from Federal income taxes under Section 936 of the
Internal Revenue Code and substantially exempt from Puerto Rican income
taxes. Since 1980, this subsidiary has operated under a fifteen year 100%
local tax exemption on income earned from its target manufacturing
operation. Under a 1983 fifteen year local tax exemption on income earned
from its sensor manufacturing operation, this subsidiary had a 90%
exemption through 1987, and 75% and 65% exemptions during the succeeding
two five-year periods.
In 1991, the Company was granted a new local tax exemption agreement which
replaces the grants of 1980 and 1983 with a twenty year 90% local tax
exemption retroactive to 1988 on both the target and sensor manufacturing
operations. This change did not have a material impact on prior year
taxes but will extend the Company's favorable local tax status in Puerto
Rico.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (continued)
Repatriation of the Puerto Rico subsidiary's unremitted earnings could
result in the assessment of Puerto Rico "tollgate" taxes at a maximum rate
of 10% of the amount repatriated. During 1993, a provision was made for
tollgate taxes. During 1992 and 1991, no provision was made for tollgate
taxes. The Company has not provided for tollgate taxes on $24,321,000 of
its subsidiary's unremitted earnings since they are expected to be
reinvested indefinitely.
The domestic and foreign components of earnings before income taxes are:
1993 1992 1991
---- ---- ----
$ 1,720 $ 4,891 $ 635
Foreign 351 - -
------- ------- -------
Total $ 2,071 $ 4,891 $ 635
======= ======= =======
The related provision for income taxes consists of:
1993 1992 1991
---- ---- ----
Currently Payable (Thousands)
Federal $ 369 $ 632 $ 30
State 5 94 72
Puerto Rico 186 (263) 25
Foreign 375 - -
Deferred
Federal (509) - -
State 30 - -
Puerto Rico - - -
Foreign - - -
------- ------- -------
Total Provision $ 456 $ 463 $ 127
======= ======= =======
Deferred tax liabilities (assets) at December 26, 1993 consist of:
(Thousands)
Depreciation $ 805
Deferred maintenance 318
Unbilled receivable 138
--------
Gross deferred tax liabilities 1,261
--------
R & E credit carryforward (982)
Inventory (277)
Alternative minimum tax (258)
Accounts receivable (100)
Foreign net operating loss carryforwards (4,494)
Warranty (41)
Other (82)
--------
Gross deferred tax assets (6,234)
--------
Valuation allowance 4,494
--------
Net deferred tax asset $ (479)
========
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (continued)
Included in foreign net operating loss carryforwards of $15,005,000 is
$12,860,000 of foreign net operating loss carryforwards that were acquired
in connection with the acquisition of the ID Systems Group. If
realization of the benefit of such carryforwards occur, the Company will
apply such benefit to goodwill in connection with the acquisition.
The research and experimentation credit carryforwards expire beginning in
January 2006 through January 2008. Of the total foreign net operating
loss carryforwards available, $500,000 expire beginning January 1999
whereas the remaining portion may be carried forward indefinitely.
A reconciliation of the statutory U.S. Federal income tax rate with the
effective income tax rate follows:
1993 1992 1991
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
Tax exempt earnings of subsidiary in
Puerto Rico (14.0) (23.8) (29.3)
Change in tax exempt earnings of
subsidiary in Puerto Rico - (8.5) -
Research and Experimentation tax credit (17.2) - -
Foreign losses with no benefit 8.4 - -
State and local income taxes, net
of federal benefit 9.1 5.7 11.4
Other 1.7 2.1 3.9
------ ------ ------
Effective tax rate 22.0% 9.5% 20.0%
====== ====== ======
During 1992, the effective tax rate was favorably impacted by a refinement
of an estimate relating to tax exempt earnings of the Puerto Rico
subsidiary.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE BENEFIT PLANS
Under the Company's defined contribution savings plans, eligible employees
(see below) may make basic (up to 6% of an employee's earnings) and
supplemental contributions to a trust. The Company matches 50% of
participant's basic contributions. Company contributions vest to
participants in increasing percentages over three to six years of service.
The Company's contributions under the plans approximated $478,000,
$323,000, and $285,000 in 1993, 1992 and 1991, respectively.
Generally, any full-time, non-union employee of the Company (other than
someone holding the position of Vice President or higher) who has
completed one month of service, and any part-time non-union employee of
the Company who has completed one year of service, other than employees of
the Company's subsidiaries, may participate in the Company's United States
Savings Plan. All full-time employees of the Puerto Rico subsidiary who
have completed three months of service may participate in the Company's
Puerto Rico Savings Plan. Part-time employees are not entitled to
participate in the Company's Puerto Rico Savings Plan.
Under the Company's non-qualified Employee Stock Purchase Plan, employees,
other than employees of the Company's subsidiaries in Australia,
Argentina, Europe and Mexico may contribute up to $60 per week to a trust
for the purchase of Company Common Stock at fair market value. The
Company matches employee contributions up to a maximum of $17 per week.
The Company's contributions under this plan approximated $94,000, $76,000
and $67,000 in 1993, 1992 and 1991, respectively.
Under the Company's Management Incentive Plan, bonuses are provided for
certain executives based on a percentage of the amount by which
consolidated net earnings exceed a specified portion of shareholders'
equity at the beginning of the year. During the last three years net
earnings did not exceed this criteria and, accordingly, no bonuses were
provided.
11. COMMITMENTS AND CONTINGENCIES
The Company leases its offices, distribution center and certain production
facilities. Rental expense for all operating leases approximated
$1,424,000, $811,000 and $798,000 in 1993, 1992 and 1991, respectively.
Future minimum payments for operating leases having non-cancellable terms
in excess of one year at December 26 1993 are: $1,733,000 (1994),
$1,174,000 (1995), $843,000 (1996), $722,000 (1997), and $6,823,000
thereafter.
The Company has entered into a twelve year lease agreement for a facility
to be constructed in close proximity to the Company's current leased
facility in Thorofare, New Jersey. When completed in 1994, this 104,000
square foot facility will be the Company's new headquarters for
administrative offices, research and development and warehouse
distribution. These lease payments have been included in the future
minimum payments for operating leases above.
12. EXPORT SALES
The Company's export sales which are principally in Europe and Scandinavia
approximated $12,163,000, $22,732,000, and $15,427,000 in 1993, 1992, and
1991, respectively. Sales of the Company's foreign subsidiaries in
Argentina, Australia, Canada, Europe and Mexico totalled $21,200,000 in
1993. Sales to one foreign distributor of the Company's products
amounted to $5,000,000, $13,147,000 and $9,523,000 in 1993, 1992 and 1991
respectively.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. CONCENTRATION OF CREDIT RISK
Prior to 1993, most of the Company's export sales were to one foreign
distributor. Currently, the Company's foreign subsidiaries, along with
many foreign distributors, provide diversified international sales thus
minimizing credit risk to one or few distributors. In addition, the
Company maintains foreign credit insurance to provide coverage for
potential foreign political or economic risks. Domestically, the
Company's sales are well diversified among numerous retailers in the
apparel, shoe, drug, mass merchandise, video, music, supermarket and home
entertainment market. The Company performs ongoing credit evaluations of
its customers' financial condition and generally, requires no collateral
from its customers.
14. ACQUISITIONS
On March 3, 1993, the Company purchased all of the capital stock of its
Argentinean distributor for $2,103,000 plus a contingent amount to be
determined equal to fifty percent of the Argentinean subsidiary's annual
profits for the four year period ending on November 30, 1996. The total
purchase price shall not exceed $5,000,000. This acquisition was
accounted for under the purchase method, and, accordingly the results of
operations of this business have been included with those of the Company
since the date of acquisition. The purchase price resulted in an excess
of acquisition cost over net assets acquired of $1,798,000. Such excess,
(which will increase for any contingent cash payment) is being amortized
over twenty years.
On March 8, 1993, the Company purchased a customers list from the
Company's former Mexican distributor for $560,000 in connection with the
Company establishing direct operations in Mexico. The cost related to
this customers list is included in "Intangibles" and is being amortized on
a straight line basis over ten years.
On July 8, 1993, the Company purchased all of the capital stock of ID
Systems International B.V. and ID Systems Europe B.V. ("The ID Systems
Group"), related Dutch companies engaged in the manufacture, distribution
and sale of security products and services. The Company advanced the ID
Systems Group $1,290,000 during the period in which the Company held an
option to purchase all the outstanding capital stock. The purchase price
of the capital stock, exclusive of such advances, was $60 plus direct
acquisition cost of approximately $400,000. This acquisition was
accounted for under the purchase method and, accordingly, the results of
operations of this business have been included with those of the Company
since the date of acquisition. The purchase price resulted in an excess
of acquisition cost over net assets acquired of approximately $4,300,000
which is being amortized over twenty years.
The Company acquired three production units in connection with the
purchase of the capital stock of the ID Systems Group. The Company
intends to shut down all three of these facilities by the end of second
quarter of 1994. Accordingly, the estimated operating losses and shut
down costs of these facilities amounting to $3,434,000 were accrued in the
purchase price allocation. At December 26, 1993, $1,306,000 remains
accrued for such losses and shut down costs for the first half of 1994.
This amount is included in "other current liabilities." As a part of the
purchase price allocation, the values assigned to these assets were based
upon estimated residual values upon ulimate disposition which represents a
nominal amount.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. ACQUISITIONS (continued)
The following unaudited pro forma summary of operations presents the
consolidated results of operations as if the acquisition of the ID Systems
Group had occurred at the beginning of the years presented. Other
acquisitions made during the year were not material to results of
operations and thus are not presented. The following results are not
necessarily indicative of what would have occurred had the acquisition
been consummated as of that date or of future results.
1993 1992
---- ----
(Thousands, except per share data)
Net revenues $99,426 $92,334
Earnings (loss) before
income taxes ($ 4,059) ($ 2,270)
Net earnings (loss) ($ 4,410) ($ 2,271)
Earnings (loss) per share ($ .41) ($ .23)
15. GEOGRAPHIC SEGMENTS
The following tables shows sales, operating earnings and other financial
information by geographic area for the year 1993.
United States
and Puerto Rico Europe Other
--------------- ---------- ---------
(Thousands)
Net Revenues from Unaffiliated
Customers $71,834 $7,994 $13,206
Operating Income (loss) (1,224) (357) 956
Identifiable Assets $78,982 $15,707 $10,310
16. SUBSEQUENT EVENT
On March 10, 1993, the United States International Trade Commission
instituted an investigation of a complaint filed by the Company under
Section 337 of the Tariff Act of 1930. On March 10, 1994 the United
States International Trade Commission issued a Notice of Commission
Determination Not to Review An Initial Determination Finding No Violation
of Section 337 of the Tariff Act of 1930. The Company has capitalized
$2,027,000 in patent defense costs, which is included in "Intangibles" as
of December 26, 1993. The ultimate resolution is undetermined at this
time due to the various courses of action available to management,
including the right of appeal which the Company currently intends to
exercise. Although the Company's management ultimately expects a
favorable outcome, should resolution of this matter result in less than a
successful defense of the patents in question the deferred patent costs
noted above will be written off as a charge to earnings at the time of
such resolution.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information called for by Item 10, Directors and Executive Officers of
the Registrant (except for the information regarding executive officers
called for by Item 401 of Regulation S-K which is included in Part I
hereof as Item A in accordance with General Instruction G(3)): Item 11,
Executive Compensation: Item 12, Security Ownership of Certain Beneficial
Owners and Management: Item 13, Certain Relationships and Related
Transactions, is hereby incorporated by reference to the Registrant's
definitive proxy statement for its Annual Meeting of Shareholders
presently scheduled to be held on April 29, 1994, which management expects
to file with the Securities and Exchange Commission within 90 days of the
end of the Registrant's fiscal year.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements PAGE
----------------------------
The following consolidated financial statements are
included in Part II, Item 8:
Report of Independent Accountants.........................28
Consolidated Balance Sheets as of December 26, 1993 and
December 27, 1992.......................................29
Consolidated Earnings Statements for each of the years
in the three-year period ended December 26, 1993........30
Consolidated Statements of Shareholders' Equity for each
of the years in the three-year period ended
December 26, 1993.......................................30
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 26, 1993........31
Notes to Consolidated Financial Statements...............32-42
(a) 2. Financial Schedules
---------------------------
The following consolidated schedules are required to be filed
by Part IV, Item, 14(a)2:
Schedule V - Property, Plant and Equipment.......46
Schedule VI - Accumulated Depreciation and
Amortization of Property, Plant
and Equipment.......................47
Schedule VIII - Valuation and Qualifying Accounts...48
Schedule IX - Short-term borrowings...............48
Schedule X - Supplementary Income Statement
Information.........................49
All other schedules are omitted either because they are not applicable,
not required, or because the required information is included in the
financial statements or notes thereto:
<PAGE>
(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K
--------------------------------------------------------------------
Exhibit 3(a) Articles of Incorporation are hereby
incorporated by reference to Item 14(a), and
3(i) of the Registrant's Form 10-K, filed with
the SEC on March 14, 1991.
Exhibit 10 Material Contracts, are hereby incorporated by
reference to Items 14(a)(3)(v), (vi) and
(viii) of the Registrant's Form 10-K, filed
with the SEC on March 6, 1984; Item 14(a)(3)
(v) of the Registrant's Form 10-K, filed with
the SEC on February 13, 1985; Item 14(a)(3)
(iv) of the Registrant's Form 10-K, filed with
the SEC on March 11, 1987; Item 20(4.9) of
Registrant's Post-Effective Amendment Number 1
to Form S-8, filed with the SEC on January 20,
1988; Item 2(1) of the Registrant's Form 8-A,
filed with the SEC on December 21, 1988;
Appendix A to the Company's Definitive Proxy
Statement, filed March 23, 1992; Item 10 of
the Registrants Form 8-K, filed on August
25, 1992; and Item 10(a) of the Registrant's
Form 8-K, filed on July 12, 1993.
(ii) Exhibit 10(a) Amended and Restated Management Incentive Plan
(v) Exhibit 11 Computation of per share data
(vi) Exhibit 21, Subsidiaries of the Registrant
(vii) Exhibit 23, Consent of Independent Accountant
(viii) Exhibit 24, Power of Attorney, contained in signature page
<PAGE>
CHECKPOINT SYSTEMS, INC
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
Balance at Balance
Beginning Additions Retirements at End
of Year at Cost or Sales of Year
--------- --------- ----------- -------
(Thousands)
1993 Land $ 892 $ 0 $ - $ 892
Building 9,644 204 115 9,733
Equipment rented to
customers 1,380 4,520 2,164 3,736
Machinery and
equipment 26,541 6,201 1,308 31,434
Leasehold improvements 1,764 192 7 1,949
Leased equipment under
capital leases 15 - - 15
------- ------- ------- -------
$40,236 $12,042 $ 4,519 $47,759
======= ======= ======= =======
1992 Land $ 892 $ - $ - $ 892
Building 9,218 426 - 9,644
Equipment rented
to customer 884 1,383 887 1,380
Machinery and
equipment 21,248 5,383 90 26,541
Leasehold improvements 1,336 482 54 1,764
Lease equipment under
capital leases 18 - 3 15
------- ------- ------- -------
$33,596 $ 7,674 $ 1,034 $40,236
======= ======= ======= =======
1991 Land $ 892 $ - $ - $ 892
Building (1) 9,743 (525) - $ 9,218
Equipment rented to
customers 440 686 242 884
Machinery and
equipment 14,900 6,630 282 21,248
Leasehold improvements 1,730 96 490 1,336
Leased equipment under
capital leases 18 - - 18
------- ------- ------- -------
$27,723 $ 6,887 $ 1,014 $33,596
======= ======= ======= =======
Depreciation is computed on the above assets based on the following
estimated useful lives: building 30 years; equipment rented to customers 3
to 5 years; machinery and equipment 3 to 10 years; leasehold improvements
5 to 10 years; and leased equipment under capital leases 5 to 10 years.
(1) The reduction of $525,000 represents a reclassification to machinery
and equipment previously classified under building.
<PAGE>
CHECKPOINT SYSTEMS, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
Additions
Balance at Charged to Balance
Beginning Costs and Retirements at End
of Year Expenses or Sales of Year
--------- --------- ----------- -------
(Thousands)
1993 Building $ 671 $ 365 $ 33 $ 1,003
Equipment rented to
customers 306 752 352 706
Machinery and
equipment 11,343 3,621 1,064 13,900
Leasehold improvements 919 354 - 1,273
Lease equipment under
capital leases 15 - - 15
------- ------- ------- -------
$13,254 $ 5,092 $ 1,449 $16,897
======= ======= ======= =======
1992 Building $ 307 $ 364 $ - $ 671
Equipment rented
to customer 209 337 240 306
Machinery and
equipment 8,715 2,665 37 11,343
Leasehold improvements 746 173 - 919
Lease equipment under
capital leases 18 - 3 15
------- ------- ------- -------
$ 9,995 $ 3,539 $ 280 $13,254
======= ======= ======= =======
1991 Building $ - $ 307 $ - $ 307
Equipment rented to
customers 111 137 39 209
Machinery and
equipment 6,748 2,169 202 8,715
Leasehold improvements 1,092 144 490 746
Leased equipment under
capital leases 17 1 - 18
------- ------- ------- -------
$ 7,968 $ 2,758 $ 731 $ 9,995
======= ======= ======= =======
<PAGE>
CHECKPOINT SYSTEMS, INC.
SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Year Classification of Year Expenses(1) Year
---- -------------- --------- --------- ---------- ---------
1993 Allowance for
doubtful accounts $ 357 $ 2,166 $ 286 $ 2,237
------- ------- ------- -------
1992 Allowance for
doubtful accounts $ 510 $ 51 $ 204 $ 357
------- ------- ------- -------
1991 Allowance for
doubtful accounts $ 504 $ 236 $ 230 $ 510
------- ------- ------- -------
(1) The addition of $2,166,000 charged to costs and expenses in 1993
includes a provision of $1,646,000 set up by companies acquired.
Schedule IX Short-term Borrowings
1993 1992 1991
---- ---- ----
Category of aggregate
short-term borrowings (1) Bank Facility - Bank Facility
Balance at end of period $2,364,000 - $6,000,000
Weighted average interest
rate 6.90% - 5.56%
Maximum amount outstanding
during the period $2,364,000 - $7,500,000
Average amount outstanding
during the period (2) $1,465,405 - $3,841,111
Weighted average interest
rate during the period (3) 6.90% - 6.51%
(1) Relates to various lines of credit.
(2) Based on a average daily outstanding amount.
(3) Based upon the daily outstanding borrowings multiplied by the interest
rate applicable at that time to achieve a weighted average interest rate
for those borrowings during the period.
<PAGE>
CHECKPOINT SYSTEMS, INC.
Schedule X Supplementary Income Statement Information
1993 1992 1991
------- ------- -------
Royalties $ 1,619 $ 1,279 $ 982
Advertising $ 1,376 $ 1,161 $ 797
Repairs and
Maintenance $ 655 $ 540 $ 550
Depreciation $ 5,092 $ 3,539 $ 2,758
Amortization:
Excess of Purchase
price over fair
value of net
assets acquired $ 421 $ 209 $ 205
Other $ 963 $ 245 $ 95
Amounts otherwise required by rule 12-11 of Regulation S-X are not
presented because they are less than 1% of net revenues or are presented
else in this report.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION PAGE
------- ----------- ----
EXHIBIT 10(a) Amended and Restated Profit Incentive
Plan..............................................51
EXHIBIT 11 Computation of Per Share Data.....................52
EXHIBIT 21 Subsidiaries......................................53
EXHIBIT 23 Consent of Independent Public Accountant..........54
EXHIBIT 24 Power of Attorney, Contained in Signature Page....55
<PAGE>
EXHIBIT 10(a)
CHECKPOINT SYSTEMS, INC.
AMENDED AND RESTATED PROFIT INCENTIVE PLAN
RESOLVED, that the Management Incentive Plan ("MIP") is amended and
restated in its entirety to provide that the revised plan shall be named
the Profit Incentive Plan ("PIP"). The Chief Executive Officer, President
and Chief Operating Officer and all Vice Presidents will participant in
the PIP. Under the PIP, no bonus pool will be created unless pre-tax, pre
bonus earnings exceed 18% of the beginning balance of Shareholders Equity
for the relevant year. If such earnings are attained, a bonus pool will be
created and will be equal to (i) 3% of all pre-tax, pre-bonus earnings in
excess of 18% of the beginning balance of Shareholders Equity, plus (ii)
6% of pre-tax, pre-bonus earnings in excess of 27% of the beginning
balance of Shareholders Equity for the relevant year. Distribution of the
pool, if any, will be as follows: 20% to Mr. Wolf, the Company's Chairman
and Chief Executive Officer; 15% to Mr. Dowd, the Company's President and
Chief Operating Officer; 8% to Mr. Aguilera, the Company's Senior Vice
President - Manufacturing; 8% to Mr. Selfridge, the Company's Senior Vice
President - Operations and Chief Financial Officer; 4% to Mr. Austin, the
Company's Vice President - General Counsel and Secretary, 8% to Mr.
Reilly, the Company's Senior Vice President - Americas' and Pacific Rim;
8% to Mr. Smith, the Company's Senior Vice - Marketing and Western
European Operations; 4% to Mr. Farestad, the Company's Vice President -
Research and Development and 4% to Mr. Cavaliere, the Company's Vice
President - Customer Service and the remaining 21% divided among the
foregoing at the discretion of the Committee.
<PAGE>
EXHIBIT 11
CHECKPOINT SYSTEMS, INC.
COMPUTATION OF PER SHARE DATA
Years Ended
----------------------------------------
December 26, December 27, December 29,
1993 1992 1991
----------- ------------ ------------
(Thousands, except per share data)
Net Earnings $ 1,615 $ 4,428 $ 508
======= ======= =======
Weighted average number of
common and common equivalent
shares outstanding:
Common shares
Shares outstanding at
beginning of year 10,803 10,257 10,223
Shares held in treasury (799) (799) (799)
Shares issued from exercise of
common stock options 153 213 21
Common equivalent shares, based on
assumed exercise of common stock
options 229 280 146
------- ------- -------
10,386 9,951 9,591
======= ======= =======
Net Earnings Per Share $.16 $.45 $.05
======= ======= =======
<PAGE>
EXHIBIT 21
CHECKPOINT SYSTEMS, INC.
SUBSIDIARIES
Checkpoint Systems, Inc. of Puerto Rico, Inc. - Delaware
Checkpoint Caribbean, Inc. - Delaware
Checkpoint FSC, Inc. - Virgin Islands
Electronic Signatures, Inc. - Delaware
Checkpoint International, Inc. - Delaware
Checkpoint Newco Limited - Canada
Checkpoint Canada, Inc. - Canada
Checkpoint Systems, S.A. - Argentina
Neil Acquisition, S.A. - Argentina
Checkpoint de Mexico, S.A. de C.V. - Mexico
Checkpoint Systems Belgium N.V. - Belgium
Checkpoint Systems France SARL - France
Checkpoint Systems Deutschland - Germany
Checkpoint Systems Nederland B.V. - The Netherlands
Checkpoint Holland Holding B.V. - The Netherlands
Checkpoint Holland Trading B.V. - The Netherlands
Checkpoint Systems Europe B.V. - The Netherlands
Checkpoint Systems International B.V. - The Netherlands
Checkpoint Systems Productie B.V. - The Netherlands
Checkpoint Systems Scandinavia A.B. - Sweden
Checkpoint Systems Production A.B. - Sweden
Checkpoint Systems U.K. Limited - United Kingdom
Checkpoint Systems Production U.K. Limited - United Kingdom
Checkpoint Systems Australia PTY LTD - Australia
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
We consent to the incorporation by reference in the registration
statements of Checkpoint Systems, Inc. on Forms S-8, Numbers 33-16721,
29-00025, 33-10211, 29-03376, 33-37996 and 33-49191 of our report dated
March 22, 1994, on our audits of the consolidated financial statements and
financial statement schedules of Checkpoint Systems, Inc. as of December
26, 1993 and December 27, 1992, and for the three years in the period
ended December 26, 1993, which report is included in this Annual Report on
Form 10-K.
COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, PA
March 22, 1994
<PAGE>
EXHIBIT 24
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized in
Thorofare, New Jersey, on March 23, 1994.
CHECKPOINT SYSTEMS, INC.
/s/Albert E. Wolf
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Albert E. Wolf and Steven G.
Selfridge and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution in their place and stead, in any
and all capacities, to sign any and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE
---------
March 23, 1994
/s/ Albert E. Wolf
Chairman of the Board,
Chief Executive Officer,
Director (Principal
Executive Officer)
March 23, 1994
/s/ Steven G. Selfridge
Senior Vice President -
Operations and Chief
Financial Officer,
and Treasurer
March 23, 1994
/s/ Mitchell T. Codkind
Corporate Controller
and Chief Accounting Officer
March 23, 1994
/s/ Richard J. Censits
March 23, 1994
Director
March 23, 1994
/s/ David W. Clark
Director
March 23, 1994
/s/ Jermain B. Porter
Director
March 23,1994
/s/ Albert Soffa
Director
March 23, 1994
/s/ Peter Stern
Director
March 23, 1994
/s/ Roger D. Blackwell
Director
<PAGE>
