FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 25, 1994
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Commission file number 1-11257
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Checkpoint Systems, Inc.
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(Exact name of registrant as specified in its charter)
Pennsylvania 22-1895850
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
550 Grove Road PO 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)
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
--- ---
As of November 1, 1994, there were 10,420,811 shares of the Common
Stock outstanding.
<PAGE>
CHECKPOINT SYSTEMS, INC
FORM 10-Q
INDEX
Page No.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
<PAGE>
CHECKPOINT SYSTEMS, INC
CONSOLIDATED BALANCE SHEETS
September 25, December 26,
1994 1993
------------ ------------
(Unaudited)
(Thousands)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 280 $ _
Accounts receivable, net of allowances
of $1,451,000 and $2,237,000 29,790 24,239
Inventories 28,499 25,450
Other current assets 5,395 5,213
------- -------
Total current assets 63,964 54,902
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization 35,118 30,862
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED 9,617 8,919
INTANGIBLES 5,707 5,098
DEFERRED TAXES, net of valuation allowance 479 479
OTHER ASSETS 5,774 4,739
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TOTAL ASSETS $120,659 $104,999
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 5,504 $ 9,716
Accrued compensation and related taxes 3,243 1,907
Income taxes 1,734 792
Unearned revenues 3,370 2,645
Other current liabilities 6,002 7,761
Short-term borrowings and current portion
of long-term debt 5,530 4,097
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Total current liabilities 25,383 26,918
LONG-TERM DEBT, LESS CURRENT MATURITIES 35,550 24,302
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
11,211,311 and 10,979,198 1,121 1,097
Additional capital 20,860 18,346
Retained earnings 44,261 40,506
Common stock in treasury, at cost,
799,000 shares (5,664) (5,664)
Cumulative foreign currency
translation adjustments (852) (506)
------- -------
TOTAL SHAREHOLDERS' EQUITY 59,726 53,779
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $120,659 $104,999
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter (13 Weeks) Ended Nine Months (39 Weeks)Ended
---------------------------- ----------------------------
September 25, September 26, September 25, September 26,
1994 1993 1994 1993
------------ ------------- ------------ -------------
(Thousands, except per share data)
Net Revenues $33,928 $26,604 $88,807 $64,646
Cost of Revenues 16,905 15,219 45,969 37,681
------ ------ ------ ------
Gross Profit 17,023 11,385 42,838 26,965
Selling, General
& Administrative
Expenses 13,001 11,092 35,946 28,163
------ ------ ------ ------
Operating Income
(Loss) 4,022 293 6,892 (1,198)
Contract settlement
income - - - 3,500
Interest Income 137 51 421 114
Interest Expense 1,040 199 2,063 489
Other Expense 236 - 243 -
------ ------ ------ ------
Earnings Before
Income Taxes 2,883 145 5,007 1,927
Income Taxes 721 33 1,252 424
------ ------ ------ ------
Net Earnings $ 2,162 $ 112 $ 3,755 $ 1,503
====== ====== ====== ======
Net Earnings
Per Share $ .20 $ .01 $ .35 $ .14
====== ====== ====== ======
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Nine Months (39 Weeks) Ended September 25, 1994
--------------------------------------------------
Accumulated
Common Additional Retained Treasury Translation
Stock Capital Earnings Stock Adjustments Total
------ ---------- -------- ------- ----------- -----
(Thousands)
Balance at
Dec. 26, 1993 $ 1,097 $18,346 $40,506 $(5,664) $ (506) $53,779
Net Earnings 3,755 3,755
Exercise of
Stock Options 24 2,514 2,538
Translation
Adjustments (346) (346)
------ ------ ------ ------ ------ ------
Balance at
Sept. 25, 1994 $ 1,121 $20,860 $44,261 $(5,664) $ (852) $59,726
====== ====== ====== ====== ====== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months (39 weeks) Ended
-----------------------------
September 25, September 26,
1994 1993
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(Thousands)
Cash inflow (outflow) from operating activities:
Net earnings $ 3,755 $ 1,503
Adjustments to reconcile net earnings to
net cash used by operating activities:
Net book value of equipment rented
in excess of equipment sold (4,955) (983)
Long-term customer contracts (942) 773
Depreciation and amortization 5,926 4,045
Provision for losses on accounts receivable 341 109
(Increase) decrease in current assets:
Accounts receivable (6,060) (1,321)
Inventories (3,049) 250
Other current assets (182) (2,891)
Increase (decrease) in current liabilities:
Accounts payable (4,387) (3,074)
Accrued compensation and related taxes 1,337 (1,058)
Income taxes 942 (200)
Unearned revenues 724 101
Other current liabilities (2,059) (1,500)
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Net cash used by operating activities (8,609) (4,246)
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Cash inflow (outflow) from investing activities:
Acquisition of property, plant and equipment (3,686) (3,237)
Acquisitions, net of cash acquired - (2,669)
Purchase of customer list - (560)
Other investing activities (2,644) (4,084)
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Net cash used by investing activities (6,330) (10,550)
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Cash inflow (outflow) from financing activities:
Proceeds from stock options 2,538 1,567
Proceeds of debt 16,307 11,259
Payment of debt (3,626) (350)
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Net cash provided by financing activities 15,219 12,476
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Net increase (decrease) in cash and cash
equivalents 280 (2,320)
Cash and cash equivalents:
Beginning of period - 2,320
-------- -------
End of period $ 280 $ -
======== =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF ACCOUNTING
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. The
consolidated financial statements and related notes are unaudited and do
not contain all disclosures required by generally accepted accounting
principles. Refer to the Company's Annual Report Form 10-K for the fiscal
year ended December 26, 1993 for the most recent disclosure of the
Company's accounting policies.
The consolidated financial statements include all adjustments necessary to
present fairly the Company's financial position at September 25, 1994 and
December 26, 1993 and its results of operations and changes in cash flows
for the thirteen and thirty-nine week periods ended September 25, 1994 and
September 26, 1993.
2. INVENTORIES
September 25, December 26,
1994 1993
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(Thousands)
Raw materials $ 5,891 $ 8,256
Work in process 1,064 705
Finished goods 21,544 16,489
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$28,499 $25,450
======= =======
Inventories are stated at the lower of cost (first-in, first-out method)
or market. Cost includes material, labor and applicable overhead.
3. INCOME TAXES
Income taxes are provided for on an interim basis at an estimated
effective annual tax rate on the Company's earnings. Earnings generated
by the operations of the Company's Puerto Rico subsidiary are
substantially exempt from U.S. Federal income taxes under Section 936 of
the Internal Revenue Code and substantially exempt from Puerto Rico income
taxes.
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.
4. PER SHARE DATA
Per share data is based on the weighted average number of common and
common equivalent shares (stock options) outstanding during the periods.
The number of shares used in the per share computations for the thirteen
and thirty-nine week periods ended September 25, 1994 and September 26,
1993 were 10,937,000 and 10,721,000 (1994) and 10,286,000 and 10,386,000
(1993), respectively.
<PAGE>
CHECKPOINT SYSTEMS,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
5. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the thirteen and thirty-nine week periods ended
September 25, 1994 and September 26, 1993, respectively, included interest
payments of $492,000 and $1,388,000 (1994), and $234,000 and $446,000
(1993), and income taxes paid of $1,000 and $125,000 (1994), and $155,000
and $295,000 (1993).
Excluded from the 1994 Consolidated Statements of Cash Flows is a non-cash
activity of $300,000 relating to the acquisition of a licensing agreement
in which the Company recorded the full cost of the agreement and the
associated liability.
In March 1993, the Company purchased all of the capital stock of its
Argentinean distributor for $2,103,000. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired ...................$3,690,000
Cash paid 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. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired ...................$12,316,000
Cash advanced during option period ..............$ 1,290,000
-----------
Liabilities assumed..............................$11,026,000
===========
6. INTANGIBLES
Intangibles consist of patents, licenses, customer lists and software
development costs. The costs relating to the acquisition of patents and
licenses are amortized on a straight-line basis over their economic useful
lives, which is considered to be ten years. Accumulated amortization of
these costs approximated $1,560,000 and $473,000 at September 25, 1994 and
December 26, 1993, respectively.
The cost of internally developed software is expensed until the
technological feasibility of the software has been established.
Thereafter, all additional software development costs are capitalized and
subsequently reported at the lower of unamortized cost or net realizable
value. The cost of capitalized software is amortized over the products'
estimated useful lives or five years, whichever is shorter. For the
thirteen and thirty-nine week periods ended September 25, 1994, $162,000
and $553,000 of software development costs were capitalized, respectively.
Accumulated amortization of these costs approximated $843,000 and $444,000
at September 25, 1994 and December 26, 1993, respectively.
<PAGE>
CHECKPOINT SYSTEMS,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
7. ACQUISITION
On July 8, 1993, the Company purchased all the outstanding capital stock
of ID Systems International B.V. and ID Systems Europe B.V., related Dutch
companies engaged in the manufacture, distribution and sale of security
products and services ("ID Systems Group"). In connection with this
acquisition, the Company filed a Form 8-K with the Securities and Exchange
Commission on July 22, 1993.
The following table represents unaudited pro forma combined results of
operations for the first nine months of 1994 and 1993, as if the
acquisition of the ID Systems Group had occurred at the beginning of 1993.
Other acquisitions made during 1993 were not material to the 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:
Nine Months (39 weeks) Ended
-----------------------------
September 25, September 26,
1994 1993
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(Thousands, except per share data)
Net revenues.................................$88,807 $71,038
Net earnings (loss)..........................$ 3,755 $(4,522)
Earnings (loss) per common share.............$ .35 $ (.43)
8. ACCOUNTING FOR FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The 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 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.
9. SUBSEQUENT EVENT
On October 20, 1994, the Company signed a letter of intent to acquire all
of the issued and outstanding capital stock of Alarmex, Inc. and its
related company Bayport Controls, Inc, (together "Alarmex"), a privately-
held CCTV manufacturer based in Eden Prairie, Minnesota for $12.5 million
($10 million in cash and the balance in shares of the Company's common
stock). The acquisition is subject to fulfillment of a number of terms
and conditions including execution of a definitive legally binding
agreement containing representations, warranties and covenants and
conditions as are normal and customary in transactions of this type.
Alarmex designs, manufactures, installs and services a broad line of
closed circuit television (CCTV) and point-of-sale exception monitoring
systems for customized applications. The Company anticipates consummating
the transaction in the first quarter of 1995.
<PAGE>
CHECKPOINT SYSTEMS,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
10. CONTINGENCIES
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
approximately $2,000,000 in patent defense costs, which is included in
"Intangibles". The Company filed a Notice of Appeal with the United
States Court of Appeals for the Federal Circuit on May 6, 1994. 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. Such an event
could impact the Company's ability to meet its financial covenant relating
to net earnings under several loan agreements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash and cash equivalents increased during the first nine months of 1994
from zero to a balance of $280,000 primarily due to financing activities
offset by operating and investing activities. 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
this report. Below is a discussion that further enhances the Statements
of Cash Flows.
Receivables under long term customer contracts increased $942,000 during
the first nine months of 1994 compared to a decrease of $773,000 in the
same period last year as a result of several retailers installing the
Company's equipment chain-wide in 1994.
Depreciation and amortization increased $1,881,000 during the first nine
months of 1994 compared to the same period last year ($5,926,000 versus
$4,045,000). Depreciation increased principally as a result of
investments in manufacturing equipment and management information systems.
Increases in amortization resulted from various purchased intangibles,
including software development cost and the cost of patents, licenses, and
trademarks, and the purchase of a customer list. In addition,
acquisitions made in 1993 have increased amortization expense due to
excess of purchase price over fair value of net assets acquired on such
acquisitions.
Accounts receivable increased $6,060,000 resulting from record revenues
posted in the first nine months, representing a 37% increase in revenues
compared to the first nine months of 1993.
Property, plant and equipment expenditures increased during the first nine
months of 1994 compared to the same period last year ($3,686,000 versus
$3,237,000). The expenditures for 1994 include the purchase of equipment
for the Company's research and development activities, information systems
to support international growth, and expansion of manufacturing equipment
for the Electronic SignaturesR facilities in Puerto Rico and the
Caribbean.
Inventories increased $3,049,000 as a result of anticipated product demand
for the remainder of the year in addition to expansion of the Company's
product offerings.
Other investing activities amounting to $2,644,000 resulted from
additional contractual purchase price payments made to the former owners
of the Company's Argentine subsidiary, the purchase of a licensing
agreement relating to fluid tags, further capitalization of software
development costs net of amortization incurred, purchases of product
licenses, and increased lease receivables.
As of September 25, 1994, the current ratio was 2.5 to 1. The quick ratio
was 1.2 to 1. The debt-to-equity ratio was 1.0 to 1. During the first
quarter of 1994, the Company completed a private placement debt funding of
$12,000,000. A significant portion of the proceeds were used to pay down
existing debt under the Company's long-term revolving credit facility. The
remaining proceeds were used for general corporate purposes. Management
continues to evaluate additional funding options in order to support
continuing worldwide growth. The Company has never paid a cash dividend
and has no plans to do so in the foreseeable future.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
------------------------------------------
On October 20, 1994, the Company signed a letter of intent to acquire all
of the issued and outstanding capital stock of Alarmex, Inc. and its
related company Bayport Controls, Inc, (together "Alarmex"), a privately-
held CCTV manufacturer based in Eden Prairie, Minnesota for $12.5 million
($10 million in cash and the balance in shares of the Company's common
stock). The acquisition is subject to fulfillment of a number of terms
and conditions including execution of a definitive legally binding
agreement containing representations, warranties and covenants and
conditions as are normal and customary in transactions of this type.
Alarmex designs, manufactures, installs and services a broad line of
closed circuit television (CCTV) and point-of-sale exception monitoring
systems for customized applications. The Company anticipates consummating
the transaction in the first quarter of 1995.
Results of Operations
---------------------
The following discussion represents the analysis by the Company's
management of the results of operations for the quarter and nine months
ended September 25, 1994.
Third Quarter 1994 Compared to Third Quarter 1993
-------------------------------------------------
Overview
Net revenues increased by approximately $7.3 million over the comparable
prior period in fiscal year 1993. Continued improvements in the cost of
revenues as a percentage of net revenues resulted in a significant
increase in incremental gross profit dollars from that obtained in the
comparable period in fiscal year 1993. This improvement was driven
primarily by increased efficiencies in manufacturing (achieved through (i)
closure of a high cost European manufacturing operation and (ii)
improvement in manufacturing efficiencies of existing as well as newer
generation products introduced in fiscal year 1993) and higher unit
volumes in Europe as Company-sponsored direct sales activities produced
anticipated results. These factors combined to produce operating income
of approximately $4.0 million during the period compared $.3 million in
1993.
Net Revenues
Net revenues increased $7.3 million (or 27.5%) over the same period in
fiscal 1993 (from $26.6 million to $33.9 million). Domestic and foreign
net revenues accounted for approximately 62.7% and 37.3%, respectively, of
total net revenues compared to 69.4% and 30.6% for the prior year.
Domestic EAS net revenues increased $2.7 million (or 16.0%) as a result of
(i) increased unit sales, (ii) higher prices and, (iii) increases in
recurring service revenues. International EAS net revenues increased $4.5
million (or 55.4%) primarily as a result of higher volumes generated by
direct sales.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Third Quarter 1994 Compared to Third Quarter 1993 (continued)
-------------------------------------------------
Cost of Revenues
Cost of revenues increased $1.7 million (or 11.1%) over the same period in
fiscal year 1993 (from $15.2 million to $16.9 million). As a percent of
net revenues, however, costs of revenues decreased 7.4% (from 57.2% to
49.8%) compared to 1993 primarily due to (i) increased production volumes
combined with greater manufacturing efficiencies (ii) the relocation of
European production into lower cost Caribbean based operations, (iii)
increased manufacturing efficiencies of existing as well as newer
generation products introduced in fiscal year 1993 and (iv) little or no
increase in development expense in dollars.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1.9 million (or
17.1%) over 1993 (from $11.1 million to $13.0 million). As a percentage
of net revenues, however, selling, general and administrative expenses
decreased by 3.4% (from 41.7% to 38.3%). The higher expenses (in dollars)
were due to increases in variable selling, general and administrative
expenses resulting from greater domestic sales and (ii) increases in
variable selling, general and administrative expense from the Company's
foreign subsidiaries which also experienced greater sales.
Income Taxes
The income tax rate is based on an estimated annual tax rate of 25%.
The current quarter's rate is higher than the 22% rate used in the prior
year's third quarter as a result of the projected impact of foreign
taxable earnings which are currently taxed at higher than domestic
earnings.
Net Earnings
Net earnings were $2.2 million or $.20 per share versus $.1 million or
$.01 per share for the same period in fiscal 1993.
First Nine Months of 1994 Compared to First Nine Months of 1993
---------------------------------------------------------------
Overview
In the first nine months of 1994, the Company began to realize the full
impact of acquisitions completed and new products introduced in 1993.
Net revenues increased by approximately $24.2 million over the comparable
prior period in fiscal year 1993. Continued improvements in the cost of
revenues as a pecentage of net revenues resulted in a significant increase
in incremental gross profit dollars from that obtained in the comparable
period in fiscal year 1993. This improvement was driven primarily by
increased efficiencies in manufacturing (achieved through (i) closure of a
high cost European manufacturing operation and (ii) improvements in
manufacturing efficiencies of existing as well as newer generation
products introduced in fiscal year 1993) and higher unit volumes in Europe
as Company-sponsored direct sales activities produced anticipated results.
These factors combined to produce operating income of approximately $6.9
million during the period compared to a loss of $1.2 million in 1993.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
First Nine Months of 1994 Compared to First Nine Months of 1993 (con't)
----------------------------------------------------------------------
Net Revenues
Net revenues increased $24.2 million (or 37.4%) over the same period in
fiscal year 1993 (from $64.6 million to $88.8 million). Domestic and
foreign net revenues accounted for approximately 60.8% and 39.2%,
respectively, of total net revenues compared to 67.7% and 32.3% for the
prior year. Domestic EAS net revenues increased $9.6 million (or 23.7%)
primarily as result of increased unit sales. Higher prices and increases
in recurring service revenues also contributed to the increase.
International EAS net revenues increased $13.9 million (or 66.6%)
primarily as a result of higher prices generated by direct sales. Higher
unit volumes and prices on reusable tags together with higher prices
across other major product lines accounted for most of the increase.
Selling prices were favorably impacted by direct sales as opposed to
selling through distributors.
Cost of Revenues
Cost of revenues increased $8.3 million (or 22.0%) over the same period in
fiscal year 1993 (from $37.7 million to $46.0 million). As a percent of
net revenues, however, costs of revenues decreased 6.5% (from 58.3% to
51.8%) compared to 1993 primarily due to (i) increased production volumes
combined with greater manufacturing efficiencies, (ii) the relocation of
European production into lower cost Caribbean based operations, (iii)
increased manufacturing efficiencies of existing as well as newer
generation products introduced in fiscal year 1993 and (iv) little or no
increase in development expense in dollars.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $7.8 million (or
27.6%) over the same period in fiscal year 1993 (from $28.2 million to
$36.0 million). As a percentage of net revenues, however, selling,
general and administrative expenses, decreased by 3.1% (from 43.6% to
40.5%). The higher expenses (in dollars) were due to (i) increases in
variable selling expenses resulting from greater domestic sales and (ii)
increases in selling, general and administrative expense resulting from
the acquisitions made in 1993.
Income Taxes
The income tax rate is based on an estimated annual tax rate of 25%. This
rate is higher that the 22% used during the first nine months of 1993 as a
result of the projected impact of foreign taxable earnings which are
currently taxed at a higher rate that domestic earnings.
Net Earnings
Net earnings were $3.8 million or $.35 per share versus $1.5 million or
$.14 per share for the same period in fiscal 1993. These results for the
first nine months in fiscal year 1993, however, include a one time benefit
of $3.5 million ($2.7 million after tax) from a contract settlement with
the Company's former exclusive distributor for Western Europe. The
Company's results in the first nine months of fiscal year 1993 were
adversely affected by a difficult transition from distribution through
independent distributors to direct sales and introduction of new products
with related start-up problems.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Refer to the Company's Form 10-Q for the fiscal quarter ended June 26,
1994.
Item 5. Other Information
On October 20, 1994, the Company signed a letter of intent to acquire all
of the issued and outstanding capital stock of Alarmex, Inc. and its
related company Bayport Controls, Inc, (together "Alarmex"), a privately-
held CCTV manufacturer based in Eden Prairie, Minnesota for $12.5 million
($10 million in cash and the balance in shares of the Company's common
stock). The acquisition is subject to fulfillment of a number of terms
and conditions including execution of a definitive legally binding
agreement containing representations, warranties and covenants and
conditions as are normal and customary in transactions of this type.
Alarmex designs, manufactures, installs and services a broad line of
closed circuit television (CCTV) and point-of-sale exception monitoring
systems for customized applications. The Company anticipates consummating
the transaction in the first quarter of 1995.
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K have been filed during the third quarter of
1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 3, 1994
CHECKPOINT SYSTEMS, INC.
Steven G. Selfridge
Senior Vice President - Operations,
Chief Financial Officer and Treasurer
November 3, 1994
Mitchell T. Codkind
Corporate Controller and
Chief Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1994
<PERIOD-END> SEP-25-1994
<CASH> 280,000
<SECURITIES> 0
<RECEIVABLES> 31,241,000
<ALLOWANCES> 1,451,000
<INVENTORY> 28,499,000
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0
0
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<EPS-PRIMARY> .35
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</TABLE>
